<section article="gin" article_name="Insurance" number="5-101" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="1" subtitle_name="Assets and Liabilities"> <level label="a"> <text>In determining the financial condition of an insurer, the following assets that the insurer owns shall be allowed as admitted assets:</text> <level label="1"> <text>cash that the insurer holds or that it controls while the cash is in transit, and the true balance of any deposit in a solvent bank or trust company;</text> </level> <level label="2"> <text>shares or deposits in a savings and loan association or building and loan association, to the extent that the investment or account is insured by an instrumentality of the United States or of Canada;</text> </level> <level label="3"> <text>in an amount not exceeding the cash surrender value of each individual policy:</text> <level label="i"> <text>premium notes and policy loans, except for collateral assignment loans; and</text> </level> <level label="ii"> <text>accrued interest that is 90 days or more past due on each asset listed in item (i) of this item;</text> </level> </level> <level label="4"> <text>in an amount not exceeding the policy reserve on each individual policy:</text> <level label="i"> <text>collateral assignment loans; and</text> </level> <level label="ii"> <text>accrued interest that is 90 days or more past due on the asset listed in item (i) of this item;</text> </level> </level> <level label="5"> <text>for a life insurer:</text> <level label="i"> <text>the net amount of uncollected premiums that are not more than 90 days past due, unless payable directly or indirectly by an instrumentality of the United States; and</text> </level> <level label="ii"> <text>the net amount of deferred premiums and annuity considerations;</text> </level> </level> <level label="6"> <text>except for life insurance premiums, the amount of premiums in the course of collection that:</text> <level label="i"> <text>are not more than 90 days past due, unless payable directly or indirectly by an instrumentality of the United States; and</text> </level> <level label="ii"> <text>do not include commissions;</text> </level> </level> <level label="7"> <text>to the extent of the unearned premium reserves carried on policies:</text> <level label="i"> <text>installment premiums other than life insurance premiums; and</text> </level> <level label="ii"> <text>notes or similar written obligations not past due taken for premiums other than life insurance premiums;</text> </level> </level> <level label="8"> <text>the full amount of reinsurance that a ceding insurer may recover from a solvent reinsurer under Subtitle 9 of this title;</text> </level> <level label="9"> <text>amounts receivable by an assuming insurer that represent funds that a solvent ceding insurer withholds under a reinsurance treaty;</text> </level> <level label="10"> <text>deposits or equities recoverable from an underwriting association, syndicate, reinsurance fund, or suspended banking institution:</text> <level label="i"> <text>to the extent the deposits or equities are available for payment of losses and claims; or</text> </level> <level label="ii"> <text>at values that the Commissioner determines;</text> </level> </level> <level label="11"> <text>electronic data processing equipment and operating system software amortized over a period of not more than 3 calendar years, to the extent it does not exceed 3% of the insurer’s capital and surplus as required to be shown on the insurer’s statutory financial statement, adjusted to exclude deferred tax assets and net positive goodwill;</text> </level> <level label="12"> <text>investments, securities, properties, and loans acquired or held in accordance with this article, and the related items listed in subsection (b) of this section;</text> </level> <level label="13"> <text>positive goodwill recorded under the statutory purchase method of accounting:</text> <level label="i"> <text>to the extent that it does not exceed 10% of the parent insurer’s capital and surplus, as required to be shown on the statutory balance sheet, excluding any net positive goodwill, electronic data processing equipment, operating system software, and net deferred tax assets; and</text> </level> <level label="ii"> <text>amortized over a period of not more than 10 calendar years;</text> </level> </level> <level label="14"> <text>other assets that an insurer may list as admitted assets in the annual statement required under this article, unless specifically not admitted under § 5–102 of this subtitle; and</text> </level> <level label="15"> <text>at values determined by the Commissioner, other assets:</text> <level label="i"> <text>that are not inconsistent with this title; and</text> </level> <level label="ii"> <text>that the Commissioner considers available for the payment of losses and claims.</text> </level> </level> </level> <level label="b"> <text>In determining the financial condition of an insurer, the following items related to investments, securities, properties, or loans that the insurer owns shall be allowed as admitted assets:</text> <level label="1"> <text>if it is not more than 90 days past due:</text> <level label="i"> <text>interest that is due or accrued on a bond or evidence of indebtedness that is:</text> <level label="1"> <text>not in default; and</text> </level> <level label="2"> <text>not valued on a basis that includes accrued interest;</text> </level> </level> <level label="ii"> <text>declared and unpaid dividends on shares of stock, unless the amount of those dividends has otherwise been allowed as an asset;</text> </level> <level label="iii"> <text>interest that is due or accrued on deposits in solvent banks, solvent trust companies, or savings and loan associations insured by an instrumentality of the United States or of Canada; or</text> </level> <level label="iv"> <text>if the Commissioner considers that the interest is a collectible asset, interest that is due or accrued on other assets;</text> </level> </level> <level label="2"> <text>interest that is due or accrued on a collateral loan:</text> <level label="i"> <text>to the extent that the interest does not exceed 1 year’s interest on the loan; and</text> </level> <level label="ii"> <text>to the extent that the unpaid balance of the loan plus accrued interest does not exceed the net value of the collateral that would be admitted, less estimated costs to obtain and sell the collateral;</text> </level> </level> <level label="3"> <text>if the interest in its entirety is less than 180 days past due and has not accrued for more than 18 months, interest that is due or accrued on a mortgage loan, in an amount not more than any amount by which the value of the property, reduced by the amount of delinquent taxes and other costs to obtain and sell the property, exceeds the unpaid principal;</text> </level> <level label="4"> <text>rent that is due or accrued on real property if:</text> <level label="i"> <text>the rent is not past due for more than 90 days; or</text> </level> <level label="ii"> <text>the payment is adequately secured by property held in the name of the tenant and conveyed to the insurer as collateral; and</text> </level> </level> <level label="5"> <text>for a title insurer, title plants as provided in § 5-104 of this subtitle.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-102" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="1" subtitle_name="Assets and Liabilities"> <level label="a"> <text>Notwithstanding § 5-101 of this subtitle, in determining the financial condition of an insurer, the following expressly are not allowed as admitted assets:</text> <level label="1"> <text>organizational expenses, trade names, and other similar intangible assets;</text> </level> <level label="2"> <text>except for policy loans, a secured or unsecured advance to an officer of the insurer;</text> </level> <level label="3"> <text>an advance given only on personal security to an employee or insurance producer of the insurer or to another person;</text> </level> <level label="4"> <text>stock of the insurer owned by it, any material interest in the stock of the insurer, any loan that is secured by the stock of the insurer, or any material proportionate interest in the stock of the insurer acquired or held through the insurer’s ownership of an interest in another firm, corporation, or business unit;</text> </level> <level label="5"> <text>except for electronic data processing equipment and operating system software allowed as admitted assets under § 5-101(a)(11) of this subtitle, fixtures, furniture, furnishings, libraries, safes, stationery, supplies, and vehicles; and</text> </level> <level label="6"> <text>the amount, if any, by which the aggregate book value of investments carried in the ledger assets of the insurer exceeds the amount deemed collectible or the aggregate value of those investments as determined under this article.</text> </level> </level> <level label="b"> <text>Notwithstanding subsection (a) of this section, a bona fide mortgage loan to an officer or employee of the insurer may be allowed as an admitted asset if the loan:</text> <level label="1"> <text>is approved and ratified by the board of directors of the insurer;</text> </level> <level label="2"> <text>is secured by a first mortgage on a principal residence of an officer or employee; and</text> </level> <level label="3"> <text>does not exceed the amount allowed for any other mortgage investment under § 5-511(g) of this title.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-103" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="1" subtitle_name="Assets and Liabilities"> <text>In determining the financial condition of an insurer, capital stock and liabilities to be charged against the insurer’s assets include:</text> <level label="1"> <text>the amount of any capital stock outstanding;</text> </level> <level label="2"> <text>the amount, estimated in accordance with this article, that is needed to pay:</text> <level label="i"> <text>all of the insurer’s reported or unreported losses and claims incurred on or before the date of the annual statement required under this article; and</text> </level> <level label="ii"> <text>the expenses of adjustment or settlement of those losses and claims;</text> </level> </level> <level label="3"> <text>any additional reserves that the Commissioner reasonably requires for a specific kind of insurance;</text> </level> <level label="4"> <text>taxes, expenses, and other obligations that are due or accrued at the date of the annual statement required under this article;</text> </level> <level label="5"> <text>as to life insurance and disability insurance and annuity contracts:</text> <level label="i"> <text>reserves on life insurance policies and annuity contracts in force, valued according to the tables of mortality, rates of interest, and applicable methods adopted under this article;</text> </level> <level label="ii"> <text>reserves for disability benefits for active and disabled lives;</text> </level> <level label="iii"> <text>reserves for accidental death benefits;</text> </level> <level label="iv"> <text>reserves for additional benefits that provide long-term home health care and long-term care in a nursing home or other related institution; and</text> </level> <level label="v"> <text>any additional reserves that the Commissioner reasonably requires; and</text> </level> </level> <level label="6"> <text>as to insurance other than as specified in item (5) of this section, the amount of reserves equal to the unearned parts of the gross premiums charged on policies in force, computed in accordance with this article.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-104" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="1" subtitle_name="Assets and Liabilities"> <level label="a"> <level label="1"> <text>In this section the following words have the meanings indicated.</text> </level> <level label="2"> <text>“Backplant” means a title plant that antedates the period of time covered by an existing title plant, or that covers additional parcels of land.</text> </level> <level label="3"> <text>“Title plant” means an integrated and indexed collection of title records consisting of documents, maps, surveys, or entries affecting title to real property or any interest in or encumbrance on the property which has been filed or recorded in the jurisdiction for which the title plant is established or maintained, as well as copies of prior title insurance policies.</text> </level> </level> <level label="b"> <text>A title plant shall be allowed as an admitted asset for a title insurer under § 5-101 of this subtitle subject to the provisions of this section.</text> </level> <level label="c"> <level label="1"> <text>The costs specified in this subsection shall be capitalized costs with reference to the valuation of a title plant.</text> </level> <level label="2"> <text>Until a title plant can be used by an insurer to conduct title searches and issue title insurance policies, the costs incurred to construct a title plant, including the costs incurred to obtain, organize, and summarize historical information in an efficient and useful manner shall be capitalized costs. The capitalized costs must be directly related to, and properly identified with, the activities necessary to construct the title plant.</text> </level> <level label="3"> <level label="i"> <text>The costs to purchase a title plant, including a purchase of an undivided interest in a title plant, shall be capitalized costs, recorded at cost at the date of acquisition.</text> </level> <level label="ii"> <text>For a title plant acquired separately, the costs shall be measured by the fair market value of the consideration given.</text> </level> <level label="iii"> <text>For a title plant acquired as part of a group of assets, the costs shall be measured first by the fair market value of the consideration given, and then the cost shall be allocated to the title plant based on the fair market value of the title plant in relation to the total fair market value of the group of assets acquired.</text> </level> </level> <level label="4"> <text>The costs to purchase or construct a backplant may be capitalized if the costs are properly identifiable.</text> </level> </level> <level label="d"> <level label="1"> <text>The costs specified in this subsection may not be capitalized costs with reference to the valuation of a title plant.</text> </level> <level label="2"> <text>Costs incurred after a title plant is operational to:</text> <level label="i"> <text>convert the information from one storage and retrieval system to another shall not be capitalized costs; or</text> </level> <level label="ii"> <text>modify or modernize the storage and retrieval system shall not be capitalized costs.</text> </level> </level> </level> <level label="e"> <text>The following costs shall be expensed as incurred with reference to the valuation of a title plant:</text> <level label="1"> <text>costs incurred to maintain a title plant; and</text> </level> <level label="2"> <text>costs incurred to perform title searches.</text> </level> </level> <level label="f"> <text>The aggregate carrying value of an investment in a title plant may not exceed the lesser of:</text> <level label="1"> <text>20% of the admitted assets; or</text> </level> <level label="2"> <text>40% of the surplus as regards policyholders.</text> </level> </level> <level label="g"> <text>A title insurer may sell:</text> <level label="1"> <text>a title plant and relinquish all rights to future use of the title plant;</text> </level> <level label="2"> <text>an undivided ownership interest in its title plants; and</text> </level> <level label="3"> <text>a copy of a title plant or the right to use a title plant.</text> </level> </level> <level label="h"> <text>Subject to the approval of the Commissioner, a title insurer may:</text> <level label="1"> <text>enter into an agreement with one or more other title insurers authorized to do business in the State for the purpose of jointly participating in the ownership, management, and control of a title plant so as to serve the needs of the insurers; or</text> </level> <level label="2"> <text>hold stock in a corporation that owns and operates a title plant for the purpose of participating in the ownership, management, and control of a title plant.</text> </level> </level> <level label="i"> <text>Except as provided in this section, title insurers shall comply with the investment requirements under Subtitle 6 of this title.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-201" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="2" subtitle_name="Reserves"> <level label="a"> <level label="1"> <text>In this section the following words have the meanings indicated.</text> </level> <level label="2"> <text>“Operative date of the valuation manual” has the meaning stated in § 5–201.1 of this subtitle.</text> </level> <level label="3"> <text>“Opinion” means an opinion issued by a qualified actuary and developed in accordance with the standards of practice of the Actuarial Standards Board.</text> </level> <level label="4"> <text>“Qualified actuary” means a member in good standing of the American Academy of Actuaries who meets the qualification standards of the Academy for issuing an opinion required by this section.</text> </level> </level> <level label="b"> <text>This section applies to reserve requirements and opinions relating to reserve requirements for policies, contracts, and benefit agreements of life insurers, nonprofit health service plans, and fraternal benefit societies required before the operative date of the valuation manual.</text> </level> <level label="c"> <level label="1"> <text>In addition to the requirement of paragraph (2) of this subsection, the aggregate reserves for all policies, contracts, and benefit agreements of a life insurer may not be less than the aggregate reserves computed under Subtitle 3 of this title.</text> </level> <level label="2"> <level label="i"> <text>The aggregate reserves for all policies, contracts, and benefit agreements of a life insurer, nonprofit health service plan, or fraternal benefit society may not be less than the aggregate reserves that a qualified actuary determines to be necessary under subsection (e) of this section.</text> </level> <level label="ii"> <text>By regulation, the Commissioner may provide for a transition period to establish any higher reserves required by this paragraph.</text> </level> </level> </level> <level label="d"> <text>Each life insurer, nonprofit health service plan, and fraternal benefit society that does business in the State shall submit annually the opinion of a qualified actuary as to whether the reserves and related actuarial items held in support of the life insurer’s policies, contracts, and benefit agreements are:</text> <level label="1"> <text>computed appropriately;</text> </level> <level label="2"> <text>based on assumptions that satisfy contractual provisions;</text> </level> <level label="3"> <text>consistent with prior reported amounts; and</text> </level> <level label="4"> <text>in compliance with applicable laws of the State.</text> </level> </level> <level label="e"> <level label="1"> <text>Except as exempted by regulations adopted by the Commissioner, each life insurer, nonprofit health service plan, and fraternal benefit society shall include with the opinion required by subsection (d) of this section an additional opinion of the same qualified actuary, stating whether the reserves and related actuarial items that are held in support of the policies, contracts, and benefit agreements by the life insurer, nonprofit health service plan, or fraternal benefit society are adequate to meet its obligations under its policies, contracts, and benefit agreements, in light of the assets held with respect to the reserves and related actuarial items.</text> </level> <level label="2"> <text>The obligations of a life insurer, nonprofit health service plan, or fraternal benefit society under its policies, contracts, and benefit agreements include benefits to be provided and associated expenses that may reasonably be expected.</text> </level> <level label="3"> <text>In reviewing the assets held by the life insurer, nonprofit health service plan, or fraternal benefit society with respect to the reserves and related actuarial items, the qualified actuary shall consider the expected investment earnings on the assets and other consideration that the life insurer, nonprofit health service plan, or fraternal benefit society expects to receive and retain under the policies, contracts, and benefit agreements.</text> </level> </level> <level label="f"> <level label="1"> <text>A memorandum acceptable to the Commissioner shall be prepared to support each opinion required under this section.</text> </level> <level label="2"> <text>The supporting memorandum shall be in the form and contain the information that is specified by regulation.</text> </level> <level label="3"> <text>The life insurer, nonprofit health service plan, or fraternal benefit society shall:</text> <level label="i"> <text>keep the supporting memorandum in its home office; and</text> </level> <level label="ii"> <text>on request, submit a copy of the memorandum to the Commissioner.</text> </level> </level> <level label="4"> <text>The Commissioner may engage a qualified actuary at the expense of the life insurer, nonprofit health service plan, or fraternal benefit society to review each opinion and prepare a supporting memorandum if:</text> <level label="i"> <text>the life insurer, nonprofit health service plan, or fraternal benefit society fails to provide a supporting memorandum within the period specified by regulation; or</text> </level> <level label="ii"> <text>the Commissioner determines that the supporting memorandum that the life insurer, nonprofit health service plan, or fraternal benefit society provides fails to meet necessary standards or is unacceptable.</text> </level> </level> </level> <level label="g"> <level label="1"> <text>Each opinion required by this section shall:</text> <level label="i"> <text>be submitted with the annual statement required by this article and reflect the valuation of the reserve liabilities of the life insurer, nonprofit health service plan, or fraternal benefit society;</text> </level> <level label="ii"> <text>apply to all business in force, including individual and group health insurance plans; and</text> </level> <level label="iii"> <text>be based on standards adopted by the Actuarial Standards Board.</text> </level> </level> <level label="2"> <text>The Commissioner may adopt regulations to establish additional requirements for an opinion.</text> </level> <level label="3"> <text>For a foreign insurer or alien insurer, the Commissioner may accept an opinion that the foreign insurer or alien insurer files with the insurance supervisory official of another state if the Commissioner determines that the opinion reasonably meets the requirements applicable to a life insurer, nonprofit health service plan, or fraternal benefit society domiciled in this State.</text> </level> </level> <level label="h"> <level label="1"> <text>Except as provided in subsection (i) of this section, the Commissioner shall keep confidential and may not make public any memorandum or other material that the life insurer, nonprofit health service plan, or fraternal benefit society provides in connection with an opinion issued under this section.</text> </level> <level label="2"> <text>A memorandum or other material provided to the Commissioner is not subject to a subpoena except for defending in a suit that:</text> <level label="i"> <text>seeks damages from any person; and</text> </level> <level label="ii"> <text>is based on an action required by this section.</text> </level> </level> </level> <level label="i"> <level label="1"> <text>The Commissioner may release a memorandum or other material provided to the Commissioner:</text> <level label="i"> <text>with the written consent of the life insurer, nonprofit health service plan, or fraternal benefit society that provides the memorandum or material; or</text> </level> <level label="ii"> <text>to the American Academy of Actuaries, if the Academy:</text> <level label="1"> <text>requests the memorandum or other material for professional disciplinary proceedings; and</text> </level> <level label="2"> <text>sets forth procedures satisfactory to the Commissioner to preserve the confidentiality of the memorandum or other material.</text> </level> </level> </level> <level label="2"> <text>All parts of a memorandum or other material are no longer confidential if any part of the memorandum or material is:</text> <level label="i"> <text>cited by the life insurer, nonprofit health service plan, or fraternal benefit society in its marketing;</text> </level> <level label="ii"> <text>cited before a governmental unit other than a State insurance department; or</text> </level> <level label="iii"> <text>released by the life insurer, nonprofit health service plan, or fraternal benefit society to the news media.</text> </level> </level> </level> <level label="j"> <text>Except for fraud, willful misconduct, or gross negligence, a qualified actuary is not liable for damages to any person other than the life insurer, nonprofit health service plan, fraternal benefit society, or the Commissioner for any act, error, omission, decision, or conduct related to an opinion that the qualified actuary issues under this section.</text> </level> <level label="k"> <text>The Commissioner shall adopt regulations to establish disciplinary action against a life insurer, nonprofit health service plan, fraternal benefit society, or qualified actuary that violates this section.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-201.1" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="2" subtitle_name="Reserves"> <level label="a"> <level label="1"> <text>In this section the following words have the meanings indicated.</text> </level> <level label="2"> <text>“Accident and health insurance contract” means a contract, as specified in the valuation manual, that:</text> <level label="i"> <text>incorporates morbidity risk; and</text> </level> <level label="ii"> <text>provides protection against economic loss resulting from accident, sickness, or medical conditions.</text> </level> </level> <level label="3"> <text>“Appointed actuary” means a qualified actuary who is appointed in accordance with the valuation manual to issue an opinion required by this section.</text> </level> <level label="4"> <text>“Company” means an entity that:</text> <level label="i"> <level label="1"> <text>has written, issued, or reinsured life insurance policies, accident and health insurance contracts, or deposit–type contracts in the State; and</text> </level> <level label="2"> <text>has at least one of the policies or contracts specified in item 1 of this item in force or on claim; or</text> </level> </level> <level label="ii"> <level label="1"> <text>has written, issued, or reinsured life insurance policies, accident and health insurance contracts, or deposit–type contracts in any state; and</text> </level> <level label="2"> <text>is required to hold a certificate of authority to write life insurance policies, accident and health insurance contracts, or deposit–type contracts in this State.</text> </level> </level> </level> <level label="5"> <text>“Deposit–type contract” means a contract, as specified in the valuation manual, that does not incorporate mortality or morbidity risks.</text> </level> <level label="6"> <level label="i"> <text>“Life insurance policy” means a policy, as specified in the valuation manual, that incorporates mortality risk.</text> </level> <level label="ii"> <text>“Life insurance policy” includes:</text> <level label="1"> <text>an annuity contract; and</text> </level> <level label="2"> <text>a pure endowment contract.</text> </level> </level> </level> <level label="7"> <text>“Operative date of the valuation manual” means the date determined in accordance with § 5–313 of this title.</text> </level> <level label="8"> <text>“Qualified actuary” means an individual who:</text> <level label="i"> <text>is qualified to sign the applicable statement of actuarial opinion in accordance with the American Academy of Actuaries qualification standards for actuaries signing such statements; and</text> </level> <level label="ii"> <text>meets the requirements specified in the valuation manual.</text> </level> </level> <level label="9"> <text>“Valuation manual” means the manual of valuation instructions adopted by the National Association of Insurance Commissioners in the manner specified in § 5–313(b)(1) of this title.</text> </level> </level> <level label="b"> <text>This section applies to each company that, on or after the operative date of the valuation manual:</text> <level label="1"> <text>has outstanding life insurance policies, accident and health insurance contracts, or deposit–type contracts in the State; and</text> </level> <level label="2"> <text>is subject to regulation by the Commissioner.</text> </level> </level> <level label="c"> <level label="1"> <text>A company subject to this section shall submit annually the opinion of an appointed actuary as to whether the reserves and related actuarial items held in support of the company’s life insurance policies, accident and health insurance contracts, and deposit–type contracts are:</text> <level label="i"> <text>computed appropriately;</text> </level> <level label="ii"> <text>based on assumptions that satisfy contractual provisions;</text> </level> <level label="iii"> <text>consistent with prior reported amounts; and</text> </level> <level label="iv"> <text>in compliance with applicable laws of the State.</text> </level> </level> <level label="2"> <text>The valuation manual shall prescribe the contents of the opinion and any other items considered necessary to the scope of the opinion.</text> </level> </level> <level label="d"> <level label="1"> <text>Except as exempted in the valuation manual, a company subject to this section shall include with the opinion required by subsection (c) of this section an additional opinion of the same appointed actuary, stating whether the reserves and related actuarial items that are held in support of the company’s life insurance policies, accident and health insurance contracts, and deposit–type contracts are adequate to meet the company’s obligations under the life insurance policies, accident and health insurance contracts, and deposit–type contracts, in light of the assets held with respect to the reserves and related actuarial items.</text> </level> <level label="2"> <text>The obligations of a company under its life insurance policies, accident and health insurance contracts, and deposit–type contracts include benefits to be provided and associated expenses that may reasonably be expected.</text> </level> <level label="3"> <text>In reviewing the assets held by a company with respect to the reserves and related actuarial items, the appointed actuary shall consider the expected investment earnings on the assets and other consideration that the company expects to receive and retain under the company’s life insurance policies, accident and health insurance contracts, and deposit–type contracts.</text> </level> </level> <level label="e"> <level label="1"> <text>A memorandum shall be prepared to support each opinion required under this section.</text> </level> <level label="2"> <text>The supporting memorandum shall be:</text> <level label="i"> <text>in the form and contain the information that is specified in the valuation manual; and</text> </level> <level label="ii"> <text>acceptable to the Commissioner.</text> </level> </level> <level label="3"> <text>The Commissioner may engage a qualified actuary at the expense of a company subject to this section to review each opinion and the basis for the opinion and prepare a supporting memorandum if:</text> <level label="i"> <text>the company fails to provide a supporting memorandum, at the request of the Commissioner, within the period specified in the valuation manual; or</text> </level> <level label="ii"> <text>the Commissioner determines that the supporting memorandum that the company provides fails to meet the standards prescribed by the valuation manual or is otherwise unacceptable to the Commissioner.</text> </level> </level> </level> <level label="f"> <level label="1"> <text>Each opinion required by this section shall:</text> <level label="i"> <text>be in the form and contain the information that is specified in the valuation manual;</text> </level> <level label="ii"> <text>be acceptable to the Commissioner;</text> </level> <level label="iii"> <text>be submitted with the annual statement required by this article;</text> </level> <level label="iv"> <text>reflect the valuation of the reserve liabilities of a company subject to this section for each year ending on or after the operative date of the valuation manual;</text> </level> <level label="v"> <text>apply to all life insurance policies, accident and health insurance contracts, and deposit–type contracts subject to subsection (d) of this section and any other actuarial liabilities as may be specified in the valuation manual; and</text> </level> <level label="vi"> <text>be based on standards adopted by the Actuarial Standards Board and any additional standards as may be prescribed in the valuation manual.</text> </level> </level> <level label="2"> <text>For a foreign company or an alien company, the Commissioner may accept an opinion that the foreign or alien company files with the insurance supervisory official of another state if the Commissioner determines that the opinion reasonably meets the requirements applicable to a company domiciled in this State.</text> </level> </level> <level label="g"> <text>Except for fraud or willful misconduct, an appointed actuary is not liable for damages to any person other than the company or the Commissioner for any act, error, omission, decision, or conduct related to the appointed actuary’s opinion.</text> </level> <level label="h"> <text>The Commissioner shall adopt regulations to establish disciplinary action against a company or an appointed actuary that violates this section.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-202" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="2" subtitle_name="Reserves"> <level label="a"> <text>If the Commissioner determines that an insurer’s unearned premium reserve is inadequate, the Commissioner may require the insurer to increase the unearned premium reserve and maintain it at an adequate level.</text> </level> <level label="b"> <text>If the Commissioner determines that an insurer’s loss reserves are inadequate as shown by the insurer’s loss experience, the Commissioner shall require the insurer to increase the reserves and maintain them at an adequate level.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-203" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="2" subtitle_name="Reserves"> <level label="a"> <text>An insurer shall maintain active life reserves for all health insurance policies.</text> </level> <level label="b"> <text>The active life reserves:</text> <level label="1"> <text>shall place a sound value on the insurer’s liabilities under the health insurance policies;</text> </level> <level label="2"> <text>may not be less than the reserves required by the appropriate standards set forth in regulations that the Commissioner adopts; and</text> </level> <level label="3"> <text>in the aggregate, may not be less than the pro rata gross unearned premiums for the health insurance policies.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-205" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="2" subtitle_name="Reserves"> <level label="a"> <text>Except as provided in subsection (e) of this section, each insurer shall maintain unearned premium reserves on all policies in force with respect to:</text> <level label="1"> <text>insurance against loss or damage to property;</text> </level> <level label="2"> <text>general casualty insurance; and</text> </level> <level label="3"> <text>surety insurance.</text> </level> </level> <level label="b"> <text>The Commissioner may require that, after deducting reinsurance ceded to solvent insurers in the manner provided in this article, the reserves equal the unearned parts of the gross premiums in force that are computed on each respective risk from the policy’s date of issue.</text> </level> <level label="c"> <text>Reserves under this section shall be computed:</text> <level label="1"> <text>at the option of the insurer, on a daily pro rata basis or a monthly pro rata basis if the insurance risk does not vary significantly during the contract period; or</text> </level> <level label="2"> <text>over the period of risk in proportion to the amount of insurance protection provided if the period of risk differs significantly from the contract period.</text> </level> </level> <level label="d"> <text>After adopting a method for computing reserves, an insurer may change the method only with the approval of the Commissioner or the insurance supervisory official of the insurer’s domicile.</text> </level> <level label="e"> <level label="1"> <text>A marine insurance premium on a trip risk not terminated is considered unearned.</text> </level> <level label="2"> <text>The Commissioner may require an insurer to carry reserves for unearned premiums equal to 100% on trip risks written during the month ended as of the date of the insurer’s annual statement required by this article.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-206" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="2" subtitle_name="Reserves"> <level label="a"> <level label="1"> <text>In this section, “risk premiums” means the amount charged for the assumption of risk.</text> </level> <level label="2"> <text>“Risk premiums” includes title insurance producer commissions.</text> </level> <level label="3"> <text>“Risk premiums” does not include charges for services rendered in the preparation of documents, searching, underwriting, recording of documents, or closing of a risk.</text> </level> </level> <level label="b"> <text>In addition to adequate reserves required by § 5–103 of this title for outstanding losses, a title insurer domiciled in the State shall maintain a statutory reserve or unearned premium reserve of at least an amount computed as follows:</text> <level label="1"> <text>8% of the total amount of the risk premiums written in the calendar year for the retained liability for title insurance contracts shall be as assigned originally to the reserves; and</text> </level> <level label="2"> <text>during each of the 20 years that follow the year in which the contract is issued, the reserves applicable to the contract shall be reduced in equal 12–month installments in accordance with the following formula:</text> <level label="i"> <text>35% of the aggregate sum in the year succeeding the year of addition;</text> </level> <level label="ii"> <text>15% of the aggregate sum in each of the succeeding 2 years;</text> </level> <level label="iii"> <text>10% of the aggregate sum in the succeeding year;</text> </level> <level label="iv"> <text>3% of the aggregate sum in each of the succeeding 3 years;</text> </level> <level label="v"> <text>2% of the aggregate sum in each of the succeeding 3 years; and</text> </level> <level label="vi"> <text>1% of the aggregate sum in each of the succeeding 10 years.</text> </level> </level> </level> <level label="c"> <level label="1"> <text>Each title insurer shall file with its annual statement required under § 4–116 of this article a certification by a member in good standing of the Casualty Actuarial Society, or a member in good standing of the American Academy of Actuaries who has been approved as qualified for signing casualty loss reserve opinions by the Casualty Practice Council of the American Academy of Actuaries, as to the adequacy of its reserves required under this section and § 5–103 of this title.</text> </level> <level label="2"> <text>The actuarial certification required of a title insurer must conform to the National Association of Insurance Commissioners’ annual statement instructions for title insurers.</text> </level> </level> <level label="d"> <level label="1"> <text>Unearned premium reserves may not be released under subsection (a) of this section to the extent that the release would result in the aggregate reserve falling below the amount required under this section and § 5–103 of this title.</text> </level> <level label="2"> <text>Any amount of unearned premium reserves that may not be released under paragraph (1) of this subsection shall be considered an unearned premium reserve and may not be considered a supplemental reserve.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-301" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <text>In this subtitle the following words have the meanings indicated.</text> </level> <level label="b"> <text>“Accident and health insurance contract” has the meaning stated in § 5–201.1(a) of this title.</text> </level> <level label="c"> <text>“Appointed actuary” means a qualified actuary who is appointed in accordance with the valuation manual to prepare an opinion required by § 5–201.1 of this title.</text> </level> <level label="d"> <text>“Company” has the meaning stated in § 5–201.1(a) of this title.</text> </level> <level label="e"> <text>“Deposit–type contract” has the meaning stated in § 5–201.1(a) of this title.</text> </level> <level label="f"> <text>“Life insurance policy” has the meaning stated in § 5–201.1(a) of this title.</text> </level> <level label="g"> <text>“NAIC” means the National Association of Insurance Commissioners.</text> </level> <level label="h"> <text>“Operative date of the valuation manual” has the meaning stated in § 5–201.1(a) of this title.</text> </level> <level label="i"> <level label="1"> <text>“Policyholder behavior” means any action a policyholder, contract holder, or any other person with the right to elect options, including a certificate holder, may take under a life insurance policy, an accident and health insurance contract, or a deposit–type contract issued on or after the operative date of the valuation manual.</text> </level> <level label="2"> <text>“Policyholder behavior” includes behavior relating to lapse, withdrawal, transfer, deposit, premium payment, loan, annuitization, or benefit elections prescribed by a life insurance policy, an accident and health insurance contract, or a deposit–type contract issued on or after the operative date of the valuation manual.</text> </level> <level label="3"> <text>“Policyholder behavior” does not include an event of mortality or morbidity that results in benefits prescribed in their essential aspects by the terms of a life insurance policy, an accident and health insurance contract, or a deposit–type contract issued on or after the operative date of the valuation manual.</text> </level> </level> <level label="j"> <text>“Principle–based valuation” means a reserve valuation that:</text> <level label="1"> <text>uses one or more methods or one or more assumptions determined by a company; and</text> </level> <level label="2"> <text>meets the requirements of § 5–314 of this subtitle.</text> </level> </level> <level label="k"> <text>“Qualified actuary” has the meaning stated in § 5–201.1(a) of this title.</text> </level> <level label="l"> <text>“Tail risk” means a risk that occurs when:</text> <level label="1"> <text>the frequency of low probability events is higher than expected under a normal probability distribution; or</text> </level> <level label="2"> <text>events of very significant size or magnitude are observed.</text> </level> </level> <level label="m"> <text>“Valuation manual” has the meaning stated in § 5–201.1(a) of this title.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-301.1" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <level label="1"> <level label="i"> <text>Subject to subparagraph (ii) of this paragraph, the Commissioner annually shall value or cause to be valued the reserves for all outstanding life insurance policies, annuity contracts, and pure endowment contracts issued by each life insurer doing business in the State before the operative date of the valuation manual.</text> </level> <level label="ii"> <text>For an alien insurer, the valuation required by this subsection shall be limited to the alien insurer’s United States business.</text> </level> </level> <level label="2"> <text>To calculate reserves under this subsection, the Commissioner may use group methods and approximate averages for fractions of a year or otherwise.</text> </level> <level label="3"> <text>For a foreign insurer or alien insurer, instead of the valuation of reserves required by paragraph (1) of this subsection, the Commissioner may accept a valuation made or caused to be made by the insurance supervisory official of another state or other jurisdiction if the valuation complies with the minimum standard under this subtitle.</text> </level> <level label="4"> <text>Subject to the approval of the Commissioner, an insurer that has adopted a standard of valuation producing greater aggregate reserves than the aggregate reserves calculated under the minimum standard provided in this subtitle may adopt a lower standard of valuation if it is not lower than the minimum standard provided in this subtitle.</text> </level> </level> <level label="b"> <level label="1"> <text>The Commissioner annually shall value or cause to be valued the reserves for all outstanding life insurance policies, accident and health insurance contracts, and deposit–type contracts issued by a company on or after the operative date of the valuation manual.</text> </level> <level label="2"> <text>For a foreign company or an alien company, instead of the valuation of reserves required by paragraph (1) of this subsection, the Commissioner may accept a valuation made or caused to be made by the insurance supervisory official of another state if the valuation complies with the minimum standard under this subtitle.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-302" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <text>Except as otherwise provided in §§ 5-305 and 5-306 of this subtitle, the minimum standard for the valuation of a policy or contract issued before the operative date of the Maryland Standard Nonforfeiture Law for Life Insurance is the minimum standard provided by former Article 48A, § 83(2) of the Code in effect on September 30, 1997.</text> </section> <section article="gin" article_name="Insurance" number="5-303" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <text>Except as otherwise provided in §§ 5–305 and 5–306 of this subtitle for group annuity contracts and pure endowment contracts issued before the operative date of the Maryland Standard Nonforfeiture Law for Life Insurance:</text> <level label="1"> <text>§§ 5–304 through 5–312 of this subtitle apply only to policies and contracts, as appropriate, issued on or after that operative date and before the operative date of the valuation manual; and</text> </level> <level label="2"> <text>§§ 5–313 and 5–314 of this subtitle do not apply to the policies and contracts.</text> </level> </level> <level label="b"> <text>Sections 5–313 and 5–314 of this subtitle apply to all life insurance policies, accident and health insurance contracts, and deposit–type contracts issued by a company on or after the operative date of the valuation manual.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-304" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <level label="1"> <text>Except as otherwise provided in §§ 5–305 and 5–306 of this subtitle, the minimum standard for the valuation of life insurance policies, annuity contracts, and pure endowment contracts is:</text> <level label="i"> <text>the Commissioners reserve valuation methods specified in §§ 5–307, 5–308, and 5–311 of this subtitle;</text> </level> <level label="ii"> <text>the applicable tables in subsections (b) through (h) of this section; and</text> </level> <level label="iii"> <text>except as provided in paragraph (2) of this subsection, interest at 3.5% per year.</text> </level> </level> <level label="2"> <text>For a policy or contract issued on or after July 1, 1978 other than an annuity contract or pure endowment contract, the interest rate is:</text> <level label="i"> <text>4% per year if the policy or contract was issued any time from July 1, 1978 to June 30, 1980, both inclusive; or</text> </level> <level label="ii"> <level label="4"> <text>5% per year if the policy or contract was issued on or after July 1, 1980.</text> </level> </level> </level> </level> <level label="b"> <text>For an ordinary policy of life insurance issued on the standard basis, excluding any disability and accidental death benefits in the policy, the applicable table for the minimum standard for the valuation of the policy is:</text> <level label="1"> <text>if the policy was issued before the operative date of § 16–308 of this article, the Commissioners 1941 Standard Ordinary Mortality Table;</text> </level> <level label="2"> <text>if the policy was issued on or after the operative date of § 16–308 of this article but before the operative date of § 16–309 of this article:</text> <level label="i"> <text>the Commissioners 1958 Standard Ordinary Mortality Table; or</text> </level> <level label="ii"> <text>at the election of the insurer, the Commissioners 1958 Standard Ordinary Mortality Table, calculating all modified net premiums and present values referred to in this subtitle for any category of policies issued on female risks according to an age not more than 6 years younger than the actual age of the insured; and</text> </level> </level> <level label="3"> <text>if the policy was issued on or after the operative date of § 16–309 of this article:</text> <level label="i"> <text>the Commissioners 1980 Standard Ordinary Mortality Table or, at the election of the insurer for any one or more specified plans of life insurance, the Commissioners 1980 Standard Ordinary Mortality Table with Ten–Year Select Mortality Factors; or</text> </level> <level label="ii"> <text>any ordinary mortality table, adopted after 1980 by NAIC and approved by a regulation of the Commissioner for use in determining the minimum standard of valuation for the policy.</text> </level> </level> </level> <level label="c"> <text>For an industrial life insurance policy issued on the standard basis, excluding any disability and accidental death benefits in the policy, the applicable table for the minimum standard for the valuation of the policy is:</text> <level label="1"> <text>if the policy was issued before the operative date of § 16–308(d) of this article, the 1941 Standard Industrial Mortality Table; and</text> </level> <level label="2"> <text>if the policy was issued on or after the operative date of § 16–308(d) of this article:</text> <level label="i"> <text>the Commissioners 1961 Standard Industrial Mortality Table; or</text> </level> <level label="ii"> <text>any industrial mortality table, adopted after 1980 by NAIC and approved by regulation of the Commissioner for use in determining the minimum standard of valuation for the policy.</text> </level> </level> </level> <level label="d"> <text>For an individual annuity contract or pure endowment contract, excluding any disability and accidental death benefits in the contract, the applicable table for the minimum standard for the valuation of the contract is, at the option of the insurer:</text> <level label="1"> <text>the 1937 Standard Annuity Mortality Table;</text> </level> <level label="2"> <text>the Annuity Mortality Table for 1949, Ultimate; or</text> </level> <level label="3"> <text>a modification of a table specified by item (1) or (2) of this subsection approved by the Commissioner.</text> </level> </level> <level label="e"> <text>For a group annuity contract or pure endowment contract, excluding any disability and accidental death benefits in the contract, the applicable table for the minimum standard for the valuation of the contract is:</text> <level label="1"> <text>the Group Annuity Mortality Table for 1951;</text> </level> <level label="2"> <text>a modification of the Group Annuity Mortality Table for 1951 approved by the Commissioner; or</text> </level> <level label="3"> <text>at the option of the insurer, any of the tables or modifications of tables specified by subsection (d) of this section for individual annuity contracts and pure endowment contracts.</text> </level> </level> <level label="f"> <level label="1"> <text>For total and permanent disability benefits in or supplementary to an ordinary policy or contract, the applicable table for the minimum standard for the valuation of the policy or contract is:</text> <level label="i"> <text>if the policy or contract was issued on or before December 31, 1960, the Class (3) Disability Table (1926);</text> </level> <level label="ii"> <text>if the policy or contract was issued any time from January 1, 1961 to December 31, 1965, both inclusive:</text> <level label="1"> <text>the tables specified by item (i) of this paragraph; or</text> </level> <level label="2"> <text>at the option of the insurer, the Class (3) Disability Table (1926); and</text> </level> </level> <level label="iii"> <text>if the policy or contract was issued on or after January 1, 1966:</text> <level label="1"> <text>the tables of Period 2 disablement rates and the 1930 to 1950 termination rates of the 1952 Disability Study of the Society of Actuaries, with due regard to the type of benefit; or</text> </level> <level label="2"> <text>any tables of disablement rates and termination rates adopted after 1980 by NAIC and approved by regulation of the Commissioner for use in determining the minimum standard of valuation for the policy or contract.</text> </level> </level> </level> <level label="2"> <text>For active lives, the table used under this subsection shall be combined with a mortality table allowed for calculating the reserves for life insurance policies.</text> </level> </level> <level label="g"> <level label="1"> <text>For accidental death benefits in or supplementary to a policy, the applicable table for the minimum standard for the valuation of the policy is:</text> <level label="i"> <text>if the policy was issued on or before December 31, 1960, the Intercompany Double Indemnity Mortality Table;</text> </level> <level label="ii"> <text>if the policy was issued any time from January 1, 1961 to December 31, 1965, both inclusive:</text> <level label="1"> <text>a table specified by item (i) of this paragraph; or</text> </level> <level label="2"> <text>at the option of the insurer, the Intercompany Double Indemnity Mortality Table; and</text> </level> </level> <level label="iii"> <text>if the policy was issued on or after January 1, 1966:</text> <level label="1"> <text>the 1959 Accidental Death Benefits Table; or</text> </level> <level label="2"> <text>an accidental death benefits table adopted after 1980 by NAIC and approved by regulation of the Commissioner for use in determining the minimum standard of valuation for the policy.</text> </level> </level> </level> <level label="2"> <text>The table used under this subsection shall be combined with a mortality table allowed for calculating the reserves for life insurance policies.</text> </level> </level> <level label="h"> <text>For group life insurance, life insurance issued on the substandard basis, long–term home health care and long–term care in a nursing home or other related institution, or any other special benefit, the applicable table for the minimum standard for the valuation of the policy or benefit is any table approved by the Commissioner for use in determining the minimum standard of valuation of the policy.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-305" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <level label="1"> <text>Except as provided in § 5–306 of this subtitle and subject to paragraph (3) of this subsection, this section applies to:</text> <level label="i"> <text>all individual annuity contracts and pure endowment contracts issued on or after the operative date of this section; and</text> </level> <level label="ii"> <text>all annuities and pure endowments purchased on or after the operative date under group annuity contracts and pure endowment contracts.</text> </level> </level> <level label="2"> <text>This section does not apply to any disability or accidental death benefit in a contract.</text> </level> <level label="3"> <text>The operative date of this section is:</text> <level label="i"> <text>January 1, 1979; or</text> </level> <level label="ii"> <text>the date or dates before January 1, 1979, specified by the insurer in a written notice filed with the Commissioner before January 1, 1979, of the insurer’s election of an earlier date or dates.</text> </level> </level> </level> <level label="b"> <text>For an individual annuity contract or pure endowment contract issued on or before June 30, 1980, the applicable table and interest rate for the minimum standard for the valuation of the contract are:</text> <level label="1"> <text>the 1971 Individual Annuity Mortality Table or a modification of that table approved by the Commissioner; and</text> </level> <level label="2"> <text>interest at:</text> <level label="i"> <text>6% per year for a single premium immediate annuity contract; and</text> </level> <level label="ii"> <text>4% per year for any other individual annuity contract or pure endowment contract.</text> </level> </level> </level> <level label="c"> <text>For an individual single premium immediate annuity contract issued on or after July 1, 1980, the applicable table and interest rate for the minimum standard for the valuation of the contract are:</text> <level label="1"> <level label="i"> <text>the 1971 Individual Annuity Mortality Table;</text> </level> <level label="ii"> <text>an individual annuity mortality table adopted after 1980 by NAIC and approved by regulation of the Commissioner for use in determining the minimum standard of valuation for the contract; or</text> </level> <level label="iii"> <text>a modification of a table specified by subitem (i) or (ii) of this item approved by the Commissioner; and</text> </level> </level> <level label="2"> <text>interest at 7.5% per year.</text> </level> </level> <level label="d"> <text>For an individual annuity contract or pure endowment contract issued on or after July 1, 1980, other than a single premium immediate annuity contract, the applicable table and interest rate for the minimum standard for the valuation of the contract are:</text> <level label="1"> <level label="i"> <text>the 1971 Individual Annuity Mortality Table;</text> </level> <level label="ii"> <text>an individual annuity mortality table adopted after 1980 by NAIC and approved by regulation of the Commissioner for use in determining the minimum standard of valuation for the contract; or</text> </level> <level label="iii"> <text>a modification of a table specified in subitem (i) or (ii) of this item approved by the Commissioner; and</text> </level> </level> <level label="2"> <text>interest at:</text> <level label="i"> <level label="5"> <text>5% per year for a single premium deferred annuity contract or pure endowment contract; and</text> </level> </level> <level label="ii"> <level label="4"> <text>5% per year for any other individual annuity contract or pure endowment contract.</text> </level> </level> </level> </level> <level label="e"> <text>For an annuity or pure endowment purchased on or before June 30, 1980, under a group annuity contract or pure endowment contract, the applicable table and interest rate for the minimum standard for the valuation of the contract are:</text> <level label="1"> <text>the 1971 Group Annuity Mortality Table or a modification of that table approved by the Commissioner; and</text> </level> <level label="2"> <text>interest at 6% per year.</text> </level> </level> <level label="f"> <text>For an annuity or pure endowment purchased on or after July 1, 1980, under a group annuity contract or pure endowment contract, the applicable table and interest rate for the minimum standard for the valuation of the contract are:</text> <level label="1"> <level label="i"> <text>the 1971 Group Annuity Mortality Table;</text> </level> <level label="ii"> <text>a group annuity mortality table adopted after 1980 by NAIC and approved by regulation of the Commissioner for use in determining the minimum standard of valuation for the annuity or pure endowment; or</text> </level> <level label="iii"> <text>a modification of a table specified in subitem (i) or (ii) of this item approved by the Commissioner; and</text> </level> </level> <level label="2"> <text>interest at 7.5% per year.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-306" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <level label="1"> <text>In this section the following words have the meanings indicated.</text> </level> <level label="2"> <text>“Change in fund basis” means a valuation basis under which the interest rate used to determine the minimum valuation standard applicable to each change in a fund held under an annuity or under a guaranteed interest contract is the calendar year statutory valuation interest rate for the year of the change in the fund.</text> </level> <level label="3"> <text>“Guarantee duration” means:</text> <level label="i"> <text>for life insurance, the maximum number of years the life insurance can remain in force on a basis guaranteed in the policy or under options to convert to plans of life insurance with premium rates, nonforfeiture values, or both, that are guaranteed in the original policy; and</text> </level> <level label="ii"> <text>for an annuity or for a guaranteed interest contract:</text> <level label="1"> <text>if the annuity or the guaranteed interest contract has a cash settlement option, the number of years for which the contract guarantees interest rates in excess of the calendar year statutory valuation interest rate for life insurance policies with guarantee duration in excess of 20 years; and</text> </level> <level label="2"> <text>if the annuity or the guaranteed interest contract does not have a cash settlement option, the number of years from the date of issue or date of purchase to the date annuity benefits are scheduled to commence.</text> </level> </level> </level> <level label="4"> <text>“Issue year basis” means a valuation basis under which the interest rate used to determine the minimum valuation standard for the entire duration of the annuity or of the guaranteed interest contract is the calendar year statutory valuation interest rate for the year of issue or year of purchase of the annuity or guaranteed interest contract.</text> </level> </level> <level label="b"> <text>This section applies to:</text> <level label="1"> <text>all life insurance policies issued on or after the operative date of § 16–309 of this article;</text> </level> <level label="2"> <text>all individual annuity contracts and pure endowment contracts issued on or after January 1, 1983;</text> </level> <level label="3"> <text>all annuities and pure endowments purchased on or after January 1, 1983, under group annuity contracts or pure endowment contracts; and</text> </level> <level label="4"> <text>the net increase, on or after January 1, 1983, in amounts held under guaranteed interest contracts.</text> </level> </level> <level label="c"> <text>Instead of the interest rates specified in §§ 5–304 and 5–305 of this subtitle, the interest rates used to determine the minimum standard for the valuation of a policy, contract, annuity, or pure endowment, or net increase described in subsection (b) of this section shall be:</text> <level label="1"> <text>for a life insurance policy or an individual annuity contract or pure endowment contract, the calendar year statutory valuation interest rate as determined under this section for the calendar year in which the policy or contract was issued;</text> </level> <level label="2"> <text>for an annuity or pure endowment purchased under a group annuity contract or pure endowment contract, the calendar year statutory valuation interest rate as determined under this section for the calendar year in which the annuity or pure endowment was purchased; or</text> </level> <level label="3"> <text>for a net increase in an amount held under a guaranteed interest contract, the calendar year statutory valuation interest rate as determined under this section for the calendar year in which the net increase occurred.</text> </level> </level> <level label="d"> <level label="1"> <text>For purposes of the formulas under paragraph (2) of this subsection:</text> <level label="i"> <text>“I” is the calendar year statutory valuation interest rate;</text> </level> <level label="ii"> <text>“R1” is the lesser of R and .09;</text> </level> <level label="iii"> <text>“R2” is the greater of R and .09;</text> </level> <level label="iv"> <text>“R” is the reference interest rate determined under subsection (f) of this section; and</text> </level> <level label="v"> <text>“W” is the weighting factor determined under subsection (e) of this section.</text> </level> </level> <level label="2"> <level label="i"> <text>Except as provided in paragraph (3) of this subsection, the calendar year statutory valuation interest rates shall be determined as provided in this paragraph, rounding the results to the nearest 1/4 percent.</text> </level> <level label="ii"> <text>The calendar year statutory valuation interest rate for life insurance is:</text> <text>I = .03 + W(R1 – .03) + W/2(R2 – .09).</text> </level> <level label="iii"> <text>The calendar year statutory valuation interest rate for a single premium immediate annuity or for an annuity benefit involving a life contingency arising from another annuity or guaranteed interest contract that has a cash settlement option is:</text> <text>I = .03 + W(R – .03).</text> </level> <level label="iv"> <text>Except as provided in subparagraph (iii) of this paragraph, for an annuity or guaranteed interest contract that has a cash settlement option and is valued on an issue year basis:</text> <level label="1"> <text>the formula for life insurance under subparagraph (ii) of this paragraph applies if the annuity or guaranteed interest contract has a guarantee duration greater than 10 years; and</text> </level> <level label="2"> <text>the formula for single premium annuities under subparagraph (iii) of this paragraph applies if the annuity or guaranteed interest contract has a guarantee duration of 10 years or less.</text> </level> </level> <level label="v"> <text>The formula for single premium annuities under subparagraph (iii) of this paragraph applies to any other annuity or guaranteed interest contract that does not have a cash settlement option.</text> </level> <level label="vi"> <text>The formula for single premium annuities under subparagraph (iii) of this paragraph applies to any other annuity or guaranteed interest contract that has a cash settlement option and is valued on a change in fund basis.</text> </level> </level> <level label="3"> <level label="i"> <text>If the calendar year statutory valuation interest rate for a life insurance policy issued in any calendar year determined without reference to this paragraph differs from the corresponding actual rate for a similar policy issued in the immediately preceding calendar year by less than 0.5%, the calendar year statutory valuation interest rate for that life insurance policy shall equal the corresponding actual rate for the immediately preceding calendar year.</text> </level> <level label="ii"> <text>For purposes of this paragraph, the calendar year statutory valuation interest rate for a life insurance policy issued in a calendar year shall be:</text> <level label="1"> <text>determined for 1980 using the reference interest rate determined for 1979; and</text> </level> <level label="2"> <text>determined for each calendar year since 1980 regardless of when § 16–309 of this article became operative.</text> </level> </level> </level> </level> <level label="e"> <level label="1"> <level label="i"> <text>In this subsection the following words have the meanings indicated.</text> </level> <level label="ii"> <text>“Plan Type A” means a plan type under which:</text> <level label="1"> <text>at any time the policyholder may withdraw funds only:</text> </level> <level label="A"> <text>with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurer;</text> </level> <level label="B"> <text>without the adjustment required by item A of this item but in installments over 5 years or more; or</text> </level> <level label="C"> <text>as an immediate life annuity; or</text> </level> <level label="2"> <text>no withdrawal is allowed at any time.</text> </level> </level> <level label="iii"> <text>“Plan Type B” means a plan type under which:</text> <level label="1"> <text>before the expiration of the interest rate guarantee:</text> </level> <level label="A"> <text>the policyholder may withdraw funds only with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurer;</text> </level> <level label="B"> <text>the policyholder may withdraw funds without the adjustment required by item A of this item but in installments over 5 years or more; or</text> </level> <level label="C"> <text>no withdrawal of funds is allowed; and</text> </level> <level label="2"> <text>at the end of the interest rate guarantee, the policyholder may withdraw funds without the adjustment required by item 1A of this subparagraph in a single sum or installments over less than 5 years.</text> </level> </level> <level label="iv"> <text>“Plan Type C” means a plan type under which a policyholder may withdraw funds before the expiration of the interest rate guarantee in a single sum or in installments over less than 5 years:</text> <level label="1"> <text>without adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurer; or</text> </level> <level label="2"> <text>subject only to a fixed surrender charge stipulated in the contract as a percentage of the fund.</text> </level> </level> </level> <level label="2"> <text>For the purposes of this subsection, an insurer:</text> <level label="i"> <text>may elect to value annuities or guaranteed interest contracts that have cash settlement options on an issue year basis or a change in fund basis; and</text> </level> <level label="ii"> <text>shall value annuities or guaranteed interest contracts that do not have cash settlement options on an issue year basis.</text> </level> </level> <level label="3"> <text>The weighting factor in the formulas under subsection (d) of this section shall be determined as provided in this subsection.</text> </level> <level label="4"> <text>The weighting factor for life insurance is determined based on the guarantee duration of the life insurance as follows:</text> <text>Guarantee Duration Weighting </text> <text>(Years) Factor</text> <text>10 or less .50 </text> <text>More than 10, but not more than 20 .45 </text> <text>More than 20 .35</text> </level> <level label="5"> <text>The weighting factor for a single premium immediate annuity or for an annuity benefit involving a life contingency arising from another annuity or guaranteed interest contract that has a cash settlement option is .80.</text> </level> <level label="6"> <text>Except as provided in paragraphs (5) and (8) of this subsection, the weighting factor for an annuity or guaranteed interest contract valued on an issue year basis is determined based on the guarantee duration of the annuity or contract as follows:</text> <text>Guarantee Weighing Factor</text> <text>Duration For Plan Type</text> <text>(Years) A B C</text> <text>5 or less .80 .60 .50</text> <text>More than 5, but not more than 10: .75 .60 .50</text> <text>More than 10 but not more than 20: .65 .50 .45</text> <text>More than 20: .45 .35 .35</text> </level> <level label="7"> <text>Except as provided in paragraphs (5) and (8) of this subsection, the weighting factor for an annuity or guaranteed interest contract valued on a change in fund basis is the weighting factor as determined under paragraph (6) of this subsection, increased by:</text> <level label="i"> <text>for Plan Type A, .15;</text> </level> <level label="ii"> <text>for Plan Type B, .25; and</text> </level> <level label="iii"> <text>for Plan Type C, .05.</text> </level> </level> <level label="8"> <text>The weighting factor as determined under paragraph (6) or (7) of this subsection shall be increased by .05 for:</text> <level label="i"> <text>an annuity or guaranteed interest contract that is valued on an issue year basis, has a cash settlement option, and does not guarantee interest rates on amounts received more than 12 months after issue or purchase; or</text> </level> <level label="ii"> <text>an annuity or guaranteed interest contract that is valued on a change in fund basis and does not guarantee interest rates on amounts received more than 12 months beyond the valuation date.</text> </level> </level> </level> <level label="f"> <level label="1"> <level label="i"> <text>In this subsection the following words have the meanings indicated.</text> </level> <level label="ii"> <text>“Moody’s corporate bond yield average” means Moody’s corporate bond yield average – monthly average corporates, as published by Moody’s Investors Service, Inc.</text> </level> <level label="iii"> <text>“12–month Moody’s corporate bond yield average” means the average of Moody’s corporate bond yield average over the 12–month period that ends:</text> <level label="1"> <text>for life insurance, on June 30 of the calendar year immediately preceding the year of issue;</text> </level> <level label="2"> <text>for an annuity or guaranteed interest contract other than one described in item 3 of this subparagraph, on June 30 of the calendar year of issue or purchase; and</text> </level> <level label="3"> <text>for an annuity or guaranteed interest contract that has a cash settlement option, is valued on a change in fund basis, is not a single premium immediate annuity, and is not an annuity benefit involving a life contingency arising from another annuity or guaranteed interest contract that has a cash settlement option, on June 30 of the calendar year of the change in the fund.</text> </level> </level> <level label="iv"> <text>“36–month Moody’s corporate bond yield average” means the average of Moody’s corporate bond yield average over the 36–month period that ends:</text> <level label="1"> <text>for life insurance, on June 30 of the calendar year immediately preceding the year of issue; and</text> </level> <level label="2"> <text>for an annuity or a guaranteed interest contract, on June 30 of the calendar year of issue or purchase.</text> </level> </level> </level> <level label="2"> <text>The reference interest rate in the formulas under subsection (d) of this section shall be determined as provided in this subsection.</text> </level> <level label="3"> <text>For life insurance, the reference interest rate is the lesser of:</text> <level label="i"> <text>the 36–month Moody’s corporate bond yield average; or</text> </level> <level label="ii"> <text>the 12–month Moody’s corporate bond yield average.</text> </level> </level> <level label="4"> <text>For a single premium immediate annuity or for an annuity benefit involving a life contingency arising from another annuity or guaranteed interest contract that has a cash settlement option, the reference interest rate is the 12–month Moody’s corporate bond yield average.</text> </level> <level label="5"> <text>Except as provided in paragraph (4) of this subsection, for an annuity or guaranteed interest contract that has a cash settlement option, is valued on an issue year basis, and has a guarantee duration greater than 10 years, the reference interest rate is the lesser of:</text> <level label="i"> <text>the 36–month Moody’s corporate bond yield average; or</text> </level> <level label="ii"> <text>the 12–month Moody’s corporate bond yield average.</text> </level> </level> <level label="6"> <text>Except as provided in paragraph (4) of this subsection, the reference interest rate is the 12–month Moody’s corporate bond yield average for any other annuity or guaranteed interest contract that:</text> <level label="i"> <text>has a cash settlement option, is valued on an issue year basis, and has a guarantee duration of 10 years or less;</text> </level> <level label="ii"> <text>does not have a cash settlement option; or</text> </level> <level label="iii"> <text>has a cash settlement option and is valued on a change in fund basis.</text> </level> </level> <level label="7"> <text>If Moody’s corporate bond yield average is no longer published by Moody’s Investors Service, Inc. or if NAIC determines that Moody’s corporate bond yield average is no longer appropriate to determine the reference interest rate, the Commissioner shall approve by regulation an alternative method adopted by NAIC to determine the reference interest rate.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-307" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <level label="1"> <text>In this subsection, “guaranteed benefits” means future guaranteed life insurance and endowment benefits.</text> </level> <level label="2"> <text>Except as otherwise provided in paragraph (4) of this subsection and in §§ 5–308 and 5–311 of this subtitle, for the life insurance and endowment benefits of a policy that provides for a uniform amount of insurance and requires the payment of uniform premiums, the reserve according to the Commissioners reserve valuation method shall be the amount, if any, that the present value, at the date of valuation, of the guaranteed benefits under the policy exceeds the present value, at the date of valuation, of any future modified net premiums for the policy, as determined under paragraph (3) of this subsection.</text> </level> <level label="3"> <level label="i"> <text>For purposes of this subsection, the modified net premiums for a policy equal a uniform percentage of the respective contract premiums for the guaranteed benefits under the policy calculated so that the present value, at the date of issue of the policy, of the sum of all the modified net premiums equals the sum of:</text> <level label="1"> <text>the present value, at the date of issue, of the guaranteed benefits under the policy; and</text> </level> <level label="2"> <text>the amount by which the net level annual premium determined under subparagraph (ii) of this paragraph exceeds a net 1–year term premium for the guaranteed benefits provided for in the first policy year.</text> </level> </level> <level label="ii"> <level label="1"> <text>Except as provided in subsubparagraph 2 of this subparagraph, the net level annual premium to be used in the calculation in this paragraph equals a fraction:</text> </level> <level label="A"> <text>the numerator of which is the present value, at the date of issue, of the guaranteed benefits provided for after the first policy year; and</text> </level> <level label="B"> <text>the denominator of which is the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary of the policy on which a premium falls due.</text> </level> <level label="2"> <text>The net level annual premium determined under this subparagraph may not exceed the net level annual premium on the 19–year premium whole life plan for insurance of the same amount at an age 1 year higher than the age at issue of the policy for which the reserve is calculated under this subsection.</text> </level> </level> </level> <level label="4"> <level label="i"> <level label="1"> <text>In this paragraph the following words have the meanings indicated.</text> </level> <level label="2"> <text>“Assumed ending date” means the first policy anniversary of a policy on which the sum of any endowment benefit under the policy and any cash surrender value available on that policy anniversary is greater than the excess first year premium.</text> </level> <level label="3"> <text>“Excess first year premium” means the amount by which the contract premium in the first policy year of a policy exceeds the premium in the second policy year.</text> </level> </level> <level label="ii"> <text>This paragraph applies to a life insurance policy issued on or after January 1, 1986:</text> <level label="1"> <text>for which the contract premium in the first policy year exceeds the premium in the second year;</text> </level> <level label="2"> <text>that does not provide a comparable additional benefit in the first year for the excess first year premium; and</text> </level> <level label="3"> <text>that provides an endowment benefit or a cash surrender value or a combination in an amount greater than the excess first year premium.</text> </level> </level> <level label="iii"> <text>For a policy described in subparagraph (ii) of this paragraph, except as provided in § 5–311 of this subtitle, the reserve according to the Commissioners reserve valuation method as of any policy anniversary on or before the assumed ending date of the policy shall be the greater of:</text> <level label="1"> <text>the reserve calculated under paragraph (2) of this subsection; or</text> </level> <level label="2"> <text>the reserve calculated under paragraph (2) of this subsection modified as follows:</text> </level> <level label="A"> <text>the net level annual premium determined under paragraph (3)(ii) of this subsection shall be reduced by 15% of the excess first year premium;</text> </level> <level label="B"> <text>all present values of benefits and premiums shall be determined without reference to premiums or benefits provided under the policy after the assumed ending date;</text> </level> <level label="C"> <text>the policy shall be assumed to mature on the assumed ending date as an endowment; and</text> </level> <level label="D"> <text>the cash surrender value provided on the assumed ending date shall be considered as an endowment benefit.</text> </level> </level> <level label="iv"> <text>In making the calculation under subparagraph (iii) of this paragraph, the mortality and interest bases stated in §§ 5–304 and 5–306 of this subtitle shall be used.</text> </level> </level> </level> <level label="b"> <level label="1"> <text>This subsection applies to:</text> <level label="i"> <text>life insurance policies that provide for a varying amount of insurance or require the payment of varying premiums;</text> </level> <level label="ii"> <text>group annuity contracts and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer, an employee organization, or both, unless the plan provides individual retirement accounts or individual retirement annuities under § 408 of the Internal Revenue Code;</text> </level> <level label="iii"> <text>disability and accidental death benefits and benefits for long–term home health care and long–term care in a nursing home or other related institution in all policies and contracts; and</text> </level> <level label="iv"> <text>all other benefits, except:</text> <level label="1"> <text>life insurance and endowment benefits in life insurance policies; and</text> </level> <level label="2"> <text>benefits provided by annuity contracts or pure endowment contracts not described in item (ii) of this paragraph.</text> </level> </level> </level> <level label="2"> <text>For a policy, contract, or benefit to which this subsection applies, the reserve according to the Commissioners reserve valuation method shall be calculated by a method consistent with the principles of subsection (a) of this section, disregarding in the determination of modified net premiums any extra premiums charged because of impairments or special hazards.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-308" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <level label="1"> <text>Except as provided in paragraph (2) of this subsection, this section applies to all annuity contracts and pure endowment contracts.</text> </level> <level label="2"> <text>This section does not apply to:</text> <level label="i"> <text>group annuity contracts or pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer, an employee organization, or both, unless the plan provides individual retirement accounts or individual retirement annuities under § 408 of the Internal Revenue Code; or</text> </level> <level label="ii"> <text>any disability and accidental death benefits and benefits for long-term home health care and long-term care in a nursing home or other related institution included in an annuity contract or pure endowment contract.</text> </level> </level> </level> <level label="b"> <level label="1"> <level label="i"> <text>For benefits under an annuity contract or pure endowment contract to which this section applies, the reserve according to the Commissioners annuity reserve method shall be the greatest of the amounts determined for each respective contract year under subparagraph (ii) of this paragraph.</text> </level> <level label="ii"> <text>For each contract year, there shall be determined the amount by which the present value, at the date of valuation, of the future guaranteed benefits, including guaranteed nonforfeiture benefits, under the contract at the end of the contract year exceeds the present value, at the date of valuation, of any future valuation considerations derived from future gross considerations that are required by the terms of the contract and become payable prior to the end of the contract year.</text> </level> </level> <level label="2"> <text>For purposes of this subsection:</text> <level label="i"> <text>the future guaranteed benefits shall be determined by using the mortality table, if any, and interest rate specified in the contract for determining guaranteed benefits; and</text> </level> <level label="ii"> <text>the valuation considerations are the portions of the respective gross considerations applied under the terms of the contract to determine nonforfeiture values.</text> </level> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-309" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <text>This section does not apply to reserves for disability and accidental death benefits and benefits for long-term home health care and long-term care in a nursing home or other related institution included in a life insurance policy.</text> </level> <level label="b"> <text>An insurer’s aggregate reserves for all life insurance policies may not be less than the aggregate reserves calculated in accordance with:</text> <level label="1"> <text>the methods set forth in §§ 5-307, 5-308, 5-311, and 5-312 of this subtitle; and</text> </level> <level label="2"> <text>the mortality tables and rates of interest used in calculating nonforfeiture benefits for those policies.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-310" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <text>Subject to subsection (b) of this section, the Commissioner may establish any category of policies, contracts, or benefits for which reserves may be calculated, at the option of the insurer, under a standard that produces greater aggregate reserves for the category than the aggregate reserves calculated using the minimum standard provided in this subtitle.</text> </level> <level label="b"> <level label="1"> <text>This subsection does not apply to annuity contracts or pure endowment contracts.</text> </level> <level label="2"> <text>The interest rate used to calculate the reserve for a policy or contract under a standard other than the minimum standard in this subtitle may not be higher than the corresponding interest rate used to calculate any nonforfeiture benefits provided by the policy or contract.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-311" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <level label="1"> <text>Except as provided in subsection (b) of this section, if in any contract year the gross premium charged by an insurer on a policy or contract is less than the valuation net premium for the policy or contract, the minimum reserve required for the policy or contract is the greater of:</text> <level label="i"> <text>the reserve calculated according to the mortality table, interest rate, and method actually used for the policy or contract; or</text> </level> <level label="ii"> <text>the reserve calculated by using the method actually used for the policy or contract, but:</text> <level label="1"> <text>using the minimum valuation standards of mortality and of interest in §§ 5-304 and 5-306 of this subtitle; and</text> </level> <level label="2"> <text>in each contract year for which the valuation net premium exceeds the actual gross premium, using the actual gross premium instead of the valuation net premium.</text> </level> </level> </level> <level label="2"> <level label="i"> <text>Except as provided in subparagraph (ii) of this paragraph, for purposes of paragraph (1) of this subsection, the valuation net premium for a policy or contract shall be calculated by the method used in calculating the reserve on the policy or contract using the minimum valuation standards of mortality and interest rate under §§ 5-304 and 5-306 of this subtitle.</text> </level> <level label="ii"> <text>For future renewals under a renewable term insurance policy, the modern CSO mortality table published in The Transactions of The Society of Actuaries, Vol. XXVII (1975), shall be used instead of the minimum valuation standard of mortality under § 5-304 of this subtitle.</text> </level> </level> <level label="3"> <text>If the gross premium rates for a policy or contract are not based consistently on a suitable accepted or credible mortality basis or table, the Commissioner may require additional reserves in accordance with § 5-103(3) of this title.</text> </level> </level> <level label="b"> <text>For a life insurance policy described in § 5-307(a)(3)(ii) of this subtitle:</text> <level label="1"> <text>subsection (a) of this section shall be applied substituting the method described in § 5-307 of this subtitle, without regard to § 5-307(a)(4)(iii), for the method actually used in calculating the reserve for the policy; and</text> </level> <level label="2"> <text>the minimum reserve at each policy anniversary of the policy shall be the greater of:</text> <level label="i"> <text>the minimum reserve calculated under § 5-307 of this subtitle, including § 5-307(a)(4)(iii); or</text> </level> <level label="ii"> <text>the minimum reserve calculated under this section.</text> </level> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-312" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <text>This section applies to:</text> <level label="1"> <text>a plan of life insurance that provides for future premiums to be determined by the insurer based on estimates of future experience; and</text> </level> <level label="2"> <text>a plan of life insurance or annuity that is of a nature that precludes determining the minimum reserves by the methods described in §§ 5-307, 5-308, and 5-311 of this subtitle.</text> </level> </level> <level label="b"> <text>In accordance with regulations adopted by the Commissioner, the reserves that are held under a plan described in subsection (a) of this section shall:</text> <level label="1"> <text>be appropriate in relation to the benefits and pattern of premiums for that plan; and</text> </level> <level label="2"> <text>be computed by a method that is consistent with the principles of this subtitle.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-313" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <text>Except as provided in subsection (e) or (g) of this section, for life insurance policies, accident and health insurance contracts, and deposit–type contracts issued on or after the operative date of the valuation manual, the standard prescribed in the valuation manual is the minimum standard of valuation.</text> </level> <level label="b"> <text>The operative date of the valuation manual is January 1 of the first calendar year following the first July 1 as of which all of the following have occurred:</text> <level label="1"> <text>the valuation manual has been adopted by NAIC by an affirmative vote of at least 42 members or 75% of the members voting, whichever is greater;</text> </level> <level label="2"> <text>the Standard Valuation Law, as amended by NAIC in 2009, or legislation including substantially similar terms and provisions, has been enacted by states representing greater than 75% of the direct premiums written, as reported in the following annual statements submitted for 2008:</text> <level label="i"> <text>life, accident, and health annual statements;</text> </level> <level label="ii"> <text>health annual statements; or</text> </level> <level label="iii"> <text>fraternal annual statements; and</text> </level> </level> <level label="3"> <text>the Standard Valuation Law, as amended by NAIC in 2009, or legislation including substantially similar terms and provisions, has been enacted by at least 42 of the following 55 jurisdictions:</text> <level label="i"> <text>the 50 states of the United States;</text> </level> <level label="ii"> <text>American Samoa;</text> </level> <level label="iii"> <text>the U.S. Virgin Islands;</text> </level> <level label="iv"> <text>the District of Columbia;</text> </level> <level label="v"> <text>Guam; and</text> </level> <level label="vi"> <text>Puerto Rico.</text> </level> </level> </level> <level label="c"> <text>Unless a change in the valuation manual specifies a later effective date, changes to the valuation manual shall be effective on January 1 following the date when the change to the valuation manual has been adopted by NAIC by an affirmative vote representing:</text> <level label="1"> <text>at least 75% of the members of NAIC voting, but not less than a majority of the total membership; and</text> </level> <level label="2"> <text>members of NAIC representing jurisdictions totaling greater than 75% of the direct premiums written, as reported in the following annual statements most recently available before the vote under item (1) of this subsection:</text> <level label="i"> <text>life, accident, and health annual statements;</text> </level> <level label="ii"> <text>health annual statements; or</text> </level> <level label="iii"> <text>fraternal annual statements.</text> </level> </level> </level> <level label="d"> <level label="1"> <text>The valuation manual shall specify the following:</text> <level label="i"> <text>the minimum valuation standards for each type of life insurance policy, accident and health insurance contract, and deposit–type contract issued by a company on or after the operative date of the valuation manual;</text> </level> <level label="ii"> <text>the policies and contracts or types of policies and contracts that are subject to the requirements of a principle–based valuation under § 5–314 of this subtitle and the minimum valuation standards consistent with those requirements;</text> </level> <level label="iii"> <text>for policies and contracts subject to a principle–based valuation under § 5–314 of this subtitle:</text> <level label="1"> <text>requirements for the format of reports to the Commissioner required under § 5–314(b)(1)(iii) of this subtitle, including the information necessary to determine if the principle–based valuation is appropriate and in compliance with this subtitle;</text> </level> <level label="2"> <text>required assumptions for risks over which a company does not have significant control or influence; and</text> </level> <level label="3"> <text>procedures for corporate governance and oversight of the actuarial function and a process for appropriate waiver or modification of those procedures;</text> </level> </level> <level label="iv"> <text>any other requirements, including requirements relating to reserve methods, models for measuring risk, generation of economic scenarios, assumptions, margins, use of company experience, risk measurement, disclosure, certifications, reports, actuarial opinions and memoranda, transition rules, and internal controls; and</text> </level> <level label="v"> <text>the data and the form of the data required under § 5–315 of this subtitle, the person to whom the data must be submitted, and any other requirements considered necessary, including requirements relating to data analysis and reporting of analyses.</text> </level> </level> <level label="2"> <text>The minimum valuation standards required under paragraph (1)(i) of this subsection shall be known as:</text> <level label="i"> <text>the Commissioners reserve valuation method for life insurance policies, other than annuity contracts;</text> </level> <level label="ii"> <text>the Commissioners annuity reserve valuation method for annuity contracts; and</text> </level> <level label="iii"> <text>minimum reserves for all other policies or contracts.</text> </level> </level> <level label="3"> <text>For policies and contracts not subject to a principle–based valuation under § 5–314 of this subtitle, the minimum valuation standard shall:</text> <level label="i"> <text>be consistent with the minimum standard of valuation before the operative date of the valuation manual; or</text> </level> <level label="ii"> <text>develop reserves that quantify the benefits and guarantees, and the funding, associated with the policies and contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring.</text> </level> </level> </level> <level label="e"> <text>In the absence of a specific valuation requirement, or if a specific valuation requirement in the valuation manual is not, in the opinion of the Commissioner, in compliance with this subtitle, a company, with respect to the requirement, shall comply with the minimum valuation standard prescribed by the Commissioner by regulation.</text> </level> <level label="f"> <level label="1"> <text>The Commissioner may engage a qualified actuary at the expense of the company to:</text> <level label="i"> <text>perform an actuarial examination of a company and opine on the appropriateness of any reserve assumption or method used by the company; or</text> </level> <level label="ii"> <text>review and opine on a company’s compliance with any requirement under this subtitle.</text> </level> </level> <level label="2"> <text>The Commissioner may rely on the opinion of a qualified actuary issued while the qualified actuary was employed by or under contract with the insurance supervisory official of another state.</text> </level> </level> <level label="g"> <level label="1"> <text>The Commissioner may require a company to change any assumption or method used by the company if, in the opinion of the Commissioner, the change is necessary to comply with the requirements of the valuation manual or this subtitle.</text> </level> <level label="2"> <text>The company shall adjust the company’s reserves as required by the Commissioner.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-314" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <text>For policies and contracts specified in the valuation manual, a company shall establish reserves using a principle–based valuation that:</text> <level label="1"> <text>quantifies the benefits and guarantees, and the funding, associated with the policies or contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring during the lifetime of the policies or contracts;</text> </level> <level label="2"> <text>for policies or contracts with significant tail risk, reflects conditions appropriately adverse to quantify the tail risk;</text> </level> <level label="3"> <text>incorporates assumptions, risk analysis methods and financial models, and management techniques that are consistent with, but not necessarily identical to, those used within the company’s overall risk assessment process, while recognizing potential differences in financial reporting structures and any prescribed assumptions or methods;</text> </level> <level label="4"> <text>incorporates assumptions that:</text> <level label="i"> <text>are prescribed in the valuation manual; or</text> </level> <level label="ii"> <text>if not prescribed in the valuation manual:</text> <level label="1"> <text>are established using the company’s available experience, to the extent it is relevant and statistically credible; or</text> </level> <level label="2"> <text>to the extent that company data is not available, relevant, or statistically credible, are established using other relevant, statistically credible experience; and</text> </level> </level> </level> <level label="5"> <text>provides margins for uncertainty, including adverse deviation and estimation error, such that the greater the uncertainty the larger the margin and resulting reserve.</text> </level> </level> <level label="b"> <level label="1"> <text>A company that uses a principle–based valuation for one or more policies or contracts subject to this section shall:</text> <level label="i"> <text>establish procedures for corporate governance and oversight of the actuarial valuation function consistent with those described in the valuation manual;</text> </level> <level label="ii"> <text>provide to the Commissioner and the board of directors of the company an annual certification of the effectiveness of the company’s internal controls with respect to the principle–based valuation; and</text> </level> <level label="iii"> <text>develop, and file with the Commissioner on request, a principle–based valuation report that complies with standards prescribed in the valuation manual.</text> </level> </level> <level label="2"> <text>The internal controls under paragraph (1)(ii) of this subsection shall be designed to ensure that:</text> <level label="i"> <text>all material risks inherent in the liabilities and associated assets subject to the principle–based valuation are included in the principle–based valuation; and</text> </level> <level label="ii"> <text>principle–based valuations are made in accordance with the valuation manual.</text> </level> </level> <level label="3"> <text>The annual certification required under paragraph (1)(ii) of this subsection shall be based on the internal controls in place as of the end of the preceding calendar year.</text> </level> </level> <level label="c"> <text>A principle–based valuation may include a prescribed formulaic reserve component.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-315" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <text>A company shall submit the mortality data, morbidity data, policyholder behavior, expense experience, and other data as prescribed in the valuation manual.</text> </section> <section article="gin" article_name="Insurance" number="5-316" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <text>In this section, “confidential information” means:</text> <level label="1"> <text>a memorandum in support of an opinion submitted under § 5–201.1 of this title and any documents, materials, and other information, including all working papers and copies of all working papers, created, produced, or obtained by or disclosed to the Commissioner or any other person in connection with the memorandum;</text> </level> <level label="2"> <text>any documents, materials, and other information, including all working papers and copies of all working papers, created, produced, or obtained by or disclosed to the Commissioner or any other person in the course of an examination made under § 5–313(f) of this subtitle;</text> </level> <level label="3"> <level label="i"> <text>any reports, documents, materials, and other information developed by a company in support of, or in connection with, an annual certification by the company under § 5–314(b)(1)(ii) of this subtitle evaluating the effectiveness of the company’s internal controls with respect to a principle–based valuation; and</text> </level> <level label="ii"> <text>any documents, materials, and other information, including all working papers and copies of all working papers, created, produced, or obtained by or disclosed to the Commissioner or any other person in connection with the reports, documents, materials, and information specified in item (i) of this item;</text> </level> </level> <level label="4"> <text>a principle–based valuation report developed under § 5–314(b)(1)(iii) of this subtitle and any documents, materials, and other information, including all working papers and copies of all working papers, created, produced, or obtained by or disclosed to the Commissioner or any other person in connection with the principle–based valuation report; and</text> </level> <level label="5"> <level label="i"> <text>any documents, materials, data, and other information submitted to the Commissioner or any other person by a company under § 5–315 of this subtitle;</text> </level> <level label="ii"> <text>any documents, materials, data, and other information, including all working papers and copies of all working papers, created or produced in connection with the documents, materials, data, and information specified in item (i) of this item that include any potentially company–identifying or personally identifiable information, that is provided to or obtained by the Commissioner or any other person; and</text> </level> <level label="iii"> <text>any documents, materials, data, and other information, including all working papers and copies of all working papers, created, produced, or obtained by or disclosed to the Commissioner or any other person in connection with the documents, materials, data, and other information specified in items (i) and (ii) of this item.</text> </level> </level> </level> <level label="b"> <text>Except as otherwise provided in this section, a company’s confidential information:</text> <level label="1"> <text>is confidential and privileged;</text> </level> <level label="2"> <text>is not subject to Title 4 of the General Provisions Article; and</text> </level> <level label="3"> <text>is not subject to subpoena or discovery or admissible in evidence in any private civil action.</text> </level> </level> <level label="c"> <level label="1"> <text>The Commissioner, and any person who receives confidential information while acting under the authority of the Commissioner, may not testify or be required to testify in any private civil action concerning any confidential information.</text> </level> <level label="2"> <text>The Commissioner may use confidential information of a company in any regulatory or legal action brought against the company as a part of the Commissioner’s official duties.</text> </level> </level> <level label="d"> <text>If an examination report or material prepared in connection with an examination made under Title 2, Subtitle 2 of this article is not private and confidential information under Title 2, Subtitle 2 of this article, an examination report or other material prepared in connection with an examination made under § 5–313(f) of this subtitle is not “confidential information” to the same extent as if the examination report or other material had been prepared under Title 2, Subtitle 2 of this article.</text> </level> <level label="e"> <level label="1"> <text>Subject to paragraph (2) of this subsection, to assist in the performance of the Commissioner’s duties, the Commissioner may share confidential information specified in:</text> <level label="i"> <text>subsection (a)(1) through (5) of this section with:</text> <level label="1"> <text>any state, federal, or international regulatory agency and the employees, agents, consultants, and contractors of any state, federal, or international regulatory agency; and</text> </level> <level label="2"> <text>NAIC and the employees, agents, consultants, contractors, affiliates, and subsidiaries of NAIC; and</text> </level> </level> <level label="ii"> <text>subsection (a)(1) and (4) of this section with:</text> <level label="1"> <text>the Actuarial Board for Counseling and Discipline on a request from the Actuarial Board stating that the confidential information is required for the purpose of professional disciplinary proceedings; and</text> </level> <level label="2"> <text>any state, federal, or international law enforcement official and the employees, agents, consultants, and contractors of any state, federal, or international law enforcement official.</text> </level> </level> </level> <level label="2"> <text>Confidential information may be shared by the Commissioner under paragraph (1) of this subsection only if the recipient of the confidential information agrees, and has the legal authority to agree, to maintain the confidentiality and privileged status of any confidential information received in the same manner and to the same extent as required for the Commissioner.</text> </level> </level> <level label="f"> <level label="1"> <text>The Commissioner may receive documents, materials, data, and other information, including otherwise confidential or privileged documents, materials, data, and information, from:</text> <level label="i"> <text>NAIC and the employees, agents, consultants, contractors, affiliates, and subsidiaries of NAIC;</text> </level> <level label="ii"> <text>any state, federal, or international regulatory agency or law enforcement official and the employees, agents, consultants, and contractors of the regulatory agency or law enforcement official; and</text> </level> <level label="iii"> <text>the Actuarial Board for Counseling and Discipline.</text> </level> </level> <level label="2"> <text>The Commissioner shall maintain as confidential and privileged any document, material, data, or other information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, data, or other information.</text> </level> </level> <level label="g"> <text>The Commissioner may enter into agreements governing the sharing and use of confidential information consistent with this section.</text> </level> <level label="h"> <level label="1"> <text>Any applicable privilege or claim of confidentiality in confidential information is not waived as a result of:</text> <level label="i"> <text>the disclosure of the confidential information to the Commissioner under this section; or</text> </level> <level label="ii"> <text>the sharing of the confidential information as authorized under subsection (e) of this section.</text> </level> </level> <level label="2"> <text>A privilege established under the law of another state that is substantially similar to the privilege established under this section shall be available and enforced in any proceeding in, and in any court of, the State.</text> </level> </level> <level label="i"> <text>Any confidential information specified in subsection (a)(1) and (4) of this section:</text> <level label="1"> <text>is subject to subpoena for defending in an action that:</text> <level label="i"> <text>seeks damages from the appointed actuary submitting the related memorandum in support of an opinion submitted under § 5–201.1 of this title or a principle–based valuation report developed under § 5–314(b)(1)(iii) of this subtitle; and</text> </level> <level label="ii"> <text>is based on an action required by this subtitle or regulations adopted under this subtitle; and</text> </level> </level> <level label="2"> <text>may be released by the Commissioner with the written consent of the company.</text> </level> </level> <level label="j"> <text>All parts of a memorandum in support of an opinion submitted under § 5–201.1 of this title or a principle–based valuation report developed under § 5–314(b)(1)(iii) of this subtitle are no longer confidential information if any part of the memorandum or report is:</text> <level label="1"> <text>cited by the company in its marketing;</text> </level> <level label="2"> <text>publicly volunteered to or before a governmental unit other than a state insurance department; or</text> </level> <level label="3"> <text>released by the company to the news media.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-317" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="3" subtitle_name="Standard Valuation Law"> <level label="a"> <text>The Commissioner may exempt a specific product form or product line of a domestic company that holds a certificate of authority issued by the Commissioner and is doing business only in the State from the requirements of § 5–313 of this subtitle if:</text> <level label="1"> <text>the Commissioner has issued an exemption in writing to the company;</text> </level> <level label="2"> <text>the exemption has not been revoked in writing by the Commissioner; and</text> </level> <level label="3"> <text>the company computes reserves:</text> <level label="i"> <text>using assumptions and methods used before the operative date of the valuation manual; and</text> </level> <level label="ii"> <text>in accordance with any requirements established by the Commissioner by regulation.</text> </level> </level> </level> <level label="b"> <level label="1"> <text>A company that is granted an exemption under subsection (a) of this section is subject to § 5–201 of this title and §§ 5–302 through 5–312 of this subtitle.</text> </level> <level label="2"> <text>With respect to a company that is granted an exemption under subsection (a) of this section, any reference to § 5–313 of this subtitle found in § 5–201.1 of this title and §§ 5–302 through 5–312 of this subtitle is not applicable.</text> </level> </level> <level label="c"> <text>The Commissioner may exempt a domestic company that holds a certificate of authority issued by the Commissioner and is doing business in the State from the requirements of §§ 5–314 and 5–315 of this subtitle if the company meets the life principle–based reserves exemption criteria in the valuation manual.</text> </level> <level label="d"> <text>For purposes of subsection (c) of this section, ordinary life premiums are measured as direct premium plus reinsurance assumed from an unaffiliated company, as reported in the annual statement for the prior calendar year.</text> </level> <level label="e"> <level label="1"> <text>A domestic company that meets the requirements of subsection (c) of this section shall:</text> <level label="i"> <text>compute reserves:</text> <level label="1"> <text>using assumptions and methods used before the operative date of the valuation manual; and</text> </level> <level label="2"> <text>in accordance with any requirements established by the Commissioner in regulation; and</text> </level> </level> <level label="ii"> <text>file, before July 1 of each year, a statement with the Commissioner certifying that the domestic company meets the requirements of subsection (c) of this section for the current calendar year based on premiums and other values from the financial statements for the prior calendar year.</text> </level> </level> <level label="2"> <text>Before September 1 of each year, the Commissioner may reject a statement filed under paragraph (1)(ii) of this subsection and require a domestic company to comply with the valuation manual requirements for life insurance reserves.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-401" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="4" subtitle_name="Valuation of Investments"> <level label="a"> <level label="1"> <text>Except for securities subject to amortization and except as otherwise provided in this title, an insurer’s investments shall be valued, at the discretion of the Commissioner, at:</text> <level label="i"> <text>their appraised value;</text> </level> <level label="ii"> <text>their fair market value; or</text> </level> <level label="iii"> <text>prices that the Commissioner determines represent their fair market value.</text> </level> </level> <level label="2"> <text>If the Commissioner finds that a special investment reserve would be prudent in view of the character of investments, the Commissioner may require the insurer to:</text> <level label="i"> <text>establish and maintain a special investment reserve of a reasonable amount for losses or fluctuations in value; and</text> </level> <level label="ii"> <text>submit a statement or report to the Commissioner on the financial condition of the reserve.</text> </level> </level> <level label="3"> <text>In connection with an examination or required financial statement of an authorized insurer, the Commissioner may:</text> <level label="i"> <text>require the insurer to submit a complete financial statement and audited report of the financial condition of a corporation in which the insurer owns securities; and</text> </level> <level label="ii"> <text>order an examination to be made of a subsidiary or affiliate of the insurer.</text> </level> </level> </level> <level label="b"> <level label="1"> <text>An insurer that owns 10% or more of the stock of another insurer shall have its stock valued at book value as shown by the more recent of:</text> <level label="i"> <text>the last annual statement of the other insurer; or</text> </level> <level label="ii"> <text>the last report on examination of the other insurer.</text> </level> </level> <level label="2"> <text>Except as provided in paragraph (3) of this subsection, the book value of a share of common stock of an insurer shall be represented by a fraction:</text> <level label="i"> <text>the numerator of which is the amount of the insurer’s capital and surplus, less the value of any outstanding preferred stock; and</text> </level> <level label="ii"> <text>the denominator of which is the number of shares of the insurer’s common stock issued and outstanding.</text> </level> </level> <level label="3"> <text>An insurer may value its holdings of stock in a subsidiary insurer in an amount that is not less than the acquisition cost, if the acquisition cost is less than the value determined under paragraph (2) of this subsection.</text> </level> </level> <level label="c"> <text>The stock of a subsidiary of an insurer shall be valued on the basis of only those assets that would be authorized investments for the insurer if the insurer acquired or held them directly.</text> </level> <level label="d"> <text>Real estate that is acquired by foreclosure or by deed in lieu of foreclosure may not be valued at an amount greater than the sum of:</text> <level label="1"> <text>the unpaid principal of any defaulted loan at the date of the foreclosure or deed;</text> </level> <level label="2"> <text>any taxes and expenses that the insurer pays or incurs to protect the investment or in connection with the acquisition, except for uncollected interest on any loan;</text> </level> <level label="3"> <text>the cost of a later addition or improvement by the insurer; and</text> </level> <level label="4"> <text>an amount that the insurer pays later on assessments levied for improvements in connection with the property.</text> </level> </level> <level label="e"> <text>Purchase-money mortgages shall be valued in an amount not exceeding the lesser of:</text> <level label="1"> <text>the acquisition cost of the real property; or</text> </level> <level label="2"> <text>90% of the value of the real property.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-402" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="4" subtitle_name="Valuation of Investments"> <level label="a"> <text>This section applies to a bond or other evidence of indebtedness that:</text> <level label="1"> <text>has a fixed term and rate of interest;</text> </level> <level label="2"> <text>is held by an insurer;</text> </level> <level label="3"> <text>is amply secured; and</text> </level> <level label="4"> <text>is not in default as to principal or interest.</text> </level> </level> <level label="b"> <level label="1"> <text>A bond or other evidence of indebtedness subject to this section may be valued:</text> <level label="i"> <text>if purchased at par, at the par value; or</text> </level> <level label="ii"> <text>if purchased above or below par:</text> <level label="1"> <text>on the basis of the purchase price adjusted to bring the value to par at maturity and to yield in the meantime the effective rate of interest at which the purchase was made; or</text> </level> <level label="2"> <text>according to another accepted method of valuation that the Commissioner approves.</text> </level> </level> </level> <level label="2"> <text>The purchase price may not be valued at a higher figure than the sum of:</text> <level label="i"> <text>the actual market value at the time of purchase; and</text> </level> <level label="ii"> <text>the actual brokerage, transfer, postage, or express charges paid in the acquisition of the bond or other evidence of indebtedness.</text> </level> </level> <level label="3"> <text>Unless otherwise provided by a valuation that the Commissioner establishes or approves, a bond or other evidence of indebtedness may not be carried on its books at above the call price for the entire issue during any period within which the security may be called.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-403" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="4" subtitle_name="Valuation of Investments"> <text>Valuations under this subtitle may not be inconsistent with applicable valuations or methods formulated or approved by the National Association of Insurance Commissioners.</text> </section> <section article="gin" article_name="Insurance" number="5-501" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="5" subtitle_name="Investments of Life Insurers"> <text>Except for § 5-502 of this subtitle, this subtitle applies only to domestic life insurers.</text> </section> <section article="gin" article_name="Insurance" number="5-502" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="5" subtitle_name="Investments of Life Insurers"> <level label="a"> <text>For purposes of this section, the domicile in the United States of an alien insurer, other than an insurer formed under the laws of Canada, is deemed to be the state where the alien insurer maintains its largest deposit of trusteed assets.</text> </level> <level label="b"> <text>The investment portfolio of a foreign life insurer or alien life insurer shall be:</text> <level label="1"> <text>as allowed by the laws of its domicile; and</text> </level> <level label="2"> <text>of a quality substantially as high as that required under this subtitle for similar funds of like domestic life insurers.</text> </level> </level> <level label="c"> <text>The Commissioner may deny or refuse to renew a certificate of authority to a foreign life insurer or alien life insurer if:</text> <level label="1"> <text>the foreign life insurer or alien life insurer has investments in one person in excess of the limit provided in § 5-507 of this subtitle; or</text> </level> <level label="2"> <text>the Commissioner finds that its investments do not comply in substance with the investment requirements and limitations of this subtitle for domestic life insurers transacting the same kind of insurance business.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-503" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="5" subtitle_name="Investments of Life Insurers"> <level label="a"> <text>The eligibility of an investment shall be determined as of the date of the making or acquisition of the investment.</text> </level> <level label="b"> <text>An investment limitation that is based on the amount of assets or particular funds of a life insurer shall relate to those assets or funds as shown by:</text> <level label="1"> <text>the annual statement of the life insurer as of the December 31 immediately preceding the date of acquisition of the investment by the life insurer; or</text> </level> <level label="2"> <text>a current financial statement of the life insurer that reflects the result of merger or consolidation with another insurer, bulk reinsurance, or change in capitalization.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-504" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="5" subtitle_name="Investments of Life Insurers"> <level label="a"> <text>A life insurer may not purchase an investment or security at a price above its market value.</text> </level> <level label="b"> <text>Subsection (a) of this section does not prohibit a life insurer from acquiring control of another insurer.</text> </level> <level label="c"> <text>This subtitle does not prohibit a life insurer from acquiring other or additional securities or property that is received:</text> <level label="1"> <text>as a dividend;</text> </level> <level label="2"> <text>as a lawful distribution of assets; or</text> </level> <level label="3"> <text>under a lawful and bona fide agreement of bulk reinsurance, merger, or consolidation.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-505" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="5" subtitle_name="Investments of Life Insurers"> <level label="a"> <level label="1"> <text>In this section the following words have the meanings indicated.</text> </level> <level label="2"> <text>“Board” means the board of directors of a life insurer.</text> </level> <level label="3"> <text>“Committee” means a committee authorized by the board of directors of a life insurer.</text> </level> </level> <level label="b"> <level label="1"> <text>The board shall adopt a written plan for:</text> <level label="i"> <text>acquiring and holding investments; and</text> </level> <level label="ii"> <text>engaging in investment practices.</text> </level> </level> <level label="2"> <text>The plan required under paragraph (1) of this subsection shall specify guidelines for the:</text> <level label="i"> <text>quality, maturity, and diversification of investments; and</text> </level> <level label="ii"> <text>investment strategies that assure that investments and investment practices are appropriate for:</text> <level label="1"> <text>the business conducted by the life insurer;</text> </level> <level label="2"> <text>the liquidity needs of the life insurer; and</text> </level> <level label="3"> <text>the capital and surplus requirements of the life insurer.</text> </level> </level> </level> <level label="3"> <text>Before adopting the plan required under paragraph (1) of this subsection, the board shall review and assess the life insurer’s technical investment and administrative capabilities and investment expertise.</text> </level> </level> <level label="c"> <level label="1"> <text>The board shall supervise and direct any investments acquired and held under this subtitle.</text> </level> <level label="2"> <text>At least annually, the board by formal resolution shall determine whether all investments have been made in accordance with delegations, standards, limitations, and investment objectives prescribed by the board or committee charged with the responsibility of directing the life insurer’s investments.</text> </level> </level> <level label="d"> <text>In order to determine whether the investment activity of the life insurer is consistent with the plan required under subsection (b) of this section, on at least a quarterly basis, the board or committee shall:</text> <level label="1"> <text>receive and review a summary report on the life insurer’s investment portfolio, investment activities, and investment practices engaged in under delegated authority; and</text> </level> <level label="2"> <text>review and revise as needed the plan required under subsection (b) of this section.</text> </level> </level> <level label="e"> <text>In the discharge of duties under this section:</text> <level label="1"> <text>the board shall require that the following be made available on a regular basis to the board:</text> <level label="i"> <text>the records of any authorizations or approvals;</text> </level> <level label="ii"> <text>the reports of any action taken under the authority delegated under the plan required under subsection (b) of this section; and</text> </level> <level label="iii"> <text>any other documentation as the board may require; and</text> </level> </level> <level label="2"> <text>each director shall perform their duties as a director, including any duties as a member of a committee:</text> <level label="i"> <text>in good faith;</text> </level> <level label="ii"> <text>in a manner reasonably believed to be in the best interests of the insurer; and</text> </level> <level label="iii"> <text>with that degree of care that an ordinarily prudent person in a like position would use under similar circumstances.</text> </level> </level> </level> <level label="f"> <text>If a life insurer does not have a board, all references to the board in this section shall be deemed to be references to the governing body of the life insurer having authority equivalent to that of a board.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-506" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="5" subtitle_name="Investments of Life Insurers"> <level label="a"> <text>In addition to investments otherwise excluded under this article, a life insurer may not directly or indirectly invest in or lend its funds on the security of:</text> <level label="1"> <text>an investment or security that the Commissioner finds is designed to evade a prohibition of this article; or</text> </level> <level label="2"> <text>issued shares of the life insurer’s capital stock, except:</text> <level label="i"> <text>for the purpose of mutualization under Title 3, Subtitle 1 of this article; or</text> </level> <level label="ii"> <text>in connection with a plan approved by the Commissioner for purchase of the shares by employees or insurance producers of the life insurer.</text> </level> </level> </level> <level label="b"> <text>A life insurer may not directly or indirectly make a loan to an officer or director of the life insurer, except:</text> <level label="1"> <text>a policy loan; or</text> </level> <level label="2"> <text>a bona fide mortgage loan on the principal residence of the officer or director that has been approved or ratified by the board of directors of the life insurer.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-507" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="5" subtitle_name="Investments of Life Insurers"> <level label="a"> <text>This section does not apply to:</text> <level label="1"> <text>policy loans made under this subtitle; or</text> </level> <level label="2"> <text>general obligations of the United States, Canada, or a state.</text> </level> </level> <level label="b"> <text>Unless the Commissioner approves, a life insurer may not have at one time any combination of investments in or loans on the security of the obligations, property, or securities of one person in an aggregate amount exceeding 10% of the admitted assets of the life insurer.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-508" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="5" subtitle_name="Investments of Life Insurers"> <level label="a"> <text>A life insurer may lend to its policyholder on the policy as collateral security an amount not exceeding the cash surrender value of the policy.</text> </level> <level label="b"> <text>A policy loan is an eligible reserve investment of a life insurer.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-509" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="5" subtitle_name="Investments of Life Insurers"> <level label="a"> <text>The definitions in § 5-511 of this subtitle apply in this section.</text> </level> <level label="b"> <text>This section does not apply to Canadian securities and investments that are eligible for investment under other provisions of this subtitle.</text> </level> <level label="c"> <text>Subject to the limitations of § 5-511 of this subtitle, a life insurer may acquire foreign investments, or engage in investment practices with persons of or in foreign jurisdictions, of substantially the same types as those that a life insurer is allowed to acquire under this subtitle, other than those of the type prohibited under § 5-506 of this subtitle if, as a result of and after giving effect to the investment:</text> <level label="1"> <text>the aggregate amount of foreign investments then held by the life insurer under this subsection does not exceed 20% of its admitted assets; and</text> </level> <level label="2"> <text>the aggregate amount of foreign investments then held by the life insurer under this subsection in a single foreign jurisdiction does not exceed:</text> <level label="i"> <text>10% of its admitted assets for a foreign jurisdiction that has a sovereign debt rating of investment grade or higher by a nationally recognized statistical rating organization; or</text> </level> <level label="ii"> <text>3% of its admitted assets for any other foreign jurisdiction.</text> </level> </level> </level> <level label="d"> <level label="1"> <text>Subject to the limitations of § 5-511 of this subtitle, a life insurer may acquire investments or engage in investment practices denominated in foreign currencies, whether or not they are foreign investments acquired under subsection (c) of this section, or additional foreign currency exposure as a result of the termination or expiration of a hedging transaction with respect to investments denominated in a foreign currency, if:</text> <level label="i"> <text>the aggregate amount of investments then held by the life insurer under this subsection denominated in foreign currencies does not exceed 10% of its admitted assets; and</text> </level> <level label="ii"> <text>the aggregate amount of investments then held by the life insurer under this subsection denominated in the foreign currency of a single foreign jurisdiction does not exceed:</text> <level label="1"> <text>10% of its admitted assets for a foreign jurisdiction that has a sovereign debt rating of investment grade or higher by a nationally recognized statistical rating organization; or</text> </level> <level label="2"> <text>3% of its admitted assets for any other foreign jurisdiction.</text> </level> </level> </level> <level label="2"> <text>Notwithstanding paragraph (1) of this subsection, an investment is not considered denominated in foreign currency if the acquiring insurer enters into one or more contracts in derivative transactions and the business entity counterparty agrees under the contract or contracts to exchange all payments made on the foreign currency denominated investment for United States currency at a rate that effectively insulates the investment cash flows against future changes in currency exchange rates during the period the contract or contracts are in effect.</text> </level> </level> <level label="e"> <level label="1"> <text>In addition to investments allowed under subsections (c) and (d) of this section, a life insurer that is authorized to do business in a foreign jurisdiction, and that has outstanding insurance, annuity, or reinsurance contracts on lives or risks resident or located in that foreign jurisdiction and denominated in the foreign currency of that jurisdiction, may acquire foreign investments with respect to that foreign jurisdiction, and may acquire investments denominated in the currency of that jurisdiction, subject to the limitations of § 5-511 of this subtitle.</text> </level> <level label="2"> <text>Notwithstanding paragraph (1) of this subsection, investments made under this subsection in obligations of foreign governments, their political subdivisions, and government sponsored enterprises are not subject to the limitations of § 5-511 of this subtitle if those investments carry a rating of investment grade or higher by a nationally recognized statistical rating organization.</text> </level> <level label="3"> <text>The aggregate amount of investments acquired by the life insurer under this subsection may not exceed the greater of:</text> <level label="i"> <text>the amount that the life insurer is required by the law of the foreign jurisdiction to invest in the foreign jurisdiction; and</text> </level> <level label="ii"> <text>115% of the amount of its reserves, net of reinsurance, and other obligations under the contracts on lives or risks resident or located in the foreign jurisdiction.</text> </level> </level> </level> <level label="f"> <level label="1"> <text>In addition to investments allowed under subsections (c) and (d) of this section, a life insurer that is not authorized to do business in a foreign jurisdiction, but which has outstanding insurance, annuity, or reinsurance contracts on lives or risks resident or located in that foreign jurisdiction and denominated in the foreign currency of that jurisdiction, may acquire foreign investments with respect to that foreign jurisdiction, and may acquire investments denominated in the currency of that jurisdiction, subject to the limitations of § 5-511 of this subtitle.</text> </level> <level label="2"> <text>Notwithstanding paragraph (1) of this subsection, investments made under this subsection in obligations of foreign governments, their political subdivisions, and government sponsored enterprises are not subject to the limitations of § 5-511 of this subtitle if those investments carry a rating of investment grade or higher by a nationally recognized statistical rating organization.</text> </level> <level label="3"> <text>The aggregate amount of investments acquired by the life insurer under this subsection may not exceed 105% of the amount of its reserves, net of reinsurance, and other obligations under the contracts on lives or risks resident or located in the foreign jurisdiction.</text> </level> </level> <level label="g"> <level label="1"> <text>Investments acquired under this section shall be aggregated with investments of the same type made under all other provisions of this subtitle, and in a similar manner, for purposes of determining compliance with the limitations, if any, contained in the other provisions of this subtitle.</text> </level> <level label="2"> <text>Investments in obligations of foreign governments, their political subdivisions, and government sponsored enterprises, except for those exempted under subsections (e) and (f) of this section, are subject to the limitations of § 5-511 of this subtitle.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-510" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="5" subtitle_name="Investments of Life Insurers"> <level label="a"> <text>Before investing in other classes or types of investment, each life insurer shall invest and maintain invested, in cash and securities of the classes described in subsection (b) of this section, funds in an amount not less than the minimum paid-in capital stock required under this article for authority to engage in the life insurance business.</text> </level> <level label="b"> <text>The investments required by subsection (a) of this section may be made only in cash or the following classes of securities:</text> <level label="1"> <text>bonds or other evidences of indebtedness of the United States or an agency of the United States if the obligation is guaranteed as to principal and interest by the United States;</text> </level> <level label="2"> <text>bonds or other evidences of indebtedness that are the direct obligations of the State or of a county, district, or municipal corporation of the State; or</text> </level> <level label="3"> <text>bonds or other evidences of indebtedness that are direct obligations of another state.</text> </level> </level> <level label="c"> <text>After satisfying the minimum investment requirements of subsection (a) of this section, each life insurer shall invest and maintain invested additional funds, to bring its investments up to an amount not less than 100% of the life insurer’s required reserves, in cash or the classes of securities or investments authorized under § 5-511 of this subtitle.</text> </level> <level label="d"> <text>A life insurer shall maintain the minimum investments required by this section free and clear from any lien or pledge, other than as a deposit required or allowed under § 4-106 of this article.</text> </level> <level label="e"> <text>After satisfying the minimum investment requirements of this subtitle, a life insurer may invest any excess funds without limitation in investments not otherwise prohibited under this subtitle.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-511" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="5" subtitle_name="Investments of Life Insurers"> <level label="a"> <level label="1"> <text>In this section and in § 5–509 of this subtitle the following words have the meanings indicated.</text> </level> <level label="2"> <text>“Acceptable collateral” means:</text> <level label="i"> <level label="1"> <text>as to securities lending transactions, and for the purpose of calculating counterparty exposure amount, cash, cash equivalents, letters of credit, and direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States or an agency of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation; and</text> </level> <level label="2"> <text>as to lending foreign securities, sovereign debt rated I by the Securities Valuation Office of the National Association of Insurance Commissioners;</text> </level> </level> <level label="ii"> <text>as to repurchase transactions, cash, cash equivalents, and direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States or an agency of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation; and</text> </level> <level label="iii"> <text>as to reverse repurchase transactions, cash and cash equivalents.</text> </level> </level> <level label="3"> <level label="i"> <text>“Asset–backed security” means a security or other instrument, excluding a mutual fund, evidencing an interest in, or the right to receive payments from, or payable from distributions on, an asset, a pool of assets, or specifically divisible cash flows that are legally transferred to a trust or another special purpose bankruptcy–remote business entity, on the following conditions:</text> <level label="1"> <text>the trust or other business entity is established solely for the purpose of acquiring specific types of assets or rights to cash flows, issuing securities and other instruments representing an interest in or right to receive cash flows from those assets or rights, and engaging in activities required to service the assets or rights and any credit enhancement or support features held by the trust or other business entity; and</text> </level> <level label="2"> <text>the assets of the trust or other business entity consist solely of interest bearing obligations or other contractual obligations representing the right to receive payment from the cash flows from the assets or rights.</text> </level> </level> <level label="ii"> <text>However, the existence of credit enhancements, such as letters of credit or guarantees, or support features such as swap agreements, do not cause a security or other instrument to be ineligible as an asset–backed security.</text> </level> </level> <level label="4"> <text>“Business entity” includes a sole proprietorship, corporation, association, general or limited partnership, limited liability company, joint–stock company, joint venture, trust, or any other form of business organization, whether for profit or nonprofit.</text> </level> <level label="5"> <level label="i"> <text>“Cash equivalent” means a highly liquid investment or security with an original term to maturity of 90 days or less that is:</text> <level label="1"> <text>readily convertible to a known amount of cash without penalty;</text> </level> <level label="2"> <text>so near maturity that it presents an insignificant risk of change in value; and</text> </level> <level label="3"> <text>rated:</text> </level> <level label="A"> <text>“P–1” by Moody’s Investors Services, Inc.;</text> </level> <level label="B"> <text>“A–1” by Standard and Poor’s Division of the McGraw Hill Companies, Inc.; or</text> </level> <level label="C"> <text>equivalently by a nationally recognized statistical rating organization recognized by the Securities Valuation Office of the National Association of Insurance Commissioners.</text> </level> </level> <level label="ii"> <text>“Cash equivalent” includes a government money market mutual fund and a Class One Money Market Mutual Fund.</text> </level> </level> <level label="6"> <level label="i"> <text>“Counterparty exposure amount” means:</text> <level label="1"> <text>for an over–the–counter derivative instrument not entered into pursuant to a written master agreement that provides for netting of payments owed by the respective parties:</text> </level> <level label="A"> <text>the market value of the over–the–counter derivative instrument if the liquidation of the derivative instrument would result in a final cash payment to the insurer; or</text> </level> <level label="B"> <text>zero if the liquidation of the derivative instrument would not result in a final cash payment to the insurer;</text> </level> <level label="2"> <text>for over–the–counter derivative instruments entered into pursuant to a written master agreement that provides for netting of payments owed by the respective parties, and the domiciliary jurisdiction of the counterparty is either within the United States or, if not within the United States, is within a foreign (not United States) jurisdiction listed in the purposes and procedures manual of the Securities Valuation Office as eligible for netting, the greater of zero or the net sum payable to the insurer in connection with all derivative instruments subject to the written master agreement upon their liquidation in the event of default by the counterparty pursuant to the master agreement (assuming no conditions precedent to the obligations of the counterparty to make such a payment and assuming no setoff of amounts payable pursuant to any other instrument or agreement).</text> </level> </level> <level label="ii"> <text>For purposes of this paragraph, market value or the net sum payable, as the case may be, shall be determined at the end of the most recent quarter of the insurer’s fiscal year and shall be reduced by the market value of acceptable collateral held by the insurer or a custodian on the insurer’s behalf.</text> </level> </level> <level label="7"> <level label="i"> <text>“Derivative instrument” means an agreement, option, instrument, or a series or combination thereof:</text> <level label="1"> <text>to make or take delivery of, or assume or relinquish, a specified amount of one or more underlying interests, or to make a cash settlement in lieu thereof; or</text> </level> <level label="2"> <text>that has a price, performance, value, or cash flow based primarily upon the actual or expected price, level, performance, value, or cash flow of one or more underlying interests.</text> </level> </level> <level label="ii"> <text>“Derivative instrument” includes options, warrants used in a hedging transaction and not attached to another financial instrument, caps, floors, collars, swaps, forwards, futures, and any other agreements, options, or instruments substantially similar thereto or any series or combination thereof and any agreements, options, or instruments permitted under regulations adopted under this section.</text> </level> <level label="iii"> <text>“Derivative instrument” does not include collateralized mortgage obligations, other asset–backed securities, principal–protected structured securities, floating rate securities, or instruments that an insurer is otherwise permitted to invest in or receive under this article other than under this subsection, and any debt obligations of the insurer.</text> </level> </level> <level label="8"> <text>“Derivative transaction” means a transaction involving the use of one or more derivative instruments.</text> </level> <level label="9"> <text>“Dollar roll transaction” means two simultaneous transactions with different settlement dates no more than 96 days apart, so that in the transaction with the earlier settlement date, an insurer sells to a business entity, and in the other transaction the insurer is obligated to purchase from the same business entity, substantially similar securities of the following types:</text> <level label="i"> <text>asset–backed securities issued, assumed or guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation or their respective successors; and</text> </level> <level label="ii"> <text>other asset–backed securities referred to in Section 106 of Title I of the Secondary Mortgage Market Enhancement Act of 1984 (15 U.S.C. § 77r–1), as amended.</text> </level> </level> <level label="10"> <text>“Domestic jurisdiction” means the United States, Canada, a state, a province of Canada, or a political subdivision of the United States, Canada, a state, or a province of Canada.</text> </level> <level label="11"> <text>“Foreign currency” means a currency other than that of a domestic jurisdiction.</text> </level> <level label="12"> <level label="i"> <text>“Foreign investment” means an investment in a foreign jurisdiction, or an investment in a person, real estate, or asset domiciled in a foreign jurisdiction, that is substantially of the same type as those eligible for investment under this section.</text> </level> <level label="ii"> <text>An investment may not be deemed to be foreign if the issuing person, qualified primary credit source, or qualified guarantor is a domestic jurisdiction or a person domiciled in a domestic jurisdiction, unless:</text> <level label="1"> <text>the issuing person is a shell business entity; and</text> </level> <level label="2"> <text>the investment is not assumed, accepted, guaranteed, or insured or otherwise backed by a domestic jurisdiction or a person, that is not a shell business entity, domiciled in a domestic jurisdiction.</text> </level> </level> </level> <level label="13"> <text>“Foreign jurisdiction” means a jurisdiction other than a domestic jurisdiction.</text> </level> <level label="14"> <text>“Hedging transaction” means a derivative transaction that is entered into and maintained to reduce:</text> <level label="i"> <text>the risk of a change in the value, yield, price, cash flow, or quantity of assets or liabilities that the insurer has acquired or incurred or anticipates acquiring or incurring; or</text> </level> <level label="ii"> <text>the currency exchange rate risk or the degree of exposure as to assets or liabilities that an insurer has acquired or incurred or anticipates acquiring or incurring.</text> </level> </level> <level label="15"> <text>“Lower grade investment” means an investment obligation that is rated four, five, or six by the Securities Valuation Office of the National Association of Insurance Commissioners.</text> </level> <level label="16"> <text>“Medium grade investment” means an investment obligation that is rated three by the Securities Valuation Office of the National Association of Insurance Commissioners.</text> </level> <level label="17"> <text>“Qualified guarantor” means a guarantor against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction.</text> </level> <level label="18"> <text>“Qualified primary credit source” means the credit source to which an insurer looks for payment as to an investment and against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction.</text> </level> <level label="19"> <level label="i"> <text>“Replication transaction” means a derivative transaction that is intended to replicate the performance of one or more assets that a life insurer is authorized to acquire under this section.</text> </level> <level label="ii"> <text>“Replication transaction” does not include a derivative transaction entered into as a hedging transaction.</text> </level> </level> <level label="20"> <text>“Repurchase transaction” means a transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or equivalent securities from the business entity at a specified price, either within a specified period of time or on demand.</text> </level> <level label="21"> <text>“Reverse repurchase transaction” means a transaction in which an insurer sells securities to a business entity and is obligated to repurchase the sold securities or equivalent securities from the business entity at a specified price, either within a specified period of time or on demand.</text> </level> <level label="22"> <text>“Securities lending transaction” means a transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period of time or on demand.</text> </level> <level label="23"> <text>“Shell business entity” means a business entity having no economic substance, except as a vehicle for owning interests in assets issued, owned, or previously owned by a person domiciled in a foreign jurisdiction.</text> </level> </level> <level label="a–1"> <text>Each life insurer shall have and continually maintain an amount equal to its entire reserves, as required by this article, in any combination of the types of assets authorized by subsections (c) through (p) of this section subject to the limit, if any, set for each type or class of investment.</text> </level> <level label="b"> <level label="1"> <text>For purposes of this section, the entire reserves of a life insurer is the sum of the amounts listed in paragraph (2) of this subsection less the amount of net uncollected and deferred premiums.</text> </level> <level label="2"> <text>The sum to be used in paragraph (1) of this subsection consists of:</text> <level label="i"> <text>the net present value of all outstanding policies in force, less reinsurance;</text> </level> <level label="ii"> <text>reserves for accidental death benefits and total and permanent disability benefits, less reinsurance;</text> </level> <level label="iii"> <text>the present value of supplementary contracts, including dividends left with the life insurer to accumulate at interest;</text> </level> <level label="iv"> <text>liabilities on canceled policies that are not included in net reserve and on which a surrender value may be demanded, and outstanding policy claims and losses; and</text> </level> <level label="v"> <text>any additional reserves that the Commissioner reasonably requires for the life insurance.</text> </level> </level> </level> <level label="c"> <text>The reserve investments of a life insurer may include:</text> <level label="1"> <text>cash or deposits in checking or savings accounts, under certificates of deposit, or in any other form in a national or State bank or trust company; or</text> </level> <level label="2"> <text>shares or deposits in a savings and loan association or building and loan association to the extent that the investment or account is insured by the Federal Deposit Insurance Corporation.</text> </level> </level> <level label="d"> <level label="1"> <text>The reserve investments of a life insurer may include:</text> <level label="i"> <text>interest bearing bonds, notes, certificates of indebtedness, bills, or other direct interest bearing obligations of the United States or Canada or other interest bearing obligations fully guaranteed both as to principal and interest by the United States or Canada;</text> </level> <level label="ii"> <text>interest bearing bonds of a state, a province of Canada, a county or incorporated city of a state, or a municipality of Canada;</text> </level> <level label="iii"> <text>interest bearing bonds of a commission, instrumentality, authority, or political subdivision with legal authority to issue interest bearing bonds, of the United States, Canada, a state, a province of Canada, a county or incorporated city of a state, or a municipality of Canada;</text> </level> <level label="iv"> <text>interest bearing bonds, notes, or other interest bearing obligations of a corporation incorporated under the laws of the United States, Canada, a state, or a province of Canada;</text> </level> <level label="v"> <text>subject to paragraph (2) of this subsection, obligations of the African Development Bank, Asian Development Bank, Inter–American Development Bank, International Bank for Reconstruction and Development, or International Finance Corporation;</text> </level> <level label="vi"> <text>asset–backed securities rated investment grade by at least one of the nationally recognized statistical rating organizations, and which either trade on a regulated nationally recognized exchange or are traded by a minimum of two registered broker–dealers. To the extent necessary to satisfy the reserve requirements of this subtitle, a life insurer may not have more than 3% of its total admitted assets in the asset–backed securities of any one issuer; and</text> </level> <level label="vii"> <text>interest bearing bonds, notes, or other interest bearing obligations of real estate investment trusts rated investment grade by at least one of the nationally recognized statistical rating organizations, and which either trade on a regulated nationally recognized exchange or are traded by a minimum of two registered broker–dealers. To the extent necessary to satisfy the reserve requirements of this subtitle, a life insurer may not have more than 3% of its total admitted assets in the bonds, notes, or other interest bearing obligations of any one real estate investment trust.</text> </level> </level> <level label="2"> <text>A life insurer may not invest more than 5% of its total admitted assets in obligations of the African Development Bank, Asian Development Bank, Inter–American Development Bank, International Bank for Reconstruction and Development, or International Finance Corporation.</text> </level> <level label="3"> <text>A life insurer may not acquire directly or indirectly through an investment subsidiary an investment under subsection (d), (e), or (f) of this section or § 5–509 of this subtitle, or counterparty exposure under subsection (o) of this section, if as a result of and after giving effect to the investment:</text> <level label="i"> <text>the aggregate amount of medium grade investments and lower grade investments then held by the life insurer would exceed 20% of the life insurer’s admitted assets;</text> </level> <level label="ii"> <text>the aggregate amount of lower grade investments then held by the life insurer would exceed 10% of the life insurer’s admitted assets;</text> </level> <level label="iii"> <text>the aggregate amount of investments rated five or six by the Securities Valuation Office of the National Association of Insurance Commissioners then held by the life insurer would exceed 3% of the life insurer’s admitted assets;</text> </level> <level label="iv"> <text>the aggregate amount of investments rated six by the Securities Valuation Office of the National Association of Insurance Commissioners then held by the life insurer would exceed 1% of the life insurer’s admitted assets;</text> </level> <level label="v"> <text>the aggregate amount of medium grade investments and lower grade investments then held by the life insurer that receive as cash income less than the equivalent yield for United States Department of the Treasury issues with a comparative average life, would exceed 1% of the life insurer’s admitted assets;</text> </level> <level label="vi"> <text>the following would exceed 1% of the life insurer’s admitted assets:</text> <level label="1"> <text>the aggregate amount of medium grade investments and lower grade investments issued, assumed, guaranteed, accepted, or insured by any one person; or</text> </level> <level label="2"> <text>any asset–backed securities secured by or evidencing an interest in a single asset or pool of assets; or</text> </level> </level> <level label="vii"> <text>the following would exceed one–half of one percent of the life insurer’s admitted assets:</text> <level label="1"> <text>the aggregate amount of lower grade investments issued, assumed, guaranteed, accepted, or insured by any one person; or</text> </level> <level label="2"> <text>any asset–backed securities secured by or evidencing an interest in a single asset or pool of assets.</text> </level> </level> </level> </level> <level label="e"> <text>The reserve investments of a life insurer may include equipment trust obligations or certificates or other secured instruments that evidence:</text> <level label="1"> <text>an interest in transportation or other equipment located wholly or partly within the United States or Canada; and</text> </level> <level label="2"> <text>a right to receive determined parts of rental, purchases, or other fixed obligatory payments received for the use or purchase of the transportation or other equipment.</text> </level> </level> <level label="f"> <level label="1"> <text>Subject to paragraph (2) of this subsection, the reserve investments of a life insurer may include dividend–paying stock of a corporation created or existing under the laws of the United States, Canada, a state, or a province of Canada.</text> </level> <level label="2"> <text>To the extent necessary to satisfy the reserve requirements of this subtitle, a life insurer may not have more than:</text> <level label="i"> <text>10% of its total admitted assets in preferred stock;</text> </level> <level label="ii"> <text>10% of its total admitted assets in common stock; or</text> </level> <level label="iii"> <text>5% of its total admitted assets in the stock of any one corporation.</text> </level> </level> </level> <level label="g"> <level label="1"> <text>The reserve investments of a life insurer may include loans secured by first mortgages, or deeds of trust, on unencumbered fee–simple or improved leasehold real estate in a state or a province of Canada in an amount not exceeding 85% of the fair market value of the real estate.</text> </level> <level label="2"> <text>A life insurer may not include an amount from an investment made under paragraph (1) of this subsection that exceeds 75% of the fair market value of the real estate in reserve and capital stock investments under this subtitle unless:</text> <level label="i"> <text>the real estate:</text> <level label="1"> <text>is primarily improved by a residence; or</text> </level> <level label="2"> <text>is farm property used for farming purposes and the loan amount on any one farm property does not exceed $500,000; and</text> </level> </level> <level label="ii"> <text>the loan on the real estate provides for the amortization of principal over a period of not more than 30 years, with payments to be made at least annually.</text> </level> </level> <level label="3"> <level label="i"> <text>Notwithstanding paragraph (1) of this subsection, but subject to subparagraph (ii) of this paragraph, a life insurer may include an amount from an investment made under paragraph (1) of this subsection not exceeding 95% of the fair market value of the real estate if:</text> <level label="1"> <text>the real estate is improved by a dwelling primarily intended for occupancy by not more than four families; and</text> </level> <level label="2"> <text>a mortgage insurance company authorized to do business in this State and not affiliated with the entity making the loan guarantees or insures that part of the loan in excess of 85% of the fair market value of the real estate.</text> </level> </level> <level label="ii"> <text>A life insurer may not place more than 3% of its admitted assets in loans in which the amount of the loan exceeds 90% of the fair market value of the security of the loan.</text> </level> </level> <level label="4"> <level label="i"> <text>If a loan is made on real estate improved by a building, the improvements must be insured against loss by fire.</text> </level> <level label="ii"> <text>The fire insurance policy required by subparagraph (i) of this paragraph shall:</text> <level label="1"> <text>contain the New York or Massachusetts standard mortgage clause or its equivalent; and</text> </level> <level label="2"> <text>be delivered to the mortgagee as additional security for the loan.</text> </level> </level> <level label="iii"> <text>A policy that insures against loss by fire and other coverages satisfies the requirements of this subsection.</text> </level> </level> <level label="5"> <text>The requirements of this section and any other law of the State that require security on a loan, prescribe the nature, amount, or form of security on a loan, or limit the interest rate on a loan do not apply if the reserve investments consist of bonds, notes, or other evidences of indebtedness secured by mortgages or deeds of trust that are guaranteed or insured by an instrumentality of the United States under the National Housing Act, Servicemen’s Readjustment Act of 1944, or Bankhead–Jones Farm Tenant Act.</text> </level> </level> <level label="h"> <level label="1"> <text>Subject to paragraphs (2) and (3) of this subsection, the reserve investments of a life insurer may include ground rents in any state.</text> </level> <level label="2"> <text>For unexpired redeemable ground rents, any premiums paid must be:</text> <level label="i"> <text>amortized over the period between the date of acquisition and the earliest redemption date; or</text> </level> <level label="ii"> <text>charged off before the redemption date.</text> </level> </level> <level label="3"> <text>For expired redeemable ground rents, any premiums paid must be charged off when acquired.</text> </level> <level label="4"> <text>A life insurer shall carry redeemable ground rents purchased at a discount at an amount not greater than the cost of acquisition.</text> </level> </level> <level label="i"> <level label="1"> <text>The reserve investments of a life insurer may include collateral loans secured by pledge of any security listed in subsections (c) through (h) of this section if the current market value of the pledged security at all times during the term of the loan is at least 10% more than the unpaid balance of the loan amount.</text> </level> <level label="2"> <text>Each collateral loan is subject to the power of the life insurer to terminate it if the pledged security depreciates below 10% of the unpaid balance of the loan amount.</text> </level> </level> <level label="j"> <level label="1"> <text>For purposes of this subsection, real estate sold under a contract of sale in which title is retained in the life insurer shall be classified as real estate.</text> </level> <level label="2"> <text>Subject to paragraph (3) of this subsection, the reserve investments of a life insurer may include:</text> <level label="i"> <text>real estate for the office and business purposes only of the life insurer, except as authorized by subsections (g) and (h) of this section; or</text> </level> <level label="ii"> <text>property primarily for the use of employees or customers of the life insurer for parking with or without charge.</text> </level> </level> <level label="3"> <text>The equity value of all real estate held under paragraph (2) of this subsection may not exceed 20% of the life insurer’s total admitted assets.</text> </level> <level label="4"> <text>A life insurer may purchase and hold real estate under a foreclosure of its own mortgages or a deed in lieu of mortgage foreclosure for not more than 5 years.</text> </level> <level label="5"> <text>Subject to paragraph (6) of this subsection, the Commissioner may grant extensions for periods not exceeding 5 years each of the period within which real estate may be held under paragraph (4) of this subsection, if the Commissioner considers the extensions necessary to serve the best interest of the life insurer and its policyholders.</text> </level> <level label="6"> <text>Before the Commissioner may refuse to grant extensions under paragraph (5) of this subsection, an appraisal of the real estate shall be obtained. If the appraisal shows that the appraised value of the real estate equals or exceeds the book value of the real estate, the Commissioner shall grant extensions for periods not exceeding 5 years each.</text> </level> <level label="7"> <text>With the written approval of the Commissioner, a life insurer may acquire property as partial payment of the consideration for the sale of real estate owned by the life insurer if the transaction causes a net reduction in the investment of the life insurer in real estate.</text> </level> <level label="8"> <text>With the approval of the Commissioner, a life insurer may acquire other real estate if necessary or convenient to enhance the market value of real estate previously acquired or held by the life insurer in accordance with this subsection.</text> </level> </level> <level label="k"> <text>The reserve investments of a life insurer may include interest, rents, or other fixed income due and accrued on:</text> <level label="1"> <text>an investment authorized under subsections (c) through (e) and (g) through (j) of this section; or</text> </level> <level label="2"> <text>policy loans of the life insurer.</text> </level> </level> <level label="l"> <level label="1"> <text>The real estate authorized by this subsection to be held as a reserve investment by a life insurer does not include property to be used primarily for mining, recreational, amusement, hotel, or club purposes.</text> </level> <level label="2"> <text>Subject to paragraphs (3) through (6) of this subsection, the reserve investments of a life insurer may include fee–simple or improved leasehold real estate or interests in limited partnerships formed for the development or ownership of fee–simple or improved leasehold real estate, if acquired:</text> <level label="i"> <text>as an investment for the production of income; or</text> </level> <level label="ii"> <text>to be improved or developed as an investment for the production of income.</text> </level> </level> <level label="3"> <text>The cost of each parcel of fee–simple or improved leasehold real estate or each limited partnership interest acquired under this subsection, including the cost to the life insurer of improving or developing the real estate, may not exceed:</text> <level label="i"> <text>15% of the admitted assets of the life insurer, when added to the book value of all other fee–simple or improved leasehold real estate or limited partnership interests then held by the life insurer under this subsection; and</text> </level> <level label="ii"> <text>20% of the total admitted assets of the life insurer, when added to the value of all real estate however acquired or held for investment by the life insurer, including home office and branch office properties.</text> </level> </level> <level label="4"> <text>The cost of each parcel of fee–simple or improved leasehold real estate or each limited partnership interest acquired under this section, including the cost to the life insurer of improving or developing the real estate, may not exceed 1% of the admitted assets of the life insurer.</text> </level> <level label="5"> <level label="i"> <text>Except as otherwise required by the Commissioner, each parcel of fee–simple or improved leasehold real estate held by a life insurer directly or through a limited partnership under this subsection shall be valued on the books of the life insurer as of December 31 of each year at an amount that includes a write–down of the cost of the property, excluding the land cost, but including all improvements or development costs, at a rate that averages not less than 2% per year of the cost of the property for each year or part of a year that the property is held.</text> </level> <level label="ii"> <text>The admitted values of each parcel of fee–simple or improved leasehold real estate held under this subsection may not exceed the depreciated value of the property.</text> </level> </level> <level label="6"> <text>A life insurer may not count towards its cash reserves any more than the lesser of:</text> <level label="i"> <text>75% of the investment value of any limited partnership interest; and</text> </level> <level label="ii"> <text>75% of the current book value of that limited partnership interest.</text> </level> </level> <level label="7"> <level label="i"> <text>Interests in limited partnerships under this subsection shall be valued at the actual cost of the investment adjusted by any additional capital contributions or capital withdrawals.</text> </level> <level label="ii"> <text>The valuation of a limited partnership interest may not exceed the life insurer’s proportionate share of the equity of the real estate asset owned by the limited partnership.</text> </level> </level> </level> <level label="m"> <text>The reserve investments of a life insurer may include those investments permitted under § 5–509 of this subtitle.</text> </level> <level label="n"> <level label="1"> <text>The reserve investments of a life insurer may include securities lending, repurchase, reverse repurchase, and dollar roll transactions with business entities, subject to the requirements of paragraphs (2) through (9) of this subsection.</text> </level> <level label="2"> <level label="i"> <text>The insurer’s board of directors shall adopt a written plan that specifies guidelines and objectives to be followed, such as:</text> <level label="1"> <text>a description of how cash received will be invested or used for general corporate purposes of the insurer;</text> </level> <level label="2"> <text>operational procedures to manage interest rate risk, counterparty default risk, the conditions under which proceeds from reverse repurchase transactions may be used in the ordinary course of business, and the use of acceptable collateral in a manner that reflects the liquidity needs of the transaction; and</text> </level> <level label="3"> <text>the extent to which the insurer may engage in these transactions.</text> </level> </level> <level label="ii"> <text>The insurer shall file with the Commissioner the written plan including all changes and amendments to the written plan for use in the State on or before the date the plan becomes effective.</text> </level> </level> <level label="3"> <level label="i"> <text>The insurer shall enter into a written agreement for all transactions authorized under this subsection other than dollar roll transactions.</text> </level> <level label="ii"> <text>The written agreement shall require that each transaction terminate no more than 1 year from its inception or on the earlier demand of the insurer.</text> </level> <level label="iii"> <text>The agreement shall be with the business entity counterparty, but for securities lending transactions, the agreement may be with an agent acting on behalf of the insurer, if the agent is a qualified business entity, and if the agreement:</text> <level label="1"> <text>requires the agent to enter into separate agreements with each counterparty that are consistent with the requirements of this section; and</text> </level> <level label="2"> <text>prohibits securities lending transactions under the agreement with the agent or its affiliates.</text> </level> </level> </level> <level label="4"> <level label="i"> <text>Cash received in a transaction under this subsection shall be invested in accordance with this subtitle and in a manner that recognizes the liquidity needs of the transaction or used by the insurer for its general corporate purposes.</text> </level> <level label="ii"> <text>For so long as the transaction remains outstanding, the insurer, its agent, or custodian shall maintain, as to acceptable collateral received in a transaction under this subsection, either physically or through the book entry systems of the Federal Reserve, Depository Trust Company, Participants Trust Company, or other securities depositories approved by the Commissioner:</text> <level label="1"> <text>possession of the acceptable collateral;</text> </level> <level label="2"> <text>a perfected security interest in the acceptable collateral; or</text> </level> <level label="3"> <text>in the case of a jurisdiction outside the United States, title to, or rights of a secured creditor to, the acceptable collateral.</text> </level> </level> </level> <level label="5"> <level label="i"> <text>The limitations of § 5–507 of this subtitle do not apply to the business entity counterparty exposure created by transactions under this subsection.</text> </level> <level label="ii"> <text>For purposes of calculations made to determine compliance with this subsection, no effect will be given to the insurer’s future obligation to resell securities, in the case of a repurchase transaction, or to repurchase securities, in the case of a reverse repurchase transaction.</text> </level> <level label="iii"> <text>An insurer may not enter into a transaction under this subsection if, as a result of and after giving effect to the transaction:</text> <level label="1"> <level label="A"> <text>the aggregate amount of securities then loaned, sold to, or purchased from any one business entity counterparty under this subsection would exceed 5% of its admitted assets; and</text> </level> </level> <level label="B"> <text>in calculating the amount sold to or purchased from a business entity counterparty under repurchase or reverse repurchase transactions, effect may be given to netting provisions under a master written agreement; or</text> </level> <level label="2"> <text>the aggregate amount of all securities then loaned, sold to, or purchased from all business entities under this subsection would exceed 40% of its admitted assets.</text> </level> </level> </level> <level label="6"> <level label="i"> <text>In a securities lending transaction, the insurer shall receive acceptable collateral having a market value as of the transaction date at least equal to 102% of the market value of the securities loaned by the insurer in the transaction as of that date.</text> </level> <level label="ii"> <text>If at any time the market value of the acceptable collateral is less than the market value of the loaned securities, the business entity counterparty shall be obligated to deliver additional acceptable collateral, the market value of which, together with the market value of all acceptable collateral then held in connection with the transaction, at least equals 102% of the market value of the loaned securities.</text> </level> </level> <level label="7"> <level label="i"> <text>In a reverse repurchase transaction, other than a dollar roll transaction, the insurer shall receive acceptable collateral having a market value as of the transaction date at least equal to 95% of the market value of the securities transferred by the insurer in the transaction as of that date.</text> </level> <level label="ii"> <text>If at any time the market value of the acceptable collateral is less than 95% of the market value of the securities so transferred, the business entity counterparty shall be obligated to deliver additional acceptable collateral, the market value of which, together with the market value of all acceptable collateral then held in connection with the transaction, at least equals 95% of the market value of the transferred securities.</text> </level> </level> <level label="8"> <text>In a dollar roll transaction, the insurer shall receive cash in an amount at least equal to the market value of the securities transferred by the insurer in the transaction as of the transaction date.</text> </level> <level label="9"> <level label="i"> <text>In a repurchase transaction, the insurer shall receive as acceptable collateral transferred securities having a market value at least equal to 102% of the purchase price paid by the insurer for the securities.</text> </level> <level label="ii"> <text>If at any time the market value of the acceptable collateral is less than 100% of the purchase price paid by the insurer, the business entity counterparty shall be obligated to provide additional acceptable collateral, the market value of which, together with the market value of all acceptable collateral then held in connection with the transaction, at least equals 102% of the purchase price.</text> </level> <level label="iii"> <text>Securities acquired by an insurer in a repurchase transaction may not be sold in a reverse repurchase transaction, loaned in a securities lending transaction, or otherwise pledged.</text> </level> </level> </level> <level label="o"> <level label="1"> <text>The reserve investments of a life insurer may include derivative transactions under this subsection, whether entered into directly or indirectly through an investment subsidiary, under the conditions of paragraphs (2) through (6) of this subsection.</text> </level> <level label="2"> <level label="i"> <text>An insurer may use derivative instruments under this subsection to engage in hedging transactions.</text> </level> <level label="ii"> <text>Prior to entering into any derivative transaction, the board of directors of the insurer shall approve a derivative use plan that:</text> <level label="1"> <text>describes investment objectives and risk constraints, such as counterparty exposure amounts and collateral arrangements supporting derivative transactions;</text> </level> <level label="2"> <text>defines permissible transactions identifying the risks to be hedged, the assets or liabilities being replicated; and</text> </level> <level label="3"> <text>requires compliance with internal control procedures that demonstrate the intended hedging characteristics and the ongoing effectiveness of the derivative transaction or combination of the transactions through cash flow testing or other appropriate analyses.</text> </level> </level> <level label="iii"> <text>Whenever the derivative transactions entered into under this subsection are not in compliance with this subsection or, if continued, may now or subsequently, create a hazardous financial condition to the insurer that affects its policyholders, creditors, or the general public, the Commissioner may, after notice and an opportunity for a hearing, order the insurer to take any action as may be reasonably necessary to:</text> <level label="1"> <text>rectify a hazardous financial condition; or</text> </level> <level label="2"> <text>prevent an impending hazardous financial condition from occurring.</text> </level> </level> </level> <level label="3"> <text>An insurer may enter into hedging transactions under this subsection if, as a result of and after giving effect to the transaction:</text> <level label="i"> <text>the aggregate statement value of options, caps, floors, and warrants not attached to another financial instrument purchased and used in hedging transactions does not exceed 7.5% of its admitted assets;</text> </level> <level label="ii"> <text>the aggregate statement value of options, caps, and floors written in hedging transactions does not exceed 3% of its admitted assets; and</text> </level> <level label="iii"> <text>the aggregate potential exposure of collars, swaps, forwards, and futures used in hedging transactions does not exceed 6.5% of its admitted assets.</text> </level> </level> <level label="4"> <text>An insurer shall include all counterparty exposure amounts in determining compliance with the limitations of § 5–507 of this subtitle.</text> </level> <level label="5"> <text>Each derivative instrument shall be:</text> <level label="i"> <text>traded on a securities exchange;</text> </level> <level label="ii"> <text>entered into with, or guaranteed by, a business entity;</text> </level> <level label="iii"> <text>issued or written by or entered into with the issuer of the underlying interest on which the derivative instrument is based; or</text> </level> <level label="iv"> <text>in the case of futures, traded through a broker that is registered as a futures commission merchant under the Commodity Exchange Act or that has received exemptive relief from registration under Rule 30.10 adopted under the Commodity Exchange Act.</text> </level> </level> <level label="6"> <text>Any asset being replicated is subject to all of the provisions and limitations on the investment as if the replication transaction constituted a direct investment by the life insurer in the replicated asset.</text> </level> </level> <level label="p"> <level label="1"> <text>The reserve investments of a life insurer may include money market mutual funds as defined by 17 C.F.R. 270.2A–7 under the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.) that may be either of the following:</text> <level label="i"> <text>Government Money Market Mutual Fund, which is a money market mutual fund that:</text> <level label="1"> <text>invests only in obligations issued, guaranteed, or insured by the federal government of the United States or collateralized repurchase agreements composed of these obligations; and</text> </level> <level label="2"> <text>qualifies for investment without a reserve under the purposes and procedures of the Securities Valuation Office or any successor publication; or</text> </level> </level> <level label="ii"> <text>Class One Money Market Mutual Fund, which is a money market mutual fund that qualifies for investment using the bond class one reserve factor under the purposes and procedures of the Securities Valuation Office or any successor publication.</text> </level> </level> <level label="2"> <text>For purposes of determining whether a money market mutual fund is to be classified as an equity interest or within this subsection, money market funds qualifying for listing within this subsection must conform to the purposes and procedures of the Securities Valuation Office or any successor publication.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-512" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="5" subtitle_name="Investments of Life Insurers"> <level label="a"> <text>A life insurer may allocate to one or more separate investment accounts in accordance with a written agreement any amounts paid to the life insurer that are to be invested by the life insurer in accordance with the agreement and applied to the purchase of guaranteed income benefits under the life insurer’s individual or group policies or annuity contracts or to provide other guaranteed benefits incidental to those policies or annuity contracts.</text> </level> <level label="b"> <text>Any income and gains and losses, realized or unrealized, on each separate investment account shall be credited to or charged against the amounts allocated to the account in accordance with the agreement without regard to other income, gains, or losses of the life insurer.</text> </level> <level label="c"> <level label="1"> <text>Amounts allocated to separate investment accounts and accumulations on the accounts may be invested and reinvested in any class of investments authorized under this article as life insurance reserve investments.</text> </level> <level label="2"> <text>Preferred and common stock investments of amounts allocated to separate investment accounts may not be included in applying the 10% limitations on investments under § 5–511(f) of this subtitle.</text> </level> <level label="3"> <text>A separate investment account may invest in any investments contractually permitted for the separate investment account and specified in a plan of operation, and the restrictions, limitations, and other provisions of this article relating to investments shall not apply to the investments contained in the separate investment account, provided that prior to delivery or issuance for delivery in the State, the form of the policy or annuity contract and the plan of operation have been filed with and approved by the Commissioner.</text> </level> </level> <level label="d"> <text>Unless a life insurer limits its liability under the guarantee to the interest of the contract holder in the investments, a life insurer may not guarantee:</text> <level label="1"> <text>the value of amounts allocated to a separate investment account; or</text> </level> <level label="2"> <text>the value of investments of the amounts allocated to the separate investment account or the income from the investments.</text> </level> </level> <level label="e"> <level label="1"> <text>A life insurer owns the amounts that the life insurer allocates to a separate investment account under this section.</text> </level> <level label="2"> <text>A life insurer may not be or hold itself out to be a trustee of the amounts allocated to the separate investment account.</text> </level> <level label="3"> <text>To the extent provided under the applicable contracts, the part of the assets of the separate investment account equal to the reserves and other contract liabilities with respect to the account may not be chargeable with liabilities arising out of any other business that the insurer may conduct.</text> </level> </level> <level label="f"> <text>At all times, the investments and liabilities of each separate investment account shall be clearly identifiable and distinguishable on the books of the life insurer from other investments and liabilities of the life insurer.</text> </level> <level label="g"> <text>Unless the Commissioner approves, a life insurer may not transfer by sale, exchange, substitution, or otherwise from one investment account to another investment account an investment in any separate investment account or in the general investment account of the life insurer.</text> </level> <level label="h"> <level label="1"> <text>In connection with the allocation of investments or expenses or in any other manner, a life insurer may not discriminate unfairly between:</text> <level label="i"> <text>separate investment accounts; or</text> </level> <level label="ii"> <text>a separate investment account and the life insurer’s general investment account.</text> </level> </level> <level label="2"> <text>This subsection does not require a life insurer to follow uniform investment policies for its accounts.</text> </level> </level> <level label="i"> <level label="1"> <text>Investments made with respect to separate investment accounts shall be valued for the purpose of any valuation required by this article:</text> <level label="i"> <text>at the market value of the investment on the date of the valuation; or</text> </level> <level label="ii"> <text>if there is no readily available market, in accordance with the terms of the written agreement referred to in subsection (a) of this section.</text> </level> </level> <level label="2"> <level label="i"> <text>If a separate investment account provides a fixed guaranteed return that is not subject to market value adjustment, the life insurer shall hold assets that equal or exceed the reserve amount that would be required if the separate investment account was an obligation of the life insurer’s general account.</text> </level> <level label="ii"> <text>An asset held under subparagraph (i) of this paragraph shall be valued in accordance with §§ 5–401 and 5–402 of this title.</text> </level> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-601" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="6" subtitle_name="Investments of Insurers Other Than Life Insurers"> <text>Except for § 5-602 of this subtitle, this subtitle applies to domestic insurers other than life insurers.</text> </section> <section article="gin" article_name="Insurance" number="5-602" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="6" subtitle_name="Investments of Insurers Other Than Life Insurers"> <level label="a"> <text>For the purposes of this section, the domicile in the United States of an alien insurer, other than an insurer formed under the laws of Canada, is deemed to be the state where the alien insurer maintains its largest deposit of trusteed assets.</text> </level> <level label="b"> <text>The investment portfolio of a foreign insurer or alien insurer, other than a life insurer, shall be:</text> <level label="1"> <text>as allowed by the laws of its domicile; and</text> </level> <level label="2"> <text>of a quality substantially as high as that required under this subtitle for similar funds of like domestic insurers.</text> </level> </level> <level label="c"> <text>The Commissioner may deny or refuse to renew a certificate of authority to a foreign insurer or alien insurer if:</text> <level label="1"> <text>the foreign insurer or alien insurer has investments in one person in excess of the limit provided in § 5-606 of this subtitle; or</text> </level> <level label="2"> <text>the Commissioner finds that its investments do not comply in substance with the investment requirements and limitations of this subtitle for domestic insurers transacting the same kind of insurance business.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-603" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="6" subtitle_name="Investments of Insurers Other Than Life Insurers"> <level label="a"> <text>The eligibility of an investment shall be determined as of the date of the making or acquisition of the investment.</text> </level> <level label="b"> <text>An investment limitation that is based on the amount of assets or particular funds of an insurer shall relate to the assets or funds as shown by:</text> <level label="1"> <text>the annual statement of the insurer as of the December 31 immediately preceding the date of acquisition of the investment by the insurer; or</text> </level> <level label="2"> <text>a current financial statement of the insurer filed with the Commissioner that reflects the result of merger or consolidation with another insurer, bulk reinsurance, or change in capitalization.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-604" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="6" subtitle_name="Investments of Insurers Other Than Life Insurers"> <level label="a"> <text>An insurer may not make an investment or loan unless the investment or loan is authorized by:</text> <level label="1"> <text>the board of directors of the insurer; or</text> </level> <level label="2"> <text>a committee authorized by the board of directors of the insurer to supervise or make investments and loans.</text> </level> </level> <level label="b"> <text>The committee described in subsection (a)(2) of this section shall:</text> <level label="1"> <text>record its minutes; and</text> </level> <level label="2"> <text>submit regular reports of the committee to the board of directors.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-605" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="6" subtitle_name="Investments of Insurers Other Than Life Insurers"> <level label="a"> <text>In addition to investments otherwise excluded under this article, an insurer may not directly or indirectly invest in or lend its funds on security of:</text> <level label="1"> <text>obligations, stock, or other securities of a corporation, association, or other business unit that is insolvent at the time of the acquisition or loan, except securities eligible for investment under § 5–608 of this subtitle;</text> </level> <level label="2"> <text>a mortgage or deed of trust, or real property or an interest in real property, that does not come within the class of investments specified in § 5–608(j), (k), (l), (m), and (n) of this subtitle;</text> </level> <level label="3"> <text>the capital stock of the insurer;</text> </level> <level label="4"> <text>stocks, bonds, or other securities issued by a corporation, other than an insurer, if a majority of the stock having voting powers of the issuing corporation is owned directly or indirectly by or for the benefit of one or more officers or directors of the insurer; or</text> </level> <level label="5"> <text>an investment that the Commissioner finds is against public policy or designed to evade a prohibition of this section.</text> </level> </level> <level label="b"> <level label="1"> <text>An insurer may not directly or indirectly invest in or lend its funds on security of stocks, bonds, or other securities issued by a corporation, if a majority of the outstanding stock of the corporation, or a majority of the stock having voting powers of the corporation, is or will be after the acquisition directly or indirectly owned:</text> <level label="i"> <text>by the insurer or by or through one or more of the insurer’s officers or directors holding the stock for the benefit of the insurer or its stockholders;</text> </level> <level label="ii"> <text>by a parent corporation or subsidiary of the insurer, the parent corporation, or subsidiary of the parent corporation; or</text> </level> <level label="iii"> <text>by any combination of the insurer, its parent corporation, its subsidiaries, or its stockholders.</text> </level> </level> <level label="2"> <text>Paragraph (1) of this subsection does not prevent an investment in:</text> <level label="i"> <text>the stock, bonds, or other securities of a corporation organized exclusively to hold and operate real estate acquired by the insurer, in accordance with and subject to § 5-608 of this subtitle;</text> </level> <level label="ii"> <text>the stock of another insurer; or</text> </level> <level label="iii"> <text>the stocks, bonds, or other securities of a corporation that is engaged exclusively in a kind of business properly incidental to the insurance business of the insurer, including an investment in the securities of a corporation that is engaged in the financing of insurance premiums or in another incidental business and in the business of holding and operating real estate.</text> </level> </level> </level> <level label="c"> <level label="1"> <text>An insurer may not directly or indirectly invest in or lend its funds on security of stocks, shares, bonds, or obligations of a person or governmental or business unit of or in a foreign country or subdivision of a foreign country, unless the foreign investments conform substantially with the limitations imposed by this section on like domestic investments.</text> </level> <level label="2"> <text>The aggregate amount of foreign investments held by an insurer under paragraph (1) of this subsection and under § 5-608(o) and (p) of this subtitle may not exceed the greater of:</text> <level label="i"> <text>10% of the insurer’s total admitted assets;</text> </level> <level label="ii"> <text>one and one-half times the amount of the insurer’s reserves and other obligations under the insurance contracts or reinsurance contracts in that country; and</text> </level> <level label="iii"> <text>the amount necessary to enable the insurer to transact insurance business in the foreign country, directly or through a subsidiary corporation.</text> </level> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-606" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="6" subtitle_name="Investments of Insurers Other Than Life Insurers"> <level label="a"> <level label="1"> <text>Except as otherwise specifically provided in this subtitle, an insurer may not have more than 10% of its total admitted assets invested in or lent on the securities of one person.</text> </level> <level label="2"> <text>Paragraph (1) of this subsection does not apply to:</text> <level label="i"> <text>the classes of governmental obligations eligible for minimum capital investments of the insurer, including those obligations eligible under § 5-608(l) of this subtitle; or</text> </level> <level label="ii"> <text>investments in stock of other insurers.</text> </level> </level> </level> <level label="b"> <text>An insurer may not acquire the kind of real property specified in § 5-608(n)(1)(i) and (ii) of this subtitle if the value of the real property, plus the value of all of the real property then held by the insurer, exceeds 10% of the insurer’s total admitted assets.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-607" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="6" subtitle_name="Investments of Insurers Other Than Life Insurers"> <level label="a"> <text>Before investing in other classes of securities or types of investments, each insurer shall invest its funds in securities of the classes described in subsection (b) of this section in an amount equal in value to the minimum capital stock and surplus required of a domestic stock insurer authorized to transact the same kind of insurance business.</text> </level> <level label="b"> <level label="1"> <text>Subject to paragraph (2) of this subsection, the investments required by subsection (a) of this section may be made only in the following classes of securities:</text> <level label="i"> <text>bonds or other evidences of indebtedness of the United States or an agency of the United States if the obligation is guaranteed as to principal and interest by the United States;</text> </level> <level label="ii"> <text>bonds or other evidences of indebtedness that are direct obligations of the State or of a county, district, or municipal corporation of the State;</text> </level> <level label="iii"> <text>bonds or other evidences of indebtedness that are direct obligations of another state;</text> </level> <level label="iv"> <text>mortgage loans or deeds of trust, as specified in § 5-608(j) and (k) of this subtitle, on property located in the State; or</text> </level> <level label="v"> <text>ground rents as specified in § 5-608(m) of this subtitle.</text> </level> </level> <level label="2"> <text>At least 60% of the total amount of the required minimum investments must consist of the classes of securities specified in paragraph (1)(i) and (ii) of this subsection.</text> </level> </level> <level label="c"> <text>An insurer shall maintain the minimum investments required by subsection (a) of this section free and clear from any lien or pledge, other than as impressed on:</text> <level label="1"> <text>a deposit with any government in the United States; or</text> </level> <level label="2"> <text>trusteed assets held in trust for the security of the insurer’s policyholders and creditors.</text> </level> </level> <level label="d"> <level label="1"> <text>After satisfying the minimum investment requirements of subsection (a) of this section, an insurer shall invest, or otherwise acquire or loan on, additional funds to bring its investments up to an amount not less than 50% of the aggregate amount of its unearned premium and loss reserves, in cash or the classes of reserve investments authorized under § 5-608 of this subtitle.</text> </level> <level label="2"> <text>An insurer shall maintain the investments required by this subsection free from any lien or pledge, other than a deposit of securities, cash, or trusteed assets held by a state for the benefit or protection of all or any class of the policyholders and creditors of the insurer.</text> </level> <level label="3"> <text>Except for real property acquired under § 5-608(n) of this subtitle, a security or investment is not eligible for acquisition as a reserve investment unless:</text> <level label="i"> <text>the security or investment is interest-bearing, interest-accruing, or dividend or income-paying;</text> </level> <level label="ii"> <text>the security or investment is not then in default in any respect; and</text> </level> <level label="iii"> <text>the insurer is entitled to the interest or income accruing on the security or investment.</text> </level> </level> </level> <level label="e"> <text>After satisfying the minimum investment requirements of this subtitle, an insurer may invest any part of the remainder of the insurer’s funds in, or otherwise acquire or loan, any of the classes of investments eligible under § 5-608 of this subtitle or in other investments that are not prohibited by this subtitle.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-608" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="6" subtitle_name="Investments of Insurers Other Than Life Insurers"> <level label="a"> <level label="1"> <text>In this section the following words have the meanings indicated.</text> </level> <level label="2"> <text>“Dollar roll transaction” means two simultaneous transactions with different settlement dates no more than 96 days apart, so that in the transaction with the earlier settlement date, an insurer sells to a business entity, and in the other transaction the insurer is obligated to purchase from the same business entity, substantially similar securities of the following types:</text> <level label="i"> <text>asset–backed securities issued, assumed, or guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation or their respective successors; and</text> </level> <level label="ii"> <text>other asset–backed securities referred to in Section 106 of Title I of the Secondary Mortgage Market Enhancement Act of 1984 (15 U.S.C. § 77r–1), as amended.</text> </level> </level> <level label="3"> <text>“Fixed charges” include:</text> <level label="i"> <text>interest on funded and unfunded debt amortization of debt discount; and</text> </level> <level label="ii"> <text>rentals for leased properties.</text> </level> </level> <level label="4"> <text>“Institution” includes a corporation, joint stock association, business trust, and statutory trust.</text> </level> <level label="5"> <text>“Net earnings available for fixed charges” means net income after deducting operating and maintenance expenses, taxes other than federal and state income taxes, depreciation, and depletion, and excluding extraordinary nonrecurring items or income or expense appearing in the regular financial statements of the issuing, assuming, or guaranteeing institutions.</text> </level> <level label="6"> <text>“Obligation” includes bonds, debentures, notes, or other evidences of indebtedness.</text> </level> <level label="7"> <text>“Repurchase transaction” means a transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or equivalent securities from the business entity at a specified price, either within a specified period of time or on demand.</text> </level> <level label="8"> <text>“Reverse repurchase transaction” means a transaction in which an insurer sells securities to a business entity and is obligated to repurchase the sold securities or equivalent securities from the business entity at a specified price, either within a specified period of time or on demand.</text> </level> <level label="9"> <text>“Securities lending transaction” means a transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period of time or on demand.</text> </level> </level> <level label="b"> <level label="1"> <level label="i"> <text>If net earnings are determined by relying on consolidated earnings statements of parent and subsidiary institutions:</text> <level label="1"> <text>the net earnings shall be determined after providing for the income taxes of subsidiaries and making proper allowance for any minority stock interest; and</text> </level> <level label="2"> <text>except as otherwise provided in subparagraph (ii) of this paragraph, the required coverage of fixed charges shall be computed on a basis that includes fixed charges and preferred dividends of subsidiaries other than those payable by the subsidiaries to the parent corporation or to other subsidiaries.</text> </level> </level> <level label="ii"> <text>If the minority common stock interest in the subsidiary corporation is substantial, the fixed charges and preferred dividends may be apportioned in accordance with regulations adopted by the Commissioner.</text> </level> </level> <level label="2"> <level label="i"> <text>This paragraph applies to an issuing, assuming, or guaranteeing institution, whether or not in legal existence during the entire 5–year period immediately preceding the date of investment by the insurer, that has at any time during the 5–year period acquired the assets of another institution substantially as an entirety by purchase, merger, consolidation, or otherwise, or has been reorganized pursuant to bankruptcy law.</text> </level> <level label="ii"> <text>In applying the earnings tests under this section, the earnings of the predecessor, constituent, or reorganized institution available for interest and dividends for the part of the period that preceded the acquisition or reorganization may be included in the earnings of the issuing, assuming, or guaranteeing institution for the part of the period determined in accordance with adjusted or pro forma consolidated earnings statements covering that part of the period and giving effect to all stock outstanding and all fixed charges existing immediately after the acquisition or reorganization.</text> </level> </level> </level> <level label="c"> <text>The reserve investments of an insurer shall consist of the classes of assets set forth in this section, subject to any limit set for each type or class of asset.</text> </level> <level label="d"> <level label="1"> <text>The reserve investments of an insurer may include:</text> <level label="i"> <text>subject to paragraph (2) of this subsection, obligations issued or guaranteed by the African Development Bank, Asian Development Bank, International Bank for Reconstruction and Development, or International Finance Corporation; and</text> </level> <level label="ii"> <text>bonds or other evidences of indebtedness that:</text> <level label="1"> <text>are not in default as to principal or interest;</text> </level> <level label="2"> <text>are valid and legally authorized obligations issued, assumed, or guaranteed by the United States, a state, a county, city, town, village, municipality, district, or political subdivision of a state, or a civil division or public instrumentality of any of these entities;</text> </level> <level label="3"> <text>by applicable statutory or other legal requirements, are payable, as to both principal and interest, from taxes levied or by law required to be levied on all taxable property or all taxable income within the jurisdiction of the governmental unit or from adequate special revenues pledged or otherwise appropriated or by law required to be provided for the purpose of the payment of obligations; and</text> </level> <level label="4"> <text>are not payable solely out of special assessments on properties benefited by local improvements.</text> </level> </level> </level> <level label="2"> <text>An insurer may not invest more than 5% of its total admitted assets in obligations of the African Development Bank, Asian Development Bank, International Bank for Reconstruction and Development, or International Finance Corporation.</text> </level> </level> <level label="e"> <level label="1"> <text>This subsection does not apply to obligations eligible for investment under subsection (j), (k), or (l) of this section.</text> </level> <level label="2"> <text>The reserve investments of an insurer may include obligations that are not in default as to principal or interest, that are issued, assumed, or guaranteed by a solvent institution created or existing under the laws of the United States or a state, and that qualify under any of the following items:</text> <level label="i"> <text>subject to paragraph (3) of this subsection, the obligations are secured by adequate collateral security and bear fixed interest, and, during each of any 3, including either of the last 2, of the 5 fiscal years immediately preceding the date of acquisition by the insurer, the net earnings available for fixed charges of the issuing, assuming, or guaranteeing institution must have been not less than one and one–quarter times the total of the institution’s fixed charges for the year;</text> </level> <level label="ii"> <text>subject to paragraph (3) of this subsection, the obligations, at the date of acquisition by the insurer, are adequately secured and have investment qualities and characteristics in which speculative elements are not predominant;</text> </level> <level label="iii"> <text>the obligations bear fixed interest and are other than those described in item (i) of this paragraph, and the net earnings available for fixed charges of the issuing, assuming, or guaranteeing institution:</text> <level label="1"> <text>for a period of 5 fiscal years immediately preceding the date of acquisition by the insurer, must have averaged each year not less than one and one–half times the institution’s average annual fixed charges applicable to the period; and</text> </level> <level label="2"> <text>during the last year of the 5–year period, must have been not less than one and one–half times the institution’s fixed charges for the year;</text> <text>or</text> </level> </level> <level label="iv"> <text>the obligations are adjustment, income, or other contingent interest obligations, and the net earnings available for fixed charges of the issuing, assuming, or guaranteeing institution for a period of 5 fiscal years immediately preceding the date of acquisition by the insurer:</text> <level label="1"> <text>must have averaged each year not less than one and one–half times the sum of the institution’s average annual fixed charges plus the institution’s average annual maximum contingent interest applicable to the period; and</text> </level> <level label="2"> <text>during each of the last 2 years of the 5–year period, must have been not less than one and one–half times the sum of the institution’s fixed charges plus maximum contingent interest for the year.</text> </level> </level> </level> <level label="3"> <text>To determine the adequacy of collateral security for purposes of paragraph (2)(i) or (ii) of this subsection not more than one–third of the total value of the required collateral may include stock other than stock meeting the requirements of subsection (f) of this section.</text> </level> </level> <level label="f"> <level label="1"> <text>In this subsection, “preferred dividends requirement” means cumulative or noncumulative dividends whether paid or unpaid.</text> </level> <level label="2"> <text>The reserve investments of an insurer may include preferred or guaranteed stock of a solvent institution, created or existing under the laws of the United States or a state, if:</text> <level label="i"> <text>all prior obligations, and prior preferred stock, if any, of the institution at the date of acquisition by the insurer are eligible as investments under this article;</text> </level> <level label="ii"> <text>for preferred stock:</text> <level label="1"> <text>the net earnings of the institution available for fixed charges for a period of 5 fiscal years immediately preceding the date of acquisition by the insurer must have averaged each year not less than one and one–half times the sum of any average annual fixed charges, any average annual maximum contingent interest, and the average annual preferred dividend requirement applicable to the period; and</text> </level> <level label="2"> <text>during either of the last 2 years of the 5–year period, the net earnings must have been not less than one and one–half times the sum of the institution’s fixed charges, contingent interest, and preferred dividend requirement for the year; and</text> </level> </level> <level label="iii"> <text>for guaranteed stock, the assuming or guaranteeing institution meets the requirements of subsection (e)(2)(iii) of this section construed to include as a fixed charge the amounts of guaranteed dividends of the issue or the rental covering the guarantee of the dividends.</text> </level> </level> </level> <level label="g"> <text>The reserve investments of an insurer may include certificates, notes, or other obligations, adequately secured as to principal and interest, issued by trustees or receivers of an institution created or existing under the laws of the United States or a state, that, or the assets of which, are being administered under the direction of a court having jurisdiction.</text> </level> <level label="h"> <text>The reserve investments of an insurer may include equipment trust obligations or certificates that are adequately secured or other adequately secured instruments that evidence:</text> <level label="1"> <text>an interest in transportation equipment located wholly or partly in the United States; and</text> </level> <level label="2"> <text>a right to receive determined parts of rental, purchase, or other fixed obligatory payments for the use or purchase of the transportation equipment.</text> </level> </level> <level label="i"> <text>The reserve investments of an insurer may include bank and bankers’ acceptance and other bills of exchange of the kind and maturities made eligible by law for purchase in the open market by federal reserve banks.</text> </level> <level label="j"> <level label="1"> <text>This subsection does not apply to obligations eligible for investment under subsection (e) of this section.</text> </level> <level label="2"> <level label="i"> <text>The reserve investments of an insurer may include bonds or evidences of indebtedness that are secured by first mortgages or deeds of trust on unencumbered fee–simple or improved leasehold real property located in the United States.</text> </level> <level label="ii"> <text>For purposes of subparagraph (i) of this paragraph, real property is not considered encumbered because of:</text> <level label="1"> <text>the existence of instruments reserving mineral, oil, or timber rights, rights–of–way, sewer rights, or rights in walls;</text> </level> <level label="2"> <text>liens for taxes or assessments not yet due;</text> </level> <level label="3"> <text>building restrictions or other restrictive covenants; or</text> </level> <level label="4"> <text>leases on the real property under which rents or profits are reserved to the owner if the security for the loan is a first lien on the real property and if there is no condition or right of reentry or forfeiture under which the lien may be cut off, subordinated, or otherwise disturbed.</text> </level> </level> </level> <level label="3"> <text>At the time of investment by the insurer, a mortgage loan made or acquired by an insurer on any one property may not exceed 80% of the value of the real property securing the loan.</text> </level> <level label="4"> <text>A mortgage loan may not be made or acquired by an insurer unless an appraisal is made by an appraiser for the purpose of the investment.</text> </level> <level label="5"> <text>A mortgage loan made or acquired by an insurer that is a participation or a part of a series of issue secured by the same mortgage or deed of trust is not a lawful investment under this subsection unless:</text> <level label="i"> <text>the entire series or issue that is secured by the same mortgage or deed of trust is held by the insurer; or</text> </level> <level label="ii"> <text>the insurer holds a pari passu participation interest in the mortgage or deed of trust and has the rights of a first mortgagee.</text> </level> </level> <level label="6"> <text>Except as otherwise provided in this section, an insurer may not invest in or loan on the security of any one property more than the greater of $25,000 or 2% of its total admitted assets.</text> </level> <level label="7"> <text>The total investments of an insurer in the kinds of investments allowed under this paragraph may not exceed 40% of its total admitted assets.</text> </level> </level> <level label="k"> <text>The reserve investments of an insurer may include purchase–money mortgages or like securities received by the insurer on the sale or exchange of real property acquired under subsection (n) of this section.</text> </level> <level label="l"> <level label="1"> <text>The reserve investments of an insurer may include bonds, notes, or other evidences of indebtedness secured by mortgages or deeds of trust that are guaranteed or insured by an instrumentality of the United States under the National Housing Act, Servicemen’s Readjustment Act of 1944, or Bankhead–Jones Farm Tenant Act.</text> </level> <level label="2"> <text>The limitations of this section or any other law of the State that require security on a loan, prescribe the nature, amount, or form of security on a loan, or limit the interest rate on a loan do not apply to these insured or guaranteed mortgage loans.</text> </level> </level> <level label="m"> <level label="1"> <text>Subject to paragraphs (2) and (3) of this subsection, the reserve investments of an insurer may include ground rents in any state.</text> </level> <level label="2"> <text>For unexpired redeemable ground rents, any premium paid must be amortized over the period between the date of acquisition and redemption date.</text> </level> <level label="3"> <text>For expired redeemable ground rents, any premium paid must be charged off when acquired.</text> </level> <level label="4"> <text>An insurer shall carry redeemable ground rents purchased at a discount at an amount not greater than the cost of acquisition.</text> </level> </level> <level label="n"> <level label="1"> <text>Subject to paragraph (2) of this subsection, reserve investments of an insurer may include real estate for the accommodation of business only if the real estate:</text> <level label="i"> <text>consists of the land and the building on the land in which the insurer has its principal office;</text> </level> <level label="ii"> <text>is necessary for the insurer’s convenient accommodation in transacting business;</text> </level> <level label="iii"> <text>is acquired to satisfy loans, mortgages, liens, judgments, decrees, or other debts previously owed to the insurer in the course of business;</text> </level> <level label="iv"> <text>is acquired as partial payment of the consideration for the sale of real property owned by the insurer if the transaction causes a net reduction in the investment of the insurer in real property; or</text> </level> <level label="v"> <text>is additional real property and equipment incident to real property that is necessary or convenient to enhance the market value of real property previously acquired or held by the insurer under item (iii) or (iv) of this paragraph.</text> </level> </level> <level label="2"> <level label="i"> <text>Subject to subparagraph (ii) of this paragraph, the reserve investments of an insurer may include fee–simple or improved leasehold real estate, or interests in limited partnerships formed for the development or ownership of fee–simple or improved leasehold real estate, only if the investment:</text> <level label="1"> <text>is acquired as an investment for the production of income;</text> </level> <level label="2"> <text>is acquired to be improved or developed as an investment for the production of income; and</text> </level> <level label="3"> <text>does not include property to be used primarily for mining, recreational, amusement, hotel, or club purposes.</text> </level> </level> <level label="ii"> <level label="1"> <text>The cost of each parcel of fee–simple or improved leasehold real estate or limited partnership interest acquired under this paragraph, including the cost to the insurer of improving or developing the real estate, may not exceed:</text> </level> <level label="A"> <text>1% of the admitted assets of the insurer; and</text> </level> <level label="B"> <text>in combination with the value of all of the real estate acquired or held by the insurer, 10% of the admitted assets of the insurer.</text> </level> <level label="2"> <text>Except as otherwise required by the Commissioner, each parcel of fee–simple or improved leasehold real estate held by an insurer directly or through a limited partnership under this paragraph shall be valued on the books of the insurer as of December 31 each year at an amount that includes the write–down cost of the property, exclusive of land cost, but inclusive of all improvements or development costs, at a rate that averages at least 2% per year of the cost of the property for each year or part of a year that the property is held.</text> </level> <level label="3"> <text>The admitted value of each parcel of fee–simple or improved leasehold real estate held under this paragraph may not exceed the depreciated value of the property.</text> </level> </level> </level> <level label="3"> <text>Unless the Commissioner certifies that the interests of the insurer will suffer materially by a forced sale of the real property and the Commissioner extends the time for disposal of the real property in the certificate:</text> <level label="i"> <text>real property acquired under paragraph (1)(i) and (ii) of this subsection must be disposed of within 5 years after the real property ceases to be necessary for the convenient accommodation of the insurer in transacting business; and</text> </level> <level label="ii"> <text>real property acquired under paragraph (1)(iii) and (iv) of this subsection must be disposed of within 5 years after the date of acquisition.</text> </level> </level> <level label="4"> <text>An insurer may not acquire real property under paragraph (1)(i), (ii), or (iv) or (3) of this subsection except with the approval of the Commissioner.</text> </level> </level> <level label="o"> <text>An insurer may invest in or otherwise acquire or loan on Canadian securities and investments that are substantially of the same kinds, classes, and investment grades as those eligible for investment under this subtitle.</text> </level> <level label="p"> <level label="1"> <text>Subject to paragraph (2) of this subsection, an insurer that is authorized to do business in a foreign country or possession of the United States or that has outstanding insurance contracts or reinsurance contracts on risks located in a foreign country or possession of the United States may invest in or otherwise acquire or loan on securities and investments in the foreign country or possession that are substantially of the same kinds, classes, and investment grades as those eligible for investment under this subtitle.</text> </level> <level label="2"> <text>The aggregate amount of the investments made under paragraph (1) of this subsection and of the currency of the foreign country or possession held by the insurer may not exceed one and one–half times the greater of:</text> <level label="i"> <text>the amount of the reserves of the insurer and other obligations under any outstanding insurance contracts or reinsurance contracts in that country or possession; and</text> </level> <level label="ii"> <text>the amount that the insurer is required by law to invest in that country or possession.</text> </level> </level> </level> <level label="q"> <text>The reserve investments of an insurer may include stocks or debentures or both of a housing authority organized under the public housing law of the State, to the extent and on the conditions that the Commissioner authorizes, if all of the stock of the housing authority has been or will be originally issued to one or more insurers.</text> </level> <level label="r"> <text>The reserve investments of an insurer may include shares or deposits in a savings and loan association or building and loan association to the extent that the investment or account is insured by the Federal Deposit Insurance Corporation.</text> </level> <level label="s"> <level label="1"> <text>Subject to paragraph (2) of this subsection, the reserve investments of an insurer may include dividend–paying common stock of a corporation created or existing under the laws of the United States, Canada, a state, or a province of Canada.</text> </level> <level label="2"> <text>To the extent necessary to satisfy the reserve requirements of this subtitle, an insurer may not have more than:</text> <level label="i"> <text>10% of its total admitted assets in preferred stock under subsection (f) of this section;</text> </level> <level label="ii"> <text>10% of its total admitted assets in common stock under this subsection; or</text> </level> <level label="iii"> <text>5% of its total admitted assets in the stock of any one corporation.</text> </level> </level> </level> <level label="t"> <level label="1"> <text>The reserve investments of an insurer may include securities lending, repurchase, reverse repurchase, and dollar roll transactions with business entities, subject to the requirements of paragraphs (2) through (9) of this subsection.</text> </level> <level label="2"> <level label="i"> <text>The insurer’s board of directors shall adopt a written plan that specifies guidelines and objectives to be followed, such as:</text> <level label="1"> <text>a description of how cash received will be invested or used for general corporate purposes of the insurer;</text> </level> <level label="2"> <text>operational procedures to manage interest rate risk, counterparty default risk, the conditions under which proceeds from reverse repurchase transactions may be used in the ordinary course of business, and the use of acceptable collateral in a manner that reflects the liquidity needs of the transaction; and</text> </level> <level label="3"> <text>the extent to which the insurer may engage in these transactions.</text> </level> </level> <level label="ii"> <text>The insurer shall file with the Commissioner the written plan including all changes and amendments to the written plan for use in the State on or before the date the plan becomes effective.</text> </level> </level> <level label="3"> <level label="i"> <text>The insurer shall enter into a written agreement for all transactions authorized under this subsection other than dollar roll transactions.</text> </level> <level label="ii"> <text>The written agreement shall require that each transaction terminate no more than 1 year from its inception or on the earlier demand of the insurer.</text> </level> <level label="iii"> <text>The agreement shall be with the business entity counterparty, but for securities lending transactions, the agreement may be with an agent acting on behalf of the insurer, if the agent is a qualified business entity, and if the agreement:</text> <level label="1"> <text>requires the agent to enter into separate agreements with each counterparty that are consistent with the requirements of this section; and</text> </level> <level label="2"> <text>prohibits securities lending transactions under the agreement with the agent or its affiliates.</text> </level> </level> </level> <level label="4"> <level label="i"> <text>Cash received in a transaction under this subsection shall be invested in accordance with this subtitle and in a manner that recognizes the liquidity needs of the transaction or used by the insurer for its general corporate purposes.</text> </level> <level label="ii"> <text>For so long as the transaction remains outstanding, the insurer, its agent, or its custodian shall maintain, as to acceptable collateral received in a transaction under this subsection, either physically or through the book entry systems of the Federal Reserve, Depository Trust Company, Participants Trust Company, or other securities depositories approved by the Commissioner:</text> <level label="1"> <text>possession of the acceptable collateral;</text> </level> <level label="2"> <text>a perfected security interest in the acceptable collateral; or</text> </level> <level label="3"> <text>in the case of a jurisdiction outside the United States, title to, or rights of a secured creditor to, the acceptable collateral.</text> </level> </level> </level> <level label="5"> <level label="i"> <text>The limitations of § 5–606(a) of this subtitle do not apply to the business entity counterparty exposure created by transactions under this subsection.</text> </level> <level label="ii"> <text>For purposes of calculations made to determine compliance with this subsection, no effect will be given to the insurer’s future obligation to resell securities, in the case of a repurchase transaction, or to repurchase securities, in the case of a reverse repurchase transaction.</text> </level> <level label="iii"> <text>An insurer may not enter into a transaction under this subsection if, as a result of and after giving effect to the transaction:</text> <level label="1"> <level label="A"> <text>the aggregate amount of securities then loaned, sold to, or purchased from any one business entity counterparty under this subsection would exceed 5% of its admitted assets; and</text> </level> </level> <level label="B"> <text>in calculating the amount sold to or purchased from a business entity counterparty under repurchase or reverse repurchase transactions, effect may be given to netting provisions under a master written agreement; or</text> </level> <level label="2"> <text>the aggregate amount of all securities then loaned, sold to, or purchased from all business entities under this subsection would exceed 40% of its admitted assets.</text> </level> </level> </level> <level label="6"> <level label="i"> <text>In a securities lending transaction, the insurer shall receive acceptable collateral having a market value as of the transaction date at least equal to 102% of the market value of the securities loaned by the insurer in the transaction as of that date.</text> </level> <level label="ii"> <text>If at any time the market value of the acceptable collateral is less than the market value of the loaned securities, the business entity counterparty shall be obligated to deliver additional acceptable collateral, the market value of which, together with the market value of all acceptable collateral then held in connection with the transaction, at least equals 102% of the market value of the loaned securities.</text> </level> </level> <level label="7"> <level label="i"> <text>In a reverse repurchase transaction, other than a dollar roll transaction, the insurer shall receive acceptable collateral having a market value as of the transaction date at least equal to 95% of the market value of the securities transferred by the insurer in the transaction as of that date.</text> </level> <level label="ii"> <text>If at any time the market value of the acceptable collateral is less than 95% of the market value of the securities so transferred, the business entity counterparty shall be obligated to deliver additional acceptable collateral, the market value of which, together with the market value of all acceptable collateral then held in connection with the transaction, at least equals 95% of the market value of the transferred securities.</text> </level> </level> <level label="8"> <text>In a dollar roll transaction, the insurer shall receive cash in an amount at least equal to the market value of the securities transferred by the insurer in the transaction as of the transaction date.</text> </level> <level label="9"> <level label="i"> <text>In a repurchase transaction, the insurer shall receive as acceptable collateral transferred securities having a market value at least equal to 102% of the purchase price paid by the insurer for the securities.</text> </level> <level label="ii"> <text>If at any time the market value of the acceptable collateral is less than 100% of the purchase price paid by the insurer, the business entity counterparty shall be obligated to provide additional acceptable collateral, the market value of which, together with the market value of all acceptable collateral then held in connection with the transaction, at least equals 102% of the purchase price.</text> </level> <level label="iii"> <text>Securities acquired by an insurer in a repurchase transaction may not be sold in a reverse repurchase transaction, loaned in a securities lending transaction, or otherwise pledged.</text> </level> </level> <level label="10"> <text>The provisions of this subsection that apply to insurers also apply to health maintenance organizations.</text> </level> </level> <level label="u"> <text>The reserve investments of an insurer may include any other investments not otherwise prohibited by this subtitle if:</text> <level label="1"> <text>the aggregate amount of the investments made under this subsection does not exceed 4% of the amount of the admitted assets of the insurer at the end of the previous year; and</text> </level> <level label="2"> <text>the investment does not violate any limitations on allowed investments under this section.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-609" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="6" subtitle_name="Investments of Insurers Other Than Life Insurers"> <level label="a"> <text>Each insurer shall dispose of any investments acquired in violation of the law in force on the date of acquisition of the investment.</text> </level> <level label="b"> <text>In any determination of the financial condition of an insurer with investments acquired in violation of the law, the amount of the value of investments, if wholly ineligible, or the amount of the value of the investments in excess of any limitation prescribed by this subtitle, shall be deducted as a nonadmitted asset of the insurer.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-701" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="7" subtitle_name="Administration of Deposits"> <level label="a"> <text>When made through the Commissioner by insurers or health maintenance organizations, the Treasurer shall accept and hold in trust:</text> <level label="1"> <text>deposits required under this article for a certificate of authority to engage in the insurance business in the State;</text> </level> <level label="2"> <text>deposits required under § 19-710(d)(3) of the Health - General Article for a certificate of authority to operate as a health maintenance organization;</text> </level> <level label="3"> <text>deposits of domestic insurers, foreign insurers, or alien insurers required under the laws of another state, province, or country as a prerequisite for authority to engage in the insurance business in the other state, province, or country;</text> </level> <level label="4"> <text>deposits allowed under § 5-704 of this subtitle; and</text> </level> <level label="5"> <text>deposits required under Title 6, Subtitle 3 of this article.</text> </level> </level> <level label="b"> <text>Deposits made under subsection (a) of this section shall be in any combination of:</text> <level label="1"> <text>cash; or</text> </level> <level label="2"> <text>the government securities described in § 5-510(b) or § 5-607(b)(1)(i), (ii), or (iii) of this title, as approved by the Treasurer.</text> </level> </level> <level label="c"> <text>Deposits of government securities shall be registered, both as to principal and interest, in the name of the Treasurer as trustee.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-702" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="7" subtitle_name="Administration of Deposits"> <level label="a"> <level label="1"> <text>With the consent of the Commissioner, the Treasurer may require an insurer to make deposits of cash or government securities of the kinds described in § 5-701(a) of this subtitle with a depository that the Treasurer designates to receive and hold the deposits.</text> </level> <level label="2"> <text>The Treasurer may designate as a depository any solvent trust company or other solvent financial institution that has trust powers and is domiciled in the State.</text> </level> <level label="3"> <text>The Treasurer may make an appropriate agreement with a depository to ensure the receipt, safekeeping, and release of the cash or government securities deposited under this section.</text> </level> <level label="4"> <text>A deposit made under this section shall be held at the expense of the insurer.</text> </level> </level> <level label="b"> <text>The State is responsible for the safekeeping and return of all cash and government securities deposited under this section.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-703" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="7" subtitle_name="Administration of Deposits"> <text>Deposits made under this subtitle shall be held for the following purposes:</text> <level label="1"> <text>deposits required under this article for a certificate of authority to engage in the insurance business in the State shall be held for the protection of the insurer’s policyholders and creditors;</text> </level> <level label="2"> <text>deposits required under § 19-710(d)(3) of the Health - General Article for a certificate of authority to operate as a health maintenance organization shall be held for the protection of the health maintenance organization’s members and creditors;</text> </level> <level label="3"> <text>deposits of domestic insurers required under the laws of another state, province, or country as a prerequisite for authority to engage in the insurance business in the other state, province, or country shall be held for the protection of the insurer’s policyholders and creditors or for any other purpose specified in the laws requiring the deposits to be made;</text> </level> <level label="4"> <text>deposits allowed under § 5-704 of this subtitle shall be held for the protection of the insurer’s policyholders and creditors; and</text> </level> <level label="5"> <text>deposits required under Title 6, Subtitle 3 of this article shall be held for the purposes specified in the notice of the Commissioner requiring the deposits to be made.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-704" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="7" subtitle_name="Administration of Deposits"> <level label="a"> <text>An insurer may deposit cash or government securities eligible for deposit under § 5-701(b) of this subtitle in an amount greater than any deposit required or allowed under this article.</text> </level> <level label="b"> <level label="1"> <text>All or part of an excess deposit may be released to a solvent insurer on its request as provided in § 5-708(a)(2) of this subtitle.</text> </level> <level label="2"> <text>An excess deposit may be released to an insolvent insurer only as provided in § 5-708(a)(3) of this subtitle.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-705" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="7" subtitle_name="Administration of Deposits"> <text>An insurer shall deposit promptly additional cash or other or additional government securities eligible for deposit under § 5-701(b) of this subtitle in an amount sufficient to cure any deficiency if:</text> <level label="1"> <text>the cash or government securities deposited by the insurer and held on deposit under this subtitle become ineligible for deposit under § 5-701(b) of this subtitle; or</text> </level> <level label="2"> <text>the market value of the deposited cash and government securities falls below the amount required under this article.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-706" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="7" subtitle_name="Administration of Deposits"> <level label="a"> <text>A judgment creditor or other claimant of an insurer may not levy on any of the cash or government securities held on deposit under this subtitle for the protection of the insurer’s policyholders and creditors.</text> </level> <level label="b"> <text>A judgment creditor or other claimant of an insurer may levy on a deposit required under Title 6, Subtitle 3 of this article if allowed by the notice of the Commissioner requiring the deposit to be made.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-707" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="7" subtitle_name="Administration of Deposits"> <text>While an insurer is solvent and complies with this article, the insurer may:</text> <level label="1"> <text>demand, receive, sue for, and recover the income from the cash and government securities deposited by the insurer under this subtitle;</text> </level> <level label="2"> <text>substitute for any of the deposited cash or government securities, cash or government securities eligible for deposit under § 5-701(b) of this subtitle of equivalent or greater value; and</text> </level> <level label="3"> <text>inspect, at reasonable times, any deposit made by the insurer under this subtitle.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-708" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="7" subtitle_name="Administration of Deposits"> <level label="a"> <text>A deposit made by an insurer under this subtitle shall be released and returned:</text> <level label="1"> <text>to the insurer when substantially all liability of the insurer that the deposit secures is extinguished by authorized reinsurance or otherwise;</text> </level> <level label="2"> <text>to the insurer, if solvent, to the extent that the deposit exceeds the amount required to be deposited under this article; or</text> </level> <level label="3"> <text>on order of a court of competent jurisdiction, to the receiver, conservator, rehabilitator, or liquidator of the insurer, or to any other properly designated official who succeeds to the management and control of the insurer’s assets.</text> </level> </level> <level label="b"> <text>Except for a release made under subsection (a)(3) of this section, a release of deposited cash or government securities may be made only on application to and written order of the Commissioner.</text> </level> <level label="c"> <text>If the release is made in good faith, the Commissioner is not personally liable for the release of any deposit or part of a deposit.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-709" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="7" subtitle_name="Administration of Deposits"> <level label="a"> <text>On completion of a merger or consolidation, an insurer that merges or consolidates with another insurer may:</text> <level label="1"> <text>transfer to the successor insurer any deposit made by the merged or consolidated insurer under this subtitle; or</text> </level> <level label="2"> <text>have released to the successor insurer all or part of a deposit made by the merged or consolidated insurer under this subtitle that is no longer required of the successor insurer under this article.</text> </level> </level> <level label="b"> <text>A transfer or release of a deposit under this section may be made only:</text> <level label="1"> <text>with the approval of the Commissioner; and</text> </level> <level label="2"> <text>on affidavit of the officers of the merged or consolidated insurer and the successor insurer that the liabilities of the merged or consolidated insurer have been extinguished, canceled, or reinsured.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-801" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="8" subtitle_name="Trusteed Assets of Alien Insurers"> <text>In this subtitle, “trusteed assets” means assets deposited in trust by an alien insurer in accordance with this subtitle.</text> </section> <section article="gin" article_name="Insurance" number="5-802" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="8" subtitle_name="Trusteed Assets of Alien Insurers"> <text>This subtitle applies to each alien insurer that desires to use Maryland as a state of entry to transact insurance business in the United States.</text> </section> <section article="gin" article_name="Insurance" number="5-803" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="8" subtitle_name="Trusteed Assets of Alien Insurers"> <level label="a"> <text>An alien insurer may use Maryland as a state of entry to transact insurance business in the United States if the alien insurer makes and maintains in Maryland a deposit of assets in trust with a solvent bank or trust company approved by the Commissioner.</text> </level> <level label="b"> <text>The deposit of trusteed assets shall be held for the benefit, security, and protection of the policyholders and creditors of the alien insurer in the United States.</text> </level> <level label="c"> <text>The deposit of trusteed assets, together with other trust deposits of the alien insurer held in the United States for the same purpose, may not be less than the deposits required of an alien insurer under § 4-106(c) of this article.</text> </level> <level label="d"> <text>The deposit of trusteed assets shall consist of cash, securities of the same character and diversification as those eligible for investment of the funds of domestic insurers under Subtitle 5 or 6 of this title, or both cash and securities.</text> </level> <level label="e"> <text>The deposit of trusteed assets shall be maintained as long as any liability of the alien insurer arising out of the transaction of its insurance business in the United States is outstanding.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-804" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="8" subtitle_name="Trusteed Assets of Alien Insurers"> <level label="a"> <level label="1"> <text>A deposit of trusteed assets shall be made under a written trust agreement between the alien insurer and the trustee in accordance with this subtitle.</text> </level> <level label="2"> <text>The deposit of trusteed assets shall be authenticated in the manner approved by the Commissioner.</text> </level> </level> <level label="b"> <text>Whether or not then authorized to transact insurance business in Maryland, an alien insurer that uses or proposes to use Maryland as a state of entry to transact insurance business in the United States may make and execute the trust agreement required by this subtitle.</text> </level> <level label="c"> <level label="1"> <text>The trust agreement is not effective until filed with and approved in writing by the Commissioner.</text> </level> <level label="2"> <text>The Commissioner may not approve a trust agreement if the Commissioner finds that the trust agreement:</text> <level label="i"> <text>does not comply with law; or</text> </level> <level label="ii"> <text>has terms that do not provide reasonably adequate protection for the alien insurer’s policyholders and creditors in the United States.</text> </level> </level> </level> <level label="d"> <level label="1"> <text>A trust agreement may be amended.</text> </level> <level label="2"> <text>The amendment is not effective until filed with and approved in writing by the Commissioner as complying with this subtitle.</text> </level> </level> <level label="e"> <level label="1"> <text>The Commissioner may withdraw approval of a trust agreement or amendment to a trust agreement if the Commissioner finds, after a hearing, that the requirements under this subtitle for approval of the trust agreement or amendment are no longer met.</text> </level> <level label="2"> <text>The Commissioner shall give notice of the hearing required under paragraph (1) of this subsection to the alien insurer and the trustee of the trust agreement.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-805" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="8" subtitle_name="Trusteed Assets of Alien Insurers"> <level label="a"> <level label="1"> <text>For purposes of the trust deposit, title to the trusteed assets is vested in the trustee and its successor.</text> </level> <level label="2"> <text>The trust agreement shall provide that title to the trusteed assets be vested as described in paragraph (1) of this subsection.</text> </level> </level> <level label="b"> <text>The trustee shall:</text> <level label="1"> <text>keep the trusteed assets separate from other assets; and</text> </level> <level label="2"> <text>maintain a record of the trusteed assets sufficient to identify the trusteed assets at all times.</text> </level> </level> <level label="c"> <level label="1"> <text>On written request of the Commissioner, the trustee shall file with the Commissioner statements, in the form required by the Commissioner, certifying the character and amount of the trusteed assets.</text> </level> <level label="2"> <text>If the trustee after a reasonable time fails to file a statement requested by the Commissioner under paragraph (1) of this subsection, the Commissioner may suspend or revoke the certificate of authority of the alien insurer that deposited the trusteed assets.</text> </level> </level> <level label="d"> <text>The Commissioner may examine the trusteed assets of an alien insurer at any time in accordance with the conditions and procedures that govern the examination of insurers in general under Title 2 of this article.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-806" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="8" subtitle_name="Trusteed Assets of Alien Insurers"> <level label="a"> <text>Except as otherwise provided in subsections (b) through (e) of this section, the trust agreement shall provide in substance that an alien insurer may not make, and the trustee may not allow, withdrawals of trusteed assets without advance written authorization of the Commissioner.</text> </level> <level label="b"> <text>The trust agreement may provide that, on request of an alien insurer or the United States manager of the alien insurer, all or part of the income, earnings, dividends, or interest accumulations of the trusteed assets may be paid to that manager.</text> </level> <level label="c"> <text>The trust agreement may provide that trusteed assets may be withdrawn and, at the same time, assets of equivalent or greater value to those trusteed assets being withdrawn may be substituted if:</text> <level label="1"> <text>the substituted assets are eligible for investment of the funds of domestic insurers under Subtitle 5 or 6 of this title;</text> </level> <level label="2"> <text>the United States manager of the alien insurer requests the withdrawal in writing in accordance with written authority previously given or delegated by the board of directors or other similar governing body of the alien insurer; and</text> </level> <level label="3"> <text>a copy of that authority has been filed with the trustee.</text> </level> </level> <level label="d"> <text>The trust agreement may provide that:</text> <level label="1"> <text>trusteed assets may be withdrawn to make a deposit that is required by law in a state in which the alien insurer is or becomes authorized to engage in the insurance business, for the protection of the alien insurer’s policyholders and creditors in that state or in the United States, to the extent that the withdrawal does not reduce the alien insurer’s deposit in this State to an amount less than the minimum deposit required under § 4-106(c) of this article; and</text> </level> <level label="2"> <text>if a withdrawal is authorized under item (1) of this subsection, the trustee shall transfer directly to the depository required to receive the deposit in the other state the assets withdrawn in the amount required to be deposited in the other state, as certified in writing by the insurance supervisory official of the other state.</text> </level> </level> <level label="e"> <text>The trust agreement may provide that trusteed assets may be transferred to a liquidator, conservator, or rehabilitator under an order of a court of competent jurisdiction.</text> </level> <level label="f"> <text>The Commissioner may authorize withdrawal of only those trusteed assets that exceed the amount required by this subtitle.</text> </level> <level label="g"> <level label="1"> <text>If the Commissioner determines that an alien insurer is insolvent or that an alien insurer’s assets in the United States are less than required under § 4-106(c) of this article, the Commissioner in writing shall order the trustee to suspend the right of the alien insurer or any other person to withdraw the trusteed assets of the alien insurer.</text> </level> <level label="2"> <text>The trustee shall comply with the order until further order of the Commissioner.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-807" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="8" subtitle_name="Trusteed Assets of Alien Insurers"> <text>Subject to the Commissioner’s approval, a new trustee may be substituted for the original trustee because of a vacancy or for other proper cause.</text> </section> <section article="gin" article_name="Insurance" number="5-901" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <text>In this subtitle the following words have the meanings indicated.</text> </level> <level label="b"> <text>“Ceding insurer” means an insurer that procures insurance for itself from another insurer for all or part of an insurance risk.</text> </level> <level label="c"> <text>“Covered agreement” means an agreement entered into under the federal Dodd–Frank Wall Street Reform and Consumer Protection Act, 31 U.S.C. §§ 313 and 314, that:</text> <level label="1"> <text>is currently in effect or in a period of provisional application; and</text> </level> <level label="2"> <text>addresses the elimination, under specified conditions, of collateral requirements as a condition for:</text> <level label="i"> <text>entering into a reinsurance agreement with a ceding insurer domiciled in the State; or</text> </level> <level label="ii"> <text>allowing the ceding insurer to recognize credit for reinsurance.</text> </level> </level> </level> <level label="d"> <text>“Primary certifying state” means a state other than Maryland:</text> <level label="1"> <text>in which the insurance regulatory agency or its equivalent has designated and assigned a rating to an assuming insurer as a certified reinsurer; and</text> </level> <level label="2"> <text>the designation or rating from which the Commissioner has used to designate or assign a rating to the assuming insurer in this State under § 5–910(b) of this subtitle.</text> </level> </level> <level label="e"> <text>“Qualified jurisdiction” means a jurisdiction that the Commissioner determines meets the requirements of § 5–909 of this subtitle.</text> </level> <level label="f"> <text>“Qualified United States financial institution” means:</text> <level label="1"> <text>for purposes of issuance or confirmation of a letter of credit under § 5–914(c)(3) of this subtitle, an institution that:</text> <level label="i"> <text>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;</text> </level> <level label="ii"> <text>is regulated, supervised, and examined by federal or state authorities having regulatory authority over banks and trust companies; and</text> </level> <level label="iii"> <text>has been determined by either the Commissioner or the securities valuation office of the National Association of Insurance Commissioners to meet the standards of financial condition and standing that are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the Commissioner; or</text> </level> </level> <level label="2"> <text>for purposes of eligibility to act as a fiduciary of a trust under this subtitle, an institution that:</text> <level label="i"> <text>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 and has been granted authority to operate with fiduciary powers; and</text> </level> <level label="ii"> <text>is regulated, supervised, and examined by federal or state authorities having regulatory authority over banks and trust companies.</text> </level> </level> </level> <level label="g"> <text>“Reciprocal jurisdiction” means a jurisdiction that is:</text> <level label="1"> <text>a jurisdiction outside the United States that:</text> <level label="i"> <text>is subject to an in–force covered agreement with the United States, each within its legal authority; or</text> </level> <level label="ii"> <text>in the case of a covered agreement between the United States and the European Union, is a member state of the European Union;</text> </level> </level> <level label="2"> <text>a jurisdiction in the United States that meets the requirements for accreditation under the NAIC financial standards and accreditation program; or</text> </level> <level label="3"> <text>a qualified jurisdiction, as determined by the Commissioner under § 5–909 of this article, that:</text> <level label="i"> <text>is not otherwise described in item (1) or (2) of this subsection; and</text> </level> <level label="ii"> <text>meets additional requirements, consistent with the terms and conditions of the in–force covered agreement, as the Commissioner specifies by regulation.</text> </level> </level> </level> <level label="h"> <text>“Reinsurer” means an insurer from which a ceding insurer procures insurance for itself for all or part of an insurance risk.</text> </level> <level label="i"> <text>“Trusteed surplus” means funds held in a trust account in excess of the reinsurer’s liabilities attributable to reinsurance ceded to the reinsurer by United States ceding insurers in accordance with this subtitle.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-902" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <text>This subtitle does not apply to wet marine and transportation insurance.</text> </level> <level label="b"> <text>All laws or parts of laws of the State that are inconsistent with this subtitle are superseded to the extent of the inconsistency.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-903" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <text>Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a reduction from liability on account of reinsurance ceded if the reinsurer meets the requirements of this subtitle.</text> </section> <section article="gin" article_name="Insurance" number="5-904" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <text>Except as provided in §§ 3–124 and 3–125 of this article for bulk reinsurance, an insurer may reinsure all or part of a particular risk.</text> </level> <level label="b"> <level label="1"> <text>Credit shall be allowed under subsection (c), (d), or (e) of this section with respect to cessions of those kinds or classes of business that the assuming insurer is licensed or otherwise allowed 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.</text> </level> <level label="2"> <text>Credit shall be allowed under subsection (e) or (f) of this section only if the applicable requirements of § 5–913 of this subtitle have been satisfied.</text> </level> </level> <level label="c"> <text>Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is licensed to transact insurance or reinsurance in this State.</text> </level> <level label="d"> <text>Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is accredited by the Commissioner as a reinsurer in this State in accordance with § 5–906 of this subtitle.</text> </level> <level label="e"> <text>Subject to the requirements of § 5–913 of this subtitle, credit shall be allowed when the reinsurance is ceded to an assuming insurer that maintains a trust fund meeting the requirements of § 5–907 of this subtitle in a qualified United States financial institution for the payment of the valid claims of its United States ceding insurers and their assigns and successors in interest.</text> </level> <level label="f"> <text>Credit shall be allowed when the reinsurance is ceded to an assuming insurer that has been certified by the Commissioner as a reinsurer in this State in accordance with §§ 5–908 and 5–909 of this subtitle and secures its obligations in accordance with the requirements of § 5–911 of this subtitle.</text> </level> <level label="g"> <text>Credit shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of subsection (c), (d), (e), or (f) of this section, but only as to the insurance of risks located in jurisdictions where the reinsurance is required by the applicable law or regulation of that jurisdiction.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-905" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <level label="1"> <text>Credit may not be allowed, as an asset or deduction from liability, to a ceding insurer for reinsurance unless the reinsurance contract provides, in substance, that in the event of the insolvency of the ceding insurer, the reinsurance shall be payable under the terms of a contract reinsured by the reinsurer on the basis of reported claims allowed by the court in a liquidation proceeding, without diminution because of the insolvency of the ceding insurer.</text> </level> <level label="2"> <text>Payments made by a reinsurer under paragraph (1)(ii) of this subsection shall be made directly to the ceding insurer or its domiciliary receiver unless:</text> <level label="i"> <text>the reinsurance contract or other written agreement specifically provides another payee of the reinsurance in the event of the insolvency of the ceding insurer; or</text> </level> <level label="ii"> <text>subject to any contractual or statutory requirement of consent by the policyholder, the reinsurer has assumed the policy obligations of the ceding insurer as direct obligations of the reinsurer to the payees under the policies and in substitution for the ceding insurer’s obligations to the payees.</text> </level> </level> <level label="3"> <level label="i"> <text>Notwithstanding paragraph (2) of this subsection, if a life and health insurance guaranty association has elected to succeed to the rights and obligations of an insolvent insurer under a reinsurance contract, the reinsurer’s liability to pay covered reinsured claims shall continue under the reinsurance contract, subject to the payment of premiums to the reinsurer for the reinsurance coverage.</text> </level> <level label="ii"> <text>Payment for a covered reinsured claim under subparagraph (i) of this paragraph shall be made by the reinsurer only at the direction of the life and health insurance guaranty association or its designated successor.</text> </level> <level label="iii"> <text>Payment for a covered reinsured claim made by the reinsurer at the direction of the life and health insurance guaranty association or its designated successor discharges the reinsurer’s liability to any other person for payment of the covered reinsured claim.</text> </level> </level> </level> <level label="b"> <level label="1"> <text>A reinsurance contract may provide that the domiciliary receiver of an insolvent ceding insurer shall give written notice to the reinsurer of the pendency of a claim made against the insolvent ceding insurer under the contract reinsured within a reasonable time after the claim is filed in the liquidation proceeding.</text> </level> <level label="2"> <text>During the pendency of the claim, the reinsurer, at its own expense, may investigate the claim and interpose, in the liquidation proceeding, any defense that it determines is available to the insolvent ceding insurer or its receiver.</text> </level> <level label="3"> <level label="i"> <text>The reinsurer may file a claim against the insolvent ceding insurer for any expense incurred by the reinsurer under paragraph (2) of this subsection.</text> </level> <level label="ii"> <text>The claim may not exceed an amount equal to the proportionate share of the benefit accruing to the insolvent ceding insurer solely as a result of the defense undertaken by the reinsurer.</text> </level> <level label="iii"> <text>If two or more reinsurers are involved in a claim and a majority in interest elect to interpose a defense to the claim, the expense shall be apportioned in accordance with the terms of the reinsurance contract as though the expense had been incurred by the insolvent ceding insurer.</text> </level> </level> </level> <level label="c"> <text>On request of the Commissioner, a ceding insurer shall inform the Commissioner promptly in writing of the cancellation or any other material change of any of its reinsurance contracts or arrangements.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-906" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <text>In order for an assuming reinsurer to be eligible for accreditation by the Commissioner, the reinsurer shall:</text> <level label="1"> <text>file with the Commissioner evidence of its submission to this State’s jurisdiction;</text> </level> <level label="2"> <text>submit to the Commissioner’s authority to examine its books and records;</text> </level> <level label="3"> <text>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;</text> </level> <level label="4"> <text>file each year 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</text> </level> <level label="5"> <text>demonstrate to the satisfaction of the Commissioner that the reinsurer has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers.</text> </level> </level> <level label="b"> <text>An assuming insurer is deemed to meet the requirement of subsection (a)(5) of this section as of the time of its application if:</text> <level label="1"> <text>the assuming insurer maintains a surplus as regards policyholders in an amount not less than $20,000,000; and</text> </level> <level label="2"> <text>the Commissioner has not denied the assuming insurer’s accreditation within 90 days after submission of its application.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-907" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <text>To enable the Commissioner to determine the sufficiency of the trust fund provided for in § 5–904(e) of this subtitle, the assuming insurer shall report each year to the Commissioner information substantially the same as that required to be reported on the National Association of Insurance Commissioners annual statement form by authorized insurers.</text> </level> <level label="b"> <text>The assuming insurer shall submit to examination of its books and records by the Commissioner and bear the expense of examination.</text> </level> <level label="c"> <text>Credit for reinsurance may not be granted under this section unless the form of the trust and any amendments to the trust have been approved by:</text> <level label="1"> <text>the insurance regulatory agency of the state where the trust is domiciled; or</text> </level> <level label="2"> <text>the insurance regulatory agency of another state who, under the terms of the trust instrument, has accepted principal regulatory oversight of the trust.</text> </level> </level> <level label="d"> <text>The form of the trust and any trust amendments shall be filed with the insurance regulatory agency of each state in which the ceding insurer beneficiaries of the trust are domiciled.</text> </level> <level label="e"> <text>The trust instrument shall provide that contested claims shall be valid and enforceable on the final order of any court of competent jurisdiction in the United States.</text> </level> <level label="f"> <text>The trust shall vest legal title to its assets in its trustees for the benefit of the assuming insurer’s United States ceding insurers and their assigns and successors in interest.</text> </level> <level label="g"> <text>The trust and the assuming insurer shall be subject to examination as determined by the Commissioner.</text> </level> <level label="h"> <text>The trust shall remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance contracts subject to the trust.</text> </level> <level label="i"> <text>Not later than February 28 of each year, the trustee of the trust shall:</text> <level label="1"> <text>report to the Commissioner in writing the balance of the trust and list the trust’s investments at the preceding year–end; and</text> </level> <level label="2"> <text>certify the date of termination of the trust, if so planned, or certify that the trust will not expire before the following December 31.</text> </level> </level> <level label="j"> <level label="1"> <text>This subsection applies to ceding to a single assuming insurer.</text> </level> <level label="2"> <text>The trust fund shall 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.</text> </level> <level label="3"> <text>Except as provided in paragraph (4) of this subsection, the assuming insurer shall maintain a trusteed surplus of not less than $20,000,000.</text> </level> <level label="4"> <level label="i"> <text>Subject to subparagraphs (ii) and (iii) of this paragraph, at any time after the assuming insurer has permanently discontinued underwriting new business secured by the trust for at least 3 full years, the insurance regulatory agency 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.</text> </level> <level label="ii"> <text>The risk assessment under subparagraph (i) of this paragraph:</text> <level label="1"> <text>may involve an actuarial review, including an independent analysis of reserves and cash flows; and</text> </level> <level label="2"> <text>shall 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.</text> </level> </level> <level label="iii"> <text>The minimum required trusteed surplus under subparagraph (i) of this paragraph may not be reduced to an amount less than 30% of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust.</text> </level> </level> </level> <level label="k"> <level label="1"> <text>This subsection applies to ceding to a group that includes incorporated and individual unincorporated underwriters.</text> </level> <level label="2"> <text>For reinsurance ceded under reinsurance contracts with an inception, amendment, or renewal date on or after January 1, 1993, the trust shall 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.</text> </level> <level label="3"> <text>For reinsurance ceded under reinsurance contracts with an inception date on or before December 31, 1992, and not amended or renewed after that date, notwithstanding any other provisions of this section, the trust shall 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.</text> </level> <level label="4"> <text>In addition to these trusts, the group shall maintain in trust a trusteed surplus of which $100,000,000 shall be held jointly for the benefit of the United States domiciled ceding insurers of any member of the group for all years of account.</text> </level> <level label="5"> <text>The incorporated members of the group:</text> <level label="i"> <text>may not be engaged in any business other than underwriting as a member of the group; and</text> </level> <level label="ii"> <text>shall be subject to the same level of regulation and solvency control by the group’s domiciliary regulator as are the unincorporated members.</text> </level> </level> <level label="6"> <text>Within 90 days after its financial statements are due to be filed with the group’s domiciliary regulator, the group shall provide to the Commissioner:</text> <level label="i"> <text>an annual certification by the group’s domiciliary regulator of the solvency of each underwriter member; or</text> </level> <level label="ii"> <text>if a certification is unavailable, financial statements, prepared by independent public accountants, of each underwriter member of the group.</text> </level> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-908" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <text>In order to be eligible for certification in accordance with § 5–904(f) of this subtitle, the assuming insurer shall:</text> <level label="1"> <text>be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined under § 5–909 of this subtitle;</text> </level> <level label="2"> <text>maintain minimum capital and surplus, or its equivalent, in an amount the Commissioner determines in accordance with regulations the Commissioner adopts;</text> </level> <level label="3"> <text>maintain financial strength ratings from two or more rating agencies that the Commissioner considers acceptable in accordance with regulations the Commissioner adopts;</text> </level> <level label="4"> <text>agree to submit to the jurisdiction of this State;</text> </level> <level label="5"> <text>appoint the Commissioner as its agent for service of process in this State;</text> </level> <level label="6"> <text>agree to provide security for all of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers if it resists enforcement of a final United States judgment;</text> </level> <level label="7"> <text>agree to meet applicable information filing requirements as the Commissioner determines both for the initial application for certification and on an ongoing basis; and</text> </level> <level label="8"> <text>satisfy any other requirements for certification that the Commissioner considers relevant.</text> </level> </level> <level label="b"> <level label="1"> <text>A group, including incorporated and individual unincorporated underwriters, may be a certified reinsurer if the group, including incorporated and individual unincorporated underwriters, meets all the requirements of this section.</text> </level> <level label="2"> <text>The group shall satisfy its minimum capital and surplus equivalents, net of liabilities, of the group and its members, which shall include a joint central fund that may be applied to any unsatisfied obligation of the group or any of its members, in an amount that the Commissioner determines will provide adequate protection.</text> </level> <level label="3"> <text>The incorporated members of the group may not be engaged in any business other than underwriting as a member of the group.</text> </level> <level label="4"> <text>The incorporated members of the group shall be subject to the same level of regulation and solvency control by the group’s domiciliary regulator as are the unincorporated members.</text> </level> <level label="5"> <text>Within 90 days after its financial statements are due to be filed with the group’s domiciliary regulator, the group shall provide to the Commissioner:</text> <level label="i"> <text>an annual certification by the group’s domiciliary regulator of the solvency of each underwriter member; or</text> </level> <level label="ii"> <text>if a certification is unavailable, financial statements, prepared by independent public accountants, of each underwriter member of the group.</text> </level> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-909" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <level label="1"> <text>The Commissioner shall maintain and publish a list of qualified jurisdictions under which an assuming insurer, licensed and domiciled in that jurisdiction, is eligible to be considered for certification by the Commissioner as a certified reinsurer.</text> </level> <level label="2"> <text>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:</text> <level label="i"> <text>evaluate the appropriateness and effectiveness of the reinsurance supervisory system of the jurisdiction, initially and on an ongoing basis; and</text> </level> <level label="ii"> <text>consider the rights, benefits, and extent of reciprocal recognition afforded by the non–United States jurisdiction to reinsurers licensed and domiciled in the United States.</text> </level> </level> <level label="3"> <text>A qualified jurisdiction shall agree in writing to share information and cooperate with the Commissioner with respect to all certified reinsurers domiciled in that jurisdiction.</text> </level> <level label="4"> <text>The Commissioner may not recognize a jurisdiction as a qualified jurisdiction unless the Commissioner has determined that the jurisdiction adequately and promptly enforces final United States judgments and arbitration awards.</text> </level> <level label="5"> <text>The Commissioner may consider other factors in determining the jurisdiction’s eligibility to be recognized as a qualified jurisdiction.</text> </level> </level> <level label="b"> <level label="1"> <text>The Commissioner shall consider the list of conditionally qualified and qualified jurisdictions published through the National Association of Insurance Commissioners committee process in determining the qualified jurisdictions in this State.</text> </level> <level label="2"> <text>In determining whether a jurisdiction is a qualified jurisdiction, the Commissioner shall consider the National Association of Insurance Commissioners list of conditionally qualified and qualified jurisdictions:</text> <level label="i"> <text>when the jurisdiction has been evaluated for inclusion on the list; and</text> </level> <level label="ii"> <text>whenever the list is amended.</text> </level> </level> <level label="3"> <text>If the Commissioner approves a jurisdiction as qualified that does not appear on the National Association of Insurance Commissioners list of qualified jurisdictions, the Commissioner shall provide information related to the approval to the National Association of Insurance Commissioners as provided in regulations the Commissioner adopts.</text> </level> <level label="4"> <text>The Commissioner shall recognize as a qualified jurisdiction in this State any state that meets the requirement for accreditation under the National Association of Insurance Commissioners financial standards and accreditation program.</text> </level> <level label="5"> <text>If a certified reinsurer’s domiciliary jurisdiction ceases to be a qualified jurisdiction, the Commissioner may indefinitely suspend or revoke the reinsurer’s certification.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-910" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <level label="1"> <text>The Commissioner shall assign a rating to each certified reinsurer based on factors the Commissioner considers relevant, giving due consideration to the financial strength ratings that have been assigned by rating agencies in accordance with regulations the Commissioner adopts.</text> </level> <level label="2"> <text>The Commissioner shall publish a list of all certified reinsurers and their ratings.</text> </level> </level> <level label="b"> <text>If an applicant for certification has been certified as a reinsurer by the insurance regulatory agency of a state accredited by the National Association of Insurance Commissioners, the Commissioner may defer to that insurance regulatory agency or the National Association of Insurance Commissioners committee process to:</text> <level label="1"> <text>designate the assuming insurer as a certified reinsurer in this State;</text> </level> <level label="2"> <text>assign a rating to the assuming insurer; or</text> </level> <level label="3"> <text>both.</text> </level> </level> <level label="c"> <level label="1"> <text>A certified reinsurer that ceases to assume new business in this State may request to maintain its certification in inactive status in order to continue to qualify for a reduction in security for its in–force business.</text> </level> <level label="2"> <text>An inactive certified reinsurer shall continue to comply with all applicable requirements of § 5–911 of this subtitle.</text> </level> <level label="3"> <text>The Commissioner shall assign a rating that takes into account, if relevant, the reasons why the reinsurer is not assuming new business.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-911" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <text>A certified reinsurer shall secure obligations assumed from United States ceding insurers under this subtitle at a level consistent with its rating, as specified in regulations the Commissioner adopts.</text> </level> <level label="b"> <text>Except as otherwise provided in this section, 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 the Commissioner considers acceptable and consistent with § 5–914 of this subtitle, or in a multibeneficiary trust in accordance with § 5–907 of this subtitle.</text> </level> <level label="c"> <level label="1"> <text>If a certified reinsurer maintains a trust to fully secure its obligations consistent with § 5–907 of this subtitle and chooses to secure its obligations incurred as a certified reinsurer in the form of a multibeneficiary trust, the certified reinsurer shall maintain separate trust accounts for its obligations incurred under reinsurance contracts issued or renewed as a certified reinsurer with reduced security as allowed by this section or comparable laws of other United States jurisdictions and for its obligations subject to § 5–907 of this subtitle.</text> </level> <level label="2"> <text>As a condition of certification under § 5–908 of this subtitle, the certified reinsurer shall bind itself, by the language of the trust and agreement with the commissioner with principal regulatory oversight of each trust account, to fund, on termination of the trust account, out of the remaining surplus of the trust, any deficiency of any other trust account.</text> </level> </level> <level label="d"> <text>The minimum trusteed surplus requirements provided in § 5–907 of this subtitle do not apply with respect to a multibeneficiary trust maintained by a certified reinsurer for the purpose of securing obligations incurred under this section, except that the trust shall maintain a minimum trusteed surplus of $10,000,000.</text> </level> <level label="e"> <text>With respect to obligations incurred by a certified reinsurer under this section, if the security is insufficient, the Commissioner:</text> <level label="1"> <text>shall reduce the allowable credit by an amount proportionate to the deficiency; and</text> </level> <level label="2"> <text>may impose further reductions in allowable credit on finding that there is a material risk that the certified reinsurer’s obligations will not be paid in full when due.</text> </level> </level> <level label="f"> <level label="1"> <text>For purposes of this section, a certified reinsurer whose certification the Commissioner has revoked, suspended, or placed on inactive status, or has been voluntarily surrendered, for any reason shall be treated as a certified reinsurer required to secure all of its obligations.</text> </level> <level label="2"> <text>If the Commissioner continues to assign a higher rating as allowed by other provisions of this section, the requirement of paragraph (1) of this subsection does not apply to a certified reinsurer in inactive status or to a reinsurer whose certification has been suspended.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-912" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <text>After providing notice and an opportunity for hearing to the reinsurer, the Commissioner may suspend or revoke a reinsurer’s accreditation or certification if the reinsurer ceases to meet the requirements for accreditation or certification.</text> </level> <level label="b"> <text>The revocation or suspension may not take effect until after the Commissioner’s order on hearing unless:</text> <level label="1"> <text>the reinsurer waives its right to a hearing;</text> </level> <level label="2"> <text>the Commissioner’s order is based on a regulatory action by the reinsurer’s domiciliary jurisdiction or primary certifying state suspending or revoking the reinsurer’s eligibility to transact insurance or reinsurance;</text> </level> <level label="3"> <text>the reinsurer voluntarily surrenders its license or certification to transact insurance or reinsurance business in its domiciliary jurisdiction or primary certifying state; or</text> </level> <level label="4"> <level label="i"> <text>the Commissioner finds that an emergency requires immediate action by the Commissioner; and</text> </level> <level label="ii"> <text>a court of competent jurisdiction has not stayed the Commissioner’s action.</text> </level> </level> </level> <level label="c"> <level label="1"> <text>While a reinsurer’s accreditation or certification is suspended, a reinsurance contract issued or renewed after the effective date of the suspension does not qualify for credit except to the extent the reinsurer’s obligations under the contract are secured in accordance with § 5–914 of this subtitle.</text> </level> <level label="2"> <text>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 that the reinsurer’s obligations under the contract are secured in accordance with § 5–911 or § 5–914 of this subtitle.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-913" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <text>If the assuming insurer is not licensed, accredited, or certified to transact insurance or reinsurance in this State, the credit allowed by § 5–904(e) of this subtitle may not be allowed unless the assuming insurer agrees in the reinsurance contracts:</text> <level label="1"> <text>that in the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance contract, the assuming insurer, at the request of the ceding insurer, shall:</text> <level label="i"> <text>submit to the jurisdiction of any court of competent jurisdiction in any state;</text> </level> <level label="ii"> <text>comply with all requirements necessary to give the court jurisdiction; and</text> </level> <level label="iii"> <text>abide by the final decision of the court or of any appellate court in case of an appeal; and</text> </level> </level> <level label="2"> <text>to designate the Commissioner as its resident agent on whom any lawful process may be served in any action, suit, or proceeding instituted by or on behalf of the ceding insurer.</text> </level> </level> <level label="b"> <text>Subsection (a) of this section is not intended to conflict with or override the obligation of the parties to a reinsurance contract to arbitrate their disputes, if this obligation is created in the reinsurance contract.</text> </level> <level label="c"> <text>If the assuming insurer does not meet the requirements of § 5–904(c) or (d) of this subtitle, the credit allowed by § 5–904(e) and (f) of this subtitle may not be allowed unless the assuming insurer agrees in the trust agreements to the following conditions:</text> <level label="1"> <text>notwithstanding any other provision in the trust instrument, if the trust fund is inadequate because it contains an amount less than the amount required by § 5–907(j) of this subtitle, 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 insurance regulatory agency with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the insurance regulatory agency with regulatory oversight all of the assets of the trust fund;</text> </level> <level label="2"> <text>the assets shall be distributed by and claims shall be filed with and valued by the insurance regulatory agency with regulatory oversight over the trust in accordance with the laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic insurers;</text> </level> <level label="3"> <text>if the insurance regulatory agency with regulatory oversight over the trust determines that the assets of the trust fund or any part of the assets are not necessary to satisfy the claims of the United States ceding insurers of the grantor of the trust, the assets or part shall be returned by the insurance regulatory agency with regulatory oversight to the trustee for distribution in accordance with the trust agreement; and</text> </level> <level label="4"> <text>the grantor shall waive any right otherwise available to it under United States law that is inconsistent with this subsection.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-914" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <text>An asset or a reduction from liability for the reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of § 5–904 of this subtitle shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer.</text> </level> <level label="b"> <text>The 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 the assuming insurer as security for the payment of obligations under the contract, if the security is held:</text> <level label="1"> <text>in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer; or</text> </level> <level label="2"> <text>in the case of a trust, held in a qualified United States financial institution.</text> </level> </level> <level label="c"> <text>The security may be in the form of:</text> <level label="1"> <text>cash;</text> </level> <level label="2"> <text>securities listed by the securities valuation office of the National Association of Insurance Commissioners, including those deemed exempt from filing as defined by the purposes and procedures manual of the securities valuation office, and qualifying as admitted assets;</text> </level> <level label="3"> <text>subject to subsection (d) of this section, clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified United States financial institution, effective no later than December 31 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 the ceding insurer’s annual statement; or</text> </level> <level label="4"> <text>any other form of security acceptable to the Commissioner.</text> </level> </level> <level label="d"> <text>Notwithstanding the subsequent failure of the issuing or confirming institution to meet applicable standards of issuer acceptability, a letter of credit meeting applicable standards of issuer acceptability as of the date of its issuance or confirmation under subsection (c)(3) of this section shall continue to be acceptable as security until the letter of credit expires or is extended, renewed, modified, or amended, whichever occurs first.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-915" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <level label="1"> <text>A ceding insurer shall take steps to manage its reinsurance recoverables proportionate to its own book of business.</text> </level> <level label="2"> <level label="i"> <text>A domestic ceding insurer shall notify the Commissioner within 30 days after reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, exceeds or is likely to exceed 50% of the domestic ceding insurer’s last reported surplus to policyholders.</text> </level> <level label="ii"> <text>The notification required by subparagraph (i) of this paragraph shall demonstrate that the domestic ceding insurer is safely managing the exposure.</text> </level> </level> </level> <level label="b"> <level label="1"> <text>A ceding insurer shall take steps to diversify its reinsurance program.</text> </level> <level label="2"> <level label="i"> <text>A domestic ceding insurer shall notify the Commissioner within 30 days after ceding or being likely to cede to any single assuming insurer, or group of affiliated assuming insurers, more than 20% of the ceding insurer’s gross written premium in the prior calendar year.</text> </level> <level label="ii"> <text>The notification required by subparagraph (i) of this paragraph shall demonstrate that the domestic ceding insurer is safely managing the exposure.</text> </level> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-916" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <text>The Commissioner may adopt:</text> <level label="1"> <text>regulations to carry out this subtitle; and</text> </level> <level label="2"> <text>rules and regulations applicable to reinsurance arrangements described in subsection (b) of this section.</text> </level> </level> <level label="b"> <level label="1"> <text>A rule or regulation adopted under subsection (a)(2) of this section may apply only to reinsurance relating to:</text> <level label="i"> <text>life insurance policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits;</text> </level> <level label="ii"> <text>universal life insurance policies with provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period;</text> </level> <level label="iii"> <text>variable annuities with guaranteed death or living benefits;</text> </level> <level label="iv"> <text>long–term care insurance policies; or</text> </level> <level label="v"> <text>other life and health insurance and annuity products as to which the National Association of Insurance Commissioners adopts model regulatory requirements with respect to credit for reinsurance.</text> </level> </level> <level label="2"> <text>A rule or regulation adopted under subsection (a)(2) of this section that applies to reinsurance relating to policies specified under paragraph (1)(i) or (ii) of this subsection may apply to any treaty containing:</text> <level label="i"> <text>policies issued on or after January 1, 2015; or</text> </level> <level label="ii"> <text>policies issued before January 1, 2015, if the risk pertaining to the pre–2015 policies is ceded in connection with the treaty, in whole or in part, on or after January 1, 2015.</text> </level> </level> <level label="3"> <text>A rule or regulation adopted under subsection (a)(2) of this section may require the ceding insurer, in calculating the amounts or forms of security required to be held under regulations adopted under subsection (a)(2) of this section, to use the valuation manual adopted by the National Association of Insurance Commissioners in accordance with § 5–313 of this title, including all amendments adopted by the National Association of Insurance Commissioners and in effect on the date the calculation is made, to the extent applicable.</text> </level> <level label="4"> <text>A rule or regulation adopted under subsection (a)(2) of this section may not apply to a cession to an assuming insurer that:</text> <level label="i"> <text>meets the conditions set forth in § 5–917 of this subtitle;</text> </level> <level label="ii"> <text>is certified in this State in accordance with § 5–904(f) of this subtitle; or</text> </level> <level label="iii"> <level label="1"> <text>maintains at least $250,000,000 in capital and surplus when determined in accordance with the National Association of Insurance Commissioners Accounting Practices and Procedures Manual, including all amendments adopted by the National Association of Insurance Commissioners, excluding the impact of any permitted or prescribed practices; and</text> </level> <level label="2"> <level label="A"> <text>is licensed in at least 26 states; or</text> </level> </level> <level label="B"> <text>is licensed in at least 10 states and is licensed or accredited in a total of at least 35 states.</text> </level> </level> </level> </level> <level label="c"> <text>The authority of the Commissioner to adopt regulations under subsection (a)(2) of this section does not limit the Commissioner’s general authority to adopt regulations under subsection (a)(1) of this section.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-917" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="9" subtitle_name="Reinsurance"> <level label="a"> <text>Credit shall be allowed when reinsurance is ceded to an assuming insurer that:</text> <level label="1"> <text>has its head office or is domiciled in and licensed in a reciprocal jurisdiction;</text> </level> <level label="2"> <text>has and maintains on an ongoing basis:</text> <level label="i"> <text>minimum capital and surplus, or its equivalent, calculated according to the methodology of its domiciliary jurisdiction, in an amount to be set forth in regulation; or</text> </level> <level label="ii"> <text>if the assuming insurer is an association, including incorporated and individual unincorporated underwriters:</text> <level label="1"> <text>minimum capital and surplus equivalents, net of liabilities, calculated according to the methodology applicable in its domiciliary jurisdiction; and</text> </level> <level label="2"> <text>a central fund containing a balance in an amount the Commissioner requires by regulation;</text> </level> </level> </level> <level label="3"> <text>maintains a minimum solvency or capital ratio, as the Commissioner requires by regulation;</text> </level> <level label="4"> <text>if the assuming insurer is an association, including incorporated and individual unincorporated underwriters, maintains a minimum solvency or capital ratio:</text> <level label="i"> <text>in the reciprocal jurisdiction where the assuming insurer has its head office or is domiciled; and</text> </level> <level label="ii"> <text>where it is also licensed;</text> </level> </level> <level label="5"> <text>agrees and provides adequate assurance to the Commissioner, in a form the Commissioner specifies by regulation, to provide prompt written notice and explanation to the Commissioner:</text> <level label="i"> <text>if the assuming insurer falls below any minimum requirement set forth in item (2), (3), or, if applicable, (4) of this subsection; or</text> </level> <level label="ii"> <text>if any regulatory action is taken against the assuming insurer for serious noncompliance with applicable law;</text> </level> </level> <level label="6"> <text>consents in writing to:</text> <level label="i"> <text>the jurisdiction of the courts of the State;</text> </level> <level label="ii"> <text>the appointment of the Commissioner as agent for service of process; and</text> </level> <level label="iii"> <text>if the Commissioner requires, include in the reinsurance agreement the appointment of the Commissioner as agent for service of process;</text> </level> </level> <level label="7"> <text>consents in writing to pay all final judgments, wherever enforcement is sought, obtained by a ceding insurer or its legal successor, that have been declared enforceable in the jurisdiction where the judgment was obtained;</text> </level> <level label="8"> <text>agrees to include in each reinsurance agreement a provision requiring the assuming insurer to provide security in an amount equal to 100% of the assuming insurer’s liabilities attributable to reinsurance ceded under that agreement if the assuming insurer resists:</text> <level label="i"> <text>enforcement of a final judgment that is enforceable under the law of the jurisdiction where the judgment was obtained; or</text> </level> <level label="ii"> <text>a properly enforceable arbitration award, whether obtained by the ceding insurer or by its legal successor on behalf of the ceding insurer’s resolution estate;</text> </level> </level> <level label="9"> <text>confirms that:</text> <level label="i"> <text>the assuming insurer is not participating in any solvent scheme of arrangement that involves the State’s ceding insurers; or</text> </level> <level label="ii"> <text>if the assuming insurer enters into a solvent scheme of arrangement:</text> <level label="1"> <text>the assuming insurer agrees to notify the ceding insurer and the Commissioner; and</text> </level> <level label="2"> <text>the assuming insurer will provide security in an amount equal to 100% of the assuming insurer’s liabilities to the ceding insurer, in a form consistent with the requirements of §§ 5–908 through 5–911 and 5–914 of this subtitle and as the Commissioner specifies by regulation;</text> </level> </level> </level> <level label="10"> <text>on request by the Commissioner, provides, on behalf of the assuming insurer and any legal predecessors, documentation to the Commissioner required under regulations the Commissioner adopts;</text> </level> <level label="11"> <text>maintains a practice of prompt payment of claims under reinsurance agreements, in accordance with regulations the Commissioner adopts; and</text> </level> <level label="12"> <text>has a supervisory authority that confirms to the Commissioner on an annual basis that the assuming insurer complies with the requirements of items (2), (3), and, if applicable, (4) of this subsection:</text> <level label="i"> <text>as of the immediately preceding December 31; or</text> </level> <level label="ii"> <text>at the annual date otherwise statutorily reported to the reciprocal jurisdiction.</text> </level> </level> </level> <level label="b"> <level label="1"> <text>The Commissioner shall timely create and publish a list of reciprocal jurisdictions.</text> </level> <level label="2"> <text>The Commissioner’s list shall:</text> <level label="i"> <text>include any reciprocal jurisdiction as defined in § 5–901(g)(1) and (2) of this subtitle; and</text> </level> <level label="ii"> <text>consider any other reciprocal jurisdiction included on the NAIC list of reciprocal jurisdictions published through the NAIC committee process.</text> </level> </level> <level label="3"> <text>The Commissioner may approve a jurisdiction that does not appear on the NAIC list of reciprocal jurisdictions in accordance with regulations the Commissioner adopts.</text> </level> <level label="4"> <level label="i"> <text>The Commissioner may not remove a jurisdiction that meets the requirements of a reciprocal jurisdiction from the list of reciprocal jurisdictions.</text> </level> <level label="ii"> <level label="1"> <text>Except as provided in subsubparagraph 2 of this subparagraph, the Commissioner may remove a jurisdiction from the list of reciprocal jurisdictions on a determination that the jurisdiction no longer meets the requirements of a reciprocal jurisdiction in accordance with a process set forth in regulations the Commissioner adopts.</text> </level> <level label="2"> <text>The Commissioner may not remove from the list of reciprocal jurisdictions a jurisdiction as defined in § 5–901(g)(1) or (2) of this subtitle.</text> </level> </level> </level> <level label="5"> <text>On removal of a jurisdiction from the list of reciprocal jurisdictions, credit for reinsurance ceded to an assuming insurer that has its home office or is domiciled in that jurisdiction shall be allowed, if otherwise allowed under this subtitle.</text> </level> </level> <level label="c"> <level label="1"> <text>The Commissioner shall timely create and publish a list of assuming insurers that have satisfied the conditions set forth in this section and to which cessions shall be granted credit in accordance with this section.</text> </level> <level label="2"> <text>The Commissioner may add an assuming insurer to the list under paragraph (1) of this subsection:</text> <level label="i"> <text>if an NAIC–accredited jurisdiction has added the assuming insurer to a list of assuming insurers; or</text> </level> <level label="ii"> <text>if, on initial eligibility, the assuming insurer submits information to the Commissioner:</text> <level label="1"> <text>as required under subsection (a)(5) through (9) of this section; and</text> </level> <level label="2"> <text>complies with any additional requirements that the Commissioner may impose by regulation, except to the extent that the requirements conflict with an applicable covered agreement.</text> </level> </level> </level> </level> <level label="d"> <level label="1"> <text>If the Commissioner determines that an assuming insurer no longer meets one or more of the requirements under this section, the Commissioner may revoke or suspend the eligibility of the assuming insurer for recognition under this subsection in accordance with procedures set forth in regulation.</text> </level> <level label="2"> <text>While an assuming insurer’s eligibility is suspended:</text> <level label="i"> <text>a reinsurance agreement issued, amended, or renewed after the effective date of the suspension may not qualify for credit; but</text> </level> <level label="ii"> <text>credit may be allowed only to the extent that the assuming insurer’s obligations under the contract are secured in accordance with § 5–914 of this subtitle.</text> </level> </level> <level label="3"> <text>If an assuming insurer’s eligibility is revoked:</text> <level label="i"> <text>credit for reinsurance may not be granted after the effective date of the revocation with respect to:</text> <level label="1"> <text>any reinsurance agreements entered into by the assuming insurer after the date of revocation; or</text> </level> <level label="2"> <text>any reinsurance agreements entered into prior to the date of revocation; but</text> </level> </level> <level label="ii"> <text>credit for reinsurance may be granted to the extent that the assuming insurer’s obligations under the contract are secured in a form acceptable to the Commissioner and consistent with § 5–914 of this subtitle.</text> </level> </level> </level> <level label="e"> <text>Subject to a legal process of rehabilitation, liquidation, or conservation, the ceding insurer or its representative may seek or obtain an order requiring the assuming insurer to post security for all outstanding liabilities if the court in which proceedings are pending determines the order appropriate.</text> </level> <level label="f"> <text>Except as expressly prohibited by this subtitle or other law, this section does not limit or alter the capacity of parties to a reinsurance agreement to agree on requirements for security or other terms in that reinsurance agreement.</text> </level> <level label="g"> <level label="1"> <text>Credit may be taken under this section:</text> <level label="i"> <text>only for reinsurance agreements entered into, amended, or renewed on or after the date when the assuming insurer has satisfied the requirements to assume reinsurance under this section; and</text> </level> <level label="ii"> <text>only with respect to losses incurred and reserves reported on or after the later of:</text> <level label="1"> <text>the date when the assuming insurer has met all eligibility requirements under subsection (a) of this section; or</text> </level> <level label="2"> <text>the effective date of the new reinsurance agreement, amendment, or renewal.</text> </level> </level> </level> <level label="2"> <text>If credit is not available under this section, this section does not alter or impair a ceding insurer’s right to take credit for reinsurance if the reinsurance qualifies for credit under another provision of this subtitle.</text> </level> <level label="3"> <text>Except as allowed by the terms of the agreement, this section does not authorize an assuming insurer to withdraw or reduce the security provided under any reinsurance agreement.</text> </level> <level label="4"> <text>This section does not limit or in any way alter the capacity of parties to any reinsurance agreement to renegotiate the agreement.</text> </level> </level> <level label="h"> <level label="1"> <text>This section does not preclude an assuming insurer from providing the Commissioner with information on a voluntary basis.</text> </level> <level label="2"> <text>Subsection (a)(6) of this section does not limit or alter the capacity of parties to a reinsurance agreement to agree to alternative dispute resolution mechanisms, except to the extent those agreements are unenforceable under insolvency or delinquency laws.</text> </level> </level> </section> <section article="gin" article_name="Insurance" number="5-1001" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="10" subtitle_name="Limitation of Risk"> <level label="a"> <text>In this subtitle the following words have the meanings indicated.</text> </level> <level label="b"> <text>“Subject of insurance” includes, as to insurance against fire and hazards other than windstorm, earthquake, or other catastrophe hazards, all properties that:</text> <level label="1"> <text>are insured by the same insurer; and</text> </level> <level label="2"> <text>customarily are considered by underwriters to be subject to loss or damage from the same fire or the same occurrence of the hazard insured against.</text> </level> </level> <level label="c"> <text>“Surplus to policyholders” means an insurer’s capital, surplus, and voluntary reserves.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-1002" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="10" subtitle_name="Limitation of Risk"> <level label="a"> <text>This subtitle does not apply to:</text> <level label="1"> <text>life insurance;</text> </level> <level label="2"> <text>health insurance;</text> </level> <level label="3"> <text>annuities;</text> </level> <level label="4"> <text>title insurance;</text> </level> <level label="5"> <text>wet marine and transportation insurance;</text> </level> <level label="6"> <text>workers’ compensation insurance;</text> </level> <level label="7"> <text>employer’s liability coverage; or</text> </level> <level label="8"> <text>a policy or type of coverage as to which the maximum possible loss to the insurer cannot be readily ascertained when the policy is issued or the coverage is provided.</text> </level> </level> <level label="b"> <text>As to alien insurers, this subtitle applies only to risks and surplus to policyholders of an alien insurer’s United States branch.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-1003" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="10" subtitle_name="Limitation of Risk"> <level label="a"> <level label="1"> <text>Subject to § 5-1004 of this subtitle and except as provided under § 5-1005 of this subtitle, an insurer may not retain a risk on any one subject of insurance, whether located or to be performed in the State or outside of the State, in an amount exceeding 10% of the insurer’s surplus to policyholders.</text> </level> <level label="2"> <text>An insurer’s surplus to policyholders shall be determined at the time a risk is assumed from the more recent of:</text> <level label="i"> <text>the last sworn statement of the insurer on file with the Commissioner; or</text> </level> <level label="ii"> <text>the last examination report of the insurer.</text> </level> </level> </level> <level label="b"> <text>In determining the amount of risk retained by an insurer, a deduction shall be made for reinsurance ceded by the insurer for which credit is allowed under § 5-904 of this title.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-1004" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="10" subtitle_name="Limitation of Risk"> <level label="a"> <text>A surety insurer may execute transportation or warehousing bonds for federal internal revenue taxes in a net amount not exceeding 20% of the surety insurer’s surplus to policyholders, determined under § 5-1003(a)(2) of this subtitle.</text> </level> <level label="b"> <text>The net amount of exposure on any one surety risk shall be deemed within the 10% limit established by § 5-1003(a)(1) of this subtitle if the surety insurer is protected in excess of that amount:</text> <level label="1"> <text>by authorized reinsurance;</text> </level> <level label="2"> <text>by the cosuretyship of another surety insurer authorized to engage in the surety insurance business in the State;</text> </level> <level label="3"> <text>by a deposit of property with the surety insurer in pledge or a conveyance of property to the surety insurer in trust for the protection of the surety insurer;</text> </level> <level label="4"> <text>by a conveyance or mortgage of property for the protection of the surety insurer; or</text> </level> <level label="5"> <text>if a suretyship or guaranty obligation was made on behalf of or on account of a fiduciary holding property in a trust capacity, by a deposit or other disposition of a part of the property held in trust that prohibits the sale, mortgage, or other disposition of the property without the consent of the surety insurer or a court order or decree.</text> </level> </level> <level label="c"> <text>In determining the net amount of exposure on any one surety risk:</text> <level label="1"> <text>when the amount of a suretyship obligation exceeds the actual amount of the judgment that is being appealed and that is secured by a bond, or exceeds the amount of the subject matter in controversy, or exceeds the amount of the estate held by the fiduciary for the performance of whose duties a bond is conditioned, the actual amount of the judgment, the subject matter in controversy, or the estate not subject to the supervision or control of the surety insurer shall be used as the basis for determining whether the risk exceeds the 10% limit established by § 5-1003(a)(1) of this subtitle; and</text> </level> <level label="2"> <text>when the amount of a suretyship obligation required for the performance of a contract exceeds the contract price, the contract price shall be used as the basis for determining whether the risk exceeds the 10% limit established by § 5-1003(a)(1) of this subtitle.</text> </level> </level> <level label="d"> <text>In addition to any other limitation contained in this article, a surety insurer may not be exposed at any one time to risks on suretyship obligations that guaranty the deposits of a single financial institution in an aggregate net amount exceeding 10% of the surety insurer’s surplus to policyholders, determined under § 5-1003(a)(2) of this subtitle, unless the surety insurer is protected in excess of that amount as provided in subsection (b) of this section.</text> </level> </section> <section article="gin" article_name="Insurance" number="5-1005" title_number="5" title_name="Assets, Liabilities, Reserves, and Investments of Insurers" subtitle_number="10" subtitle_name="Limitation of Risk"> <text>The Commissioner may establish by regulation limits on the risk retained by an insurer for a subject of financial guaranty insurance, including requirements for contingency reserves used in determining compliance with the applicable risk limits.</text> </section>