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the policies reinsured under the Agreements became apparent in
1991 when, as a result of financial problems experienced by UPL,
significantly more of the policies were surrendered than had been
expected.
We find support for our standard in the regulations of the
NAIC. In 1985, the NAIC issued its Model Regulation on Life
Reinsurance Agreements (the 1985 Model Regulation). The 1985
Model Regulation states that a ceding company may not receive
credit for reinsurance if any of the following conditions exist,
in substance or in effect:
(1) the primary effect of the reinsurance
agreement is to transfer deficiency reserves
or excess interest reserves to the books of
the reinsurer for a "risk charge" and the
agreement does not provide for significant
participation by the reinsurer in one or more
of the following risks: mortality, morbidity,
investment or surrender benefit;
(2) the reserve credit taken by the ceding
insurer is not in compliance with the
Insurance Law (or Code), Rules or
Regulations, including actuarial
interpretations or standards adopted by the
Department;
(3) the reserve credit taken by the ceding
insurer is greater than the underlying
reserve of the ceding company supporting the
policy obligations transferred under the
reinsurance agreement;
(4) the ceding insurer is required to
reimburse the reinsurer for negative
experience under the reinsurance agreement,
except that neither offsetting experience
refunds against prior years' losses nor
payment by the ceding insurer of an amount
equal to prior years' losses upon voluntary
termination of in-force reinsurance by that
ceding insurer shall be considered such a
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