N.M. Admin. Code § 13.9.21.11

Current through Register Vol. 35, No. 21, November 5, 2024

Section 13.9.21.11 - REQUIREMENTS APPLICABLE TO COVERED POLICIES TO OBTAIN CREDIT FOR REINSURANCE; OPPORTUNITY FOR REMEDIATION

A.Requirements: Subject to the exemptions described in 13.9.21.13 NMAC and the provisions of Subsection B of 13.9.21.11 NMAC, credit for reinsurance shall be allowed with respect to ceded liabilities pertaining to covered policies pursuant to Sections 59A-12E-3 through -15 NMSA 1978 or Section 59A-12E-16 NMSA 1978 if, and only if, in addition to all other requirements imposed by law or regulation, the following requirements are met on a treaty-by-treaty basis:

(1) The ceding insurer's statutory policy reserves with respect to the covered policies must be established in full and in accordance with the applicable requirements of Sections 59A-8A-1 through -12 NMSA and related regulations and actuarial guidelines, and credit claimed for any reinsurance treaty subject to this regulation must not exceed the proportionate share of those reserves ceded under the contract.

(2) The ceding insurer must determine the required level of primary security with respect to each reinsurance treaty subject to this regulation and provide support for its calculation as determined to be acceptable to the superintendent.

(3) Funds consisting of primary security, in an amount at least equal to the required level of primary security, must be held by or on behalf of the ceding insurer, as security under the reinsurance treaty within the meaning of Section 59A-12E-16 NMSA 1978, on a funds withheld, trust, or modified coinsurance basis; and

(4) funds consisting of other security, in an amount at least equal to any portion of the statutory reserves as to which Primary Security is not held pursuant to Paragraph (3) above, must be held by or on behalf of the ceding insurer as security under the reinsurance treaty within the meaning of Section 59A-12E-16 NMSA..

(5) Any trust used to satisfy the requirements of this section shall comply with all of the conditions and qualifications of 13.2.8.19 NMAC through 13.2.8.23 NMAC, except that:

(a) funds consisting of primary security or other security held in trust, shall for the purposes identified in 13.9.21.10 NMAC, be valued according to the valuation rules set forth in that Section, as applicable; and

(b) there are no affiliate investment limitations with respect to any security held in such trust if such security is not needed to satisfy the requirements of Paragraph (3) of Subsection A of 13.9.21.11 NMAC; and

(c) the reinsurance treaty must prohibit withdrawals or substitutions of trust assets that would leave the fair market value of the primary security within the trust (when aggregated with primary security outside the trust that is held by or on behalf of the ceding insurer in the manner required by Paragraph (3) of Subsection A of 13.9.21.11 NMAC below one hundred two percent of the level required by Paragraph (3) of Subsection A of 13.9.21.11 NMAC at the time of the withdrawal or substitution; and

(d) The determination of reserve credit under 13.2.8.22 NMAC shall be determined according to the valuation rules set forth in 13.9.21.10 NMAC, as applicable.

(6) The reinsurance treaty must be approved by the superintendent.

B.Requirements at inception date and on an on-going basis; Remediation

(1) The requirements of Subsection A of 13.9.21.11 NMAC must be satisfied as of the date that risks under covered policies are ceded (if such date is on or after the effective date of this regulation) and on an ongoing basis thereafter. Under no circumstances shall a ceding insurer take or consent to any action or series of actions that would result in a deficiency under Paragraph (3) of Subsection A of 13.9.21.11 NMAC or Paragraph (4) of Subsection A of 13.9.21.11 NMAC with respect to any reinsurance treaty under which covered policies have been ceded, and in the event that a ceding insurer becomes aware at any time that such a deficiency exists, it shall use its best efforts to arrange for the deficiency to be eliminated as expeditiously as possible.

(2) Prior to the due date of each Quarterly or Annual Statement, each life insurance company that has ceded reinsurance within the scope of 13.9.21.2 NMAC shall perform an analysis, on a treaty-by-treaty basis, to determine, as to each reinsurance treaty under which covered policies have been ceded, whether as of the end of the immediately preceding calendar quarter (the valuation date) the requirements of Paragraph (3) of Subsection A of 13.9.21.11 NMAC and Paragraph (4) of Subsection A of 13.9.21.11 NMAC were satisfied. The ceding insurer shall establish a liability equal to the excess of the credit for reinsurance taken over the amount of primary security actually held pursuant to Paragraph 3 of Subsection A of 13.9.21.11 NMAC, unless either:

(a) The requirements of Paragraphs (3) and (4) of Subsection A of 3.9.21.11 NMAC were fully satisfied as of the valuation date as to such reinsurance treaty; or

(b) Any deficiency has been eliminated before the due date of the Quarterly or Annual Statement to which the valuation date relates through the addition of primary security, other security, or both as the case may be, in such amount and in such form as would have caused the requirements of Paragraphs (3) and (4) of 13.9.21.11 NMAC to be fully satisfied as of the valuation date.

(3) Nothing in Paragraph (2) of Subsection B of 13.9.21.11 NMAC shall be construed to allow a ceding company to maintain any deficiency under Paragraphs (3) or (4) of 13.9.21.11 NMAC for any period of time longer than is reasonably necessary to eliminate it.

N.M. Admin. Code § 13.9.21.11

Adopted by New Mexico Register, Volume XXXIV, Issue 18, September 26, 2023, eff. 11/1/2023