rules of department of insurance, financial institutions ...€¦ · title 20—department of...

CODE OF STATE REGULATIONS 1JASON KANDER (2/28/14)Secretary of State

Rules of

Department of Insurance, Financial Institutions and Professional Registration

Division 200—Insurance Solvency and CompanyRegulation

Chapter 2—Reinsurance and Assumptions

Title Page

20 CSR 200-2.100 Credit for Reinsurance.........................................................................3

20 CSR 200-2.200 Reinsurance—Lloyd’s, London, England..................................................39

20 CSR 200-2.300 Life Reinsurance Agreements ...............................................................39

20 CSR 200-2.400 Insurance, Reinsurance and Assumption (Rescinded September 30, 1994) .........41

20 CSR 200-2.500 Reinsurance Requiring Three-Commissioner Hearing(Rescinded September 30, 1994) .........................................................41

20 CSR 200-2.600 Reinsurance Intermediary License (Moved to 20 CSR 700-7.100) ...................41

20 CSR 200-2.700 Reinsurance Mirror Image Rule ............................................................41

20 CSR 200-2.800 Assumption Reinsurance .....................................................................42

Title 20—DEPARTMENT OFINSURANCE, FINANCIAL

INSTITUTIONS ANDPROFESSIONAL REGISTRATIONDivision 200—Insurance Solvency and

Company RegulationChapter 2—Reinsurance and

Assumptions

20 CSR 200-2.100 Credit for Reinsurance

PURPOSE: This rule sets forth rules and pro-cedural requirements which the directordeems necessary to carry out the provisionsof the Law on Credit Reinsurance, section375.246, RSMo. The actions and informationrequired by this rule are declared to be nec-essary and appropriate in the public interestand for the protection of the ceding insurersin this state.

(1) If any provision of this rule, or the appli-cation of the provision to any person or cir-cumstance, is held invalid, the remainder ofthis rule, and the application of the provisionto persons or circumstances other than thoseto which it is held invalid, shall not be affect-ed.

(2) Credit for Reinsurance—Reinsurer Licen-sed in this State. Pursuant to section375.246.1(1), RSMo, the director shall allowcredit for reinsurance ceded by a domesticinsurer to an assuming insurer that waslicensed in this state as of any date on whichstatutory financial statement credit for rein-surance is claimed. For purposes of this rule,an insurer whose certificate of authority hasbeen suspended or revoked for one (1) ormore of the grounds set forth in section375.881.1(1), (2), or (3), RSMo, shall bedeemed not licensed in this state.

(3) Credit for Reinsurance—Accredited Rein-surers.

(A) Pursuant to section 375.246.1(2),RSMo, the director shall allow credit forreinsurance ceded by a domestic insurer to anassuming insurer that is accredited as a rein-surer in this state as of the date on whichstatutory financial statement credit for rein-surance is claimed. An accredited reinsurermust—

1. File with the director the following:A. A properly executed Reinsurer

Application, the form of which is set forth asExhibit 1 of this rule, included herein, revisedDecember 10, 2013, or any form which sub-stantially comports with the specified form;

B. A certified copy of a certificate ofauthority or other acceptable evidence that itis licensed to transact insurance or reinsur-

ance in at least one (1) state or, in the case ofa United States branch of an alien assuminginsurer, is entered through and licensed totransact insurance or reinsurance in at leastone (1) state;

C. A properly executed appointmentof the director to acknowledge or receive ser-vice of process, the form of which is set forthas Exhibit 2 of this rule included herein,revised September 23, 2013, or any formwhich substantially comports with the speci-fied form;

D. A properly executed Certificate ofAssuming Insurer (Form AR-1), which is setforth as Exhibit 3 of this rule included here-in, revised September 23, 2013, or any formwhich substantially comports with the speci-fied form, as evidence of its submission tothis state’s jurisdiction and to this state’sauthority to examine its books and records;

E. A copy of its articles of incorpora-tion or association, as amended, duly certi-fied by the proper officer of the state underwhose laws it is organized or incorporated;

F. A copy of its bylaws, certified by itssecretary;

G. The National Association of Insur-ance Commissioner (NAIC) Uniform Certifi-cate of Authority Application (UCAA) Form11 Biographical Affidavit, the form of whichis included herein as Exhibit 4 of this rule,revised September 23, 2013, or any formwhich substantially comports with the speci-fied form; and

H. A copy of the registration state-ment of any holding company system if it is amember of such a system.

2. File annually with the director a copyof its annual statement filed with the insur-ance department of its state of domicile or, inthe case of an alien assuming insurer, withthe state through which it is entered and inwhich it is licensed to transact insurance orreinsurance, and a copy of its most recentaudited financial statement.

3. Include, with the documents requiredto be filed under the preceding provisions ofsection (3) of this rule, the appropriate filingfees as set forth in section 374.230, RSMo;and

4. Maintain a surplus as regards policy-holders in an amount not less than twenty(20) million dollars, or obtain the affirmativeapproval of the director upon a finding that ithas adequate financial capacity to meet itsreinsurance obligations and is otherwise qual-ified to assume reinsurance from domesticinsurers.

(B) If the director determines that theassuming insurer has failed to meet or main-tain any of these qualifications, the directormay, upon written notice and opportunity for

a hearing, suspend or revoke the accredita-tion. Credit shall not be allowed a domesticceding insurer under section (3) of this rule,if the assuming insurer’s accreditation hasbeen revoked by the director, or if the rein-surance was ceded while the assuming insur-er’s accreditation was under suspension bythe director.

(4) Credit for Reinsurance—Reinsurer Domi-ciled in Another State.

(A) Pursuant to section 375.246.1(3),RSMo, the director shall allow credit forreinsurance ceded by a domestic insurer to anassuming insurer that as of any date on whichstatutory financial statement credit for rein-surance is claimed—

1. Files with the director—A. A properly executed Reinsurer

Application, the form of which is set forth asExhibit 1 of this rule, included herein, revisedDecember 10, 2013, or any form which sub-stantially comports with the specified form;

B. A properly executed appointmentof the director to acknowledge or receive ser-vice of process, the form of which is set forthas Exhibit 2 of this rule, included herein,revised September 23, 2013, or any formwhich substantially comports with the speci-fied form; and

C. A properly executed Form AR-2,the form of which is included herein asExhibit 5 of this rule, revised September 23,2013, or any form which substantially com-ports with the specified form, as evidence ofits submission to this state’s authority toexamine its books and records.

2. Files with the director in addition toits initial filing, and annually after that, priorto March 1 of each year, a certified copy ofthe annual statement it has filed with theinsurance department of its state of domicileor, in the case of an alien assuming insurer,with the state through which it is entered andin which it is licensed to transact insurance orreinsurance, including an actuarial certifica-tion and management discussion and analysisrequired as part of the NAIC annual state-ment requirements;

3. Is domiciled in or, in the case of aUnited States branch of an alien assuminginsurer, is entered through a state thatemploys standards regarding credit for rein-surance substantially similar to those applica-ble under section 375.246, RSMo (the Act)and this rule;

4. Includes with the documents requiredto be filed under preceding provisions of sec-tion (4) of this rule, the appropriate filingfees as set forth in section 374.230, RSMo;and


Chapter 2—Reinsurance and Assumptions 20 CSR 200-2

5. Maintains a surplus as regards poli-cyholders in an amount not less than twenty(20) million dollars.

(B) The provisions of section (4) of this rulerelating to surplus as regards policyholdersshall not apply to reinsurance ceded andassumed pursuant to pooling arrangementsamong insurers in the same holding companysystem. As used in this section, “substantiallysimilar” standards means credit for reinsur-ance standards that the director determinesequal or exceed the standards of ReinsuranceModel Act (the Act) and this rule.

(5) Credit for Reinsurance—Reinsurers Main-taining Trust Funds.

(A) Pursuant to section 375.246.1(4),RSMo, the director shall allow credit for rein-surance ceded by a domestic insurer to anassuming insurer which, as of any date onwhich statutory financial statement credit forreinsurance is claimed, and thereafter for solong as credit for reinsurance is claimed andtherefore for so long as credit for reinsuranceis claimed, maintains a trust fund in anamount prescribed in this rule in a qualifiedUnited States financial institution as definedin section 375.246.3(2), RSMo, for the pay-ment of the valid claims of its United Statesdomiciled ceding insurers, their assigns andsuccessors in interest. The assuming insurershall report annually to the director substan-tially the same information as that required tobe reported on the NAIC annual statementform by licensed insurers, to enable the direc-tor to determine the sufficiency of the trustfund.

(B) The following requirements apply tothe following categories of assuming insurer:

1. The trust fund for a single assuminginsurer shall consist of funds in trust in anamount not less than the assuming insurer’sliabilities attributable to reinsurance ceded byUnited States domiciled insurers, and in addi-tion, the assuming insurer shall maintain atrusteed surplus of not less than twenty (20)million dollars, except as provided in para-graph (5)(B)2. of this rule;

2. At any time after the assuming insur-er has permanently discontinued underwrit-ing new business secured by the trust for atleast three (3) full years, the director withprincipal regulatory oversight of the trustmay authorize a reduction in the requiredtrusteed surplus, but only after a finding,based on an assessment of the risk, that thenew required surplus level is adequate for theprotection of United States ceding insurers,policyholders, and claimants in light of rea-sonably foreseeable adverse loss develop-ment. The risk assessment may involve anactuarial review, including an independent

analysis of reserves and cash flows, and shallconsider all material risk factors, including,when applicable, the lines of businessinvolved, the stability of the incurred lossestimates and the effect of the surplusrequirements on the assuming insurer’s liq-uidity or solvency. The minimum requiredtrusteed surplus may not be reduced to anamount less than thirty percent (30%) of theassuming insurer’s liabilities attributable toreinsurance ceded by United States cedinginsurers covered by the trust.

3. The trust fund for a group includingincorporated and individual unincorporatedunderwriters shall consist of:

A. For reinsurance ceded under rein-surance agreements with an inception,amendment, or renewal date on or after Jan-uary 1, 1993, funds in trust in an amount notless than the respective underwriters’ severalliabilities attributable to business ceded byUnited States domiciled ceding insurers toany underwriter of the group;

B. For reinsurance ceded under rein-surance agreements with an inception date onor before December 31, 1992, and notamended or renewed after that date, notwith-standing the other provisions of this rule,funds in trust in an amount not less than therespective underwriters’ several insuranceand reinsurance liabilities attributable to busi-ness written in the United States; and

C. In addition to these trusts, thegroup shall maintain a trusteed surplus ofwhich one-hundred (100) million dollars shallbe held jointly for the benefit of the UnitedStates domiciled ceding insurers of any mem-ber of the group for all the years of theaccount.

4. The incorporated members of thegroup shall not be engaged in any businessother than underwriting as a member of thegroup and shall be subject to the same levelof regulation and solvency control by thegroup’s domiciliary regulator as are the unin-corporated members. The group shall, withinninety (90) days after its financial statementsare due to be filed with the group’s domicil-iary regulator, provide to the director—

A. An annual certification by thegroup’s domiciliary regulator of the solvencyof each underwriter member of the group; or

B. If a certification is unavailable, afinancial statement, prepared by independentpublic accountants, of each underwritermember of the group.

5. The trust fund for a group of incor-porated insurers under common administra-tion, whose members possess aggregate poli-cyholders’ surplus of ten (10) billion dollars(calculated and reported in substantially thesame manner as prescribed by the annual

statement instructions and Accounting Prac-tices and Procedures Manual of the NAIC)and which has continuously transacted aninsurance business outside the United Statesfor at least three (3) years immediately priorto making application for accreditation,shall—

A. Consist of funds in trust in anamount not less than the assuming insurer’sseveral liabilities attributable to businessceded by United States domiciled cedinginsurers to any members of the group pur-suant to reinsurance contracts issued in thename of such group;

B. Maintain a joint trusteed surplus ofwhich one hundred (100) million dollars shallbe held jointly for the benefit of United Statesdomiciled ceding insurers of any member ofthe group; and

C. File with the director the followingforms:

(I) A Reinsurer Application, theform of which is included herein as Exhibit 1of this rule, revised December 10, 2013, orany form which substantially comports withthe specified form;

(II) A properly executed Form AR-1 the form of which is included herein asExhibit 3 of this rule, revised September 23,2013, or any form which substantially com-ports with the specified form, as evidence ofthe submission to this state’s authority toexamine the books and records of any of itsmembers and shall certify that any memberexamined will bear the expense of any exam-ination; and

(III) Includes with the documentsrequired to be filed under preceding provisionsof section (5) of this rule the appropriate filingfees as set forth in section 374.230, RSMo.

D. Within ninety (90) days after thestatements are due to be filed with thegroup’s domiciliary regulator, the group shallfile with the director an annual certificationof each underwriter member’s solvency bythe member’s domiciliary regulators, andfinancial statements, prepared by independentpublic accountants, of each underwritermember of the group.

(C) Trust Instrument.1. Credit for reinsurance shall not be

granted unless the form of the trust and anyamendments to the trust have been approvedby either the director or commissioner of thestate where the trust is domiciled or the direc-tor or commissioner of another state who,pursuant to the terms of the trust instrument,has accepted responsibility for regulatoryoversight of the trust. The form of the trustand any trust amendments also shall be filedwith the director or commissioner of everystate in which the ceding insurer beneficiaries

4 CODE OF STATE REGULATIONS (2/28/14) JASON KANDER

Secretary of State

20 CSR 200-2—DEPARTMENT OF INSURANCE,FINANCIAL INSTITUTIONS AND Division 200—Insurance Solvency and

PROFESSIONAL REGISTRATION Company Regulation

of the trust are domiciled. The trust instru-ment shall provide that—

A. Contested claims shall be validand enforceable out of funds in trust to theextent remaining unsatisfied thirty (30) daysafter entry of the final order of any court ofcompetent jurisdiction in the United States;

B. Legal title to the assets of the trustshall be vested in the trustee for the benefit ofthe grantor’s United States ceding insurers,their assigns and successors in interest;

C. The trust shall be subject to exam-ination as determined by the director;

D. The trust shall remain in effect foras long as the assuming insurer, or any mem-ber or former member of a group of insurers,shall have outstanding obligations under rein-surance agreements subject to the trust; and

E. No later than February 28 of eachyear, the trustees of the trust shall report tothe director in writing setting forth the bal-ance in the trust and listing the trust’s invest-ments at the preceding year-end, and shallcertify the date of termination of the trust, ifso planned, or certify that the trust shall notexpire prior to the following December 31.

2. Trust Assets.A. Notwithstanding any other provi-

sions in the trust instrument, if the trust fundis inadequate because it contains an amountless than the amount required by subparagraph(5)(C)2.A. of this rule, or if the grantor of thetrust has been declared insolvent or placedinto receivership, rehabilitation, liquidation,or similar proceedings under the laws of itsstate or country of domicile, the trustee shallcomply with an order of the director with reg-ulatory oversight over the trust or with anorder of a court of competent jurisdictiondirecting the trustee to transfer to the directorwith regulatory oversight over the trust orother designated receiver all of the assets ofthe trust fund.

B. The assets shall be distributed byand claims shall be filed with and valued bythe director with regulatory oversight over thetrust in accordance with the laws of the statein which the trust is domiciled applicable tothe liquidation of domestic insurance compa-nies.

C. If the director with regulatoryoversight over the trust determines that theassets of the trust fund or any part thereof arenot necessary to satisfy the claims of theUnited States beneficiaries of the trust, thedirector with regulatory oversight over thetrust shall return the assets, or any part there-of, to the trustee for distribution in accor-dance with the trust agreement.

D. The grantor shall waive any rightotherwise available to it under United Stateslaw that is inconsistent with this provision.

(D) For purposes of this subsection, theterm “liabilities” shall mean the assuminginsurer’s gross liabilities attributable to rein-surance ceded by United States domiciledinsurers excluding liabilities that are other-wise secured by acceptable means, and, shallinclude:

1. For business ceded by domestic insur-ers authorized to write accident and health,and property and casualty insurance—

A. Losses and allocated loss expensespaid by the ceding insurer, recoverable fromthe assuming insurer;

B. Reserves for losses reported andoutstanding;

C. Reserves for losses incurred butnot reported;

D. Reserves for allocated loss expens-es; and

E. Unearned premiums.2. For business ceded by domestic insur-

ers authorized to write life, health, and annu-ity insurance—

A. Aggregate reserves for life policiesand contracts net of policy loans and net dueand deferred premiums;

B. Aggregate reserves for accidentand health policies;

C. Deposit funds and other liabilitieswithout life or disability contingencies; and

D. Liabilities for policy and contractclaims.

(E) Assets deposited in trusts establishedpursuant to section 375.246.1, RSMo, of thisrule shall be valued according to their currentfair market value and shall consist only of cashin United States dollars, certificates of depositissued by a United States financial institutionas defined in section 375.246.3(1), RSMo,clean, irrevocable, unconditional, and “ever-green” letters of credit issued or confirmed bya qualified United States financial institution,as defined in section 375.246.3(1), RSMo,and investments of the type specified in sub-section (5)(E) of this rule, but investments inor issued by an entity controlling, controlledby or under common control with either thegrantor or beneficiary of the trust shall notexceed five percent (5%) of total investments.No more than twenty percent (20%) of thetotal of the investments in the trust may beforeign investments authorized under para-graphs (5)(E)1., (5)(E)3., subparagraph(5)(E)6.B., or paragraph (5)(E)7. of this rule,and no more than ten percent (10%) of thetotal of the investments in the trust may besecurities denominated in foreign currencies.For purposes of applying the preceding sen-tence, a depository receipt denominated inUnited States dollars and representing rightsconferred by a foreign security shall be clas-sified as a foreign investment denominated in

a foreign currency. The assets of a trust estab-lished to satisfy the requirements of section375.246.1(4), RSMo, shall be invested onlyas follows:

1. Government obligations that are notin default as to principal or interest, that arevalid and legally authorized and that areissued, assumed, or guaranteed by—

A. The United States or by any agen-cy or instrumentality of the United States;

B. A state of the United States;C. A territory, possession, or other

governmental unit of the United States;D. An agency or instrumentality of a

governmental unit referred to in subpara-graphs (5)(E)1.B. and C. of this rule if theobligations shall be by law (statutory or oth-erwise) payable, as to both principal andinterest, from taxes levied or by law requiredto be levied or from adequate special rev-enues pledged or otherwise appropriated orby law required to be provided for makingthese payments, but shall not be obligationseligible for investment under subparagraph(5)(E)1.D. of this rule, if payable solely outof special assessments on properties benefit-ed by local improvements; or

E. The government of any other coun-try that is a member of the Organization forEconomic Cooperation and Development andwhose government obligations are rated A orhigher, or the equivalent, by a rating agencyrecognized by the Securities Valuation Officeof the NAIC;

2. Obligations that are issued in theUnited States, or that are dollar denominatedand issued in a non-United States market, bya solvent United States institution (other thanan insurance company) or that are assumed orguaranteed by a solvent United States institu-tion (other than an insurance company) andthat are not in default as to principal or inter-est if the obligations—

A. Are rated A or higher (or theequivalent) by the securities rating agencyrecognized by the Securities Valuation Officeof the NAIC, or if not so rated, are similar instructure and other material respects to otherobligations of the same institution that are sorated;

B. Are insured by at least one (1)authorized insurer (other than the investinginsurer or a parent, subsidiary, or affiliate ofthe investing insurer) licensed to insure obli-gations in this state and, after considering theinsurance, are rated AAA (or the equivalent)by a securities rating agency recognized bythe Securities Valuation Office of the NAIC;or

C. Have been designated as Class Oneor Class Two by the Securities ValuationOffice of the NAIC;



3. Obligations issued, assumed, or guar-anteed by a solvent non-United States institu-tion chartered in a country that is a memberof the Organization for Economic Coopera-tion and Development or obligations of Unit-ed States corporations in a non-United Statescurrency, provided that in either case the obli-gations are rated A or higher, or the equiva-lent, by a rating agency recognized by theSecurities Valuation Office of the NAIC;

4. An investment made pursuant to theprovisions of paragraphs (5)(E)1., 2., or 3. ofthis rule shall be subject to the followingadditional limitations:

A. An investment in or loan upon theobligations of an institution other than aninstitution that issues mortgage-related secu-rities shall not exceed five percent (5%) ofthe assets of the trust;

B. An investment in any one mort-gage-related security shall not exceed fivepercent (5%) of the assets of the trust;

C. The aggregate total investment inmortgage-related securities shall not exceedtwenty-five percent (25%) of the assets of thetrust; and

D. Preferred or guaranteed sharesissued or guaranteed by a solvent UnitedStates institution are permissible investmentsif all of the institution’s obligations are eligi-ble as investments under subparagraphs(5)(E)2.A. and (5)(E)2.C. of this rule, butshall not exceed two percent (2%) of theassets of the trust.

5. As used in this rule—A. “Mortgage-related security” means

an obligation that is rated AA or higher (or theequivalent) by a securities rating agency rec-ognized by the Securities Valuation Office ofthe NAIC and that either—

(I) Represents ownership of one(1) or more promissory notes or certificatesof interest or participation in the notes(including any rights designed to assure ser-vicing of, or the receipt or timeliness ofreceipt by the holders of the notes, certifi-cates, or participation of amounts payableunder, the notes, certificates or participa-tion), that—

(a) Are directly secured by a firstlien on a single parcel of real estate, includ-ing stock allocated to a dwelling unit in a res-idential cooperative housing corporation,upon which is located a dwelling or mixedresidential and commercial structure, or on aresidential manufactured home as defined in42 U.S.C.A. Section 5402(6), whether themanufactured home is considered real or per-sonal property under the laws of the state inwhich it is located; and

(b) Were originated by a savingsand loan association, savings bank, commer-

cial bank, credit union, insurance company,or similar institution that is supervised andexamined by a federal or state housingauthority, or by a mortgagee approved by theSecretary of Housing and Urban Develop-ment pursuant to 12 U.S.C.A. Sections 1709and 1715-b, or, where the notes involve a lienon the manufactured home, by an institutionor by a financial institution approved forinsurance by the Secretary of Housing andUrban Development pursuant to 12 U.S.C.A.Section 1703; or

(II) Is secured by one (1) or morepromissory notes or certificates of deposit orparticipations in the notes (with or withoutrecourse to the insurer of the notes) and, byits terms, provides for payments of principalin relation to payments, or reasonable projec-tions of payments, or notes meeting therequirements of subparts (5)(E)5.A.(I)(a) and(5)(E)5.A.(I)(b) of this rule;

B. “Promissory note,” when used inconnection with a manufactured home, shallalso include a loan, advance, or credit sale asevidenced by a retail installment sales con-tract or other instrument.

6. Equity Interests.A. Investments in common shares or

partnership interests of a solvent UnitedStates institution are permissible if—

(I) Its obligations and preferredshares, if any, are eligible as investmentsunder paragraph (5)(E)6. of this rule; and

(II) The equity interests of the insti-tution (except an insurance company) are reg-istered on a national securities exchange asprovided in the Securities Exchange Act of1934, 15 U.S.C. sections 78a to 78kk or oth-erwise registered pursuant to that Act, and ifotherwise registered, price quotations forthem are furnished through a nationwide auto-mated quotations system approved by theFinancial Industry Regulatory Authority, orsuccessor organization. A trust shall not investin equity interest under part (5)(E)6.A.(II) ofthis rule an amount exceeding one percent(1%) of the assets of the trust even though theequity interests are not so registered and arenot issued by an insurance company;

B. Investments in common shares ofa solvent institution organized under the lawsof a country that is a member of the Organi-zation for Economic Cooperation and Devel-opment, if—

(I) All its obligations are rated A orhigher, or the equivalent, by a rating agencyrecognized by the Securities Valuation Officeof the NAIC; and

(II) The equity interests of the insti-tution are registered on a securities exchangeregulated by the government of a country that

is a member of the Organization for Eco-nomic Cooperation and Development;

C. An investment or loan upon anyone (1) institution’s outstanding equity inter-ests shall not exceed one percent (1%) of theassets of the trust. The cost of an investmentin equity interests made pursuant to subpara-graph (5)(E)6.C. of this rule, when added tothe aggregate cost of other investments inequity interests then held pursuant to sub-paragraph (5)(E)6.A. of this rule, shall notexceed ten percent (10%) of the assets in thetrust;

7. Obligations issued, assumed, or guar-anteed by a multinational development bank,provided the obligations are rated A or high-er, or the equivalent, by a rating agency rec-ognized by the Securities Valuation Office ofthe NAIC.

8. Investment companies.A. Securities of an investment compa-

ny registered pursuant to the Investment Com-pany Act of 1940, 15 U.S.C. section 80a, arepermissible investments if the investmentcompany—

(I) Invests at least ninety percent(90%) of its assets in the types of securitiesthat qualify as an investment under para-graphs (5)(E)1., (5)(E)2., or (5)(E)3. of thisrule or invests in securities that are deter-mined by the director to be substantively sim-ilar to the types of securities set forth in para-graphs (5)(E)1., (5)(E)2., or (5)(E)3. of thisrule; or

(II) Invests at least ninety percent(90%) of its assets in the types of equityinterests that qualify as an investment undersubparagraph (5)(E)6.A. of this rule;

B. Investments made by a trust ininvestment companies under subparagraph(5)(E)8.B. of this rule shall not exceed thefollowing limitations:

(I) An investment in an investmentcompany qualifying under part (5)(E)8.A.(I)of this rule shall not exceed ten percent (10%)of the assets in the trust and the aggregateamount of investment in qualifying invest-ment companies shall not exceed twenty-fivepercent (25%) of the assets in the trust; and

(II) Investments in an investmentcompany qualifying under part (5)(E)8.A.(II)of this rule shall not exceed five percent (5%)of the assets in the trust, and the aggregateamount of investment in qualifying invest-ment companies shall be included when cal-culating the permissible aggregate value ofequity interests pursuant to subparagraph(5)(E)6.A. of this rule.

9. Letters of Credit.A. In order for a letter of credit to

qualify as an asset of the trust, the trustee shallhave the right and the obligation pursuant to


Secretary of State



the deed of trust or some other binding agree-ment (as duly approved by the director), toimmediately draw down the full amount ofthe letter of credit and hold the proceeds intrust for the beneficiaries of the trust if theletter of credit will otherwise expire withoutbeing renewed or replaced.

B. The trust agreement shall providethat the trustee shall be liable for its negli-gence, willful misconduct, or lack of goodfaith. The failure of the trustee to drawagainst the letter of credit in circumstanceswhere such draw would be required shall bedeemed to be negligence and/or willful mis-conduct.

(F) A specific security provided to a ced-ing insurer by an assuming insurer pursuantto section (7) of this rule shall be applied,until exhausted, to the payment of liabilitiesof the assuming insurer to the ceding insurerholding the specific security prior to, and asa condition precedent for, presentation of aclaim by the ceding insurer for payment by atrustee of a trust established by the assuminginsurer pursuant to section (5) of this rule.

(6) Credit for Reinsurance—Certified Rein-surers.

(A) Pursuant to section 375.246.1(5),RSMo, the director shall allow credit forreinsurance ceded by a domestic insurer to anassuming insurer that has been certified as areinsurer in this state at all times for whichstatutory financial statement credit for rein-surance is claimed under section (6) of thisrule. The credit allowed shall be based uponthe security held by or on behalf of the ced-ing insurer in accordance with a ratingassigned to the certified reinsurer by thedirector. The security shall be in a form con-sistent with the provisions of sections375.246.1(5) and 375.246.2, RSMo, andsections (9), (10), or (11) of this rule. Theamount of security required in order for fullcredit to be allowed shall correspond with thefollowing requirements:

1. Ratings Security Required Secure – 1 0%Secure – 2 10%Secure – 3 20%Secure – 4 50%Secure – 5 75%Vulnerable – 6 100%

2. Affiliated reinsurance transactionsshall receive the same opportunity forreduced security requirements as all otherreinsurance transactions.

3. The director shall require the certi-fied reinsurer to post one hundred percent(100%), for the benefit of the ceding insureror its estate, security upon the entry of anorder or rehabilitation, liquidation, or con-servation against the ceding insurer.

4. In order to facilitate the prompt pay-ment of claims, a certified reinsurer shall notbe required to post security for catastropherecoverables for a period of one (1) year fromthe date of the first instance of a liabilityreserve entry by the ceding company as aresult of a loss from a catastrophic occur-rence as recognized by the director. The one(1) year deferral period is contingent uponthe certified reinsurer continuing to payclaims in a timely manner. Reinsurancerecoverables for only the following lines ofbusiness as reported on the NAIC annualfinancial statement related specifically to thecatastrophic occurrence will be included inthe deferral:

A. Line 1: Fire;B. Line 2: Allied Lines;C. Line 3: Farmowners multiple peril;D. Line 4: Homeowners multiple

peril;E. Line 5: Commercial multiple peril;F. Line 9: Inland Marine;G. Line 12: Earthquake; andH. Line 21: Auto physical damage.

5. Credit for reinsurance under section(6) of this rule shall apply only to reinsurancecontracts entered into or renewed on or afterthe effective date of the certification of theassuming insurer. Any reinsurance contractentered into prior to the effective date of thecertification of the assuming insurer that issubsequently amended after the effective dateof the certification of the assuming insurer, ora new reinsurance contract, covering any riskfor which collateral was provided previously,shall only be subject to section (6) of this rulewith respect to losses incurred and reservesreported from and after the effective date ofthe amendment or new contract.

6. Nothing in section (6) of this ruleshall prohibit the parties to a reinsuranceagreement from agreeing to provisions estab-lishing security requirements that exceed theminimum security requirements establishedfor certified reinsurers under section (6) ofthis rule.

(B) Certification Procedure.1. The director shall post notice on the

department’s website promptly upon receiptof any application for certification, includinginstructions on how members of the publicmay respond to the application. The directormay not take final action on the applicationuntil at least thirty (30) days after posting thenotice required by paragraph (6)(B)1. of thisrule.

2. The director shall issue written noticeto an assuming insurer that has made appli-cation and been approved as a certified rein-surer. Included in such notice shall be the rat-ing assigned the certified reinsurer inaccordance with subsection (6)(A) of thisrule. The director shall publish a list of all

certified reinsurers and their ratings.3. In order to be eligible for certifica-

tion, the assuming insurer shall meet the fol-lowing requirements:

A. The assuming insurer must bedomiciled and licensed to transact insuranceor reinsurance in a Qualified Jurisdiction, asdetermined by the director pursuant to sub-section (6)(C) of this rule.

B. The assuming insurer must main-tain capital and surplus, or its equivalent, ofno less than two hundred-fifty (250) milliondollars calculated in accordance with subpara-graph (6)(B)4.H. of this rule. This require-ment may also be satisfied by an associationincluding incorporated and individual unin-corporated underwriters having minimumcapital and surplus equivalents (net of liabili-ties) of at least two hundred-fifty (250) mil-lion dollars and a central fund containing abalance of at least two hundred-fifty (250)million dollars.

C. The assuming insurer must main-tain financial strength ratings from two (2) ormore rating agencies deemed acceptable bythe director. These ratings shall be based oninteractive communication between the ratingagency and the assuming insurer and shall notbe based solely on publicly available infor-mation. These financial strength ratings willbe one (1) factor used by the director indetermining the rating that is assigned to theassuming insurer. Acceptable rating agenciesinclude the following: Standard & Poor’s,Moody’s Investors Service, Fitch Ratings,A.M. Best Company, or any other nationallyrecognized statistical rating organization.

D. The certified reinsurer must com-ply with any other requirements reasonablyimposed by the director.

4. Each certified reinsurer shall be ratedon a legal entity basis, with due considerationbeing given to the group rating where appro-priate, except that an association includingincorporated and individual unincorporatedunderwriters that has been approved to dobusiness as a single certified reinsurer may beevaluated on the basis of its group rating.Factors that may be considered as part of theevaluation process include, but are not limit-ed to, the following:

A. The certified reinsurer’s financialstrength rating from an acceptable ratingagency. The maximum rating that a certifiedreinsurer may be assigned will correspond toits financial strength rating as outlined in thetable below. The director shall use the lowestfinancial strength rating received from anapproved rating agency in establishing themaximum rating of a certified reinsurer. Afailure to obtain or maintain at least two (2)financial strength ratings from acceptablerating agencies will result in loss of eligibili-ty for certification—



B. The business practices of the certi-fied reinsurer in dealing with its ceding insur-ers, including its record of compliance withreinsurance contractual terms and obliga-tions;

C. For certified reinsurers domiciledin the United States, a review of the mostrecent applicable NAIC Annual StatementBlank, either Schedule F (for property/casu-alty reinsurers) or Schedule S (for life andhealth reinsurers);

D. For certified reinsurers not domi-ciled in the United States, a review annuallyof the NAIC Form CR-F (for property/casu-alty reinsurers) or Form CR-S (for life andhealth reinsurers).

E. The reputation of the certifiedreinsurer for prompt payment of claims underreinsurance agreements, based on an analysisof ceding insurers’ Schedule F reporting ofoverdue reinsurance recoverables, includingthe proportion of obligations that are morethan ninety (90) days past due or are in dis-pute, with specific attention given to obliga-tions payable to companies that are in admin-istrative supervision or receivership;

F. Regulatory actions against the cer-tified reinsurer;

G. The report of the independentauditor on the financial statements of theinsurance enterprise, on the basis describedin subparagraph (6)(B)4.H. of this rule;

H. For certified reinsurers not domi-ciled in the United States, audited financialstatements (audited United States GAAPbasis if available, audited IFRS basis state-ments are allowed but must include an audit-ed footnote reconciling equity and net incometo a United States GAAP basis, or, with thepermission of the state insurance commis-sioner, audited IFRS statements with recon-ciliation to United States GAAP certified byan officer of the company), regulatory filings,

and actuarial opinion (as filed with the non-United States jurisdiction supervisor). Uponthe initial application for certification, thedirector will consider audited financial state-ments for the last three (3) years filed with itsnon-United States jurisdiction supervisor;

I. The liquidation priority of obliga-tions to a ceding insurer in the certified rein-surer’s domiciliary jurisdiction in the contextof an insolvency proceeding;

J. A certified reinsurer’s participationin any solvent scheme of arrangement, orsimilar procedure, which involves UnitedStates ceding insurers. The director shallreceive prior notice from a certified reinsur-er that proposes participation by the certifiedreinsurer in a solvent scheme of arrangement;and

K. Any other information deemed rel-evant by the director.

5. Based on the analysis conductedunder subparagraph (6)(B)4.E. of this rule ofa certified reinsurer’s reputation for promptpayment of claims, the director may makeappropriate adjustments in the security thecertified reinsurer is required to post to pro-tect its liabilities to United States cedinginsurers, provided that the director shall, at aminimum, increase the security the certifiedreinsurer is required to post by one (1) ratinglevel under subparagraph (6)(B)4.A. of thisrule if the director finds that—

A. More than fifteen percent (15%) ofthe certified reinsurer’s ceding insuranceclients have overdue reinsurance recoverableson paid losses of ninety (90) days or morewhich are not in dispute and which exceedone hundred thousand dollars ($100,000) foreach cedent; or

B. The aggregate amount of reinsur-ance recoverables on paid losses which arenot in dispute that are overdue by ninety (90)

days or more exceeds fifty (50) million dol-lars.

6. The assuming insurer must submit aproperly executed Form CR-1, the form ofwhich is included herein as Exhibit 6 of thisrule, revised September 23, 2013, or anyform which substantially comports with thespecified form, as evidence of its submissionto the jurisdiction of this state, appointmentof the director as an agent for service of pro-cess in this state, and agreement to providesecurity for one hundred percent (100%) ofthe assuming insurer’s liabilities attributableto reinsurance ceded by United States cedinginsurers if it resists enforcement of a finalUnited States judgment. The director shallnot certify any assuming insurer that is domi-ciled in a jurisdiction that the director hasdetermined does not adequately and prompt-ly enforce final United States judgments orarbitration awards.

7. The certified reinsurer must agree tomeet applicable information filing require-ments as determined by the director, bothwith respect to an initial application for certi-fication and on an ongoing basis. The appli-cable information filing requirements are asfollows:

A. Notification within ten (10) days ofany regulatory actions taken against the certi-fied reinsurer, any change in the provisions ofits domiciliary license or any change in ratingby an approved rating agency, including astatement describing such changes and thereasons therefore;

B. Annually, the NAIC Form CR-F orCR-S, the forms of which are included here-in as Exhibits 7 and 8, respectively, of thisrule, revised September 23, 2013, or anyform which substantially comports with thespecified form as applicable;

C. Annually, the report of the inde-pendent auditor on the financial statements of


Secretary of State



Ratings Best S & P Moody’s Fitch

Secure – 1 A++ AAA Aaa AAA

Secure – 2 A+ AA+, AA, AA- Aa1, Aa2, Aa3 AA+, AA, AA-

Secure – 3 A A+, A A1, A2 A+, A

Secure – 4 A- A- A3 A-

Secure – 5 B++, B+ BBB+, BBB, BBB- Baa1, Baa2, Baa3 BBB+, BBB, BBB-

Vulnerable – 6 B, B-, C++,

C+, C, C-, D,

E, F

BB+, BB, BB-, B+,

B, B-, CCC, CC, C,

D, R

Ba1, Ba2, Ba3,

B1, B2, B3, Caa,

Ca, C

BB+, BB, BB-, B+,

B, B-, CCC+, CC,

CCC-, DD

the insurance enterprise, on the basisdescribed in subparagraph (6)(B)7.D. of thisrule;

D. Annually, audited financial state-ments (audited United States GAAP basis ifavailable, audited IFRS basis statements areallowed but must include an audited footnotereconciling equity and net income to a UnitedStates GAAP basis, or, with the permission ofthe state insurance commissioner, auditedIFRS statements with reconciliation to UnitedStates GAAP certified by an officer of thecompany), regulatory filings, and actuarialopinion (as filed with the certified reinsurer’ssupervisor). Upon the initial certification,audited financial statements for the last three(3) years filed with the certified reinsurer’ssupervisor;

E. At least annually, an updated list ofall disputed and overdue reinsurance claimsregarding reinsurance assumed from UnitedStates domestic ceding insurers;

F. A certification from the certifiedreinsurer’s domestic regulator that the certi-fied reinsurer is in good standing and main-tains capital in excess of the jurisdiction’shighest regulatory action level;

G. Includes with the documentsrequired to be filed under preceding provi-sions of section (6) of this rule the appropri-ate filing fees as set forth in section 374.230,RSMo; and

H. Any other information that thedirector may reasonably require.

8. The information required to be filedpursuant to paragraph (6)(B)7. of this ruleshall be deemed records which are open tothe inspection of the public in accordancewith sections 374.070 and 610.011, RSMo.Any insurance company claiming that suchfilings are trade secrets or proprietary infor-mation shall comply with the procedures asset forth in 20 CSR 10-2.400(8).

9. Change in Rating or Revocation ofCertification.

A. In the case of a downgrade by a rat-ing agency or other disqualifying circum-stance, the director shall, upon written notice,assign a new rating to the certified reinsurer inaccordance with the requirements of subpara-graph (6)(B)4.A. of this rule.

B. The director shall have the authori-ty to suspend, revoke, or otherwise modify acertified reinsurer’s certification at any time,if the certified reinsurer fails to meet or main-tain its obligations or security requirementsunder section (6) of this rule, or if other finan-cial or operating results of the certified rein-surer, or documented significant delays in pay-ment by the certified reinsurer, lead thedirector to reconsider the certified reinsurer’s

ability or willingness to meet its contractualobligations.

C. If the rating of a certified reinsur-er is upgraded by the director, the certifiedreinsurer may meet the security requirementsapplicable to its new rating on a prospectivebasis, but the director shall require the certi-fied reinsurer to post security under the pre-viously applicable security requirements as toall contracts in force on or before the effec-tive date of the upgraded rating. If the ratingof a certified reinsurer is downgraded by thedirector, the director shall require the certi-fied reinsurer to meet the security require-ments applicable to its new rating for all busi-ness it has assumed as a certified reinsurer.

D. Upon revocation of the certifica-tion of a certified reinsurer by the director,the assuming insurer shall be required to postsecurity in accordance with section (8) of thisrule in order for the ceding insurer to contin-ue to take credit for reinsurance ceded to theassuming insurer. If funds continue to be heldin trust in accordance with section (5) of thisrule, the director may allow additional creditequal to the ceding insurer’s pro rata share ofsuch funds, discounted to reflect the risk ofuncollectibility and anticipated expenses oftrust administration. Notwithstanding thechange of a certified reinsurer’s rating orrevocation of its certification, a domesticinsurer that has ceded reinsurance to that cer-tified reinsurer may not be denied credit forreinsurance for a period of three (3) monthsfor all reinsurance ceded to that certifiedreinsurer, unless the reinsurance is found bythe director to be at high risk of uncol-lectibility.

(C) Qualified Jurisdictions.1. If, upon conducting an evaluation

under section (6) of this rule with respect tothe reinsurance supervisory system of anynon-United States assuming insurer, thedirector determines that the jurisdiction qual-ifies to be recognized as a qualified jurisdic-tion, the director shall publish notice and evi-dence of such recognition in an appropriatemanner. The director may establish a proce-dure to withdraw recognition of those juris-dictions that are no longer qualified.

2. In order to determine whether thedomiciliary jurisdiction of a non-UnitedStates assuming insurer is eligible to be rec-ognized as a qualified jurisdiction, the direc-tor shall evaluate the reinsurance supervisorysystem of the non-United States jurisdiction,both initially and on an ongoing basis, andconsider the rights, benefits, and the extent ofreciprocal recognition afforded by the non-United States jurisdiction to reinsurerslicensed and domiciled in the United States.The director shall determine the appropriate

approach for evaluating the qualifications ofsuch jurisdictions, and create and publish alist of jurisdictions whose reinsurers may beapproved by the director as eligible for certi-fication. A qualified jurisdiction must agreeto share information and cooperate with thedirector with respect to all certified reinsur-ers domiciled within that jurisdiction. Addi-tional factors to be considered in determiningwhether to recognize a qualified jurisdiction,in the discretion of the director, include butare not limited to the following:

A. The framework under which theassuming insurer is regulated;

B. The structure and authority of thedomiciliary regulator with regard to solvencyregulation requirements and financial surveil-lance;

C. The substance of financial andoperating standards for assuming insurers inthe domiciliary jurisdiction;

D. The form and substance of finan-cial reports required to be filed or made pub-licly available by reinsurers in the domiciliaryjurisdiction and the accounting principlesused;

E. The domiciliary regulator’s will-ingness to cooperate with United States regu-lators in general and the director in particu-lar;

F. The history of performance byassuming insurers in the domiciliary jurisdic-tion;

G. Any documented evidence of sub-stantial problems with the enforcement offinal United States judgments in the domicil-iary jurisdiction. A jurisdiction will not beconsidered to be a qualified jurisdiction if thedirector has determined that it does not ade-quately and promptly enforce final UnitedStates judgments or arbitration awards;

H. Any relevant international stan-dards or guidance with respect to mutualrecognition of reinsurance supervision adopt-ed by the International Association of Insur-ance Supervisors or successor organization;and

I. Any other matters deemed relevantby the director.

3. A list of qualified jurisdictions shallbe published through the NAIC CommitteeProcess. The director may consider this list indetermining qualified jurisdictions. If thedirector approves a jurisdiction as qualifiedthat does not appear on the list of qualifiedjurisdictions, the director shall provide thor-oughly documented justification with respectto the criteria provided under subsection(8)(C) of this rule.

4. United States jurisdictions that meetthe requirements for accreditation under theNAIC financial standards and accreditation



program shall be recognized as qualifiedjurisdictions.

(D) Recognition of Certification Issued byan NAIC Accredited Jurisdiction.

1. If an applicant for certification hasbeen certified as a reinsurer in an NAICaccredited jurisdiction, the director has thediscretion to defer to that jurisdiction’s certi-fication, and to defer to the rating assigned bythat jurisdiction, if the assuming insurer sub-mits a properly executed Form CR-1, theform of which is included herein as Exhibit 6of this rule, revised September 23, 2013, orany form which substantially comports withthe specified form, and such additional infor-mation as the director requires. The assuminginsurer shall be considered to be a certifiedreinsurer in this state.

2. Any change in the certified reinsur-er’s status or rating in the other jurisdictionshall apply automatically in this state as ofthe date it takes effect in the other jurisdic-tion. The certified reinsurer shall notify thedirector of any change in its status or ratingwithin ten (10) days after receiving notice ofthe change.

3. The director may withdraw recogni-tion of the other jurisdiction’s rating at anytime and assign a new rating in accordancewith subparagraph (6)(B)7.A. of this rule.

4. The director may withdraw recogni-tion of the other jurisdiction’s certification atany time, with written notice to the certifiedreinsurer. Unless the director suspends orrevokes the certified reinsurer’s certificationin accordance with subparagraph (6)(B)7.B.of this rule, the certified reinsurer’s certifica-tion shall remain in good standing in this statefor a period of three (3) months, which shallbe extended if additional time is necessary toconsider the assuming insurer’s applicationfor certification in this state.

(E) Mandatory Funding Clause. In addi-tion to the clauses required under section (12)of this rule, reinsurance contracts entered intoor renewed under section (6) of this rule shallinclude a proper funding clause, whichrequires the certified reinsurer to provide andmaintain security in an amount sufficient toavoid the imposition of any financial state-ment penalty on the ceding insurer under sec-tion (6) of this rule for reinsurance ceded tothe certified reinsurer.

(F) The director shall comply with allreporting and notification requirements thatmay be established by the NAIC with respectto certified reinsurers and qualified jurisdic-tions.

(7) Credit for Reinsurance Required by Law.Pursuant to section 375.246.1(6), RSMo, thedirector shall allow credit for reinsurance

ceded by a domestic insurer to an assuminginsurer not meeting the requirements of sec-tion 375.246.1(1), (2), (3), (4), or (5),RSMo, but only as to the insurance of riskslocated in jurisdictions where the reinsuranceis required by the applicable law or regulationof that jurisdiction. As used in this section,“jurisdiction” means state, district, or territo-ry of the United States and any lawful nation-al government.

(8) Asset or Reduction From Liability forReinsurance Ceded to an UnauthorizedAssuming Insurer not Meeting the Require-ments of Sections (2) through (7) of this Rule.

(A) Pursuant to section 375.246.2., RSMo,the director shall allow a reduction from lia-bility for reinsurance ceded by a domesticinsurer to an assuming insurer not meeting therequirements of section 375.246.1., RSMo, inan amount not exceeding the liabilities carriedby the ceding insurer. The reduction shall bein the amount of funds held by or on behalf ofthe ceding insurer, including funds held intrust for the exclusive benefit of the cedinginsurer, under a reinsurance contract withsuch assuming insurer as security for the pay-ment of obligations under the reinsurance con-tract. The security shall be held in the UnitedStates subject to withdrawal solely by, andunder the exclusive control of, the cedinginsurer or, in the case of a trust, held in a qual-ified United States financial institution asdefined in section 375.246.3(2), RSMo. Thissecurity may be in the form of any of the fol-lowing:

1. Cash;2. Securities listed by the Securities Val-

uation Office of the NAIC, including thosedeemed exempt from filing as defined by thePurpose and Procedures Manual of the Secu-rities Valuation Office, and qualifying asadmitted assets;

3. Clean, irrevocable, unconditional,and “evergreen” letters of credit issued orconfirmed by a qualified United States insti-tution, as defined in section 375.246.3(1),RSMo, effective no later than December 31of the year for which filing is being made,and in the possession of, or in trust for, theceding insurer on or before the filing date ofits annual statement. Letters of credit meetingapplicable standards of issuer acceptability asof the dates of their issuance (or confirma-tion), shall, notwithstanding the issuing (orconfirming) institution’s subsequent failure tomeet applicable standards of issuer accept-ability, continue to be acceptable as securityuntil their expiration, extension, renewal,modification or amendment, whichever firstoccurs; or

4. Any other form of security acceptableto the director.

(B) An admitted asset or a reduction fromliability for reinsurance ceded to an unautho-rized assuming insurer pursuant to section (8)of this rule shall be allowed only when therequirements of section (12) and the applica-ble portions of sections (9), (10), or (11) ofthis rule have been satisfied.

(9) Trust Agreements Qualified Under Sec-tion (8).

(A) As used in section (9) of this rule—1. “Beneficiary” means the entity for

whose sole benefit the trust has been estab-lished and any successor of the beneficiary byoperation of law. If a court of law appoints asuccessor in interest to the named beneficia-ry, then the named beneficiary includes, andis limited to, the court-appointed domiciliaryreceiver (including conservator, rehabilitator,or liquidator);

2. “Grantor” means the entity that hasestablished a trust for the sole benefit of thebeneficiary. When established in conjunctionwith a reinsurance agreement, the grantor isthe unlicensed, unaccredited assuming insur-er; and

3. “Obligations,” as used in paragraph(9)(B)11. of this rule, means—

A. Reinsured losses and allocated lossexpenses paid by the ceding company, but notrecovered from the assuming insurer;

B. Reserves for reinsured lossesreported and outstanding;

C. Reserves for reinsured lossesincurred but not reported; and

D. Reserves for allocated reinsuredloss expenses and unearned premiums.

(B) Required Conditions.1. The trust agreement shall be entered

into between the beneficiary, the grantor, anda trustee, which shall be a qualified UnitedStates financial institution as defined in sec-tion 375.246.3(2), RSMo.

2. The trust agreement shall create atrust account into which assets shall bedeposited.

3. All assets in the trust account shall beheld by the trustee at the trustee’s office inthe United States.

4. The trust agreement shall providethat—

A. The beneficiary shall have the rightto withdraw assets from the trust account atany time, without notice to the grantor, subjectonly to written notice from the beneficiary tothe trustee;

B. No other statement or document isrequired to be presented in order to withdrawassets, except that the beneficiary may berequired to acknowledge receipt of withdrawn


Secretary of State



assets;C. It is not subject to any conditions

or qualifications outside of the trust agree-ment; and

D. It shall not contain references toany other agreements or documents except asprovided for in paragraphs (9)(B)11. and(9)(B)12. of this rule.

5. The trust agreement shall be estab-lished for the sole benefit of the beneficiary.

6. The trust agreement shall require thetrustee to—

A. Receive assets and hold all assetsin a safe place;

B. Determine that all assets are in theform that the beneficiary, or the trustee upondirection by the beneficiary, may whenevernecessary negotiate any such assets, withoutconsent or signature from the grantor or anyother person or entity;

C. Furnish to the grantor and the ben-eficiary a statement of all assets in the trustaccount upon its inception and at intervals noless frequent than the end of each calendarquarter;

D. Notify the grantor and the benefi-ciary within ten (10) days, of any deposits toor withdrawals from the trust account;

E. Upon written demand of the bene-ficiary, immediately take any and all stepsnecessary to transfer absolutely and unequiv-ocally all right, title, and interest in the assetsheld in the trust account to the beneficiaryand deliver physical custody of these assets tothe beneficiary; and

F. Allow no substitutions or with-drawals of assets from the trust account,except on written instructions from the bene-ficiary, except that the trustee may, withoutthe consent of but with notice to the benefi-ciary, upon call or maturity of any trust assetwithdraw such asset upon condition that theproceeds are paid into the trust account.

7. The trust agreement shall provide thatat least thirty (30) days, but not more thanforty-five (45) days, prior to termination ofthe trust account, written notification of ter-mination shall be delivered by the trustee tothe beneficiary.

8. The trust agreement shall be madesubject to and governed by the laws of thestate in which the trust is domiciled.

9. The trust agreement shall prohibitinvasion of the trust corpus for the purpose ofpaying commission to, or reimbursing theexpenses of, the trustee. In order for a letterof credit to qualify as an asset of the trust, thetrustee shall have the right and the obligationpursuant to the deed of trust or some otherbinding agreement (as duly approved by thedirector), to immediately draw down the fullamount of the letter of credit and hold the

proceeds in trust for the beneficiaries of thetrust if the letter of credit will otherwiseexpire without being renewed or replaced.

10. The trust agreement shall providethat the trustee shall be liable for its negli-gence, willful misconduct, or lack of goodfaith. The failure of the trustee to drawagainst the letter of credit in circumstanceswhere such draw would be required shall bedeemed to be negligence and/or willful mis-conduct.

11. Notwithstanding other provisions ofthis rule, when a trust agreement is estab-lished in conjunction with a reinsuranceagreement covering risks other than life,annuities, and accident and health, where it iscustomary practice to provide a trust agree-ment for a specific purpose, the trust agree-ment may provide that the ceding insurershall undertake to use and apply amountsdrawn upon the trust account, withoutdiminution because of the insolvency of theceding insurer or the assuming insurer, onlyfor the following purposes:

A. To pay or reimburse the cedinginsurer for the assuming insurer’s shareunder the specific reinsurance agreementregarding any losses and allocated lossexpenses paid by the ceding insurer, but notrecovered from the assuming insurer, or forunearned premiums due to the ceding insurerif not otherwise paid by the assuming insur-er;

B. To make payment to the assuminginsurer of any amounts held in the trustaccount that exceed one hundred-two percent(102%) of the actual amount required to fundthe assuming insurer’s obligations under thespecific reinsurance agreement; or

C. Where the ceding insurer hasreceived notification of termination of thetrust account and where the assuming insur-er’s entire obligations under the specific rein-surance agreement remain unliquidated andundischarged ten (10) days prior to that ter-mination date, to withdraw amounts equal tothose obligations and deposit those amountsin a separate account, in the name of the ced-ing insurer in any qualified United Statesfinancial institution as defined in section375.246.3(2), RSMo, apart from its generalassets, in trust for those uses and purposesspecified in subparagraphs (9)(B)11.A. andB. of this rule as may remain executory aftersuch withdrawal and for any period after thetermination date.

12. Notwithstanding other provisions ofthis rule, when a trust agreement is estab-lished to meet the requirements of section (8)of this rule in conjunction with a reinsuranceagreement covering life, annuities, or acci-dent and health risks, where it is customary

to provide a trust agreement for a specificpurpose, the trust agreement may provide thatthe ceding insurer shall undertake to use andapply amounts drawn upon the trust account,without diminution because of the insolvencyof the ceding insurer or the assuming insurer,only for the following purposes:

A. To pay or reimburse the cedinginsurer for—

(I) The assuming insurer’s shareunder the specific reinsurance agreement ofpremiums returned, but not yet recoveredfrom the assuming insurer, to the owners ofpolicies reinsured under the reinsuranceagreement on account of cancellations of thepolicies; and

(II) The assuming insurer’s shareunder the specific reinsurance agreement ofsurrenders and benefits or losses paid by theceding insurer, but not yet recovered from theassuming insurer, under the terms and provi-sions of the policies reinsured under the rein-surance agreement;

B. To pay to the assuming insureramounts held in the trust account in excess ofthe amount necessary to secure the credit orreduction from liability for reinsurance takenby the ceding insurer; or

C. Where the ceding insurer hasreceived notification of termination of the trustand where the assuming insurer’s entire obli-gations under the specific reinsurance agree-ment remain unliquidated and undischargedten (10) days prior to the termination date, towithdraw amounts equal to the assuminginsurer’s share of liabilities, to the extent thatthe liabilities have not yet been funded by theassuming insurer, and deposit those amountsin a separate account, in the name of the ced-ing insurer in any qualified United Statesfinancial institution apart from its generalassets, in trust for the uses and purposes spec-ified in subparagraphs (9)(B)12.A. and(9)(B)12.B. of this rule as may remain execu-tory after withdrawal and for any period afterthe termination date.

13. Either the reinsurance agreement orthe trust agreement must stipulate that assetsdeposited in the trust account shall be valuedaccording to their current fair market valueand shall consist only of cash in United Statesdollars, certificates of deposit issued by aUnited States bank and payable in UnitedStates dollars, and investments permitted bythe Insurance Code or any combination of theabove, provided investments in or issued by anentity controlling, controlled by, or undercommon control with either the grantor or thebeneficiary of the trust shall not exceed fivepercent (5%) of total investments. The agree-ment may further specify the types of invest-ments to be deposited. If the reinsurance



agreement covers life, annuities, or accidentand health risks, then the provisions requiredby paragraph (9)(B)13. of this rule must beincluded in the reinsurance agreement.

(C) Permitted Conditions.1. The trust agreement may provide that

the trustee may resign upon delivery of awritten notice of resignation, effective notless than ninety (90) days after the beneficia-ry and grantor receive the notice and that thetrustee may be removed by the grantor bydelivery to the trustee and the beneficiary ofa written notice of removal, effective not lessthan ninety (90) days after the trustee and thebeneficiary receive the notice, provided thatno such resignation or removal shall be effec-tive until a successor trustee has been dulyappointed and approved by the beneficiaryand the grantor and all assets in the trust havebeen duly transferred to the new trustee.

2. The grantor may have the full andunqualified right to vote any shares of stockin the trust account and to receive from time-to-time payments of any dividends or interestupon any shares of stock or obligationsincluded in the trust account. Any interest ordividends either shall be forwarded promptlyupon receipt to the grantor or deposited in aseparate account established in the grantor’sname.

3. The trustee may be given authority toinvest, and accept substitutions of, any fundsin the account, provided that no investmentor substitution shall be made without priorapproval of the beneficiary, unless the trustagreement specifies categories of investmentsacceptable to the beneficiary and authorizesthe trustee to invest those funds and to acceptsubstitutions that the trustee determines are atleast equal in current fair market value to theassets withdrawn and that are consistent withthe restrictions in subparagraph (9)(D)1.B. ofthis rule.

4. The trust agreement may provide thatthe beneficiary may at any time designate aparty to which all or part of the trust assetsare to be transferred. Transfer may be condi-tioned upon the trustee receiving, prior to orsimultaneously, other specified assets.

5. The trust agreement may provide that,upon termination of the trust account, allassets not previously withdrawn by the bene-ficiary shall, with written approval by thebeneficiary, be delivered over to the grantor.

(D) Additional Conditions Applicable toReinsurance Agreements.

1. A reinsurance agreement may containprovisions that—

A. Require the assuming insurer toenter into a trust agreement and to establish atrust account for the benefit of the ceding

insurer, and specifying what the agreement isto cover;

B. Require the assuming insurer, priorto depositing assets with the trustee, to executeassignments or endorsements in blank, or totransfer legal title to the trustee of all shares,obligations or any other assets requiringassignments, in order that the ceding insurer,or the trustee upon the direction of the cedinginsurer, may whenever necessary negotiatethese assets without consent or signature fromthe assuming insurer or any other entity;

C. Require that all settlements ofaccount between the ceding insurer and theassuming insurer be made in cash or itsequivalent; and

D. Stipulate that the assuming insurerand the ceding insurer agree that the assets inthe trust account, established pursuant to theprovisions of the reinsurance agreement, maybe withdrawn by the ceding insurer at anytime, notwithstanding any other provisions inthe reinsurance agreement, and shall be uti-lized and applied by the ceding insurer or itssuccessors in interest by operation of law,including, without limitation, any liquidator,rehabilitator, receiver, or conservator of suchcompany, without diminution because ofinsolvency on the part of the ceding insurer orthe assuming insurer, only for the followingpurposes:

(I) To pay or reimburse the cedinginsurer for the assuming insurer’s share underthe specific reinsurance agreement of premi-ums returned, but not yet recovered from theassuming insurer, to the owners of policiesreinsured under the reinsurance agreementbecause of cancellation of such policies;

(II) To pay or reimburse the cedinginsurer for the assuming insurer’s share ofsurrenders and benefits or losses paid by theceding insurer pursuant to the provisions ofthe policies reinsured under the reinsuranceagreement;

(III) To pay or reimburse the ced-ing insurer for any other amounts necessaryto secure the credit or reduction from liabil-ity for reinsurance taken by the ceding insur-er; and

(IV) To make payment to theassuming insurer of amounts held in the trustaccount in excess of the amount necessary tosecure the credit or reduction from liabilityfor reinsurance taken by the ceding insurer.

2. The reinsurance agreement also maycontain provisions that—

A. Give the assuming insurer theright to seek approval from the ceding insur-er, which shall not be unreasonably or arbi-trarily withheld, to withdraw from the trustaccount all or any part of the trust assets and

transfer those assets to the assuming insurer,provided—

(I) The assuming insurer shall, atthe time of that withdrawal, replace the with-drawn assets with other qualified assets hav-ing a current fair market value equal to themarket value of the assets withdrawn so as tomaintain at all times the deposit in therequired amount; or

(II) After withdrawal and transfer,the current fair market value of the trustaccount is no less than one hundred-two per-cent (102%) of the required amount.

B. Provide for the return of any amountwithdrawn in excess of the actual amountsrequired for parts (9)(D)1.D.(I)–(IV) of thisrule, and for interest payments at a rate not inexcess of the prime rate of interest on suchamounts.

C. Permit the award by any arbitrationpanel or court of competent jurisdiction of—

(I) Interest at a rate different fromthat provided in subparagraph (9)(D)2.B. ofthis rule;

(II) Court or arbitration costs;(III) Attorney’s fees; and(IV) Any other reasonable expens-

es.(E) Financial reporting. A trust agreement

may be used to reduce any liability for rein-surance ceded to an unauthorized assuminginsurer in financial statements required to befiled with this department in compliance withthe provisions of this rule when establishedon or before the date of filing of the financialstatement of the ceding insurer. Further, thereduction for the existence of an acceptabletrust account may be up to the current fairmarket value of acceptable assets available tobe withdrawn from the trust account at thattime, but such reduction shall be no greaterthan the specific obligations under the rein-surance agreement that the trust account wasestablished to secure.

(F) Existing agreements. Notwithstandingthe effective date of this rule, any trust agree-ment or underlying reinsurance agreement inexistence prior to January 1, 2013, will con-tinue to be acceptable until December 31,2013, at which time the agreements will haveto be in full compliance with this rule for thetrust agreement to be acceptable.

(G) The failure of any trust agreement tospecifically identify the beneficiary asdefined in subsection (9)(A) of this rule shallnot be construed to affect any actions orrights which the director may take or possesspursuant to the provisions of the laws of thisstate.

(10) Letters of Credit Qualified Under Sec-tion (8).


Secretary of State



(A) The letter of credit must be clean, irre-vocable, unconditional and issued or con-firmed by a qualified United States financialinstitution as defined in section 375.246.3(1),RSMo. The letter of credit shall contain anissue date and expiration date and shall stip-ulate that the beneficiary need only draw asight draft under the letter of credit and pre-sent it to obtain funds and that no other doc-ument need be presented. The letter of creditalso shall indicate that it is not subject to anycondition or qualifications outside of the let-ter of credit. In addition, the letter of credititself shall not contain reference to any otheragreements, documents or entities, except asprovided in paragraph (10)(H)1. of this rule.As used in section (10) of this rule, “benefi-ciary” means the domestic insurer for whosebenefit the letter of credit has been estab-lished and any successor of the beneficiary byoperation of law. If a court of law appoints asuccessor in interest to the named beneficia-ry, then the named beneficiary includes, andis limited to, the court-appointed domiciliaryreceiver (including conservator, rehabilitator,or liquidator).

(B) The heading of the letter of credit mayinclude a boxed section which contains thename of the applicant and other appropriatenotations to provide a reference for the letterof credit. The boxed section shall be clearlymarked to indicate that such information isfor internal identification purposes only.

(C) The letter of credit shall contain astatement to the effect that the obligation ofthe qualified United States financial institu-tion under the letter of credit is in no waycontingent upon reimbursement with respectthereto.

(D) The term of the letter of credit shall befor at least one (1) year and shall contain an“evergreen clause” that prevents the expira-tion of the letter of credit without due noticefrom the issuer. The “evergreen clause” shallprovide for a period of no less than thirty (30)days’ notice prior to expiration date or non-renewal.

(E) The letter of credit shall state whetherit is subject to and governed by the laws ofthis state or the Uniform Customs and Prac-tice for Documentary Credits of the Interna-tional Chamber of Commerce (Publication600) (UCP 600) or International StandbyPractices of the International Chamber ofCommerce Publication 590 (ISP98), or anysuccessor publication, and all drafts drawnthereunder shall be presentable at an office inthe United States of a qualified United Statesfinancial institution.

(F) If the letter of credit is made subject tothe Uniform Customs and Practice for Docu-mentary Credits of the International Chamber

of Commerce (Publication 500), or any suc-cessor publication, then the letter of creditshall specifically address and provide for anextension of time to draw against the letter ofcredit in the event that one (1) or more of theoccurrences specified in Article 17 of Publi-cation 500 or any other successor publica-tion, occur.

(G) If the letter of credit is issued by afinancial institution authorized to issue lettersof credit, other than a qualified United Statesfinancial institution as described in subsec-tion (10)(A) of this rule, then the followingadditional requirements shall be met:

1. The issuing financial institution shallformally designate the confirming qualifiedUnited States financial institution as its agentfor the receipt and payment of the drafts; and

2. The “evergreen clause” shall providefor thirty (30) days’ notice prior to expirationdate for nonrenewal.

(H) Reinsurance Agreement Provisions.1. The reinsurance agreement in con-

junction with which the letter of credit isobtained may contain provisions that—

A. Require the assuming insurer toprovide letters of credit to the ceding insurerand specify what they are to cover;

B. Stipulate that the assuming insurerand ceding insurer agree that the letter ofcredit provided by the assuming insurer pur-suant to the provisions of the reinsuranceagreement may be drawn upon at any time,notwithstanding any other provisions in theagreement, and shall be utilized by the ced-ing insurer or its successors in interest onlyfor one (1) or more of the following reasons:

(I) To pay or reimburse the cedinginsurer for the assuming insurer’s shareunder the specific reinsurance agreement ofpremiums returned, but not yet recoveredfrom the assuming insurers, to the owners ofpolicies reinsured under the reinsuranceagreement on account of cancellations ofthose policies;

(II) To pay or reimburse the cedinginsurer for the assuming insurer’s share,under the specific reinsurance agreement, ofsurrenders and benefits or losses paid by theceding insurer, but not yet recovered from theassuming insurers, under the terms and pro-visions of the policies reinsured under thereinsurance agreement;

(III) To pay or reimburse the cedinginsurer for any other amounts necessary tosecure the credit or reduction from liabilityfor reinsurance taken by the ceding insurer;and

(IV) Where the letter of credit willexpire without renewal or be reduced orreplaced by a letter of credit for a reducedamount and where the assuming insurer’s

entire obligations under the reinsuranceagreement remain unliquidated and undis-charged ten (10) days prior to the terminationdate, to withdraw amounts equal to theassuming insurer’s share of the liabilities, tothe extent that the liabilities have not yet beenfunded by the assuming insurer and exceedthe amount of any reduced or replacementletter of credit, and deposit those amounts ina separate account in the name of the cedinginsurer in a qualified United States financialinstitution apart from its general assets, intrust for such uses and purposes specified inpart (10)(H)1.B.(I) of this rule as may remainafter withdrawal and for any period after thetermination date.

C. All of the provisions of paragraph(10)(H)1. of this rule shall be applied withoutdiminution because of insolvency on the partof the ceding insurer or assuming insurer.

2. Nothing contained in paragraph(10)(H)1. of this rule shall preclude the ced-ing insurer and assuming insurer from pro-viding for—

A. An interest payment, at a rate notin excess of the prime rate of interest, on theamounts held pursuant to part(10)(H)1.B.(III) of this rule; or

B. The return of any amounts drawndown on the letters of credit in excess of theactual amounts required for the above or anyamounts that are subsequently determined notto be due.

(11) Other Security. A ceding insurer maytake credit for unencumbered funds withheldby the ceding insurer in the United Statessubject to withdrawal solely by the cedinginsurer and under its exclusive control.

(12) Reinsurance Contract. Credit will not begranted, nor an asset or reduction from lia-bility allowed, to a ceding insurer for rein-surance effected with assuming insurersmeeting the requirements of sections (2), (3),(4), (5), (6), or (7) of this rule or otherwisein compliance with section 375.246.1.,RSMo after the adoption of this rule unlessthe reinsurance agreement includes:

(A) A proper insolvency clause which stip-ulates that reinsurance is payable directly tothe liquidator or successor without diminutionregardless of the status of the ceding companyconsistent with section 375.246.5(2), RSMo,or is substantially similar to the following:

1. In the event of the insolvency of thecompany, this reinsurance shall be payabledirectly to the ceding company, or to its liq-uidator, receiver, conservator, or statutorysuccessor on the basis of the liability of thecompany without diminution because of theinsolvency of the ceding company, or



because the liquidator, receiver, conservator,or statutory successor of the company hasfailed to pay all or a portion of any claim.However, the liquidator, receiver, conserva-tor, or statutory successor of the companyshall give written notice to the reinsurers ofthe pendency of a claim against the companyindicating the policy or bond reinsurancewhich claim would involve a possible liabili-ty on the part of the reinsurers within a rea-sonable time after that claim is filed in theconservation or liquidation proceeding or inthe receivership, and that during the penden-cy of that claim the reinsurers may investi-gate that claim and interpose, at their ownexpense, in the proceeding where that claimis to be adjudicated any defense(s) they maydeem available to the company or its liquida-tor, receiver, conservator, or statutory suc-cessor. This expense incurred by the reinsur-ers shall be chargeable, subject to theapproval of the court, against the company aspart of the expense of conservation or liqui-dation to the extent of a pro rata share of thebenefit which may accrue to the companysolely as a result of the defense undertakenby the reinsurers;

2. Where two (2) or more reinsurers areinvolved in the same claim and a majority ininterest elect to interpose defense to thatclaim, the expense shall be apportioned inaccordance with the terms of the reinsuranceagreement as though that expense had beenincurred by the company; and

3. This insolvency clause shall not pre-clude the reinsurer from asserting any excuseor defense to payment of this reinsuranceother than the excuses or defenses of theinsolvency of the company and the failure ofthe company’s liquidator, receiver, conserva-tor, or statutory successor to pay all or a por-tion of any claim;

(B) A provision pursuant to section375.246.1(7), RSMo, whereby the assuminginsurer, if an unauthorized assuming insurer,has submitted to the jurisdiction of an alterna-tive dispute resolution panel or court of com-petent jurisdiction within the United States,has agreed to comply with all requirementsnecessary to give that court or panel jurisdic-tion, has designated an agent upon whom ser-vice of process may be effected, and hasagreed to abide by the final decision of thatcourt or panel; and

(C) A proper reinsurance intermediaryclause, if applicable, which stipulates that thecredit risk for the intermediary is carried bythe assuming insurer.

(13) Contracts Affected. All new and renew-al reinsurance transactions entered into afterJanuary 1, 2014 shall conform to the require-

ments of the Act and this rule if credit is tobe given to the ceding insurer for such rein-surance.


Secretary of State




Secretary of State



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