Title 31 — Subtitle 05. Assets, Liabilities, Reserves, and Investments of Insurers

Do business in this State; or

Reinsure life insurance, annuities, or accident and health business in this State.

“Actuarial opinion” means the opinion of an appointed actuary regarding the adequacy of reserves and related actuarial items based on an asset adequacy analysis in accordance with:

“Actuarial Standards Board” means the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.

“Annual statement” means the statement required in accordance with the provisions of Insurance Article, §§4-116 and 8-444, Annotated Code of Maryland, to be filed by the company with the Commissioner annually.

“Appointed actuary” means an individual who is appointed or retained in accordance with the requirements set forth in Regulation .03B of this chapter to provide the actuarial opinion and supporting memorandum required by Insurance Article, §5-201, Annotated Code of Maryland.

“Asset adequacy analysis” means an analysis:

“Company” means a life insurance company or a fraternal benefit society:

“Qualified actuary” means an individual who:

There shall be included on or attached to page 1 of the annual statement for each year, beginning with the year in which this chapter becomes effective, the statement of an appointed actuary, entitled “Statement of Actuarial Opinion”, setting forth an opinion relating to reserves and related actuarial items held in support of policies and contracts, in accordance with Regulation .05 of this chapter.

In the case of a statement of actuarial opinion required to be submitted by a foreign or alien company, the Commissioner may accept the statement of actuarial opinion filed by the company with the insurance regulator of another state if the Commissioner determines that the opinion reasonably meets the requirements applicable to a company domiciled in this State.

Upon written request by the company and upon good cause shown, the Commissioner may grant an extension of the date for submission of the statement of actuarial opinion.

An appointed actuary is a qualified actuary who is appointed or retained to prepare the statement of actuarial opinion required by this chapter, either directly by, or by the authority of, the board of directors through an executive officer of the company other than the qualified actuary.

The company shall:

Once notice is furnished, further notice is not required with respect to this individual if the company gives the Commissioner timely written notice if the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirements set forth in this chapter.

If an individual appointed or retained as an appointed actuary replaces a previously appointed actuary, the notice shall so state and give the reasons for replacement.

Conform to the standards of practice:

Be based on methods of analysis considered appropriate for these purposes by the Actuarial Standards Board.

The statement of actuarial opinion submitted in accordance with this regulation shall consist of:

One or more additional paragraphs are required in individual company cases if the appointed actuary:

The language in §B(5)—(13) of this regulation, or language substantially similar, shall be used in the statement of actuarial opinion in accordance with this section.

The required language is that which in typical circumstances should be included in a statement of actuarial opinion.

The required language may be modified as needed to meet the circumstances of a particular case, but the appointed actuary should use language which clearly expresses the actuary's professional judgment and which indicates why the required language was not used.

The opinion shall retain all pertinent aspects of the language provided in this regulation.

The opening paragraph shall generally indicate the appointed actuary's relationship to the company and the actuary's qualifications to sign the opinion in the following manner:

The scope paragraph shall include a statement identical or similar to the following:

Reliance Paragraph—Other Experts.

If the appointed actuary has examined the underlying asset and liability records, the reliance paragraph shall also include the following:

Underlying Records Not Examined.

The opinion paragraph shall include the following:

The opinion paragraph shall include either of the following, whichever is applicable:

The opinion paragraph shall include the following: “The impact of unanticipated events subsequent to the date of this opinion is beyond the scope of this opinion. The analysis of the asset adequacy portion of this opinion should be viewed recognizing that the company's future experience may not follow all the assumptions used in the analysis.”

The opinion paragraph shall include the signature of the appointed actuary, the address of the appointed actuary, the telephone number of the appointed actuary, and the date.

If the appointed actuary is unable to form an opinion, then the actuary shall refuse to issue a statement of actuarial opinion.

If the appointed actuary's opinion is adverse or qualified, then the actuary shall issue an adverse or qualified actuarial opinion explicitly stating the reason or reasons for the opinion. This statement should follow the scope paragraph and precede the opinion paragraph.

If the appointed actuary relies on the certification of others on matters concerning the accuracy or completeness of any data underlying the actuarial opinion, or the appropriateness of any other information used by the appointed actuary in forming the actuarial opinion, the actuarial opinion should so indicate the persons the actuary is relying upon and a precise identification of the items subject to reliance.

In addition, the persons on whom the appointed actuary relies shall provide a certification that precisely identifies the items on which the person is providing information and a statement as to the accuracy, completeness, or reasonableness, as applicable, of the items.

The certification statement shall be identical or similar to one of the following:

Insurance Article, Title 5, Subtitle 3, Annotated Code of Maryland (The Standard Valuation Law), gives the Commissioner broad authority to accept the valuation of a foreign insurer when that valuation meets the requirements applicable to a company domiciled in this State in the aggregate. As an alternative to the requirements in §B(10)(a)(iii) of this regulation, the Commissioner may make one or more of the additional approaches listed in §F(2)—(4) of this regulation available to the opinion actuary.

Option 1.

Option 2.

Option 3.

Notwithstanding other provisions of this regulation, the Commissioner may reject an opinion based on the laws and regulations of the state of domicile and require an opinion based on the laws of Maryland. If a company is unable to provide the opinion within 60 days of the request or other period of time determined by the Commissioner after consultation with the company, the Commissioner may contract an independent actuary at the company's expense to prepare and file the opinion.

In accordance with Insurance Article, §5-201, Annotated Code of Maryland, the appointed actuary shall prepare a memorandum to the company describing the analysis done in support of the actuary's opinion regarding the reserves. The memorandum shall be made available for examination by the Commissioner upon the Commissioner's request.

In preparing the memorandum, the appointed actuary may rely on, and include as a part of the actuary's own memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of Regulation .02B(7) of this chapter, with respect to the areas covered in those memoranda, and so state in their memoranda.

Memoranda.

Company Data.

Asset Adequacy Issues Summary.

For reserves:

For assets:

For the analysis basis:

Summary of material changes in methods, procedures, or assumptions from the prior year's asset adequacy analysis;

Summary of results; and

Conclusion or conclusions.

The regulatory asset adequacy issues summary shall include:

The regulatory asset adequacy issues summary shall contain the name of the company for which the regulatory asset adequacy issues summary is being supplied and shall be signed and dated by the appointed actuary rendering the actuarial opinion.

An appropriate allocation of assets in the amount of the interest maintenance reserve (IMR), whether positive or negative, shall be used in any asset adequacy analysis.

Analysis of risks regarding asset default may include an appropriate allocation of assets supporting the asset valuation reserve (AVR), and these AVR assets may not be applied for any other risks with respect to reserve adequacy.

Analysis of these AVR assets and other risks may include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support.

The amount of the assets used for the AVR shall be disclosed in the Table of Reserves and Liabilities of the opinion and in the memorandum. The method used for selecting particular assets or allocated portions of assets shall be disclosed in the memorandum.

The procedures followed;

The analyses performed;

The basis for assumptions; and

The results obtained.

Tables of select mortality factors and rules for their use;

Rules concerning a minimum standard for the valuation of plans with nonlevel premiums or benefits;

Rules concerning a minimum standard for the valuation of plans with secondary guarantees;

Mortality tables to determine minimum valuation standards and minimum nonforfeiture standards for life insurance policies; and

A requirement that all life insurers perform an asset adequacy analysis except in certain cases.

An individual life insurance policy:

Subsequent policies issued as a result of the exercise of the provision described in §B(1)(b) of this regulation, or a derivation of the provision in the new policy;

A variable life insurance policy that provides for life insurance, the amount or duration of which varies according to the investment experience of any separate account or accounts;

A variable universal life insurance policy that provides for life insurance, the amount or duration of which varies according to the investment experience of any separate account or accounts;

Group life insurance certificates unless the certificates provide for a stated or implied schedule of maximum gross premiums required in order to continue coverage in force for a period in excess of 1 year; or

A universal life insurance policy if the:

Calculation of the minimum valuation standard for policies, other than universal life policies, with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits, or both, shall be in accordance with the provisions of Regulation .11 of this chapter.

Calculation of the minimum valuation standard for flexible premium and fixed premium universal life insurance policies, that contain provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period, shall be in accordance with the provisions of Regulation .12 of this chapter.

“Basic reserves” means reserves calculated in accordance with the principles of Insurance Article, §5-307, Annotated Code of Maryland.

“Commissioner” means the Maryland Insurance Commissioner.

“Composite mortality tables” means mortality tables with rates of mortality that do not distinguish between smokers and nonsmokers.

“Contract segmentation method” means the method of dividing the period from issue to mandatory expiration of a policy into successive segments, with the length of each segment being defined as the period from the end of the prior segment (from policy inception, for the first segment) to the end of the latest policy year as determined under Regulation .07 of this chapter.

“Deficiency reserves” means the excess, if greater than zero, of:

“Guaranteed gross premiums” means the premiums under a policy of life insurance that are guaranteed and determined at issue.

“Maximum valuation interest rates” means the interest rates defined in Insurance Article, §5-306(d)(2), Annotated Code of Maryland, that are to be used in determining the minimum standard for the valuation of life insurance policies.

“NAIC” means the National Association of Insurance Commissioners.

"1980 CSO valuation tables" means the Commissioner's 1980 Standard Ordinary Mortality Table (1980 CSO Table) without 10-year selection factors, incorporated into the 1980 amendments to the NAIC Standard Valuation Law, and variations of the 1980 CSO Table approved by the NAIC, such as the smoker and nonsmoker versions approved in December 1983.

“Preneed insurance contract” means any life insurance policy or certificate, annuity contract, or other insurance contract which, by assignment or otherwise, has for a purpose the funding of an agreement relating to the purchase or provision of specific funeral or cemetery merchandise or services to be provided at the time of the individual's death.

“Scheduled gross premium” means:

“Segmented reserves” means reserves, calculated using segments produced by the contract segmentation method, equal to the present value of all future guaranteed benefits less the present value of all future net premiums to the mandatory expiration of a policy as described in Regulation .08 of this chapter.

“Smoker and nonsmoker mortality tables” means mortality tables with separate rates of mortality for smokers and nonsmokers.

“Statistical agent” means an entity with:

“Tabular cost of insurance” means the net single premium at the beginning of a policy year for 1-year term insurance in the amount of the guaranteed death benefit in that policy year.

"10-year select factors" means the select factors adopted with the 1980 amendments to the NAIC Standard Valuation Law.

2001 CSO Mortality Table.

"2001 CSO Mortality Table (F)" means that mortality table consisting of the rates of mortality for female lives from the 2001 CSO Mortality Table.

"2001 CSO Mortality Table (M)" means that mortality table consisting of the rates of mortality for male lives from the 2001 CSO Mortality Table.

2001 CSO Preferred Class Structure Mortality Table.

“Unitary reserves” means the present value of all future guaranteed benefits less the present value of all future modified net premiums as described in Regulation .09 of this chapter.

“Universal life insurance policy” means an individual life insurance policy under the provisions of which separately identified interest credits (other than in connection with dividend accumulations, premium deposit funds, or other supplementary accounts) and mortality or expense charges are made to the policy.

At the election of an insurer for any one or more specified plans of insurance, an insurer may use the 1980 CSO valuation table or the 2001 CSO Mortality Table as the minimum standard for a policy issued before January 1, 2009.

If an insurer elects to use the 2001 CSO Mortality Table as the minimum standard, the insurer shall do so for both valuation and nonforfeiture purposes.

For a preneed insurance contract issued on or after January 1, 2009, and before January 1, 2012, an insurer may elect to use either the ultimate form of the 1980 CSO valuation tables or the 2001 CSO Mortality Table as the minimum standard for valuation and nonforfeiture purposes.

If an insurer elects to use the 2001 CSO Mortality Table as the minimum standard for a preneed insurance contract issued on or after January 1, 2009, the insurer shall provide, as a part of the actuarial opinion memorandum submitted in support of the company's asset adequacy testing, an annual written notification to the domiciliary commissioner.

The notification required by §C(2) of this regulation shall include:

For the purposes of the certification required in §C(3)(b) of this regulation, the preneed insurance contracts using the 2001 CSO Mortality Table as the minimum standard may not be aggregated with any other policies.

For a preneed insurance contract issued on or after January 1, 2012, an insurer shall use the ultimate form of the 1980 CSO valuation tables as the minimum standard for valuation and nonforfeiture purposes.

The status of a policy or contract as a preneed insurance contract is determined at the time of issue in accordance with the policy form filing.

Composite mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits;

Smoker and nonsmoker mortality tables to determine the valuation net premiums and additional minimum reserves, if any, required by Insurance Article, §5-311, Annotated Code of Maryland, and composite mortality tables to determine the basic minimum reserves, minimum cash surrender values, and amounts of paid-up nonforfeiture benefits; or

Smoker and nonsmoker mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits.

For each plan of insurance with separate rates for preferred and standard nonsmokers, an insurer may use super preferred nonsmoker, preferred nonsmoker, and residual standard nonsmoker tables to substitute for the nonsmoker mortality table found in the 2001 CSO Mortality Table to determine minimum reserves.

At the time of election and annually thereafter, except for business valued under the residual standard nonsmoker table, the appointed actuary shall certify that:

For each plan of insurance with separate rates for preferred and standard smoker lives, an insurer may use the preferred smoker and residual standard smoker tables to substitute for the smoker mortality table found in the 2001 CSO Mortality Table to determine minimum reserves.

At the time of election and annually thereafter, for business valued under the preferred smoker table, the appointed actuary shall certify that:

In cases where the mode of payment of the reinsurance premium is less frequent than the mode of payment of the policy premium, a reserve credit that exceeds, by more than the amount specified in this subsection as Y, the gross reserve calculated before reinsurance. Y is the amount of the gross reinsurance premium that:

In cases where the mode of payment of the reinsurance premium is more frequent than the mode of payment of the policy premium, a reserve credit that is less than the gross reserve, calculated before reinsurance, by an amount that is less than the amount specified in this subsection as Z. Z is the amount of the gross reinsurance premium that the ceding entity would need to pay the assuming company to provide reinsurance coverage from the period of the next reinsurance premium due date to the next policy premium due date minus any liability established for the proportionate amount not remitted to the reinsurer.

Minimum reserve liabilities;

Minimum cash surrender values; and

Amounts of paid-up nonforfeiture benefits.

When the 2001 CSO Mortality Table is the minimum reserve standard for any plan for a company, the actuarial opinion in the annual statement filed with the Commissioner shall be based on an asset adequacy analysis as specified in COMAR 31.05.01.08.

The Commissioner may waive the requirement of §D(1) of this regulation for an insurer doing business in this State and in no other state.

For policies issued before January 1, 2009, the 1980 CSO valuation table or the 2001 CSO Mortality Table;

For policies issued on or after January 1, 2009, the 2001 CSO Mortality Table; and

If elected, the optional minimum mortality standard for deficiency reserves stipulated in Regulation .10B—D of this chapter.

G_t = (GP_x+k+t/GP_x+k+t-l)

When the 2001 CSO Mortality Table is elected or required to be used, the value of “q_x+k+1” is the valuation mortality rate for deficiency reserves in policy year k+t, but using the unmodified select mortality rates if modified select mortality rates are used in the computation of deficiency reserves.

The present value of the death benefits within the segment; plus

The present value of any unusual guaranteed cash value, as specified in Regulation .11D of this chapter, occurring at the end of the segment; less

Any unusual guaranteed cash value occurring at the start of the segment; plus

For the first segment only, the excess of §A(4)(a) over §A(4)(b) of this regulation as follows:

A net level annual premium equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by 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. The net level annual premium may not exceed the net level annual premium on the 19-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age 1 year higher than the age at issue of the policy;

A net 1-year term premium for the benefits provided for in the first policy year.

At the election of the company for any one or more specified plans of life insurance, the minimum mortality standard for basic reserves may be calculated using:

If select mortality factors are elected, they may be:

Deficiency reserves, if any, are calculated for each policy as the excess, if greater than zero, of the quantity A over the basic reserve.

The quantity A is obtained by recalculating the basic reserve for the policy using guaranteed gross premiums instead of net premiums when the guaranteed gross premiums are less than the corresponding net premiums.

At the election of the company for any one or more specified plans of insurance, the quantity A and the corresponding net premiums used in the determination of quantity A may be based upon:

The 10-year select mortality factors incorporated into the 1980 amendments to the NAIC Standard Valuation Law;

The select mortality factors incorporated by reference under Regulation .04 of this chapter;

For durations in the first segment, X percent of the select mortality factors incorporated by reference under Regulation .04 of this chapter, subject to the following:

Any other table of select mortality factors adopted by the NAIC after the effective date of this chapter and promulgated by regulation by the Commissioner for the purpose of calculating deficiency reserves.

Explicitly required by regulation; or

Necessary to be in compliance with relevant Actuarial Standards of Practice.

Reserves calculated ignoring the guarantee;

Reserves assuming the guarantee was made at issue; and

Reserves assuming that the policy was issued on the date of the guarantee.

The Commissioner may require that the company document the extent of the adequacy of reserves for specified blocks, including policies issued before the effective date of this chapter.

The documentation may include a demonstration of the extent to which aggregation with other nonspecified blocks of business is relied on in the formation of the appointed actuary opinion pursuant to and consistent with the requirements of COMAR 31.05.01.

Treat the unitary reserve, if greater than zero, applicable at the end of each segment as a pure endowment, and subtract the unitary reserve, if greater than zero, applicable at the beginning of each segment from the present value of guaranteed life insurance and endowment benefits for each segment; or

Treat the guaranteed cash surrender value, if greater than zero, applicable at the end of each segment as a pure endowment, and subtract the guaranteed cash surrender value, if greater than zero, applicable at the beginning of each segment from the present value of guaranteed life insurance and endowment benefits for each segment.

The deficiency reserve at any duration shall be calculated:

This section applies to a policy for which the guaranteed gross premium at any duration is less than the corresponding modified net premium calculated by the method used in determining the basic reserves, but using the minimum valuation standards of mortality as specified in Regulation .10B—D of this chapter, and rate of interest.

Deficiency reserves, if any, shall be calculated for each policy as the excess if greater than zero, for the current and all remaining periods, of the quantity A over the basic reserve, where A is obtained as indicated in Regulation.10B—D of this chapter.

For deficiency reserves determined on a segmented basis, the quantity A is determined using segment lengths equal to those determined for segmented basic reserves.

Basic reserves may not be less than the tabular cost of insurance for the balance of the policy year, if mean reserves are used.

Basic reserves may not be less than the tabular cost of insurance for the balance of the current modal period or to the paid-to-date, if later, but not beyond the next policy anniversary, if mid-terminal reserves are used.

Subject to §C(4) of this regulation, the valuation mortality table used in determining the tabular cost of insurance shall be:

The tabular cost of insurance shall use the same valuation mortality table and interest rates as that used for the calculation of the segmented reserves.

If select mortality factors are used, they shall be the 10-year select factors incorporated into the 1980 amendments of the NAIC Standard Valuation Law.

Total reserves, including basic reserves, deficiency reserves, and any reserves held for supplemental benefits that would expire upon contract termination may not be less than the amount that the policyowner would receive, including the cash surrender value of the supplemental benefits, if any, referred to above, exclusive of any deduction for policy loans, upon termination of the policy.

For a policy with an unusual pattern of guaranteed cash surrender values, the reserves actually held before the first unusual guaranteed cash surrender value may not be less than the reserves calculated by treating the first unusual guaranteed cash surrender value as a pure endowment and treating the policy as an n year policy providing term insurance plus a pure endowment equal to the unusual cash surrender value, where n is the number of years from the date of issue to the date the unusual cash surrender value is scheduled.

The reserves actually held subsequent to any unusual guaranteed cash surrender value may not be less than the reserves calculated by treating the policy as an n year policy providing term insurance plus a pure endowment equal to the next unusual guaranteed cash surrender value, and treating any unusual guaranteed cash surrender value at the end of the prior segment as a net single premium, where:

For purposes of this section, a policy is considered to have an unusual pattern of guaranteed cash surrender values if any future guaranteed cash surrender value exceeds the prior year's guaranteed cash surrender value by more than the sum of:

Calculate the valuation net premium for each future policy year as the tabular cost of insurance for that future year;

Basic reserves may not be less than the tabular cost of insurance for the appropriate period, as defined in §C of this regulation;

Deficiency reserves:

For purposes of this section, the calculations use the maximum valuation interest rate and:

A reinsurance agreement shall be considered YRT reinsurance for purposes of this section if only the mortality risk is reinsured;

If the assuming company chooses this optional exemption, the ceding company's reinsurance reserve credit is limited to the amount of reserve held by the assuming company for the affected policies.

Calculate the valuation net premium for each future policy year as the tabular cost of insurance for that future year;

Basic reserves may not be less than the tabular cost of insurance for the appropriate period, as defined in §C of this regulation;

Deficiency reserves:

For purposes of this section, the calculations use the maximum valuation interest rate and:

A policy shall be considered an attained-age-based YRT life insurance policy for purposes of this section if the premium rates on both the initial current premium scale and the guaranteed maximum premium scale are:

For policies that become attained-age-based YRT policies after an initial period of coverage, the approach of this section may be used after the initial period if:

If this election is made, this approach shall be applied in determining reserves for all attained-age-based YRT life insurance policies issued on or after the effective date of this chapter.

The policy consists of a series of n year periods, including the first period and all renewal periods, where n is the same for each period except that for the first renewal period, n may be shortened or extended to reach the expiration age, if this final renewal period is less than 10 years and less than twice the size of the earlier n year periods, and for each period, the premium rates on both the initial current premium scale and the guaranteed maximum premium scale are level;

The guaranteed gross premiums in all n year periods are not less than the corresponding net premiums based upon:

There are no cash surrender values in any policy year.

The insured is 24 years old or younger;

Until the insured reaches the end of the juvenile period, which shall occur at or before age 25, the gross premiums and death benefits are level, and there are no cash surrender values; and

After the end of the juvenile period, gross premiums are level for the remainder of the premium paying period, and death benefits are level for the remainder of the life of the policy.

Policies with a secondary guarantee include a policy:

A secondary guarantee period is the period for which the policy is guaranteed to remain in force subject only to a secondary guarantee. When a policy contains more than one secondary guarantee, the minimum reserve shall be the greatest of the respective minimum reserves at that valuation date of each unexpired secondary guarantee, ignoring all other secondary guarantees. Secondary guarantees that are unilaterally changed by the insurer after issue shall be considered to have been made at issue. Reserves described in §§B and C of this regulation shall be recalculated from issue to reflect the changes.

Specified premiums mean the premiums specified in the policy, the payment of which guarantees that the policy will remain in force at the original schedule of benefits, but which otherwise would be insufficient to keep the policy in force in the absence of the guarantee if maximum mortality and expense charges and minimum interest credits were made and any applicable surrender charges were assessed.

For purposes of this regulation, the minimum premium for any policy year is the premium that, when paid into a policy with a zero account value at the beginning of the policy year, produces a zero account value at the end of the policy year. The minimum premium calculation shall use the policy cost factors, including mortality charges, loads, and expense charges, and the interest crediting rate, which are all guaranteed at issue.

The 1-year valuation premium means the net 1-year premium based upon the original schedule of benefits for a given policy year. The 1-year valuation premiums for all policy years are calculated at issue. The select mortality factors defined in Regulation .10C(2), (3), and (4) of this chapter may not be used to calculate the 1-year valuation premiums.

The 1-year valuation premium should reflect the frequency of fund processing, as well as the distribution of deaths assumption employed in the calculation of the monthly mortality charges to the fund.

The basic reserves for the secondary guarantee plus the deficiency reserve, if any, for the secondary guarantees; or

The minimum reserves required by other rules or regulations governing universal life plans.

Male aggregate;

Male nonsmoker;

Male smoker;

Female aggregate;

Female nonsmoker; and

Female smoker.

Minimum cash surrender values; and

Amounts of paid-up nonforfeiture benefits;

At the election of the insurer for any one or more specified plans of insurance and subject to satisfying the conditions stated in this chapter, the 2001 CSO Preferred Class Structure Mortality Table may be substituted in place of the 2001 CSO smoker or nonsmoker Mortality Table as the minimum valuation standard for policies issued on or after January 1, 2007.

For policies issued on or after January 1, 2004, and prior to January 1 2007, the 2001 CSO Preferred Class Structure Mortality Table may be substituted in place of the 2001 CSO smoker or nonsmoker Mortality Table with the consent of the Commissioner and subject to the conditions in Regulation .06C—H of this chapter. In determining such consent, the Commissioner may rely on the consent of the Commissioner of the company's state of domicile.

The election shall be made for each calendar year of issue.

No election in §B(1) and (2) of this regulation shall be made until the insurer demonstrates that at least 20 percent of the business to be valued on the basis of the 2001 CSO Preferred Class Structure Mortality Table is in one or more of the preferred classes.

A table from the 2001 CSO Preferred Class Structure Mortality Table used in place of a 2001 CSO Mortality Table, pursuant to the requirements of this chapter, is treated as part of the 2001 CSO Mortality Table only for purposes of reserve valuation pursuant to the requirements of the NAIC model regulation “Recognition of the 2001 CSO Mortality Table For Use in Determining Minimum Reserve Liabilities and Nonforfeiture Benefits Model Regulation,” referenced in §C of this regulation.

“Annuity 2000 Mortality Table” means the mortality table:

“Generational mortality table” means a mortality table containing a set of mortality rates that decrease for a given age from one year to the next based on a combination of a period table and a projection scale containing rates of mortality improvement.

“Period table” means a table of mortality rates applicable to a given calendar year.

“Projection Scale G2” means a table:

"1983 Table “a” means the mortality table:

“2012 Individual Annuity Mortality Period Life Table” or “2012 IAM Period Table” means the period table containing loaded mortality rates for calendar year 2012. This table:

“2012 Individual Annuity Reserving Table” or “2012 IAR Table” means the generational mortality table:

Settlements of various forms of claims pertaining to court settlements or out-of-court settlements from tort actions;

Settlements involving similar actions such as Workers' Compensation claims; or

Settlements of long-term disability claims if a temporary or life annuity has been used instead of continuing disability payments.

"1983 GAM Tables" means the mortality tables:

"1983 Table “a” means the mortality table:

"1994 GAR Table" means the mortality table:

“Admitted assets” means those assets of the insurer which comply with the definition of the term contained in Insurance Article, §5-101, Annotated Code of Maryland, and which are listed on the last annual statement of the insurer filed with the Commissioner and valued in accordance with the then current instructions, rules, and regulations of the National Association of Insurance Commissioners and of the Commissioner.

“High yield/high risk obligation” means an interest-bearing obligation which is not an investment grade obligation.

“Interest-bearing obligation” means:

“Investment grade obligation” means an interest-bearing obligation which qualifies under any of the following:

“Person” means a person as defined in Insurance Article, §1-101(dd), Annotated Code of Maryland.

“Rating agency” means the Securities Valuation Office of the National Association of Insurance Commissioners, Moody's Investors Service, Standard and Poor's Corporation, or any similar organization approved by the Commissioner at the request of an insurer.

Requirements of law relating to the acquisition;

The amount of capital and surplus of the life insurer or property and casualty insurer relative to its size and the activities in which it is currently engaged;

The size of the life insurer or property and casualty insurer as measured by its assets, reserves, premium writings, and insurance in force;

The quality, diversification, and liquidity of the life insurer's or property and casualty insurer's investment portfolio;

The past and projected future trends in the amount of the life insurer's or property and casualty insurer's surplus as regards policyholders;

The financial position of the life insurer or property and casualty insurer when investments in, and other transactions with, affiliated persons are excluded from assets.

A life insurer or property and casualty insurer which, on the effective date of this regulation, holds high yield/high risk obligations in excess of 20 percent of its admitted assets may request approval from the Commissioner for a 12-month plan of replacement, and may request renewal of approval of the plan from year to year after that for the purpose of replacing high yield/high risk obligations owned by the insurer with other high yield/high risk obligations.

In reviewing requests for approval, the Commissioner shall consider the factors enumerated in §B of this regulation and any other factors reasonably related to the plan of replacement and to the financial condition of the life insurer or property and casualty insurer.

A plan of replacement is subject to the following conditions and any other conditions which the Commissioner determines to be necessary:

In the case of an interest-bearing obligation which does not involve an equity feature, the interest rate charged is comparable to rates generally prevailing at the time of the loan for securities of comparable terms and duration which are classified in an investment grade classification (for example, BBB or Baa or higher) by at least one of the accepted rating agencies;

In the case of an interest-bearing obligation which also provides minor equity benefits to the lender, the interest rate charged is comparable to interest rates generally prevailing at the time of the loan for securities of comparable terms and duration which are classified in the third grade (for example, A) by at least one of the accepted rating agencies; or

In the case of an interest-bearing obligation which also provides substantial equity benefits to the lender, the interest rate charged is comparable to interest rates generally prevailing at the time of the loan for securities of comparable terms and duration which are classified in the second grade (for example, AA) by at least one of the accepted rating agencies.

Allocate the assets of the fund between investment grade obligations and high yield/high risk obligations as the case may be; or

Omit the total value of the fund from the calculation to be made under Regulation .04A of this chapter of both the life insurer's aggregate amount of high yield/high risk obligations and of its total admitted assets, if policyholders and contract holders selecting the funds have been furnished with a prospectus which indicates that the fund may invest in speculative or in high yield/high risk obligations.

Insurance Article, §4-116, Annotated Code of Maryland, relating to financial statements, resulting in statements that do not properly reflect the financial condition of the ceding insurer;

Insurance Article, §5-904(a), Annotated Code of Maryland, relating to reinsurance reserve credits, resulting in a ceding insurer improperly reducing liabilities or establishing assets for reinsurance ceded; and

Insurance Article, §4-113(b)(3), Annotated Code of Maryland, relating to creating a situation that would be contrary to the interests of the policyholders or stockholders of the ceding insurer.

Each domestic life and accident and health insurer, including nonprofit health service plans;

Any other licensed life and accident and health insurer, including a nonprofit health services plan, that is not subject to a substantially similar regulation in its domiciliary state; and

Each licensed property and casualty insurer with respect to its accident and health business.

Assumption reinsurance;

Yearly renewable term reinsurance; or

Certain nonproportional reinsurance, such as stop loss or catastrophe reinsurance.

Credit Quality Risk.

“Disintermediation risk” means the risk that interest rates will rise and policy loans and surrenders will increase or maturing contracts will not renew at anticipated rates of renewal, with the mismatch increasing if asset durations are greater than liability durations, resulting in the hazards that:

“Expenses” includes:

“Lapse risk” means the risk that a policy will voluntarily terminate before the recoupment of a statutory surplus strain experienced at issue of the policy.

“Negative experience” means that the evolving claims under an initial insurance policy or contract or a reinsurance contract exceed those anticipated at the time of entering into the policy or contract.

“Reinsurer” means an insurer that, in consideration of the payment by a ceding insurer of a risk charge, enters into a reinsurance contract with the ceding insurer, under which the reinsurer bears all or a portion of the risk of the ceding insurer.

“Reinvestment risk” means the risk that interest rates will fall and funds reinvested, such as coupon payments or money received on asset maturity or call, will earn less than expected, with the mismatch increasing if asset durations are less than liability durations.

Renewal expense allowances provided or to be provided to the ceding insurer by the reinsurer in any accounting period are not sufficient to cover anticipated allocable renewal expenses of the ceding insurer on the portion of the business reinsured, unless a liability is established for the present value of the shortfall using assumptions equal to the applicable statutory reserve basis on the business reinsured;

The ceding insurer can be deprived of surplus or assets:

The ceding insurer is required to reimburse the reinsurer for negative experience;

The ceding insurer is required, at specific points in time scheduled in the agreement, to terminate or automatically recapture all or part of the reinsurance ceded;

The reinsurance agreement involves the possible payment by the ceding insurer to the reinsurer of amounts other than from income realized from the reinsured policies, such as reinsurance premiums or other fees or charges to a reinsurer that are greater than the direct premiums collected by the ceding company;

All of the significant risk inherent in the business being reinsured is not transferred;

The credit quality risk, reinvestment risk, or disintermediation risk is significant for the business reinsured and except as provided in Regulation .06B of this chapter, the ceding company does not:

Settlements are made less frequently than quarterly or payments due from the reinsurer are not made in cash within 90 days after the settlement date;

The ceding insurer is required to make representations or warranties:

The reinsurance agreement is entered into for the principal purpose of producing significant surplus aid for the ceding insurer, typically on a temporary basis, while not transferring all of the significant risks inherent in the business reinsured and, in substance or effect, the expected potential liability to the ceding insurer remains basically unchanged.

Section A(2) of this regulation does not prohibit a reinsurer from terminating the reinsurance agreement for nonpayment of:

Section A(3) of this regulation does not prohibit:

Voluntary termination under §B(2)(b) of this regulation does not include termination because of unreasonable provisions that allow the reinsurer to reduce its risk under the agreement, such as a provision that gives the reinsurer the right to increase reinsurance premiums or risk and expense charges to excessive levels forcing the ceding company to prematurely terminate the reinsurance agreement.

The table contained in this section identifies for a representative sampling of products or types of business the risks that are considered to be significant.

For products that are not included in the table, the risks determined to be significant shall be consistent with the table.

Table.

Health insurance—long-term care or long-term disability;

Traditional non-par permanent;

Traditional par permanent;

Adjustable premium permanent;

Indeterminate premium permanent;

Universal life fixed premium with no dump-in premiums allowed; and

Any other class of business that does not have a significant credit quality risk, reinvestment risk, or disintermediation risk.

The associated formula for determining the reserve interest rate adjustment shall be a formula that:

The following is an acceptable formula:

In the formula under §C(2) of this regulation:

Each agreement entered into after the effective date of this chapter that involves the reinsurance of business issued before the effective date of the agreement; and

Any amendment to an agreement required to be filed under §A(1) of this regulation.

The ceding insurer's actuary, who signs the financial statement actuarial opinion with respect to valuation of reserves, shall consider this chapter and any applicable actuarial standards of practice when determining the proper credit in financial statements filed with the Commissioner.

The actuary shall maintain adequate documentation and be prepared, on request, to:

If there is an increase in surplus net of federal income tax resulting from arrangements described in this regulation, the surplus increase shall be:

The following is an example of how an increase in surplus should be identified on the insurer's statutory financial statement:

The agreement constitutes the entire agreement between the parties with respect to the business being reinsured under the agreement;

There are no understandings between the parties other than as expressed in the agreement; and

Any change to the agreement is void unless made by amendment to the agreement and signed by both parties.

“Accredited reinsurer” means an unauthorized insurer who is accepted by the Commissioner to act as a reinsurer in the State under Insurance Article, §5-906, Annotated Code of Maryland.

“Actuarial method”, as used in Regulation .29 of this chapter, means the methodology used to determine the required level of primary security as described in Regulation .29C of this chapter.

“Beneficiary” means:

“Covered policies”, subject to the exemptions in Regulation .29B of this chapter, means those policies, other than grandfathered policies, of the following policy types:

“Grandfathered policies” means policies of the types described in §B(4) of this regulation that were:

Grantor.

“Liabilities”, as used in Regulations .08—.11 of this chapter, means the assuming insurer's gross liabilities attributable to reinsurance ceded by U.S. domiciled insurers that are not otherwise secured by acceptable means, and shall include:

“Mortgage-related security”, as used in Regulation .10 of this chapter, means an obligation that is rated AA or higher (or the equivalent) by a nationally recognized statistical rating organization approved by the Securities Valuation Office and that either:

“NAIC” means National Association of Insurance Commissioners.

“Non-covered policies”, as used in Regulation .29 of this chapter, means any policy that does not meet the definition of covered policies, including grandfathered policies.

“Obligations”, as used in Regulation .17 of this chapter, means:

“Other security”, as used in Regulation .29 of this chapter, means any security acceptable to the Commissioner other than security meeting the definition of primary security.

“Primary security”, as used in Regulation .29 of this chapter, means the following forms of security:

“Promissory note”, as used in Regulation .10 of this chapter, when used in connection with a manufactured home, also includes a loan, advance, or credit sale as evidenced by a retail installment sales contract or other instrument.

“Qualified jurisdiction” has the meaning set forth in Insurance Article, §5-901(d), Annotated Code of Maryland.

“Qualified U.S. financial institution” means:

“Reinsurance intermediary” has the meaning set forth in Insurance Article, §8-501(e), Annotated Code of Maryland.

“Required level of primary security”, as used in Regulation .29 of this chapter, means the dollar amount determined by applying the actuarial method to the risks ceded with respect to covered policies, but not more than the total reserve ceded.

“Securities Valuation Office” refers to the Securities Valuation Office of the NAIC.

“Valuation manual”, as used in Regulation .29 of this chapter, means the valuation manual adopted by the NAIC as described in Insurance Article, §5-313(b), Annotated Code of Maryland, with all amendments adopted by the NAIC that are effective for the financial statement date on which credit for reinsurance is claimed.

“VM-20” means “Requirements for Principle-Based Reserves for Life Products,” including all relevant definitions from the Valuation Manual.

An appointment of the Commissioner as its attorney to receive legal process issued against the applicant in the State on a form approved by the Commissioner;

A properly executed NAIC Form AR-1 Certificate of Assuming Insurer as evidence that the applicant agrees to submit to the jurisdiction of the State and to the Commissioner's authority to examine its books and records;

If reinsuring a life insurer, a certificate of valuation issued by the insurance regulatory agency of the applicant's state of domicile if a foreign insurer, or state of entry if an alien insurer;

An annual statement fee pursuant to Insurance Article, §2-112(a)(8), Annotated Code of Maryland, and an annual fraud prevention fee pursuant to Insurance Article, §6-203(a), Annotated Code of Maryland;

A Maryland Insurance Administration Reinsurance Application; and

Upon request of the Commissioner:

A properly executed NAIC Form AR-1 Certificate of Assuming Insurer as evidence that the applicant agrees to submit to the jurisdiction of the State and to the Commissioner's authority to examine its books and records;

If reinsuring a life insurer, a certificate of valuation issued by the insurance regulatory agency of the applicant's state of domicile if a foreign insurer, or state of entry if an alien insurer;

An annual statement fee pursuant to Insurance Article, §2-112(a)(8), Annotated Code of Maryland, and an annual fraud prevention fee pursuant to Insurance Article, §6-203(a), Annotated Code of Maryland;

A Maryland Insurance Administration Reinsurance Application; and

Upon request of the Commissioner:

The requirements of this section apply to the categories of assuming insurer described in this section.

The trust fund for a single assuming insurer shall consist of funds in trust in an amount not less than the assuming insurer's liabilities attributable to reinsurance ceded by U.S. domiciled insurers, and in addition, the assuming insurer shall maintain a trusteed surplus in excess of the assuming insurer's obligations of not less than $20,000,000 except as provided in §C(3) of this regulation.

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 U.S. ceding insurers, policyholders, and claimants in light of reasonably foreseeable adverse loss development. The risk assessment may involve an actuarial review, including an independent analysis of reserves and cash flows, and 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. The minimum required trusteed surplus may not be reduced to an amount less than 30 percent of the assuming insurer’s liabilities attributable to reinsurance ceded by U.S. ceding insurers covered by the trust.

Trust Funds for Groups — General Requirements.

Contested claims shall be valid and enforceable out of funds in trust to the extent remaining unsatisfied 30 days after entry of the final order of any court of competent jurisdiction in the United States;

Legal title to the assets of the trust shall be vested in the trustee for the benefit of the grantor's U.S. ceding insurers, their assigns, and successors in interest;

The trust shall be subject to examination as determined by the Commissioner;

The trust shall remain in effect for as long as the assuming insurer, or any member or former member of a group of insurers, shall have outstanding obligations under reinsurance contracts subject to the trust; and

No later than February 28 of each year, the trustee of the trust shall report to the Commissioner in writing setting forth the balance in the trust and listing the trust's investments at the preceding year-end, and shall certify the date of termination of the trust, if so planned, or certify that the trust will not expire prior to the following December 31.

Notwithstanding any other provisions in the trust instrument, if the trust fund is inadequate because it contains an amount less than the amount required by Regulation .08C of this chapter 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 over the trust or other designated receiver all of the assets of the trust fund.

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 applicable to the liquidation of domestic insurance companies.

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 U.S. beneficiaries of the trust, the insurance regulatory agency with regulatory oversight over the trust shall return the assets, or any part of the assets, to the trustee for distribution in accordance with the trust agreement.

The grantor shall waive any right otherwise available to it under U.S. law that is inconsistent with this provision.

Government obligations that are not in default as to principal or interest, that are valid and legally authorized and that are issued, assumed, or guaranteed by:

Obligations that are issued in the United States, or that are dollar denominated and issued in a non-U.S. market, by a solvent U.S. institution (other than an insurance company), or that are assumed or guaranteed by a solvent U.S. institution (other than an insurance company) and that are not in default as to principal or interest if the obligations:

Obligations issued, assumed, or guaranteed by a solvent non-U.S. institution chartered in a country that is a member of the Organization for Economic Cooperation and Development, or obligations of U.S. corporations issued in a non-U.S. currency, provided that in either case the obligations are rated A or higher, or the equivalent, by a nationally recognized statistical rating organization approved by the Securities Valuation Office;

An investment made pursuant to the provisions of §D(1), (2), or (3) of this regulation shall be subject to the following additional limitations:

Investments in common shares or partnership interests of a solvent U.S. institution are permissible if:

Investments in common shares of a solvent institution organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development are permissible if:

An investment in or loan upon any one institution's outstanding equity interests may not exceed 1 percent of the assets of the trust. The cost of an investment in equity interests made pursuant to this section, when added to the aggregate cost of other investments in equity interests then held pursuant to this section, may not exceed 10 percent of the assets in the trust.

Securities of an investment company registered pursuant to the Investment Company Act of 1940, 15 U.S.C. §80a, are permissible investments if the investment company:

Investments made by a trust in investment companies under this section may not exceed the following limitations:

In order for a letter of credit to qualify as an asset of the trust, the trustee shall have the right and the obligation pursuant to the deed of trust or some other binding agreement, duly approved by the Commissioner, to immediately draw down the full amount of the letter of credit and hold the proceeds in trust for the beneficiaries of the trust if the letter of credit will otherwise expire without being renewed or replaced.

The trust agreement shall provide that the trustee shall be liable for its negligence, willful misconduct, or lack of good faith. The failure of the trustee to draw against the letter of credit in circumstances where the draw would be required shall be considered to be negligence, willful misconduct, or both.

The Commissioner shall allow a ceding insurer a reduction from liability for the reinsurance ceded in an amount equal to the funds held by it or on its behalf, including funds held in trust, as security for the payment of the obligations under a reinsurance contract.

The reduction from liability that is allowed a ceding insurer may not exceed the liabilities carried by the ceding insurer for the business reinsured.

Any funds held by the ceding insurer, or on its behalf, as security for the payment of its obligations under a reinsurance contract shall be held for the exclusive benefit of the ceding insurer.

The Commissioner shall accept the following as security under a reinsurance contract:

The security shall be held in:

For acceptance as security under a reinsurance contract, a letter of credit shall:

On the date of issuance or confirmation of the letter of credit, the issuer of the letter of credit shall meet the applicable standards of acceptability for a letter of credit.

Notwithstanding the failure of a previously accepted issuer of a letter of credit to continue to meet applicable standards of acceptability for a letter of credit, the letter of credit shall continue to be accepted until:

A letter of credit shall provide that to obtain funds, the beneficiary need:

A letter of credit shall provide that it is not subject to any condition outside of the letter of credit.

A letter of credit may not contain references to any other agreements, documents, or entities.

The heading of the letter of credit may include a boxed section containing the name of the applicant and other appropriate notations to provide a reference for the letter of credit. The boxed section shall be clearly marked to indicate that the information is for internal identification purposes only.

The letter of credit shall contain a statement to the effect that the obligation of the qualified United States financial institution under the letter of credit is in no way contingent upon reimbursement with respect thereto.

The letter of credit shall state whether it is subject to and governed by the laws of this State or the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce Publication 600 (UCP 600), International Standby Practices of the International Chamber of Commerce Publication 590 (ISP98), or any successor publication, and all drafts drawn thereunder shall be presentable at an office in the U. S. of a qualified U. S. financial institution.

If the letter of credit is made subject to the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce Publication 600 (UCP 600), International Standby Practices of the International Chamber of Commerce Publication 590 (ISP98), or any successor publication, then the letter of credit shall specifically address and provide for an extension of time to draw against the letter of credit in the event that one or more of the occurrences specified in Article 17 of Publication 500, or any other successor publication, occur.

If the letter of credit is issued by a financial institution authorized to issue letters of credit, other than a qualified U. S. financial institution as described in Regulation .02B(9)(b) of this chapter, then the following additional requirements shall be met:

The reinsurance contract in conjunction with which the letter of credit is obtained may contain provisions that:

This section does not preclude the ceding insurer and assuming insurer from providing for:

A trust agreement shall be entered into between a beneficiary, a grantor, and a trustee, which shall be a qualified U.S. financial institution.

A trust agreement shall be established for the sole benefit of the beneficiary.

The failure of a trust agreement to identify the beneficiary does not affect any actions or rights that the Commissioner may take or possess under the laws of this State.

A trust agreement shall create a trust account into which assets shall be deposited.

The assets in the trust account shall be held by the trustee at the trustee's office in the United States.

May withdraw assets from the trust account at any time, without notice to the grantor, if the beneficiary provides written notice to the trustee; and

Is not required to present any other statement or document to withdraw assets, but may be required to acknowledge receipt of withdrawn assets.

A trust agreement shall:

Except as provided in Regulation .17 of this chapter, a trust agreement may not contain references to any other agreement or document.

A trust agreement shall require the trustee to:

A trust agreement shall prohibit invasion of the trust corpus to pay compensation to, or reimburse the expenses of, the trustee.

In order for a letter of credit to qualify as an asset of the trust, the trustee shall have the right and the obligation pursuant to the trust agreement or some other binding agreement, duly approved by the Commissioner, to immediately draw down the full amount of the letter of credit and hold the proceeds in trust for the beneficiaries of the trust if the letter of credit will otherwise expire without being renewed or replaced.

The trust agreement shall provide that the trustee shall be liable for its negligence, willful misconduct, or lack of good faith. The failure of the trustee to draw against the letter of credit in circumstances where the draw would be required shall be considered to be negligence, willful misconduct, or both.

Notwithstanding any other provision in a trust agreement, 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 of the trust or court of competent jurisdiction directing the trustee to transfer to the insurance regulatory agency with regulatory oversight or other designated receiver all of the assets of the trust fund.

The assets shall be applied in accordance with the priority statutes and laws of the state in which the trust is domiciled applicable to the assets of insurance companies in liquidation.

If the insurance regulatory agency with regulatory oversight determines that the assets of the trust fund or any part of the assets are not necessary to satisfy claims of the U.S. beneficiaries of the trust, the assets or any part of the assets shall be returned to the trustee for distribution in accordance with the trust agreement.

Either the reinsurance contract or the trust agreement shall stipulate that assets deposited in the trust account shall:

Investments in or issued by an entity controlling, controlled by, or under common control with the grantor or the beneficiary of the trust may not exceed 5 percent of total investments.

A trust agreement may specify the types of investments to be deposited in the trust account.

If a trust agreement is entered into in conjunction with a reinsurance contract covering life, annuities, or accident and health, then the reinsurance contract shall contain the provisions required by this section.

Subject to §B(2) of this regulation, a trust agreement may provide that the:

A resignation or removal under this section may not become effective until:

A trust agreement may give the grantor the full and unqualified right to:

Any interest or dividends shall be:

Subject to §D(2) of this regulation, a trust agreement may authorize the trustee to invest, and accept substitutions of, any funds in the account.

The trustee may not make an investment or substitution without prior approval of the beneficiary unless the trust agreement:

A trust agreement may provide that the beneficiary may at any time designate a party to which all or part of the trust assets shall be transferred.

Transfer may be conditioned on the trustee receiving other specified assets before or simultaneously with the transfer.

The assuming insurer's share under the specific reinsurance contract regarding any losses and loss adjustment expenses paid by the ceding insurer but not recovered from the assuming insurer; and

Unearned premiums due to the ceding insurer if not otherwise paid by the assuming insurer.

A trust agreement may allow the ceding insurer to withdraw amounts equal to the assuming insurer's entire obligations under the reinsurance contract and deposit those amounts in a separate account in accordance with §D(2) of this regulation in trust for the uses specified in §§B and C of this regulation if the:

Amounts withdrawn from the trust account and deposited under §D(1) of this regulation shall be deposited:

Reinsurance contract of premiums returned, but not yet recovered from the assuming insurer, to the owners of policies reinsured under the insurance contract on account of cancellations of the policies; and

Specific reinsurance contract of surrenders and benefits or losses paid by the ceding insurer, but not yet recovered from the assuming insurer, under the terms and provisions of the policies reinsured under the reinsurance contract.

A trust agreement may allow the ceding insurer to withdraw amounts equal to the assuming insurer's share of liabilities, to the extent that the liabilities have not yet been funded by the assuming insurer, and deposit those amounts in a separate account in accordance with §D(2) of this regulation in trust for the uses and purposes specified in §§B and C of this regulation if the:

Amounts withdrawn from the trust account and deposited under §D(1) of this regulation shall be deposited:

Require the assuming insurer to enter into a trust agreement;

Establish a trust account for the benefit of the ceding insurer; and

Specify what the agreement is to cover.

Execute assignments or endorsements in blank; or

Transfer legal title to the trustee of all shares, obligations, or any other assets requiring assignments.

To pay or reimburse the ceding insurer for:

To make payment to the assuming insurer of amounts held in the trust account in excess of the amount necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer.

At the time of withdrawal, the assuming insurer replaces the withdrawn assets with other qualified assets that have a current fair market value equal to the market value of the withdrawn assets to maintain at all times the deposit in the required amount; or

After withdrawal and transfer, the current fair market value of the trust account is not less than 102 percent of the required amount.

The return of any amount withdrawn in excess of the actual amounts required for §D of this regulation; and

Interest payments at a rate not in excess of the prime rate of interest on such amounts held pursuant to §D of this regulation.

Interest at a rate different from that provided in §F of this regulation;

Court or arbitration costs;

Attorney's fees; and

Any other reasonable expenses.

Submitted to the jurisdiction of an alternative dispute resolution panel or court of competent jurisdiction within the United States;

Agreed to comply with all requirements necessary to give the court or panel jurisdiction;

Designated an agent to receive service of process; and

Agreed to abide by the final decision of the court or panel.

Certification Ratings.

Affiliated reinsurance transactions shall receive the same opportunity for reduced security requirements as all other reinsurance transactions.

The Commissioner shall require the certified reinsurer to post 100 percent security, for the benefit of the ceding insurer or its estate, upon the entry of an order of rehabilitation, liquidation, or conservation against the ceding insurer.

Catastrophic Occurrence.

Credit for reinsurance under this regulation shall apply only to reinsurance contracts entered into or renewed on or after the effective date of the certification of the assuming insurer. Any reinsurance contract entered into prior to the effective date of the certification of the assuming insurer that is subsequently amended after the effective date of the certification of the assuming insurer or a new reinsurance contract, covering any risk for which collateral was provided previously, shall only be subject to this regulation with respect to losses incurred and reserves reported on or after the effective date of the amendment or new contract.

Nothing in this section shall prohibit the parties to a reinsurance contract from agreeing to provisions establishing security requirements that exceed the minimum security requirements established for certified reinsurers under this section.

The Commissioner shall post notice on the Administration’s website promptly upon receipt of any application for certification, including instructions on how members of the public may respond to the application. The Commissioner may not take final action on the application until at least 30 days after posting the notice required by this subsection.

The Commissioner shall issue written notice to an assuming insurer that has been approved as a certified reinsurer. Including in such notice shall be the certification rating assigned to the certified reinsurer in accordance with §G(2) of this regulation.

The Commissioner shall publish a list of all certified reinsurers and their ratings.

The Commissioner shall comply with all reporting and notification requirements that may be established by the NAIC with respect to certified reinsurers and qualified jurisdictions.

The assuming insurer shall be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the Commissioner pursuant to Regulation .26 of this chapter.

The assuming insurer shall maintain capital and surplus, or its equivalent, of no less than $250,000,000, calculated in accordance with §G(2)(h) of this regulation. This requirement may also be satisfied by a group including incorporated and individual unincorporated underwriters having minimum capital and surplus equivalents (net of liabilities) of at least $250,000,000 and a central fund containing a balance of at least $250,000,000.

The assuming insurer shall have financial strength ratings from two or more rating agencies deemed acceptable by the Commissioner. These ratings shall be based on interactive communication between the rating agency and the assuming insurer and may not be based solely on publicly available information. These financial strength ratings shall be one factor used by the Commissioner in determining the rating that is assigned to the assuming insurer. Failure to obtain or maintain at least two financial strength ratings from acceptable rating agencies shall result in the loss of eligibility for certification. Acceptable rating agencies include the following:

Any other requirements imposed by the Commissioner.

If an applicant for certification has been certified as a reinsurer by the insurance regulatory agency of a state accredited by the NAIC, the Commissioner has the discretion to defer to that insurance regulatory agency to designate the assuming insurer as a certified reinsurer in this State.

The Commissioner shall rate each certified reinsurer on a legal entity basis and with due consideration being given to a group rating where appropriate, except that a group including incorporated and individual unincorporated underwriters that has been approved to do business as a single certified reinsurer may be evaluated on the basis of its group rating.

Factors that may be considered as part of the certification rating process include, but are not limited to:

More than 15 percent of the certified reinsurer’s ceding insurers have overdue reinsurance recoverables on paid losses of 90 calendar days or more which are not in dispute and which exceed $100,000 for each cedent; or

The aggregate amount of reinsurance recoverables on paid losses which are not in dispute that are overdue by 90 calendar days or more exceeds $50,000,000.

A properly executed NAIC Form CR-F Assumed Reinsurance (for Property/Casualty Reinsurers) or NAIC Form CR-S Reinsurance Assumed (for Life and Health Reinsurers);

A Maryland Insurance Administration Reinsurance Application;

An updated list of all disputed and overdue reinsurance claims regarding reinsurance assumed from U.S. domestic ceding insurers;

The report of the independent auditor on the financial statements of the insurance enterprise and the audited financial statements, regulatory filings and actuarial opinions (as filed with the non-U.S. jurisdiction supervisor, with a translation into English). Upon the initial application for certification, the Commissioner may consider audited financial statements for the last 2 years filed with its non-U.S. jurisdiction supervisor;

A certification from the certified reinsurer’s domestic regulator that the certified reinsurer is in good standing and maintains capital in excess of the jurisdiction’s highest regulatory action level;

Any other document or information that the Commissioner considers necessary to determine eligibility to act as a certified reinsurer; and

A properly executed NAIC Form CR-1 Certificate of Certified Reinsurer as evidence that the applicant agrees to:

Any change in the certified reinsurer’s status or rating in the other jurisdiction shall apply automatically in this State as of the date it takes effect in the other jurisdiction. The certified reinsurer shall notify the Commissioner of any change in its status or rating within 10 days after receiving notice of the change.

The Commissioner may withdraw recognition of the other jurisdiction’s rating at any time and assign a new rating in accordance with Regulation .25 of this chapter.

The Commissioner may withdraw recognition of the other jurisdiction’s certification at any time, with written notice to the certified reinsurer. Unless the Commissioner suspends or revokes the certified reinsurer’s certification in accordance with Regulation .25 of this chapter, the certified reinsurer’s certification shall remain in good standing in this State for a period of 3 months, which shall be extended if additional time is necessary to consider the assuming insurer’s application for certification in this State.

A properly executed NAIC Form CR-F Assumed Reinsurance (for Property/Casualty Reinsurers) or NAIC Form CR-S Reinsurance Assumed (for Life and Health Reinsurers);

A Maryland Insurance Administration Reinsurance Application;

An updated list of all disputed and overdue reinsurance claims regarding reinsurance assumed from U.S. domestic ceding insurers;

The report of the independent auditor on the financial statements of the insurance enterprise and the audited financial statements, regulatory filings and actuarial opinions (as filed with the non-U.S. jurisdiction supervisor, with a translation into English). Upon the initial application for certification, the Commissioner may consider audited financial statements for the last 2 years filed with its non-U.S. jurisdiction supervisor;

A certification from the certified reinsurer’s domestic regulator that the certified reinsurer is in good standing and maintains capital in excess of the jurisdiction’s highest regulatory action level;

Any other document or information that the Commissioner considers necessary to determine continued eligibility to act as a certified reinsurer; and

A properly executed NAIC Form CR-1 Certificate of Certified Reinsurer as evidence that the applicant agrees to:

Any regulatory actions taken against the certified reinsurer;

Any change in the provisions of its domiciliary license; or

Any change in rating by an acceptable rating agency pursuant to §F(3) of this regulation.

In the case of a downgrade of a financial strength rating by a rating agency, or other change in circumstance, the Commissioner shall upon written notice to the certified reinsurer assign a new certification rating to the certified reinsurer in accordance with the requirements of Regulation .24 of this chapter. If the Commissioner downgrades the certified reinsurer’s certification rating, the certified reinsurer shall meet the security requirements applicable to its new certification rating for all business it has assumed as a certified reinsurer.

If the Commissioner upgrades a certified reinsurer’s certification rating, the certified reinsurer may meet the security requirements applicable to its new rating on a prospective basis, but the Commissioner shall require the certified reinsurer to post security under the previously applicable security requirements as to all contracts in force on or before the effective date of the upgraded rating.