# Title 26.1 — Insurance

## Chapter 26.1-31.2 — Reinsurance Credit

### § 26.1-31.2-01. Credit allowed a domestic ceding insurer.

1. Credit for reinsurance must be allowed a domestic ceding insurer as either an asset or
a reduction from liability on account of reinsurance ceded only when the reinsurer
meets the requirements of subsection 2, 3, 4, 5, 6, 7, or 8. Credit will be allowed under
subsection 2, 3, or 4 only with respect to cessions of a kind or class of business that
the assuming insurer is licensed or otherwise permitted to write or assume in its state
of domicile or, in the case of a United States branch of an alien assuming insurer, in
the state through which it is entered and licensed to transact insurance or reinsurance.
Credit must be allowed under subsection 4 or 5 only if the applicable requirements of
subsection 9 have been satisfied.
2. Credit must be allowed when the reinsurance is ceded to an assuming insurer that is
licensed to transact insurance or reinsurance in this state.
3. Credit must be allowed when the reinsurance is ceded to an assuming insurer which is
accredited by the commissioner as a reinsurer in this state. In order to be eligible for
accreditation, a reinsurer:
a. Shall file with the commissioner evidence of its submission to this state's
jurisdiction;
b. Shall submit to this state's authority to examine its books and records;
c. Must be 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, be entered
through and licensed to transact insurance or reinsurance in at least one state;
d. Annually, shall file with the commissioner a copy of its annual statement filed with
the insurance department of its state of domicile and a copy of its most recent
audited financial statement; and
e. Shall demonstrate to the satisfaction of the commissioner the assuming insurer
has adequate financial capacity to meet the assuming insurer's reinsurance
obligations and is otherwise qualified to assume reinsurance from domestic
insurers. An assuming insurer is deemed to meet this requirement as of the time
of application the assuming insurer maintains a surplus as regards policyholders
in an amount which is not less than twenty million dollars and the assuming
insurer's accreditation has not been denied by the commissioner within ninety
days after submission of its application.
4. a. Credit must be allowed when the reinsurance is ceded to an assuming insurer
domiciled in, or in the case of a United States branch of an alien assuming
insurer, is entered through, a state which employs standards regarding credit for
reinsurance substantially similar to those applicable under this statute and the
assuming insurer or United States branch of an alien assuming insurer:
(1) Maintains a surplus as regards policyholders in an amount not less than
twenty million dollars; and
(2) Submits to the authority of this state to examine its books and records.
b. The requirement of subdivision a does not apply to reinsurance ceded and
assumed pursuant to pooling arrangements among insurers in the same holding
company system.
5. a. Credit must be allowed when the reinsurance is ceded to an assuming insurer
that maintains a trust fund in a qualified United States financial institution, as
defined in subsection 2 of section 26.1-31.2-03, for the payment of valid claims of
its United States ceding insurers, their assigns, and successors in interest. To
enable the commissioner to determine the sufficiency of the trust fund, the
assuming insurer shall report annually to the commissioner information
substantially the same as that required to be reported on the national association
of insurance commissioners annual statement form by licensed insurers. The
assuming insurer shall submit to examination of the insurer's books and records
by the commissioner and bear the expense of examination.

b. (1) Credit for reinsurance may not be granted under this subsection unless the
form of the trust and any amendments to the trust have been approved by:
(a) The commissioner of the state in which the trust is domiciled; or
(b) The commissioner of another state who, pursuant to the terms of the
trust instrument, accepted principal regulatory oversight of the trust.
(2) The form of the trust and any trust amendments also must be filed with the
commissioner of every state in which the ceding insurer beneficiaries of the
trust are domiciled. The trust instrument must provide that contested claims
are valid and enforceable upon the final order of any court of competent
jurisdiction in the United States. The trust must vest legal title to the trust's
assets in the trust's trustees for the benefit of the assuming insurer's United
States ceding insurers, their assigns, and successors in interest. The trust
and the assuming insurer are subject to examination as determined by the
commissioner.
(3) The trust shall remain in effect for as long as the assuming insurer has
outstanding obligations due under the reinsurance agreements subject to
the trust. No later than February twenty-eighth of each year the trustee of
the trust shall report to the commissioner in writing the balance of the trust
and listing of the trust's investments at the preceding year-end and shall
certify the date of termination of the trust, if so planned, or certify the trust
will not expire before the following December thirty-first.
c. The following requirements apply to the following categories of assuming insurer:
(1) The trust fund for a single assuming insurer must consist of funds in trust in
an amount not less than the assuming insurer's liabilities attributable to
reinsurance ceded by United States ceding insurers and, in addition, the
assuming insurer shall maintain a trusteed surplus of not less than twenty
million dollars, except as provided in paragraph 2.
(2) At any time after the assuming insurer has permanently discontinued
underwriting new business secured by the trust for at least three full years,
the commissioner with principal regulatory oversight of the trust may
authorize a reduction in the required trusteed surplus, but only after a
finding, based on an assessment of the risk, that the new required surplus
level is adequate for the protection of United States ceding insurers,
policyholders, and claimants in light of reasonably foreseeable adverse loss
development. The risk assessment may involve an actuarial review,
including an independent analysis of reserves and cash flows, and must
consider all material risk factors, including when applicable the lines of
business involved, the stability of the incurred loss estimates, and the effect
of the surplus requirements on the assuming insurer's liquidity or solvency.
The minimum required trusteed surplus may not be reduced to an amount
less than thirty percent of the assuming insurer's liabilities attributable to
reinsurance ceded by United States ceding insurers covered by the trust.
(3) (a) In the case of a group, including incorporated and individual
unincorporated underwriters:
[1] For reinsurance ceded under a reinsurance agreement with an
inception, amendment, or renewal date after December 31, 1992,
the trust must consist of a trusteed account in an amount not less
than the respective underwriters' several liabilities attributable to
business ceded by United States domiciled ceding insurers to
any underwriter of the group;
[2] For reinsurance ceded under a reinsurance agreement with an
inception date before January 1, 1993, and not amended or
renewed after that date, notwithstanding the other provisions of
this chapter, the trust must consist of a trusteed account in an
amount not less than the respective underwriters' several

insurance and reinsurance liabilities attributable to business
written in the United States; and
[3] In addition to these trusts, the group shall maintain a trusteed
surplus of one hundred million dollars which must be held jointly
for the benefit of the United States domiciled ceding insurers of
any member of the group for all years of account.
(b) The incorporated members of the group may not be engaged in any
business other than underwriting as a member of the group and are
subject to the same level of regulation and solvency control by the
group's domiciliary regulator as are the unincorporated members.
(c) Within ninety days after its financial statements are due to be filed with
the group's domiciliary regulator, the group shall provide to the
commissioner an annual certification by the group's domiciliary
regulator of the solvency of each underwriter member; or if a
certification is unavailable, financial statements prepared by
independent public accountants of each underwriter member of the
group.
(4) In the case of a group of incorporated underwriters under common
administration, the group:
(a) Must have continuously transacted an insurance business outside the
United States for at least three years immediately prior to making
application for accreditation;
(b) Shall maintain aggregate policyholders' surplus of at least ten billion
dollars;
(c) Shall maintain a trust fund in an amount not less than the group's
several liabilities attributable to business ceded by United States
domiciled ceding insurers to any member of the group pursuant to
reinsurance contracts issued in the name of the group;
(d) Shall maintain a joint trusteed surplus of which one hundred million
dollars must be held jointly for the benefit of United States domiciled
ceding insurers of any member of the group as additional security for
these liabilities; and
(e) Within ninety days after its financial statements are due to be filed with
the group's domiciliary regulator, shall make available to the
commissioner an annual certification of each underwriter member's
solvency by the member's domiciliary regulator and financial
statements of each underwriter member of the group prepared by its
independent public accountant.
6. Credit must be allowed when the reinsurance is ceded to an assuming insurer that has
been certified by the commissioner as a reinsurer in this state and secures the
assuming insurer's obligations in accordance with the requirements of this subsection.
a. In order to be eligible for certification, the assuming insurer shall meet the
following requirements:
(1) The assuming insurer must be domiciled and licensed to transact insurance
or reinsurance in a qualified jurisdiction, as determined by the commissioner
pursuant to subdivision c;
(2) The assuming insurer shall maintain minimum capital and surplus, or its
equivalent, in an amount to be determined by the commissioner pursuant to
rule;
(3) The assuming insurer shall maintain financial strength ratings from two or
more rating agencies deemed acceptable by the commissioner pursuant to
rule;
(4) The assuming insurer shall agree to submit to the jurisdiction of this state,
appoint the commissioner as its agent for service of process in this state,
and agree to provide security for one hundred percent of the assuming
insurer's liabilities attributable to reinsurance ceded by United States ceding

insurers if the assuming insurer resists enforcement of a final United States
judgment;
(5) The assuming insurer shall agree to meet applicable information filing
requirements as determined by the commissioner, both with respect to an
initial application for certification and on an ongoing basis; and
(6) The assuming insurer shall satisfy any other requirements for certification
deemed relevant by the commissioner.
b. An association, including incorporated and individual unincorporated
underwriters, may be a certified reinsurer. In order to be eligible for certification, in
addition to satisfying requirements of subdivision a:
(1) The association shall satisfy its minimum capital and surplus requirements
through the capital and surplus equivalents, net of liabilities, of the
association and the association's members which must include a joint
central fund that may be applied to any unsatisfied obligation of the
association or any of the association's members, in an amount determined
by the commissioner to provide adequate protection;
(2) The incorporated members of the association may not be engaged in any
business other than underwriting as a member of the association and are
subject to the same level of regulation and solvency control by the
association's domiciliary regulator as are the unincorporated members; and
(3) Within ninety days after the association's financial statements are due to be
filed with the association's domiciliary regulator, the association shall provide
to the commissioner an annual certification by the association's domiciliary
regulator of the solvency of each underwriter member; or if a certification is
unavailable, financial statements, prepared by independent public
accountants, of each underwriter member of the association.
c. The commissioner shall create and publish a list of qualified jurisdictions, under
which an assuming insurer licensed and domiciled in such jurisdiction is eligible
to be considered for certification by the commissioner as a certified reinsurer.
(1) In order to determine whether the domiciliary jurisdiction of a non-United
States assuming insurer is eligible to be recognized as a qualified
jurisdiction, the commissioner shall evaluate the appropriateness and
effectiveness of the reinsurance supervisory system of the jurisdiction, both
initially and on an ongoing basis, and consider the rights, benefits, and the
extent of reciprocal recognition afforded by the non-United States jurisdiction
to reinsurers licensed and domiciled in the United States. A qualified
jurisdiction must agree to share information and cooperate with the
commissioner with respect to all certified reinsurers domiciled within that
jurisdiction. A jurisdiction may not be recognized as a qualified jurisdiction if
the commissioner has determined the jurisdiction does not adequately and
promptly enforce final United States judgments and arbitration awards.
Additional factors may be considered in the discretion of the commissioner.
(2) A list of qualified jurisdictions must be published through the national
association of insurance commissioner committee process. The
commissioner shall consider this list in determining qualified jurisdictions. If
the commissioner approves a jurisdiction as qualified which does not appear
on the list of qualified jurisdictions, the commissioner shall provide
thoroughly documented justification in accordance with criteria to be
developed under regulations.
(3) United States jurisdictions that meet the requirement for accreditation under
the national association of insurance commissioners financial standards and
accreditation program must be recognized as qualified jurisdictions.
(4) If a certified reinsurer's domiciliary jurisdiction ceases to be a qualified
jurisdiction, in lieu of revocation, the commissioner may suspend the
reinsurer's certification indefinitely.

d. The commissioner shall assign a rating to each certified reinsurer. Giving due
consideration to the financial strength ratings that have been assigned by rating
agencies deemed acceptable to the commissioner pursuant to rule. The
commissioner shall publish a list of all certified reinsurers and the reinsurer's
ratings.
e. A certified reinsurer shall secure obligations assumed from United States ceding
insurers under this subsection at a level consistent with the certified reinsurer's
rating, as specified in rules adopted by the commissioner.
(1) In order for a domestic ceding insurer to qualify for full financial statement
credit for reinsurance ceded to a certified reinsurer, the certified reinsurer
shall maintain security in a form acceptable to the commissioner and
consistent with the provisions of section 26.1-31.2-02 or in a multibeneficiary
trust in accordance with subsection 5, except as otherwise provided in this
subsection.
(2) If a certified reinsurer maintains a trust to fully secure the certified reinsurer's
obligations subject to subsection 5, and chooses to secure the certified
reinsurer's obligations incurred as a certified reinsurer in the form of a
multibeneficiary trust, the certified reinsurer shall maintain separate trust
accounts for the certified reinsurer's obligations incurred under reinsurance
agreements issued or renewed as a certified reinsurer with reduced security
as permitted by this subsection or comparable laws of other United States
jurisdictions and for the certified reinsurer's obligations subject to
subsection 5. As a condition to the grant of certification under subsection 6,
the certified reinsurer must have bound itself, by the language of the trust
and agreement with the commissioner with principal regulatory oversight of
each such trust account, to fund, upon termination of any such trust
account, out of the remaining surplus of such trust any deficiency of any
other such trust account.
(3) The minimum trusteed surplus requirements provided in subsection 5 are
not applicable with respect to a multibeneficiary trust maintained by a
certified reinsurer for the purpose of securing obligations incurred under this
subsection, except that such trust must maintain a minimum trusteed
surplus of ten million dollars.
(4) With respect to obligations incurred by a certified reinsurer under this
subsection, if the security is insufficient, the commissioner shall reduce the
allowable credit by an amount proportionate to the deficiency, and may
impose further reductions in allowable credit upon finding there is a material
risk the certified reinsurer's obligations will not be paid in full when due.
(5) For purposes of this subsection, a certified reinsurer whose certification has
been terminated for any reason must be treated as a certified reinsurer
required to secure one hundred percent of the certified reinsurer's
obligations.
(a) As used in this subsection, "terminated" refers to revocation,
suspension, voluntary surrender, and inactive status.
(b) If the commissioner continues to assign a higher rating as permitted
by other provisions of this section, this requirement does not apply to
a certified reinsurer in inactive status or to a reinsurer whose
certification has been suspended.
f. If an applicant for certification has been certified as a reinsurer in a national
association of insurance commissioners accredited jurisdiction, the commissioner
may defer to that jurisdiction's certification, and may defer to the rating assigned
by that jurisdiction, and such assuming insurer must be considered to be a
certified reinsurer in this state.
g. A certified reinsurer that ceases to assume new business in this state may
request to maintain the certified reinsurer's certification in inactive status in order
to continue to qualify for a reduction in security for the certified reinsurer's in-force

business. An inactive certified reinsurer shall continue to comply with all
applicable requirements of this subsection, and the commissioner shall assign a
rating that takes into account, if relevant, the reasons why the reinsurer is not
assuming new business.
7. a. Credit must be allowed if the reinsurance is ceded to an assuming insurer
meeting each of the following conditions:
(1) The assuming insurer must have the assuming insurer's head office or be
domiciled in, as applicable, and be licensed in a reciprocal jurisdiction. A
"reciprocal jurisdiction" is a jurisdiction that meets one of the following:
(a) A non-United States jurisdiction that is subject to an in-force covered
agreement with the United States, each within its legal authority, or, in
the case of a covered agreement between the United States and
European Union, is a member state of the European Union. As used in
this subsection, a "covered agreement" is an agreement entered
pursuant to the federal Dodd-Frank Wall Street Reform and Consumer
Protection Act [31 U.S.C. 313 and 314] which is currently in effect or in
a period of provisional application and addresses the elimination,
under specified conditions, of collateral requirements as a condition
for entering a reinsurance agreement with a ceding insurer domiciled
in this state or for allowing the ceding insurer to recognize credit for
reinsurance;
(b) A United States jurisdiction that meets the requirements for
accreditation under the national association of insurance
commissioners financial standards and accreditation program
recognized by the commissioner; or
(c) A qualified jurisdiction, as determined by the commissioner pursuant
to subdivision c of subsection 6, which is not otherwise described in
subdivision a or b of subsection 6 and which meets certain additional
requirements, consistent with the terms and conditions of in-force
covered agreements, as specified by rules adopted by the
commissioner.
(2) The assuming insurer must have and maintain, on an ongoing basis,
minimum capital and surplus, or its equivalent, calculated according to the
methodology of the assuming insurer's domiciliary jurisdiction, in an amount
in compliance with rules adopted by the commissioner. If the assuming
insurer is an association, including incorporated and individual
unincorporated underwriters, the assuming insurer must have and maintain,
on an ongoing basis, minimum capital and surplus equivalents, net of
liabilities, calculated according to the methodology applicable in the
domiciliary jurisdiction of the assuming insurer, and a central fund containing
a balance in compliance with rules adopted by the commissioner.
(3) The assuming insurer must have and maintain, on an ongoing basis, a
minimum solvency or capital ratio, as applicable, in compliance with rules
adopted by the commissioner. If the assuming insurer is an association,
including incorporated and individual unincorporated underwriters, the
assuming insurer must have and maintain, on an ongoing basis, a minimum
solvency or capital ratio in the reciprocal jurisdiction in which the assuming
insurer has the assuming insurer's head office or is domiciled, as applicable,
and is also licensed.
(4) The assuming insurer shall agree and provide adequate assurance to the
commissioner, in a form in compliance with rules adopted by the
commissioner, as follows:
(a) The assuming insurer shall provide prompt written notice and
explanation to the commissioner if the assuming insurer falls below
the minimum requirements set forth in paragraph 2 or 3, or if any

regulatory action is taken against the assuming insurer for serious
noncompliance with applicable law;
(b) The assuming insurer shall consent in writing to the jurisdiction of the
courts of this state and to the appointment of the commissioner as
agent for service of process. The commissioner may require consent
for service of process be provided to the commissioner and included
in each reinsurance agreement. This subparagraph does not limit or in
any way alter the capacity of parties to a reinsurance agreement to
agree to alternative dispute resolution mechanisms, except to the
extent such agreements are unenforceable under applicable
insolvency or delinquency laws;
(c) The assuming insurer shall consent in writing to pay all final
judgments, wherever enforcement is sought, obtained by a ceding
insurer or the ceding insurer's legal successor, which have been
declared enforceable in the jurisdiction in which the judgment was
obtained;
(d) Each reinsurance agreement must include a provision requiring the
assuming insurer to provide security in an amount equal to
one hundred percent of the assuming insurer's liabilities attributable to
reinsurance ceded pursuant to that agreement if the assuming insurer
resists enforcement of a final judgment that is enforceable under the
law of the jurisdiction in which the final judgment was obtained or a
properly enforceable arbitration award, whether obtained by the
ceding insurer or by the ceding insurer's legal successor on behalf of
the ceding insurer's resolution estate; and
(e) The assuming insurer shall confirm the assuming insurer is not
presently participating in any solvent scheme of arrangement that
involves this state's ceding insurers, and agree to notify the ceding
insurer and the commissioner and to provide security in an amount
equal to one hundred percent of the assuming insurer's liabilities to
the ceding insurer, if the assuming insurer enters such a solvent
scheme of arrangement. Such security must be in a form consistent
with the provisions of subsection 6 and section 26.1-31.2-02 and as
specified by the commissioner by rule.
(5) The assuming insurer or the assuming insurer's legal successor shall
provide, if requested by the commissioner, on behalf of the assuming insurer
and any legal predecessors, certain documentation to the commissioner, as
specified by the commissioner by regulation.
(6) The assuming insurer shall maintain a practice of prompt payment of claims
under reinsurance agreements, pursuant to criteria set forth by the
commissioner by rule.
(7) The assuming insurer's supervisory authority shall confirm to the
commissioner on an annual basis, as of the preceding December thirty-first
or at the annual date otherwise statutorily reported to the reciprocal
jurisdiction, that the assuming insurer complies with the requirements set
forth in paragraphs 2 and 3.
(8) This subdivision does not preclude an assuming insurer from providing the
commissioner with information on a voluntary basis.
b. The commissioner shall create timely and publish a list of reciprocal jurisdictions.
(1) A list of reciprocal jurisdictions is published through the national association
of insurance commissioners committee process. The commissioner's list
must include any reciprocal jurisdiction as defined under subparagraphs a
and b of paragraph 1 of subdivision a, and must consider any other
reciprocal jurisdiction included on the national association of insurance
commissioners' list. The commissioner may approve a jurisdiction that does
not appear on the national association of insurance commissioners' list of

reciprocal jurisdictions in accordance with criteria to be set by rules adopted
by the commissioner.
(2) The commissioner may remove a jurisdiction from the list of reciprocal
jurisdictions upon a determination the jurisdiction no longer meets the
requirements of a reciprocal jurisdiction, in accordance with a process set by
rules adopted by the commissioner, except that the commissioner may not
remove from the list a reciprocal jurisdiction as defined under
subparagraphs a and b of paragraph 1 of subdivision a. Upon removal of a
reciprocal jurisdiction from this list credit for reinsurance ceded to an
assuming insurer that has the assuming insurer's home office or is domiciled
in that jurisdiction must be allowed, if otherwise allowed pursuant to chapter
26.1-31.2.
c. The commissioner timely shall create and publish a list of assuming insurers that
have satisfied the conditions set forth in this subsection and to which cessions
must be granted credit in accordance with this subsection. The commissioner
may add an assuming insurer to the list if a national association of insurance
commissioners accredited jurisdiction has added the assuming insurer to a list of
the assuming insurers or if, upon initial eligibility, the assuming insurer submits
the information to the commissioner as required under paragraph 4 of
subdivision a and complies with any additional requirements the commissioner
may impose by rule, except to the extent the requirements conflict with an
applicable covered agreement.
d. If the commissioner determines an assuming insurer no longer meets one or
more of the requirements under this subsection, the commissioner may revoke or
suspend the eligibility of the assuming insurer for recognition under this
subsection in accordance with procedures set forth by rule.
(1) While an assuming insurer's eligibility is suspended, a reinsurance
agreement issued, amended, or renewed after the effective date of the
suspension does not qualify for credit except to the extent the assuming
insurer's obligations under the contract are secured in accordance with
section 26.1-31.2-02.
(2) If an assuming insurer's eligibility is revoked, credit for reinsurance may not
be granted after the effective date of the revocation with respect to any
reinsurance agreements entered by the assuming insurer, including
reinsurance agreements entered before the date of revocation, except to the
extent the assuming insurer's obligations under the contract are secured in a
form acceptable to the commissioner and consistent with the provisions of
section 26.1-31.2-02.
e. If subject to a legal process of rehabilitation, liquidation, or conservation, as
applicable, the ceding insurer, or the ceding insurer's representative, may seek
and, if determined appropriate by the court in which the proceedings are pending,
may obtain an order requiring the assuming insurer post security for all
outstanding ceded liabilities.
f. This subsection does not limit or in any way alter the capacity of parties to a
reinsurance agreement to agree on requirements for security or other terms in
that reinsurance agreement, except as expressly prohibited by this chapter.
g. Credit may be taken under this subsection only for reinsurance agreements
entered, amended, or renewed on or after the effective date of this Act, and only
with respect to losses incurred and reserves reported on or after the later of the
date on which the assuming insurer has met all eligibility requirements pursuant
to subdivision a and the effective date of the new reinsurance agreement,
amendment, or renewal.
(1) This subdivision does not alter or impair a ceding insurer's right to take
credit for reinsurance, to the extent that credit is not available under this
subsection, as long as the reinsurance qualifies for credit under any other
applicable provision of this chapter.

(2) This subsection does not authorize an assuming insurer to withdraw or
reduce the security provided under any reinsurance agreement except as
permitted by the terms of the agreement.
(3) This subsection does not limit or in any way alter the capacity of parties to
any reinsurance agreement to renegotiate the agreement.
8. Credit must be allowed when the reinsurance is ceded to an assuming insurer not
meeting the requirements of subsection 2, 3, 4, 5, 6, or 7 but only as to the insurance
of risks located in jurisdictions where the reinsurance is required by applicable law or
regulation of that jurisdiction.
9. a. If the assuming insurer is not licensed, accredited, or certified to transact
insurance or reinsurance in this state, the credit permitted by subsections 4 and 5
may not be allowed unless the assuming insurer agrees in the reinsurance
agreements:
(1) 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 the court jurisdiction, and will abide by the
final decision of the court or of any appellate court in the event of an appeal;
and
(2) To designate the commissioner 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 insurer.
b. This subsection is not intended to conflict with or override the obligation of the
parties to a reinsurance agreement to arbitrate their disputes, if this obligation is
created in the agreement.
10. If the assuming insurer does not meet the requirements of subsection 2, 3, 4, or 8, the
credit permitted by subsection 5 or 6 may not be allowed unless the assuming insurer
agrees in the trust agreements to the following conditions:
a. Notwithstanding any other provisions in the trust instrument, if the trust fund is
inadequate because the trust fund contains an amount less than the amount
required by subdivision c of subsection 5, or if the grantor of the trust has been
declared insolvent or placed into receivership, rehabilitation, liquidation, or similar
proceedings under the laws of its state or country of domicile, the trustee shall
comply with an order of the commissioner with regulatory oversight over the trust
or with an order of a court of competent jurisdiction directing the trustee to
transfer to the commissioner with regulatory oversight all of the assets of the trust
fund.
b. The assets must be distributed by and claims must be filed with and valued by
the commissioner with regulatory oversight in accordance with the laws of the
state in which the trust is domiciled which are applicable to the liquidation of
domestic insurers.
c. If the commissioner with regulatory oversight determines the assets of the trust
fund or any part of this trust fund are not necessary to satisfy the claims of the
United States ceding insurers of the grantor of the trust, the assets or part of the
assets must be returned by the commissioner with regulatory oversight to the
trustee for distribution in accordance with the trust agreement.
d. The grantor shall waive any right otherwise available to the grantor under United
States law that is inconsistent with this provision.
11. If an accredited or certified reinsurer ceases to meet the requirements for accreditation
or certification, the commissioner may suspend or revoke the reinsurer's accreditation
or certification.
a. The commissioner shall give the reinsurer notice and opportunity for a hearing.
The suspension or revocation may not take effect until after the commissioner's
order on a hearing, unless:
(1) The reinsurer waives the reinsurer's right to a hearing;

(2) The commissioner's order is based on regulatory action by the reinsurer's
domiciliary jurisdiction or the voluntary surrender or termination of the
reinsurer's eligibility to transact insurance or reinsurance business in the
reinsurer's domiciliary jurisdiction or in the primary certifying state of the
reinsurer under subdivision f of subsection 6; or
(3) The commissioner finds an emergency requires immediate action and a
court of competent jurisdiction has not stayed the commissioner's action.
b. During the period of suspension of a reinsurer's accreditation or certification, a
reinsurance contract issued or renewed after the effective date of the suspension
does not qualify for credit except to the extent that the reinsurer's obligations
under the contract are secured in accordance with section 26.1-31.2-02. If a
reinsurer's accreditation or certification is revoked, credit for reinsurance may not
be granted after the effective date of the revocation, except to the extent the
reinsurer's obligations under the contract are secured in accordance with
subdivision e of subsection 5 of section 26.1-31.2-02.
12. a. A ceding insurer shall take steps to manage the ceding insurer's reinsurance
recoverables proportionate to the ceding insurer's own book of business. A
domestic ceding insurer shall notify the commissioner within thirty days after
reinsurance recoverables from any single assuming insurer, or group of affiliated
assuming insurers, exceed fifty percent of the domestic ceding insurer's last
reported surplus to policyholders, or after it is determined reinsurance
recoverables from any single assuming insurer, or group of affiliated assuming
insurers, is likely to exceed this limit. The notification must demonstrate the
exposure is safely managed by the domestic ceding insurer.
b. A ceding insurer shall take steps to diversify the ceding insurer's reinsurance
program. A domestic ceding insurer shall notify the commissioner within thirty
days after ceding to any single assuming insurer, or group of affiliated assuming
insurers, more than twenty percent of the ceding insurer's gross written premium
in the prior calendar year, or after the ceding insurer's determined the reinsurance
ceded to any single assuming insurer, or group of affiliated assuming insurers, is
likely to exceed this limit. The notification must demonstrate the exposure is
safely managed by the domestic ceding insurer.
c. Credit for reinsurance ceded to a certified reinsurer is limited to reinsurance
contracts entered or renewed on or after the effective date of the commissioner's
certification of the assuming insurer.
### § 26.1-31.2-02. Asset or reduction from liability for reinsurance ceded by a domestic

insurer to an assuming insurer not meeting the requirements of section 26.1-31.2-01.
An asset or reduction from liability for the reinsurance ceded by a domestic insurer to an
assuming insurer not meeting the requirements of section 26.1-31.2-01 must be allowed in an
amount not exceeding the liabilities carried by the ceding insurer. The reduction must 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 the assuming insurer as security for the
payment of obligations thereunder, if the 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 2 of section
### § 26.1-31.2-03. This security may be in the form of:

1. Cash;
2. Securities listed by the securities valuation office of the national association of
insurance commissioners, including those securities deemed exempt from filing as
defined by the purposes and procedures manual of the securities valuation office, and
qualifying as admitted assets;
3. a. Clean, irrevocable, unconditional letters of credit issued or confirmed by a
qualified United States institution, as defined in subsection 1 of section
26.1-31.2-03, effective no later than December thirty-first of the year for which the

filing is being made, and in the possession of, or in trust for, the ceding insurer on
or before the filing date of its annual statement; or
b. Letters of credit meeting applicable standards of issuer acceptability as of the
dates of their issuance or confirmation must, 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; or
4. Any other form of security acceptable to the commissioner.
### § 26.1-31.2-03. Qualified United States financial institutions.

1. For purposes of subsection 3 of section 26.1-31.2-02, a "qualified United States
financial institution" means an institution that:
a. Is organized, or in case of a United States office of a foreign banking
organization, is 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 purposes of those provisions
of this chapter 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, is licensed, under the laws of the United States or
any state thereof and has been granted 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.
### § 26.1-31.2-04. Rulemaking authority.

The commissioner may adopt rules for the implementation and administration of this
chapter.
### § 26.1-31.2-05. Reinsurance agreements affected.

Sections 26.1-31.2-01, 26.1-31.2-02, 26.1-31.2-03, and 26.1-31.2-04 apply to all cessions
after July 7, 1991, under reinsurance agreements which have had an inception, anniversary, or
renewal date not less than six months after July 7, 1991.
