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reimbursement to the reinsurer for negative
experience;
(5) the ceding insurer can be deprived of
surplus at the reinsurer's option or
automatically upon the occurrence of some
event, such as the insolvency of the ceding
insurer, except that termination of the
reinsurance agreement by the reinsurer for
non-payment of reinsurance premiums shall not
be considered to be such a deprivation of
surplus;
(6) the ceding insurer must, at specific
points in time scheduled in the agreement,
terminate or automatically recapture all or
part of the reinsurance ceded;
(7) no cash payment is due from the
reinsurer, throughout the lifetime of the
reinsurance agreement, with all settlements
prior to the termination date of the
agreement made only in a "reinsurance
account," and no funds in such account are
available for the payment of benefits; or
(8) the reinsurance agreement involves the
possible payment by the ceding insurer to the
reinsurer of amounts other than from income
reasonably expected from the reinsured
policies.[18]
The NAIC issued the 1985 Model Regulation primarily to
distinguish reinsurance agreements that legitimately transferred
risk, from those that did not. The NAIC was concerned that
affording reinsurance treatment for regulatory purposes absent a
meaningful transfer of risk did not fairly represent the
financial condition of the parties to the reinsurance agreement.
The 1985 Model Regulation sets forth rules for a ceding company's
18 In 1992, the NAIC issued another regulation that
generally updated the Model Regulation. As of August 16, 1993,
42 States had adopted a version of the Model Regulation or its
successor, or had legislation pending.
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