Chapter 02. Credit Life and Credit Health Reinsurance

In this chapter, the following terms have the meanings indicated.

Terms Defined.

Securities on Deposit with the Commissioner.

In determining the amount of the insurer's actual capital, only the type of investments listed in Insurance Article, §5-510(a) and (b), Annotated Code of Maryland, shall be considered.

The requirements of Insurance Article, Title 5, Subtitle 5, shall be used to determine the amount of the insurer's actual surplus.

In determining the value of the deposit, securities shall be valued at market but not in excess of par value.

In order to ascertain that the value of the securities on deposit is sufficient to meet the requirements of Insurance Article, §13-116, Annotated Code of Maryland, and of this regulation, the insurer shall:

If an insurer which has previously qualified under Insurance Article, §13-116, Annotated Code of Maryland, no longer meets the requirements of that section, the Commissioner shall notify the insurer in writing of the additional amount of deposit required to restore the insurer's qualification. If the insurer does not satisfy the requirements by making the additional deposit within 30 days after the date of the Commissioner's notice, the insurer shall forthwith cease to accept any reinsurance under any fronting agreement to which Insurance Article, §13-116, Annotated Code of Maryland, applies.

Unless the Commissioner liquidates a deposit for the purpose of paying claims to Maryland policyholders, certificate holders, authorized insurers, or creditors and for providing for the expenses incurred in connection with the payment of these claims, a deposit made by an insurer for the purpose of qualifying under Insurance Article, §13-116, Annotated Code of Maryland, shall remain on deposit with the Commissioner until:

If the insurer is adjudged insolvent, or, if for any reason the Commissioner, after a hearing, determines that the rights of authorized insurers, policyholders, certificate holders, or creditors may be in jeopardy, the Commissioner may direct the custodian to immediately deliver to him the securities then held on deposit, or at the Commissioner's option, he may direct the custodian to sell the securities and remit the proceeds of the sale to the Commissioner.

An authorized insurer desiring to make a fronting agreement shall first ascertain that the reinsurer is appropriately licensed in Maryland, or is an accredited reinsurer, or is qualified as a fronting reinsurer under Insurance Article, §13-116, Annotated Code of Maryland. An authorized insurer shall be subject to the penalties provided in Insurance Article, §4-113, Annotated Code of Maryland, as well as any other applicable penalties if:

The deposit required by these regulations may be made either by the insurer, or by another person on behalf of the insurer. If the deposit is made by another person, the custodian agreement shall provide the Commissioner all the rights of access to the deposit which these regulations require. If any agreement with reference to the deposit is made between the insurer and the person making the deposit, the insurer shall submit the agreement to the Commissioner for his approval at the time the insurer requests the Commissioner to accept the custodian agreement under which the deposit is kept.

The deposit of acceptable securities shall be maintained under a custodian agreement acceptable to the Commissioner. If the deposit is made by a person other than the insurer, the Commissioner will require that person to also become a party to the custodian agreement.

The custodian shall be a bank located in Maryland, which has deposits insured by the Federal Deposit Insurance Corporation, and which is not affiliated with the insurer.

Not later than January 31 in each calendar year, the custodian shall give the accounting referred to in Regulation .03E(2) of this chapter to the Commissioner and to the insurer. At the Commissioner's request at any other time, the custodian also shall give an accounting to the Commissioner and to the insurer within 15 days of the Commissioner's request.

The expense of maintaining the deposit under the custodian agreement and of making the reports required of the custodian shall be borne by the insurer.

The custodian agreement shall provide that the custodian shall promptly return the deposit to the Commissioner at the Commissioner's request, or at the Commissioner's option the custodian shall sell all or a portion of the deposit and remit the net proceeds of the sale to the Commissioner.

The Insurer agrees to pledge securities and deliver them to the custodian as directed by the Commissioner in accordance with the provisions of Insurance Article, Annotated Code of Maryland.

The custodian agrees, at the expense of the insurer, to hold all of the securities received by it from the insurer in accordance with the terms of this agreement. The custodian also agrees not later than January 31 in each calendar year to give a proper accounting of the securities as of the preceding December 31 to the Commissioner and to the insurer, and to give an

accounting to the Commissioner and to the insurer at other times at the Commissioner's request within 15 days of the request. The accounting shall include a listing of the securities on deposit, showing the par value and the market value of each, together with a statement as to whether any are in default.

The custodian assumes no responsibility for the character of the securities held by it under this agreement nor for the sufficiency of the value of the securities.

The insurer shall have the right, from time to time, to deliver to the custodian additional securities as prescribed by Insurance Article, §13-116, Annotated Code of Maryland, and by regulations under COMAR 31.13.02 to be held by the custodian, subject to the terms of this agreement and to substitute other securities in the place and stead of the securities then held by the custodian, provided that every addition, substitution, or withdrawal shall first be approved in writing by the Commissioner.

The insurer shall be entitled to all interest which may become due and payable on the securities, and the custodian shall permit the insurer to remove and withdraw the interest unless otherwise directed by the Commissioner.

If the insurer becomes insolvent, or, if for any reason the Commissioner determines that the rights of policyholders, certificate holders, authorized insurers, or creditors may be in jeopardy, the Commissioner may issue a written order briefly stating his determination and directing the custodian immediately to deliver to the Commissioner the securities then held by the custodian under the terms of this agreement. This order shall be effective upon delivery to the custodian. A copy of the order shall also be delivered to the insurer. Upon receipt of the order, the custodian shall promptly deliver to the Commissioner the securities then held by the custodian under the terms of this agreement.

Instead of requesting that the securities be delivered to him, the Commissioner may direct the custodian to sell, assign and deliver all or any portion of the securities at any public or private sale within or without the State of Maryland. If the custodian is directed by the Commissioner to sell securities, the custodian is authorized to deduct from the proceeds of the sale the amount necessary for the payment of costs and expenses incident to the sale. The custodian shall promptly pay the balance of the proceeds of the sale to the Commissioner.

This agreement may be terminated by either the insurer or the custodian 60 days following delivery of written notice of intention to terminate to each of the other parties, including the Commissioner, provided, however, that the custodian may not release or return to the insurer any of the securities held by it under this agreement without first having received written authority from the Commissioner to do so.

The Commissioner may at any time terminate this agreement by written notice to each of the other parties. Upon receipt of the notice, the custodian shall immediately deliver all securities held under this agreement to the Commissioner.

To the extent that the securities on deposit with the Commissioner and the other assets of the fronting reinsurer are insufficient to qualify in accordance with Insurance Article, §13-116, Annotated Code of Maryland, and these regulations, the insurer may provide the Commissioner with an irrevocable letter of credit in an amount at least equal to the shortfall.

In order to be acceptable for the purpose of this regulation, the letter of credit shall be issued by a bank located in Maryland, which has deposits insured by the Federal Deposit Insurance Corporation, and which is not affiliated with the insurer.

The letter of credit shall be automatically renewable from time to time, and may only be terminated by the issuing bank upon 30 days' written notice sent to the Commissioner by certified or registered mail.