Brief: 9th Amendment to Regulation 20 (11 NYCRR 125):

Credit for Reinsurance from Unauthorized Insurers

(Effective on an emergency basis since 11/1/01:
Adopted on a permanent basis effective 4/2/03)

Insurance Law Sections 1301(a)(14) and 1301(c) give the Superintendent the authority to prescribe, by regulation, the conditions under which a ceding insurer may be allowed credit, as an asset or as a deduction from loss and unearned premium reserves, for reinsurance recoverable from an assuming insurer not authorized in this state.

The regulation provides alien reinsurers with the means whereby they may secure their United States obligations through the establishment of a multi-beneficiary trust. Previously, the regulation required that funds held in such a trust must be in the form of cash or readily marketable securities. Since this requirement was originally established, the Department has recognized the use of letters of credit as qualifying security in a number of similar trust vehicles. Recently the National Association of Insurance Commissionersí amended its model regulation relating to "Credit for Reinsurance." Specifically it permits certain alien assuming reinsurers to include, subject to specified conditions, letters of credit in trust funds held for the protection of the United States insurers, and United States beneficiaries under reinsurance polices issued by such alien insurers. Modifying the requirements regarding alien reinsurers funding requirements to permit the use of letters of credit will permit alien reinsurers that use multi-beneficiary trusts to reduce their cost of capital in a manner similar to other methods used by unauthorized reinsurers that use single-beneficiary trusts.

To assure that the marketable securities in the trust funds provide security adequate for the protection of the United States insurers, and United States beneficiaries under reinsurance polices issued by such alien insurers, standards for the quality of the marketable securities held in the trust are established. These qualitative standards are consistent with those required for the minimum capital and surplus investments and the reserve investments for licensed property/casualty insurers in New York State. Previously, as a condition of accreditation, the alien insurers were required to stipulate to hold marketable securities in the trust that met these standards.

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