S.F. _____ H.F. _____ DIVISION I 1 CREDIT FOR REINSURANCE 2 Section 1. NEW SECTION . 521B.101 Purpose —— legislative 3 intent. 4 1. The purpose of this chapter is to protect the interests 5 of insureds, claimants, ceding insurers, assuming insurers, and 6 the public generally. 7 2. The general assembly declares its intent to ensure 8 adequate regulation of insurers and reinsurers and adequate 9 protection for those to whom insurers and reinsurers owe 10 obligations. 11 3. The general assembly declares that the matters contained 12 in this chapter are fundamental to the business of insurance in 13 accordance with 15 U.S.C. § 1011 – 1012. 14 Sec. 2. NEW SECTION . 521B.102 Credit allowed certain 15 domestic ceding insurers. 16 Credit for reinsurance shall be allowed a domestic ceding 17 insurer as either an asset or a reduction from liability on 18 account of reinsurance ceded only when the reinsurer meets the 19 requirements of subsection 1, 2, 3, 4, 5, or 6. Credit shall be 20 allowed under subsection 1, 2, or 3 only respecting cessions of 21 those kinds or classes of business which the assuming insurer 22 is licensed or otherwise permitted to write or assume in the 23 insurer’s state of domicile or, in the case of a United States 24 branch of an alien assuming insurer, in the state through which 25 the insurer is entered and licensed to transact insurance or 26 reinsurance. Credit shall be allowed under subsection 3 or 4 27 only if the applicable requirements of subsection 7 have been 28 satisfied. 29 1. Credit shall be allowed when the reinsurance is ceded to 30 an assuming insurer that is licensed to transact insurance or 31 reinsurance in this state. 32 2. Credit shall be allowed when the reinsurance is ceded 33 to an assuming insurer that is accredited by the commissioner 34 as a reinsurer in this state. In order to be eligible 35 -1- LSB 1268DP (3) 85 av/nh 1/ 20

S.F. _____ H.F. _____ for accreditation, an assuming insurer must do all of the 1 following: 2 a. File with the commissioner evidence of the assuming 3 insurer’s submission to this state’s jurisdiction. 4 b. Submit to this state’s authority to examine the assuming 5 insurer’s books and records. 6 c. Be licensed to transact insurance or reinsurance in at 7 least one state, or in the case of a United States branch of 8 an alien assuming insurer, be entered through and licensed to 9 transact insurance or reinsurance in at least one state. 10 d. File annually with the commissioner a copy of the 11 assuming insurer’s annual statement filed with the insurance 12 department of the assuming insurer’s state of domicile and a 13 copy of the assuming insurer’s most recent audited financial 14 statement. 15 e. Demonstrate to the satisfaction of the commissioner that 16 the assuming insurer has adequate financial capacity to meet 17 the assuming insurer’s reinsurance obligations and is otherwise 18 qualified to assume reinsurance from domestic insurers. An 19 assuming insurer is deemed to meet this requirement as of the 20 time of the assuming insurer’s application if the assuming 21 insurer maintains a surplus as regards policyholders in an 22 amount of not less than twenty million dollars and the assuming 23 insurer’s accreditation has not been denied by the commissioner 24 within ninety days after submission of the assuming insurer’s 25 application. 26 3. a. Credit shall be allowed when the reinsurance is ceded 27 to an assuming insurer that is domiciled in, or in the case of 28 a United States branch of an alien assuming insurer, is entered 29 through, a state that employs standards regarding credit for 30 reinsurance that are substantially similar to those applicable 31 under this chapter and the assuming insurer or United States 32 branch of an alien assuming insurer does all of the following: 33 (1) Maintains a surplus as regards policyholders in an 34 amount of not less than twenty million dollars. 35 -2- LSB 1268DP (3) 85 av/nh 2/ 20

S.F. _____ H.F. _____ (2) Submits to the authority of this state to examine the 1 assuming insurer’s books and records. 2 b. The requirement of paragraph “a” , subparagraph (1) does 3 not apply to reinsurance ceded and assumed pursuant to pooling 4 arrangements among insurers in the same holding company system. 5 4. a. Credit shall be allowed when the reinsurance is 6 ceded to an assuming insurer that maintains a trust fund 7 in a qualified United States financial institution, as 8 defined in section 521B.104, subsection 2, for payment of 9 the valid claims of the assuming insurer’s United States 10 ceding insurers, their assigns, and successors in interest. 11 To enable the commissioner to determine the sufficiency of 12 the trust fund, the assuming insurer shall report annually 13 to the commissioner information substantially the same as 14 that required to be reported on the national association of 15 insurance commissioners’ annual statement form by licensed 16 insurers. The assuming insurer shall submit to examination of 17 the assuming insurer’s books and records by the commissioner 18 and bear the expense of examination. 19 b. Credit for reinsurance shall not be granted under 20 this subsection unless all of the following conditions are 21 satisfied: 22 (1) The form of the trust and any amendments to the trust 23 have been approved by either of the following: 24 (a) The commissioner of the state where the trust is 25 domiciled. 26 (b) The commissioner of another state who, pursuant to 27 the terms of the trust instrument, has accepted principal 28 regulatory oversight of the trust. 29 (2) The form of the trust and any trust amendments are 30 filed with the commissioner of every state in which the ceding 31 insurer’s beneficiaries of the trust are domiciled. The trust 32 instrument shall provide that contested claims are valid and 33 enforceable upon the final order of any court of competent 34 jurisdiction in the United States. The trust shall vest legal 35 -3- LSB 1268DP (3) 85 av/nh 3/ 20

S.F. _____ H.F. _____ title to the trust’s assets in its trustees for the benefit 1 of the assuming insurer’s United States ceding insurers, 2 their assigns, and successors in interest. The trust and the 3 assuming insurer shall be subject to examination as determined 4 by the commissioner. 5 (3) The trust remains in effect for as long as the assuming 6 insurer has outstanding obligations due under the reinsurance 7 agreements subject to the trust. No later than February 28 8 of each year, the trustee of the trust shall report to the 9 commissioner in writing the balance of the trust and list 10 the trust’s investments at the preceding year-end, and shall 11 certify the date of termination of the trust, if so planned, or 12 certify that the trust will not expire prior to the following 13 December 31. 14 c. The following requirements apply to the following 15 categories of assuming insurer: 16 (1) The trust fund for a single assuming insurer shall 17 consist of funds in trust in an amount not less than the 18 assuming insurer’s liabilities attributable to reinsurance 19 ceded by United States ceding insurers, and in addition, the 20 assuming insurer shall maintain a trusteed surplus of not less 21 than twenty million dollars, except as provided in subparagraph 22 (2). 23 (2) At any time after an assuming insurer has permanently 24 discontinued underwriting new business secured by the trust 25 for at least three full years, the commissioner with principal 26 regulatory oversight of the trust may authorize a reduction 27 in the required trusteed surplus, but only after a finding, 28 based on an assessment of the risk, that the new required 29 trusteed surplus level is adequate for the protection of 30 United States ceding insurers, policyholders, and claimants 31 in light of reasonably foreseeable adverse loss development. 32 The risk assessment may involve an actuarial review, including 33 an independent analysis of reserves and cash flows, and shall 34 consider all material risk factors, including, when applicable, 35 -4- LSB 1268DP (3) 85 av/nh 4/ 20

S.F. _____ H.F. _____ the lines of business involved, the stability of the incurred 1 loss estimates, and the effect of the surplus requirements on 2 the assuming insurer’s liquidity or solvency. The minimum 3 required trusteed surplus shall not be reduced to an amount 4 less than thirty percent of the assuming insurer’s liabilities 5 attributable to reinsurance ceded by United States ceding 6 insurers covered by the trust. 7 (3) In the case of a group including incorporated and 8 individual unincorporated underwriters, all of the following 9 requirements are met: 10 (a) For reinsurance ceded under reinsurance agreements with 11 an inception, amendment, or renewal date on or after January 12 1, 1993, the trust shall consist of a trusteed account in 13 an amount not less than the respective underwriters’ several 14 liabilities attributable to business ceded by United States 15 domiciled ceding insurers to any underwriter of the group. 16 (b) For reinsurance ceded under reinsurance agreements 17 with an inception date on or before December 31, 1992, and 18 not amended or renewed after that date, notwithstanding the 19 other provisions of this chapter, the trust shall consist of 20 a trusteed account in an amount not less than the respective 21 underwriters’ several insurance and reinsurance liabilities 22 attributable to business written in the United States. 23 (c) In addition to the trusts described in subparagraph 24 divisions (a) and (b), the group shall maintain in trust a 25 trusteed surplus of which one hundred million dollars shall be 26 held jointly for the benefit of the United States domiciled 27 ceding insurers of any member of the group for all years of 28 account. 29 (d) The incorporated members of the group shall not be 30 engaged in any business other than underwriting as a member of 31 the group and shall be subject to the same level of regulation 32 and solvency control by the group’s domiciliary regulator as 33 are the unincorporated members of the group. 34 (e) Within ninety days after its financial statements are 35 -5- LSB 1268DP (3) 85 av/nh 5/ 20

S.F. _____ H.F. _____ due to be filed with the group’s domiciliary regulator, the 1 group shall provide to the commissioner an annual certification 2 by the group’s domiciliary regulator of the solvency of each 3 underwriter member, or if a certification is unavailable, 4 financial statements, prepared by independent public 5 accountants, of each underwriter member of the group. 6 (4) In the case of a group of incorporated underwriters 7 under common administration, the group shall meet all of the 8 following requirements: 9 (a) Have continuously transacted an insurance business 10 outside the United States for at least three years immediately 11 prior to making application for accreditation. 12 (b) Maintain aggregate policyholders’ surplus of at least 13 ten billion dollars. 14 (c) Maintain a trust fund in an amount not less than the 15 group’s several liabilities attributable to business ceded by 16 United States domiciled ceding insurers to any member of the 17 group pursuant to reinsurance contracts issued in the name of 18 the group. 19 (d) In addition, maintain a joint trusteed surplus of 20 which one hundred million dollars shall be held jointly for 21 the benefit of United States domiciled ceding insurers of 22 any member of the group as additional security for these 23 liabilities. 24 (e) Within ninety days after the group’s financial 25 statements are due to be filed with the group’s domiciliary 26 regulator, make available to the commissioner an annual 27 certification of each underwriter member’s solvency by the 28 member’s domiciliary regulator and financial statements of 29 each underwriter member of the group prepared by the group’s 30 independent public accountant. 31 5. Credit shall be allowed when the reinsurance is ceded to 32 an assuming insurer that has been certified by the commissioner 33 as a reinsurer in this state and the assuming reinsurer secures 34 its obligations in accordance with the following requirements: 35 -6- LSB 1268DP (3) 85 av/nh 6/ 20

S.F. _____ H.F. _____ a. In order to be eligible for certification, the assuming 1 insurer shall meet all of the following requirements: 2 (1) The assuming insurer shall be domiciled and licensed to 3 transact insurance or reinsurance in a qualified jurisdiction, 4 as determined by the commissioner pursuant to paragraph “c” . 5 (2) The assuming insurer shall maintain minimum capital and 6 surplus, or its equivalent, in an amount to be determined by 7 the commissioner pursuant to rule. 8 (3) The assuming insurer shall maintain financial strength 9 ratings from two or more rating agencies deemed acceptable by 10 the commissioner pursuant to rule. 11 (4) The assuming insurer shall agree to submit to the 12 jurisdiction of this state, appoint the commissioner as the 13 assuming insurer’s agent for service of process in this state, 14 and agree to provide security for one hundred percent of the 15 assuming insurer’s liabilities attributable to reinsurance 16 ceded by United States ceding insurers, if the assuming insurer 17 resists enforcement of a final United States judgment. 18 (5) The assuming insurer shall agree to meet applicable 19 information filing requirements as determined by the 20 commissioner, both with respect to an initial application for 21 certification and on an ongoing basis. 22 (6) The assuming insurer shall satisfy any other 23 requirements for certification deemed relevant by the 24 commissioner. 25 b. An association including incorporated and individual 26 unincorporated underwriters may be a certified reinsurer. In 27 order to be eligible for certification, the association shall 28 satisfy the requirements of paragraph “a” and in addition 29 satisfy all of the following requirements: 30 (1) The association shall satisfy the association’s minimum 31 capital and surplus requirements through the capital and 32 surplus equivalents (net of liabilities) of the association and 33 its members, which shall include a joint central fund that may 34 be applied to any unsatisfied obligation of the association or 35 -7- LSB 1268DP (3) 85 av/nh 7/ 20

S.F. _____ H.F. _____ any of its members, in an amount determined by the commissioner 1 to provide adequate protection. 2 (2) The incorporated members of the association shall 3 not be engaged in any business other than underwriting as a 4 member of the association and shall be subject to the same 5 level of regulation and solvency control by the association’s 6 domiciliary regulator as are the unincorporated members of the 7 association. 8 (3) Within ninety days after the association’s financial 9 statements are due to be filed with the association’s 10 domiciliary regulator, the association shall provide to the 11 commissioner an annual certification by the association’s 12 domiciliary regulator, of the solvency of each underwriter 13 member, or if a certification is unavailable, financial 14 statements, prepared by an independent public accountant, of 15 each underwriter member of the association. 16 c. The commissioner shall create and publish a list of 17 qualified jurisdictions under which an assuming insurer 18 licensed and domiciled in such jurisdiction is eligible to be 19 considered for certification by the commissioner as a certified 20 reinsurer. 21 (1) In order to determine whether the domiciliary 22 jurisdiction of a non-United States insurer is eligible to 23 be recognized as a qualified jurisdiction, the commissioner 24 shall evaluate the appropriateness and effectiveness of the 25 reinsurance supervisory system of the jurisdiction, both 26 initially and on an ongoing basis, and consider the rights, 27 benefits, and the extent of reciprocal recognition afforded 28 by the non-United States jurisdiction to reinsurers licensed 29 and domiciled in the United States. In order to be recognized 30 as a qualified jurisdiction, a jurisdiction must agree to 31 share information and to cooperate with the commissioner with 32 respect to all certified reinsurers domiciled within that 33 jurisdiction. A jurisdiction shall not be recognized as a 34 qualified jurisdiction if the commissioner has determined 35 -8- LSB 1268DP (3) 85 av/nh 8/ 20

S.F. _____ H.F. _____ that the jurisdiction does not adequately and promptly 1 enforce final United States judgments and arbitration awards. 2 Additional factors may be considered in the discretion of the 3 commissioner. 4 (2) A list of qualified jurisdictions shall be published 5 through the national association of insurance commissioners’ 6 committee process. The commissioner shall consider this list 7 in determining qualified jurisdictions. If the commissioner 8 recognizes a jurisdiction as qualified that does not appear on 9 the list of qualified jurisdictions, the commissioner shall 10 provide thoroughly documented justification for the recognition 11 in accordance with criteria to be developed by rule. 12 (3) United States jurisdictions that meet the requirements 13 for accreditation under the national association of insurance 14 commissioners’ financial standards and accreditation program 15 shall be recognized as qualified jurisdictions. 16 (4) If a certified reinsurer’s domiciliary jurisdiction 17 ceases to be a qualified jurisdiction, the commissioner may, 18 in the commissioner’s discretion, suspend the reinsurer’s 19 certification indefinitely, in lieu of revocation. 20 d. The commissioner shall assign a rating to each 21 certified reinsurer, giving due consideration to the financial 22 strength ratings that have been assigned by rating agencies 23 deemed acceptable to the commissioner pursuant to rule. The 24 commissioner shall publish a list of all certified reinsurers 25 and their ratings. 26 e. A certified reinsurer shall secure obligations assumed 27 from United States ceding insurers under this subsection at 28 a level consistent with the certified reinsurer’s rating, as 29 specified in rules adopted by the commissioner. 30 (1) In order for a domestic ceding insurer to qualify 31 for full financial statement credit for reinsurance ceded 32 to a certified reinsurer, the certified reinsurer shall 33 maintain security in a form acceptable to the commissioner and 34 consistent with the provisions of section 521B.103, or in a 35 -9- LSB 1268DP (3) 85 av/nh 9/ 20

S.F. _____ H.F. _____ multibeneficiary trust in accordance with subsection 4, except 1 as otherwise provided in this subsection. 2 (2) If a certified reinsurer maintains a trust to fully 3 secure its obligations subject to subsection 4, and chooses to 4 secure its obligations incurred as a certified reinsurer in the 5 form of a multibeneficiary trust, the certified reinsurer shall 6 maintain separate trust accounts for its obligations incurred 7 under reinsurance agreements issued or renewed as a certified 8 reinsurer with reduced security as permitted by this subsection 9 or comparable laws of other United States jurisdictions and 10 for its obligations subject to subsection 4. It shall be a 11 condition to the grant of certification under this subsection 12 that the certified reinsurer shall bind itself, by the language 13 of the trust and by agreement with the commissioner which has 14 principal regulatory oversight of each such trust account, 15 to fund, upon termination of any such trust account, any 16 deficiency of any other trust account out of the remaining 17 surplus of the terminated trust account. 18 (3) The minimum trusteed surplus requirements provided 19 in subsection 4 are not applicable with respect to a 20 multibeneficiary trust maintained by a certified reinsurer for 21 the purpose of securing obligations under this subsection, 22 except that such a multibeneficiary trust shall maintain a 23 minimum trusteed surplus of ten million dollars. 24 (4) With respect to obligations incurred by a certified 25 reinsurer under this subsection, if the security is 26 insufficient, the commissioner shall reduce the allowable 27 credit by an amount proportionate to the deficiency, and the 28 commissioner has the discretion to impose further reductions 29 in allowable credit upon finding that there is a material risk 30 that the certified reinsurer’s obligations will not be paid in 31 full when due. 32 (5) For purposes of this subsection, a certified reinsurer 33 whose certification has been terminated for any reason shall be 34 treated as a certified reinsurer required to secure all of its 35 -10- LSB 1268DP (3) 85 av/nh 10/ 20

S.F. _____ H.F. _____ obligations. 1 (a) As used in this subsection, the term “terminated” 2 includes revocation, suspension, voluntary surrender, and 3 inactive status. 4 (b) If the commissioner continues to assign a higher rating 5 to a certified reinsurer as permitted by other provisions 6 of this subsection, this requirement does not apply to a 7 certified reinsurer in inactive status or to a reinsurer whose 8 certification has been suspended. 9 f. If an assuming insurer applying for certification as a 10 reinsurer in this state has been certified as a reinsurer in 11 another jurisdiction accredited by the national association of 12 insurance commissioners, the commissioner has the discretion 13 to defer to that jurisdiction’s certification, and has 14 the discretion to defer to the rating assigned by that 15 jurisdiction, and the assuming insurer shall be considered to 16 be a certified reinsurer in this state. 17 g. A certified reinsurer that ceases to assume new 18 business in this state may request to maintain the reinsurer’s 19 certification in inactive status in order to qualify for 20 a reduction in the amount of security required for the 21 reinsurer’s in-force business. An inactive certified reinsurer 22 shall continue to comply with all applicable requirements 23 of this subsection, and the commissioner shall assign the 24 reinsurer a rating that takes into account, if relevant, the 25 reasons why the reinsurer is not assuming new business. 26 6. Credit shall be allowed when reinsurance is ceded to 27 an assuming insurer that does not meet the requirements of 28 subsection 1, 2, 3, 4, or 5, but only as to the insurance 29 of risks located in jurisdictions where the reinsurance is 30 required by applicable law or regulation of that jurisdiction. 31 7. a. If the assuming insurer is not licensed, accredited, 32 or certified to transact insurance or reinsurance in this 33 state, the credit permitted by subsections 3 and 4 shall not be 34 allowed unless the assuming insurer agrees in the reinsurance 35 -11- LSB 1268DP (3) 85 av/nh 11/ 20

S.F. _____ H.F. _____ agreements to do all of the following: 1 (1) In the event of the failure of the assuming insurer 2 to perform its obligations under the terms of the reinsurance 3 agreement, the assuming insurer, at the request of the ceding 4 insurer, will submit to the jurisdiction of any court of 5 competent jurisdiction in any state of the United States, 6 will comply with all requirements necessary to give the court 7 jurisdiction, and will abide by the final decision of the 8 court or of any appellate court in the event of any appeal, 9 concerning such failure. 10 (2) The assuming insurer will designate the commissioner 11 or a designated attorney as its true and lawful attorney to 12 receive lawful process in any action, suit, or proceeding 13 instituted by or on behalf of the ceding insurer. 14 b. This subsection is not intended to conflict with or 15 override the obligation of the parties to a reinsurance 16 agreement to arbitrate their disputes if the obligation to 17 arbitrate is created in the agreement. 18 8. If the assuming insurer does not meet the requirements of 19 subsection 1, 2, or 3, the credit permitted by subsection 4 or 20 5 shall not be allowed unless the assuming insurer agrees in a 21 trust agreement to satisfy the following conditions: 22 a. Notwithstanding any other provisions contained in the 23 trust instrument, if the trust fund is inadequate because the 24 trust fund contains an amount less than the amount required by 25 subsection 4, paragraph “c” , or if the grantor of the trust has 26 been declared insolvent or has been placed into receivership, 27 rehabilitation, liquidation, or similar proceedings under 28 the laws of the trust’s state or country of domicile, the 29 trustee shall comply with an order of the commissioner with 30 regulatory oversight over the trust or with an order of a court 31 of competent jurisdiction directing the trustee to transfer 32 all of the assets of the trust fund to the commissioner with 33 regulatory oversight over the trust. 34 b. The assets of the trust shall be distributed, and claims 35 -12- LSB 1268DP (3) 85 av/nh 12/ 20

S.F. _____ H.F. _____ shall be filed and valued, by the commissioner with regulatory 1 oversight over the trust in accordance with the laws of the 2 state in which the trust is domiciled that are applicable to 3 the liquidation of domestic insurance companies. 4 c. If the commissioner with regulatory oversight over the 5 trust determines that the assets of the trust fund or any part 6 of the trust fund are not necessary to satisfy the claims of 7 the United States ceding insurers of the grantor of the trust, 8 the assets of the trust or any part of those assets shall be 9 returned by the commissioner with regulatory oversight over the 10 trust to the trustee for distribution in accordance with the 11 trust agreement. 12 d. The grantor shall waive any right otherwise available to 13 the grantor under United States law that is inconsistent with 14 the provisions of this subsection. 15 9. If an accredited or certified reinsurer ceases to 16 meet the requirements of this section for accreditation or 17 certification, the commissioner may suspend or revoke the 18 reinsurer’s accreditation or certification. 19 a. The commissioner shall give the reinsurer notice and 20 opportunity for hearing prior to such suspension or revocation. 21 The suspension or revocation shall not take effect until after 22 the commissioner’s order on hearing unless one of the following 23 applies: 24 (1) The reinsurer waives its right to hearing. 25 (2) The commissioner’s order is based on regulatory action 26 by the reinsurer’s domiciliary jurisdiction or by the voluntary 27 surrender or termination of the reinsurer’s eligibility to 28 transact insurance or reinsurance business in the reinsurer’s 29 domiciliary jurisdiction or in the primary certifying state of 30 the reinsurer under subsection 5, paragraph “f” . 31 (3) The commissioner finds that an emergency requires 32 immediate action and a court of competent jurisdiction has not 33 stayed the commissioner’s action. 34 b. While a reinsurer’s accreditation or certification is 35 -13- LSB 1268DP (3) 85 av/nh 13/ 20

S.F. _____ H.F. _____ suspended, a reinsurance contract issued or renewed after the 1 effective date of the suspension does not qualify for credit 2 except to the extent that the reinsurer’s obligations under the 3 reinsurance contract are secured in accordance with section 4 521B.103. If a reinsurer’s accreditation or certification is 5 revoked, credit for reinsurance shall not be granted after the 6 effective date of the revocation except to the extent that 7 the reinsurer’s obligations under the contract are secured 8 in accordance with subsection 5, paragraph “e” , or section 9 521B.103. 10 10. a. A domestic ceding insurer shall take steps to 11 manage its reinsurance recoverables proportionate to its own 12 book of business. A domestic ceding insurer shall notify the 13 commissioner within thirty days after reinsurance recoverables 14 from any single assuming insurer, or group of affiliated 15 assuming insurers, exceeds fifty percent of the domestic ceding 16 insurer’s last reported surplus to policyholders, or after it 17 is determined that reinsurance recoverables from any single 18 assuming insurer, or group of affiliated assuming insurers, 19 is likely to exceed this limit. The notification shall 20 demonstrate that the exposure is safely managed by the domestic 21 ceding insurer. 22 b. A domestic ceding insurer shall take steps to diversify 23 its reinsurance program. A domestic ceding insurer shall 24 notify the commissioner within thirty days after ceding to 25 any single assuming insurer, or group of affiliated assuming 26 insurers, more than twenty percent of the domestic ceding 27 insurer’s gross written premium in the prior calendar year, 28 or after the domestic ceding insurer has determined that the 29 reinsurance ceded to any single assuming insurer, or group of 30 affiliated assuming insurers, is likely to exceed this limit. 31 The notification shall demonstrate that the exposure is safely 32 managed by the domestic ceding insurer. 33 Sec. 3. NEW SECTION . 521B.103 Limited credit allowed other 34 domestic ceding insurers. 35 -14- LSB 1268DP (3) 85 av/nh 14/ 20

S.F. _____ H.F. _____ 1. An asset or a reduction from liability for reinsurance 1 ceded by a domestic insurer to an assuming insurer not meeting 2 the requirements of section 521B.102, shall be allowed in an 3 amount not exceeding the liabilities carried by the ceding 4 insurer. The reduction shall be in the amount of funds held 5 by or on behalf of the ceding insurer, including funds held in 6 trust for the ceding insurer, under a reinsurance contract with 7 the assuming insurer as security for the payment of obligations 8 under the contract, if the security is held in the United 9 States subject to withdrawal solely by, and under the exclusive 10 control of, the ceding insurer, or in the case of a trust, held 11 in a qualified United States financial institution as defined 12 in section 521B.104, subsection 2. 13 2. The security may be in the form of any of the following: 14 a. Cash. 15 b. A security listed by the securities valuation office of 16 the national association of insurance commissioners, including 17 those securities deemed exempt from filing as defined by the 18 purposes and procedures manual of the securities valuation 19 office and those securities qualifying as admitted assets. 20 c. (1) Clean, irrevocable, unconditional letters of credit, 21 issued or confirmed by a qualified United States financial 22 institution, as defined in section 521B.104, subsection 1, 23 effective no later than December 31 of the year for which the 24 filing is being made, and in the possession of, or in trust 25 for, the ceding insurer on or before the filing date of the 26 ceding insurer’s annual statement. 27 (2) A letter of credit meeting applicable standards of 28 issuer acceptability as of the date of the letter of credit’s 29 issuance or confirmation shall, notwithstanding the issuing or 30 confirming institution’s subsequent failure to meet applicable 31 standards of issuer acceptability, continue to be acceptable 32 as security until the expiration, extension, renewal, 33 modification, or amendment of the letter of credit, whichever 34 occurs first. 35 -15- LSB 1268DP (3) 85 av/nh 15/ 20

S.F. _____ H.F. _____ d. Any other form of security acceptable to the 1 commissioner. 2 Sec. 4. NEW SECTION . 521B.104 Qualified United States 3 financial institutions. 4 1. For purposes of section 521B.103, subsection 2, 5 paragraph “c” , a “qualified United States financial institution” 6 means an institution that meets all of the following 7 requirements: 8 a. Is organized, or in the case of a United States office of 9 a foreign banking organization is licensed, under the laws of 10 the United States or of any state of the United States. 11 b. Is regulated, supervised, and examined by United States 12 federal or state authorities having regulatory authority over 13 banks and trust companies. 14 c. Has been determined by either the commissioner or the 15 securities valuation office of the national association of 16 insurance commissioners to meet the standards of financial 17 condition and standing as are considered necessary and 18 appropriate to regulate the quality of financial institutions 19 whose letters of credit will be acceptable to the commissioner. 20 2. For purposes of those provisions of this chapter 21 specifying the institutions that are eligible to act as a 22 fiduciary of a trust, a “qualified United States financial 23 institution” means an institution that meets all of the 24 following requirements: 25 a. Is organized, or in the case of a United States branch or 26 agency office of a foreign banking organization is licensed, 27 under the laws of the United States or of any state of the 28 United States, and has been granted authority to operate with 29 fiduciary powers. 30 b. Is regulated, supervised, and examined by federal or 31 state authorities having regulatory authority over banks and 32 trust companies. 33 Sec. 5. NEW SECTION . 521B.105 Rules. 34 The commissioner may adopt rules, pursuant to chapter 17A, 35 -16- LSB 1268DP (3) 85 av/nh 16/ 20

S.F. _____ H.F. _____ as necessary or convenient to administer this chapter. 1 Sec. 6. NEW SECTION . 521B.106 Applicability. 2 This chapter applies to all cessions under reinsurance 3 agreements that occur on or after January 1, 2014. 4 Sec. 7. REPEAL. Sections 521B.1 through 521B.5, Code 2013, 5 are repealed. 6 Sec. 8. TRANSITION PROVISION —— APPLICABILITY TO PRIOR 7 CESSIONS. Sections 521B.1 through 521B.5, Code 2013, shall 8 apply to all cessions under reinsurance agreements that occur 9 prior to January 1, 2014. 10 DIVISION II 11 COORDINATING PROVISIONS 12 Sec. 9. Section 508.33A, subsection 5, Code 2013, is amended 13 to read as follows: 14 5. A limited purpose subsidiary life insurance company 15 organized pursuant to this section shall be deemed to be 16 licensed to transact the business of reinsurance for the 17 purposes of section 521B.2 521B.102 , subsection 1 , but may only 18 reinsure risks of its organizing life insurance company and 19 of affiliated companies. A limited purpose subsidiary life 20 insurance company organized pursuant to this section may, upon 21 approval of the commissioner, purchase reinsurance to cede the 22 reinsurance risks assumed by the limited purpose subsidiary 23 life insurance company. 24 Sec. 10. Section 515E.3A, subsection 5, Code 2013, is 25 amended to read as follows: 26 5. Letters of credit used by a risk retention group to 27 meet surplus requirements shall be clean, irrevocable, and 28 unconditionally issued or confirmed by a qualified United 29 States financial institution as defined in section 521B.4 30 521B.104 , subsection 2 . The beneficiary of each letter of 31 credit being used shall be the commissioner. 32 DIVISION III 33 EFFECTIVE DATE 34 Sec. 11. EFFECTIVE DATE. This Act takes effect January 1, 35 -17- LSB 1268DP (3) 85 av/nh 17/ 20

S.F. _____ H.F. _____ 2014. 1 EXPLANATION 2 This bill contains new provisions that allow a domestic 3 insurer to cede reinsurance to an assuming insurer and receive 4 credit for such cession as either an asset or a reduction from 5 liability on account of the reinsurance ceded, provided that 6 certain requirements are met. The bill applies to all cessions 7 that occur on or after January 1, 2014, and repeals current 8 provisions relating to credit for reinsurance as of that date. 9 The bill allows a ceding insurer credit when reinsurance is 10 ceded to an assuming insurer that (1) is licensed to transact 11 insurance or reinsurance in this state; (2) is accredited by 12 the commissioner as a reinsurer in this state; (3) is domiciled 13 in, or in the case of a United States branch of an alien 14 assuming insurer, is entered through, a state that employs 15 substantially similar standards for allowing credit as the 16 standards applicable in this state; (4) maintains a sufficient 17 trust fund in a qualified United States financial institution 18 for the payment of valid claims of the ceding insurer; (5) is 19 certified as a reinsurer in this state by the commissioner of 20 insurance; (6) does not meet the foregoing requirements but 21 credit is allowed only as to the insurance of risks located in 22 jurisdictions where the reinsurance is required by the laws of 23 that jurisdiction; (7) even if the insurer is not licensed, 24 accredited or certified to transact insurance or reinsurance 25 in this state, the assuming insurer agrees in reinsurance 26 agreements to submit to the jurisdiction of a United States’ 27 court and to receive lawful process through a designated 28 agent; or (8) even if the insurer is not licensed, accredited, 29 or domiciled in a state that employs similar standards, the 30 assuming insurer agrees to satisfy specified conditions in 31 a trust agreement. If an accredited or certified reinsurer 32 ceases to meet the requirements of the bill, the commissioner 33 may suspend or revoke the reinsurer’s accreditation or 34 certification upon notice and hearing. 35 -18- LSB 1268DP (3) 85 av/nh 18/ 20

S.F. _____ H.F. _____ A domestic ceding insurer is required to manage its 1 reinsurance recoverables proportionate to its own book 2 of business. A domestic ceding insurer must notify the 3 commissioner if reinsurance recoverables from any single 4 assuming insurer exceed or are likely to exceed 50 percent 5 of the domestic ceding insurer’s last reported surplus to 6 policyholders. 7 A domestic ceding insurer is also required to take steps to 8 diversify its reinsurance program. A domestic ceding insurer 9 must notify the commissioner after ceding, or if it is likely 10 to cede to any single insurer or group of affiliated insurers, 11 more than 20 percent of the domestic ceding insurer’s gross 12 written premium in the prior calendar year. 13 The bill allows an asset or reduction from liability for 14 reinsurance ceded by a domestic insurer to an assuming insurer 15 not meeting the foregoing requirements of the bill, in an 16 amount not exceeding the liabilities carried by the ceding 17 insurer. The asset or reduction shall be in the amount of 18 funds held by or on behalf of the ceding insurer, including 19 funds held in trust for the ceding insurer, under a reinsurance 20 contract with the assuming insurer as security for the payment 21 of obligations under the contract, if the security is held in 22 the United States or, in the case of a trust, in a qualified 23 United States financial institution, as defined in the bill. 24 The security may be in the form of cash; a security 25 listed by the securities valuation office of the national 26 association of insurance commissioners, including securities 27 deemed exempt from filing and qualifying as admitted assets; 28 clean, irrevocable, unconditional letters of credit, issued or 29 confirmed by a qualified United States financial institution; 30 or a letter of credit meeting applicable standards of issuer 31 acceptability as specified. 32 The commissioner may adopt rules to administer the new 33 provisions. 34 The bill applies to all cessions under reinsurance 35 -19- LSB 1268DP (3) 85 av/nh 19/ 20