Texas Insurance Code - Not Codified - Article 3.10. May Reinsure
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Art. 3.10. MAY REINSURE.
Article repealed effective April 1, 2007
(a) Any insurer authorized to do the business of insurance in
this state may reinsure in any solvent assuming insurer, any risk or
part of a risk which both are authorized to assume; provided,
however, no credit for reinsurance, either as an asset or a
deduction of liability, may be taken by the ceding insurer except as
provided in this article, and, provided further, no insurer
operating under Section 2(a) of Article 3.02 shall reinsure any
risk or part of a risk with any insurer which is not licensed to
engage in the business of insurance in this state. This article
applies to all insurers regulated by the State Board of Insurance,
including any stock and mutual life, accident, and health insurers,
fraternal benefit societies, health maintenance organizations
operating under the Texas Health Maintenance Organization Act
(Chapter 20A, Vernon's Texas Insurance Code), and nonprofit
hospital, medical, or dental service corporations, including
companies subject to Chapter 20 of this code. No such insurer shall
have the power to reinsure its entire outstanding business to an
assuming insurer unless the assuming insurer is licensed in this
state and until the contract therefor shall be submitted to the
Commissioner and approved by him as protecting fully the interests
of all policy holders. This article does not apply to ceding
insurers domiciled in another state that regulates credit for
reinsurance under statutes, rules, or regulations substantially
similar in substance or effect to this article. To qualify for this
exception, the ceding insurer must provide the Commissioner on
request with evidence of the similarity in the form of statutes,
rules, or regulations, and an interpretation of the statutes,
rules, or regulations and the standards used by the state of
domicile. This article is supplementary to and cumulative of other
provisions of this code and other insurance laws of this state
relating to reinsurance to the extent those provisions are not in
conflict with this article.
(b) Credit for reinsurance shall be allowed a ceding insurer
as either an asset or a deduction from liability on account of
reinsurance ceded only when:
(1) the reinsurance is ceded to an assuming insurer which is
licensed to transact insurance or reinsurance in this state; or
(2) the reinsurance is ceded to an assuming insurer which is
accredited as a reinsurer in this state. An accredited reinsurer is
one which: submits to this state's jurisdiction; submits to this
state's authority to examine its books and records; is domiciled
and licensed to transact insurance or reinsurance in at least one
state, or in the case of a United States branch of an alien assuming
insurer is entered through and licensed to transact insurance or
reinsurance in at least one state; files annually a copy of its
annual statement, filed with the insurance department of its state
of domicile, with the State Board of Insurance; and maintains a
surplus as regards policy holders in an amount not less than $20
million; or
(3) the reinsurance is ceded to an assuming insurer which
maintains a trust fund in a qualified United States financial
institution, as defined in Subsection (e)(2), for the payment of
the valid claims of its United States policy holders and ceding
insurers, their assigns, and successors in interest. The trusteed
assuming insurer shall report annually not later than March 1 to the
State Board of Insurance information substantially the same as that
required to be reported on the NAIC Annual Statement form by
licensed insurers to enable the State Board of Insurance to
determine the sufficiency of the trust fund. In the case of a
single assuming insurer, the trust shall consist of a trusteed
account representing the assuming insurer's liabilities
attributable to business written in the United States and, in
addition, include a trusteed surplus of not less than $20 million.
In the case of a group of insurers, which group includes
unincorporated individual insurers, the trust shall consist of a
trusteed account representing the group's liabilities attributable
to business written in the United States and, in addition, include a
trusteed surplus of not less than $100 million and the group shall
make available to the State Board of Insurance an annual
certification by the group's domiciliary regulator and its
independent public accountants of the solvency of each underwriter.
Such trust shall be established in a form approved by the State
Board of Insurance. The trust instrument shall provide that
contested claims shall be valid and enforceable upon the final
order of any court of competent jurisdiction in the United States.
The trust shall vest legal title to its assets in the trustees of
the trust for its United States policy holders and ceding insurers,
their assigns, and successors in interest. The trust and the
assuming insurer shall be subject to examination as determined by
the State Board of Insurance. The trust described herein must
remain in effect for as long as the assuming insurer shall have
outstanding obligations due under the reinsurance agreements
subject to the trust. Not later than February 28 of each year the
trustees of the trust shall report to the State Board of Insurance
in writing setting forth the balance of the trust and listing the
trust's investments at the preceding year end and shall certify the
date of termination of the trust, if so planned, or certify that the
trust shall not expire prior to the next following December 31; or
(4) the reinsurance is ceded to an assuming insurer not
meeting the requirements of Subdivision (1), (2), or (3), but only
with respect to the insurance of risks located in a jurisdiction
where such reinsurance is required by applicable law or regulation
of that jurisdiction to be ceded to an assuming insurer that does
not meet the requirements of Subdivision (1), (2), or (3) of this
subsection.
(c) If the assuming insurer is not licensed or accredited to
transact insurance or reinsurance in this state, the credit
permitted by Subsection (b)(3) of this article shall not be allowed
unless the assuming insurer agrees in the reinsurance agreements:
(1) that in the event of the failure of the assuming insurer
to perform its obligations under the terms of the reinsurance
agreement, the assuming insurer, at the request of the ceding
insurer, shall submit to the jurisdiction of any court of competent
jurisdiction in any State of the United States, will comply with all
requirements necessary to give such court jurisdiction, and will
abide by the final decision of such court or of any Appellate Court
in the event of an appeal; and
(2) to designate the State Board of Insurance or a
designated attorney as its true and lawful attorney upon whom may be
served any lawful process in any action, suit, or proceeding
instituted by or on behalf of the ceding company. This provision,
however, is not intended to conflict with or override the
obligation of the parties to a reinsurance agreement to arbitrate
their disputes, if such an obligation is created in the agreement.
(d) Any asset or reduction from liability for the
reinsurance ceded to an assuming insurer not meeting the
requirements of Subsection (b) shall be allowed in an amount not
exceeding the liabilities carried by the ceding insurer, and such
asset or reduction shall be in the amount of funds held by or on
behalf of the ceding insurer, including funds held in trust for the
ceding insurer, under a reinsurance contract with such assuming
insurer as security for the payment of obligations thereunder, if
such security is held in the United States subject to withdrawal
solely by and under the exclusive control of the ceding insurer or,
in the case of a trust, held in a qualified United States financial
institution, as defined in Subsection (e). This security may be in
the form of:
(1) cash;
(2) securities readily marketable over a national exchange
with a maturity date of not later than one year listed by the
Securities Valuation Office of the National Association of
Insurance Commissioners and qualifying as admitted assets;
(3) clean, irrevocable, unconditional letters of credit,
issued or confirmed by a qualified United States financial
institution, as defined in Subsection (e)(1).
Letters of credit meeting applicable standards of issuer
acceptability as of the dates of their issuance or confirmation
shall, notwithstanding the issuing or confirming institution's
subsequent failure to meet applicable standards of issuer
acceptability, continue to be acceptable as security until their
expiration, extension, renewal, modification, or amendment,
whichever first occurs; provided, however, the letter of credit
must be replaced within three months after the date of the
institution's failure to meet applicable standards of issuer
acceptability.
(4) any other form of security acceptable to the
Commissioner.
(e) Qualified United States Financial Institutions. (1)
For the purposes of Subsection (d)(3), a "qualified United States
financial institution" means an institution that:
(A) is organized or, in the case of a United States office of
a foreign banking organization, licensed, under the laws of the
United States or any state thereof;
(B) is regulated, supervised, and examined by United States
federal or state authorities having regulatory authority over banks
and trust companies; and
(C) has been determined by either the Commissioner or the
Securities Valuation Office of the National Association of
Insurance Commissioners to meet such standards of financial
condition and standing as are considered necessary and appropriate
to regulate the quality of financial institutions whose letters of
credit will be acceptable to the Commissioner.
(2) A "qualified United States financial institution"
means, for the purposes of those provisions of this law specifying
those institutions that are eligible to act as a fiduciary of a
trust, an institution that:
(A) is organized, or, in the case of a United States branch
or agency office of a foreign banking organization, licensed, under
the laws of the United States or any state thereof and has been
granted the authority to operate with fiduciary powers; and
(B) is regulated, supervised, and examined by federal or
state authorities having regulatory authority over banks and trust
companies.
(f) The Board may adopt rules and regulations implementing
the provisions of this law.
(g) Subsections (a) through (f) of this article shall apply
to all reinsurance agreements having an inception, anniversary, or
renewal date not less than four months after the effective date of
this statute.
(h) A person does not have any rights against a reinsurer
that are not specifically set forth in the contract of reinsurance
or in a specific agreement between the reinsurer and the person.
(i) The State Board of Insurance shall require schedules of
reinsurance to be filed by every insurer at the time of making the
annual report and at such other times as the Board may direct.
(j) Credit may not be given in the accounting and financial
statements, either as an asset or a deduction from liability,
unless the reinsurance is payable by the assuming insurer on the
basis of the liability of the ceding insurer under the contracts
reinsured without diminution because of the insolvency of the
ceding insurer and is payable directly to the ceding insurer or to
its domiciliary liquidator or receiver.
(k) "Assuming insurer" means the insurer who under a
contract of reinsurance incurs to the ceding insurer an obligation
of which the performance is contingent on incurring of liability or
loss by the ceding insurer under its contract or contracts of
insurance made with third persons.
(l ) An insurer shall account for reinsurance agreements and
shall record those reinsurance agreements in the insurer's
financial statement in a manner that accurately reflects the effect
of the reinsurance agreements on the financial condition of the
company. The State Board of Insurance may adopt reasonable rules
relating to the accounting and financial statement requirements of
this section and the treatment of reinsurance agreements between
insurance companies, including minimum risk transfer standards,
asset debits or credits, reinsurance debits or credits, and reserve
debits or credits relating to the transfer of all or any part of an
insurer's risks or liabilities by reinsurance agreements and any
contingencies arising from reinsurance agreements. Rules adopted
subsequent to September 1, 1995, shall apply to reinsurance
agreements entered into on or after the effective date of such
rules, and to reinsurance agreements that are amended on or after
the effective date of such rules. A reinsurance agreement may
contain a provision that allows the offset of mutual debts and
credits between a ceding insurer and the assuming insurer, whether
arising out of one or more reinsurance agreements.
(m) The Commissioner may request the filing of financial
statements certified and audited by an independent certified public
accountant, certified copies of the certificate or letter of
authority from the domiciliary jurisdiction, and information on the
principals and management of any assuming insurer that does not
meet the requirements of Subsection (b) of this article. The
failure of an assuming insurer that does not meet the requirements
of Subsection (b) of this article to comply with a request for
information by the Commissioner may result in the Commissioner
issuing a directive prohibiting all licensed insurers from taking
credit for business ceded with any such assuming insurer after the
effective date of such directive. A nonlicensed insurer that is
included in the most recent quarterly listing published by the
Non-admitted Insurers Information Office of the National
Association of Insurance Commissioners is considered to have
complied with a request for information from the Commissioner.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1961, 57th Leg., p.
447, ch. 220, Sec. 1; Acts 1979, 66th Leg., p. 1167, ch. 567, Sec.
1, eff. Aug. 27, 1979.
Amended by Acts 1987, 70th Leg., ch. 564, Sec. 1, eff. Aug. 31,
1987; Acts 1989, 71st Leg., ch. 1082, Sec. 7.01, eff. Sept. 1,
1989. Subsecs. (a), (b), (e) amended by and Subsec. (m) added by
Acts 1991, 72nd Leg., ch. 242, Sec. 3.01, eff. Sept. 1, 1991;
Subsec. (a) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 13.01,
eff. Sept. 1, 1993; Subsec. (b) amended by Acts 1993, 73rd Leg.,
ch. 685, Sec. 13.06, eff. Sept. 1, 1993; Subsec. (l) amended by
Acts 1995, 74th Leg., ch. 614, Sec. 2, eff. Sept. 1, 1995.
Article: 1.61 2.10 2.10-1 2.10-2 2.10-3A 2.10-4 2.10-5 3.10 3.11 3.16 3.17 3.18 3.28 3.29 3.31
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Last modified: August 10, 2007
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