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HF 3622

1st Unofficial Engrossment - 90th Legislature (2017 - 2018) Posted on 04/30/2018 02:17pm

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A bill for an act
relating to insurance; changing accreditation and certification requirements for
reinsurers; amending Minnesota Statutes 2016, sections 13.7191, by adding a
subdivision; 60A.092; 60A.093; 60A.096; 60A.097; proposing coding for new
law in Minnesota Statutes, chapter 60A.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2016, section 13.7191, is amended by adding a subdivision
to read:


Subd. 24.

Reinsurer filings.

Data provided pursuant to the certification of a reinsurer
is governed by section 60A.0921, subdivision 2, paragraph (g).

Sec. 2.

Minnesota Statutes 2016, section 60A.092, is amended to read:


60A.092 REINSURANCE CREDIT ALLOWED A DOMESTIC CEDING
INSURER.

Subdivision 1.

Credit allowed.

Credit for reinsurance shall be allowed a domestic ceding
insurer as either an asset or a deduction from liability on account of reinsurance ceded only
when the reinsurance is ceded to an assuming insurer which meets the requirements specified
under this section.

Subd. 2.

Licensed assuming insurer.

Reinsurance is ceded to an assuming insurer if
the assuming insurer is licensed to transact insurance or reinsurance in this state. For purposes
of reinsuring any health risk, an insurer is defined under section 62A.63.

Subd. 3.

Accredited assuming insurer.

(a) Reinsurance is ceded to an assuming insurer
if the assuming insurer is accredited by the commissioner as a reinsurer in this state. An
accredited
In order to be eligible for accreditation, a reinsurer is one which must:

(1) files file with the commissioner evidence of its submission to this state's jurisdiction;

(2) submits submit to this state's authority to examine its books and records;

(3) is 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 is entered through and licensed to
transact insurance or reinsurance in at least one state;

(4) files file annually with the commissioner a copy of its annual statement filed with
the insurance department of its state of domicile, a copy of its most recent audited financial
statement, and a filing fee of $225; and

(5)(i) maintains a surplus as regards policyholders in an amount not less than $20,000,000
and whose accreditation has not been denied by the commissioner within 90 days of its
submission, or maintains a surplus as regards policyholders in an amount less than
$20,000,000 and whose accreditation has been approved by the commissioner
demonstrate
to the satisfaction of the commissioner that it has adequate financial capacity to meet its
reinsurance obligations and is otherwise qualified to assume reinsurance from domestic
insurers. An assuming insurer meets this requirement at the time of its application if it
maintains a surplus as regards to policyholders in an amount not less than $20,000,000 and
its accreditation has not been denied by the commissioner within 90 days after submission
of its application
; or

(ii) maintains a surplus as regards policyholders in an amount not less than $50,000,000
for long-tail casualty reinsurers. For purposes of this section, "long-tail casualty reinsurance"
means insurance for medical or legal malpractice, pollution liability, directors and officers
liability, and products liability. The commissioner may determine that an assuming insurer
that maintains a surplus as regards policyholders in an amount not less than $20,000,000 is
accredited as a reinsurer if there is no detriment to policyholders and the interest of the
public, and to not allow accrediting would be a hardship or detriment to the reinsurer. The
commissioner shall report to the legislature on any determination to allow accrediting to a
long-term casualty reinsurer maintaining a surplus in an amount less than $50,000,000.

Clause (5) does not apply to reinsurance ceded and assumed pursuant to pooling
arrangements among insurers in the same holding company system.

(b) No credit shall be allowed or continue to be allowed a domestic ceding insurer if the
assuming insurer's accreditation has been revoked by the commissioner after receipt of a
cease and desist order pursuant to section 45.027, subdivision 5.

Subd. 4.

Similar state standards.

Reinsurance is ceded to an assuming insurer if the
assuming insurer is domiciled and licensed in, or in the case of a United States branch of
an alien assuming insurer is entered through, a state which employs standards regarding
credit for reinsurance substantially similar to those applicable under this chapter and the
assuming insurer or United States branch of an alien assuming insurer (1) maintains a surplus
as regards policyholders in an amount not less than $20,000,000 or maintains a surplus as
regards policyholders in an amount not less than $50,000,000 for long-tail casualty reinsurers
as provided under subdivision 3, paragraph (a), clause (5), and (2) submits to the authority
of this state to examine its books and records.

Clause (1) does not apply to reinsurance ceded and assumed pursuant to pooling
arrangements among insurers in the same holding company system.

Subd. 5.

Trust fund maintained.

The reinsurance is ceded to an assuming insurer if
the assuming insurer maintains a trust fund in a qualified United States financial institution
for the payment of the valid claims, as determined by the commissioner for the purpose of
determining the sufficiency of the trust fund, of its United States policyholders and ceding
insurers, their assigns and successors in interest. The assuming insurer shall report annually
to the commissioner information substantially the same as that required to be reported on
the National Association of Insurance Commissioners annual statement form by licensed
insurers to enable the commissioner to determine the sufficiency of the trust fund.

Subd. 6.

Single assuming insurer; trust fund requirements.

(a) In the case of a single
assuming insurer, the trust shall consist of a trusteed account representing the assuming
insurer's liabilities attributable to business written in the United States and, in addition, a
trusteed surplus of not less than $20,000,000 or an additional amount as the commissioner
considers necessary, except as provided in paragraph (b). The assuming insurer shall maintain
its surplus as regards policyholders in an amount not less than $50,000,000 for long-tail
casualty reinsurers as provided under subdivision 3, paragraph (a), clause (5).

(b) After the assuming insurer has permanently discontinued underwriting new business
secured by the trust for at least three years, the commissioner may authorize a reduction in
the required trusteed surplus, but only after a finding, based on an assessment of the risk,
that the new required surplus level is adequate for the protection of United States ceding
insurers, policyholders, and claimants in light of reasonably foreseeable adverse loss
development. The risk assessment may involve an actuarial review, including an independent
analysis of reserves and cash flows, and 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 United States
ceding insurers covered by the trust.

Subd. 7.

Underwriters group; trust fund requirements.

In the case of a group including
incorporated and individual unincorporated underwriters, the trust shall consist of a trusteed
account representing the group's liabilities attributable to business written in the United
States. The group shall maintain a trusteed surplus of which $100,000,000 shall be held
jointly for the benefit of United States ceding insurers of any member of the group. The
incorporated members of the group shall not be engaged in any business other than
underwriting as a member of the group and must be subject to the same level of solvency
regulation and control by the group's domiciliary regulator as are the unincorporated
members. The group shall make available to the commissioner an annual certification by
the group's domiciliary regulator and its independent public accountants of the solvency of
each underwriter.

Subd. 8.

Incorporated insurers group; trust fund requirements.

A group of
incorporated insurers under common administration must:

(1) comply with the filing requirements specified in subdivision 7;

(2) be under the supervision of the Department of for International Trade and Industry
of the United Kingdom;

(3) submit to this state's authority to examine its books and records;

(4) bear the expense of the examination;

(5) maintain an aggregate policyholders' surplus of $10,000,000,000;

(6) maintain the trust in an amount equal to the group's several liabilities attributable to
business written in the United States; and

(7) maintain a joint trusteed surplus of which $100,000,000 must be held jointly for the
benefit of United States ceding insurers of any member of the group.

Each member of the group shall make available to the commissioner an annual
certification by the member's domiciliary regulator and its independent accountant of the
member's solvency.

Subd. 9.

Trust fund general requirements.

(a) The trust must be established in a form
approved by the commissioner of commerce. The trust instrument shall provide that contested
claims shall be valid and enforceable upon the final order of any court of competent
jurisdiction in the United States. The trust shall vest legal title to its assets in the trustees of
the trust for its United States policyholders and ceding insurers, their assigns and successors
in interest. The trust and the assuming insurer shall be subject to examination as determined
by the commissioner. The trust must remain in effect for as long as the assuming insurer
shall have outstanding obligations due under the reinsurance agreements subject to the trust.

(b) No later than February 28 of each year the trustees of the trust shall report to the
commissioner in writing setting forth the balance of 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 shall not expire prior to the next following December 31.

Subd. 10.

Other jurisdictions Certification of assuming insurers in qualifying
jurisdictions
.

The (a) Reinsurance is ceded to an assuming insurer not meeting the
requirements of subdivision 2, 3, 4, or 5, but only with respect to the insurance of risks
located in jurisdictions where the reinsurance is required by applicable law or regulation of
that jurisdiction.
if the assuming insurer has been certified by the commissioner as a reinsurer
in this state and secures its obligations according to this subdivision.

(b) To be eligible for certification, the assuming insurer must:

(1) be domiciled and licensed to transact insurance or reinsurance in a qualified
jurisdiction, as determined by the commissioner under paragraph (d);

(2) maintain minimum capital and surplus, or its equivalent, in an amount to be
determined by the commissioner;

(3) maintain financial strength ratings from two or more rating agencies acceptable to
the commissioner;

(4) agree to submit to the jurisdiction of this state, appoint the commissioner as its agent
for service of process in this state, and agree to provide security for 100 percent 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;

(5) agree to meet filing requirements as determined by the commissioner, both with
respect to an initial application for certification and on an ongoing basis; and

(6) satisfy any other requirements for certification as determined by the commissioner.

(c) An association, including incorporated and individual unincorporated underwriters,
may be a certified reinsurer. In addition to satisfying the requirements of paragraph (b), an
association must:

(1) satisfy its minimum capital and surplus requirements through the capital and surplus
equivalents net of liabilities of the association and its members, which includes a joint
central fund that may be applied to an unsatisfied obligation of the association or any of its
members, in an amount determined by the commissioner to provide adequate protection;

(2) ensure the incorporated members of the association are not engaged in a business
other than underwriting as a member of the association and are subject to the same level of
regulation and solvency control by the association's domiciliary regulator as are the
unincorporated members; and

(3) within 90 days after its financial statements are due to be filed with the association's
domiciliary regulator, provide to the commissioner an annual certification by the association's
domiciliary regulator of the solvency of each underwriter member, or if a certification is
unavailable, financial statements, prepared by independent public accountants, of each
underwriter member of the association.

(d) The commissioner shall create and publish a list of qualified jurisdictions under
which an assuming insurer licensed and domiciled in the jurisdiction is eligible to be
considered by the commissioner to become a certified reinsurer.

(e) To determine whether the domiciliary jurisdiction of a non-United States assuming
insurer is eligible to be recognized as a qualified jurisdiction, the commissioner shall evaluate
the appropriateness and effectiveness of the reinsurance supervisory system of the
jurisdiction, both initially and on an ongoing basis, and consider the rights, benefits, and
extent of reciprocal recognition afforded by the non-United States jurisdiction to reinsurers
licensed and domiciled in the United States. A qualified jurisdiction must agree to share
information and cooperate with the commissioner with respect to all certified reinsurers
domiciled within that jurisdiction. A jurisdiction may not be recognized as a qualified
jurisdiction if the commissioner determines that the jurisdiction does not adequately and
promptly enforce final United States judgments and arbitration awards. Additional factors
may be considered at the discretion of the commissioner.

(f) A list of qualified jurisdictions must be published through the National Association
of Insurance Commissioners (NAIC) committee process. The commissioner shall consider
the list in determining qualified jurisdictions. If the commissioner approves a jurisdiction
as qualified that does not appear on the list of qualified jurisdictions, the commissioner shall
provide thoroughly documented justification.

(g) United States jurisdictions that meet the requirement for accreditation under the
NAIC financial standards and accreditation program must be recognized as qualified
jurisdictions.

(h) If a certified reinsurer's domiciliary jurisdiction ceases to be a qualified jurisdiction,
the commissioner may suspend the reinsurer's certification indefinitely, in lieu of revocation.

(i) The commissioner shall assign a rating to each certified reinsurer, giving due
consideration to the financial strength ratings that have been assigned by rating agencies
acceptable to the commissioner. The commissioner shall publish a list of all certified
reinsurers and their ratings.

(j) A certified reinsurer covered by paragraphs (k) to (o) shall secure obligations assumed
from United States ceding insurers at a level consistent with its rating determined under
section 60A.0921, subdivision 1, paragraph (d).

(k) In order for a domestic ceding insurer to qualify for full financial statement credit
for reinsurance ceded to a certified reinsurer, the certified reinsurer must maintain security
in a form acceptable to the commissioner and consistent with section 60A.093, or in a
multibeneficiary trust according to subdivisions 5 to 9, except as otherwise provided in this
subdivision.

(l) If a certified reinsurer maintains a trust to fully secure its obligations subject to
subdivisions 5 to 9, 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 agreements issued or renewed as a
certified reinsurer with reduced security as permitted by this subdivision or comparable
laws of other United States jurisdictions and for its obligations subject to subdivisions 5 to
9. It is a condition to the grant of certification under this subdivision that the certified
reinsurer shall have bound itself, by the language of the trust and agreement with the
commissioner, to fund, upon termination of a trust account, any deficiency of any other
trust account out of the remaining surplus of each trust.

(m) The minimum trusteed surplus requirements provided in subdivisions 5 to 9 are not
applicable with respect to a multibeneficiary trust maintained by a certified reinsurer for
the purpose of securing obligations incurred under this subdivision, except that the trust
shall maintain a minimum trusteed surplus of $10,000,000.

(n) With respect to obligations incurred by a certified reinsurer under this subdivision,
if the security is insufficient, the commissioner shall reduce the allowable credit by an
amount proportionate to the deficiency. The commissioner may impose further reductions
in allowable credit upon finding that there is a material risk that the certified reinsurer's
obligations will not be paid in full when due.

(o) For purposes of this subdivision, a certified reinsurer whose certification has been
terminated for any reason must be treated as a certified reinsurer required to secure 100
percent of its obligations. As used in this subdivision, "terminated" means revocation,
suspension, voluntary surrender, or inactive status. If the commissioner continues to assign
a higher rating as permitted by other provisions of this section, the requirements of this
paragraph do not apply to a certified reinsurer in inactive status or to a reinsurer whose
certification has been suspended.

(p) If an applicant for certification has been certified as a reinsurer in an NAIC-accredited
jurisdiction, the commissioner may defer to that jurisdiction's certification and the rating
assigned by that jurisdiction. The assuming insurer is considered to be a certified reinsurer
in this state.

(q) 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. An inactive certified reinsurer shall continue to comply
with this subdivision, and the commissioner shall assign a rating that takes into account, if
relevant, the reasons why the reinsurer is not assuming new business.

(r) Credit for reinsurance under this section applies only to a reinsurance contract entered
into or renewed on or after the effective date of the certification of the assuming insurer.

Subd. 10a.

Other jurisdictions.

The reinsurance is ceded and credit allowed to an
assuming insurer not meeting the requirements of subdivision 2, 3, 4, 5, or 10, but only with
respect to the insurance of risks located in jurisdictions where the reinsurance is required
by applicable law or regulation of that jurisdiction.

Subd. 11.

Reinsurance agreement requirements.

(a) If the assuming insurer is not
licensed, certified, or accredited to transact insurance or reinsurance in this state, the credit
authorized under subdivisions 4 and 5 to 9 shall not be allowed unless the assuming insurer
agrees in the reinsurance agreements:

(1) that in the event of the failure of the assuming insurer to perform its obligations under
the terms of the reinsurance agreement, the assuming insurer shall submit to the jurisdiction
of any court of competent jurisdiction in any state of the United States, comply with all
requirements necessary to give the court jurisdiction, and abide by the final decision of the
court or of any appellate court in the event of an appeal; and

(2) to designate the commissioner or a designated attorney as its true and lawful attorney
upon whom may be served any lawful process in any action, suit, or proceeding instituted
by or on behalf of the ceding company. insurer; and

(3) that the credit risk for an intermediary is carried by the assuming insurer.

(b) Paragraph (a) is not intended to conflict with or override the obligation of the parties
to a reinsurance agreement to arbitrate their disputes, if an obligation to do so is created in
the agreement.

(c) Credit will not be granted, nor an asset or a reduction from liability allowed, to a
ceding insurer for reinsurance effected with assuming insurers meeting the requirements of
subdivision 2, 3, 4, 5, 6, or 7, or 10, unless the reinsurance contract provides that in the
event of the insolvency of the ceding insurer, the reinsurance will be payable under the
contract without diminution because of that insolvency.

Payments by the reinsurer must be made directly to the ceding insurer or its receiver or
successor
, except where the contract of insurance or reinsurance specifically provides for
another payee for the reinsurance in the event of insolvency of the ceding insurer according
to the applicable requirements of statutes, rules, or orders of the domiciliary state of the
ceding insurer.

Subd. 12.

Concentration risk.

(a) A ceding insurer shall take steps to manage its
reinsurance recoverables proportionate to its own book of business. A domestic ceding
insurer shall notify the commissioner within 30 days after reinsurance recoverables from a
single assuming insurer, or group of affiliated assuming insurers, exceeds 50 percent of the
domestic ceding insurer's last reported surplus to policyholders, or after it is determined
that reinsurance recoverables from a single assuming insurer, or group of affiliated assuming
insurers, is likely to exceed this limit. The notification must demonstrate that the exposure
is safely managed by the domestic ceding insurer.

(b) A ceding insurer shall take steps to diversify its reinsurance program. A domestic
ceding insurer shall notify the commissioner within 30 days after ceding to any single
assuming insurer, or group of affiliated assuming insurers, more than 20 percent of the
ceding insurer's gross written premium in the prior calendar year, or after it has determined
that the reinsurance ceded to any single assuming insurer, or group of affiliated assuming
insurers, is likely to exceed this limit. The notification must demonstrate that the exposure
is safely managed by the domestic ceding insurer.

Subd. 13.

Suspension or revocation by commissioner.

(a) If an accredited or certified
reinsurer ceases to meet the requirements for accreditation or certification, the commissioner
may suspend or revoke the reinsurer's accreditation or certification.

(b) The commissioner must give the reinsurer notice and opportunity for hearing. The
suspension or revocation may not take effect until after the commissioner's order on hearing,
unless:

(1) the reinsurer waives its right to a hearing;

(2) the commissioner's order is based on regulatory action by the reinsurer's domiciliary
jurisdiction or the voluntary surrender or termination of the reinsurer's eligibility to transact
insurance or reinsurance business in its domiciliary jurisdiction or in the primary certifying
state of the reinsurer under subdivision 10, paragraph (p); or

(3) the commissioner finds that an emergency requires immediate action and a court of
competent jurisdiction has not stayed the commissioner's action.

(c) While a reinsurer's accreditation or certification is suspended, no reinsurance contract
issued or renewed after the effective date of the suspension qualifies for credit, except to
the extent that the reinsurer's obligations under the contract are secured in accordance with
section 60A.093. If a reinsurer's accreditation or certification is revoked, no credit for
reinsurance may 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 subdivision
10, paragraphs (j) to (o), or section 60A.093.

Sec. 3.

[60A.0921] CREDIT FOR REINSURANCE; CERTIFIED REINSURERS.

Subdivision 1.

Certified reinsurers; credit allowed.

(a) Credit for reinsurance shall be
allowed from a domestic ceding insurer to an assuming insurer that has been certified as a
reinsurer in this state at all times for which statutory financial statement credit for reinsurance
is claimed under this section. The credit allowed shall be based upon the security held by
or on behalf of the ceding insurer in accordance with a rating assigned to the certified
reinsurer by the commissioner. The security shall be in a form consistent with sections
60A.092, subdivision 10, and 60A.093. The amount of security required in order for full
credit to be allowed shall correspond with the following requirements:

Ratings
Security Required
Secure - 1
0%
Secure - 2
10%
Secure - 3
20%
Secure - 4
50%
Secure - 5
75%
Vulnerable - 6
100%

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

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

(d) In order to facilitate the prompt payment of claims, a certified reinsurer shall not be
required to post security for catastrophe recoverables for a period of one year from the date
of the first instance of a liability reserve entry by the ceding company as a result of a loss
from a catastrophic occurrence as recognized by the commissioner. The one-year deferral
period is contingent upon the certified reinsurer continuing to pay claims in a timely manner.
Reinsurance recoverables for only the following lines of business as reported on the National
Association of Insurance Commissioners (NAIC) annual financial statement related
specifically to the catastrophic occurrence will be included in the deferral:

(1) Line 1: Fire;

(2) Line 2: Allied Lines;

(3) Line 3: Farmowners multiple peril;

(4) Line 4: Homeowners multiple peril;

(5) Line 5: Commercial multiple peril;

(6) Line 9: Inland Marine;

(7) Line 12: Earthquake;

(8) Line 21: Auto physical damage.

(e) Credit for reinsurance under this section 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 section with respect
to losses incurred and reserves reported from and after the effective date of the amendment
or new contract.

(f) Nothing in this section prohibits the parties to a reinsurance agreement from agreeing
to provisions establishing security requirements that exceed the minimum security
requirements established for certified reinsurers under this section.

Subd. 2.

Certification procedure.

(a) The commissioner shall post notice on the
department's Web site 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.

(b) The commissioner shall issue written notice to an assuming insurer that has applied
and been approved as a certified reinsurer. The notice must include the rating assigned the
certified reinsurer in accordance with subdivision 1. The commissioner shall publish a list
of all certified reinsurers and their ratings.

(c) In order to be eligible for certification, the assuming insurer must:

(1) be domiciled and licensed to transact insurance or reinsurance in a qualified
jurisdiction, as determined by the commissioner under subdivision 3;

(2) maintain capital and surplus, or its equivalent, of no less than $250,000,000 calculated
in accordance with paragraph (d), clause (8). This requirement may also be satisfied by an
association 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;

(3) maintain financial strength ratings from two or more rating agencies acceptable to
the commissioner. These ratings shall be based on interactive communication between the
rating agency and the assuming insurer and shall 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. Acceptable rating agencies
include the following:

(i) Standard & Poor's;

(ii) Moody's Investors Service;

(iii) Fitch Ratings;

(iv) A.M. Best Company; or

(v) any other nationally recognized statistical rating organization; and

(4) ensure that the certified reinsurer complies with any other requirements reasonably
imposed by the commissioner.

(d) Each certified reinsurer shall be rated on a legal entity basis, with due consideration
being given to the group rating where appropriate, except that an association 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 evaluation process include, but are not limited
to:

(1) certified reinsurer's financial strength rating from an acceptable rating agency. The
maximum rating that a certified reinsurer may be assigned will correspond to its financial
strength rating as outlined in the table below. The commissioner shall use the lowest financial
strength rating received from an approved rating agency in establishing the maximum rating
of a certified reinsurer. A failure to obtain or maintain at least two financial strength ratings
from acceptable rating agencies will result in loss of eligibility for certification;

Ratings
Best
S&P
Moody's
Fitch
Secure - 1
A++
AAA
Aaa
AAA
Secure - 2
A+
AA+, AA, AA-
Aa1, Aa2, Aa3
AA+, AA, AA-
Secure - 3
A
A+, A
A1, A2
A+, A
Secure - 4
A-
A-
A3
A-
Secure - 5
B++, B-
BBB+, BBB,
BBB-
Baa1, Baa2, Baa3
BBB+, BBB,
BBB-
Vulnerable - 6
B, B-C++, C+, C,
C-, D, E, F
BB+, BB, BB-,
B+, B, B-, CCC,
CC, C, D, R
Ba1, Ba2, Ba3,
B1, B2, B3, Caa,
Ca, C
BB+, BB, BB-,
B+, B, B-, CCC+,
CC, CCC-, DD

(2) the business practices of the certified reinsurer in dealing with its ceding insurers,
including its record of compliance with reinsurance contractual terms and obligations;

(3) for certified reinsurers domiciled in the United States, a review of the most recent
applicable NAIC annual statement;

(4) for certified reinsurers not domiciled in the United States, a review annually of such
forms as may be required by the commissioner;

(5) the reputation of the certified reinsurer for prompt payment of claims under
reinsurance agreements, based on an analysis of ceding insurers' reporting of overdue
reinsurance recoverables, including the proportion of obligations that are more than 90 days
past due or are in dispute, with specific attention given to obligations payable to companies
that are in administrative supervision or receivership;

(6) regulatory actions against the certified reinsurer;

(7) the report of the independent auditor on the financial statements of the insurance
enterprise, on the basis described in clause (8);

(8) for certified reinsurers not domiciled in the United States, audited financial statements
(audited United States GAAP basis if available, audited IFRS basis statements are allowed,
but must include an audited footnote reconciling equity and net income to a United States
GAAP basis, or, with permission of the commissioner, audited IFRS statements with
reconciliation to United States GAAP certified by an officer of the company). Upon the
initial application for certification, the commissioner will consider audited financial
statements for the last three years filed with its non-United States jurisdiction supervisor;

(9) the liquidation priority of obligations to a ceding insurer in the certified reinsurer's
domiciliary jurisdiction in the context of an insolvency proceeding;

(10) a certified reinsurer's participation in any solvent scheme of arrangement, or similar
procedure, which involves United States ceding insurers. The commissioner must receive
prior notice from a certified reinsurer that proposes participation by the certified reinsurer
in a solvent scheme of arrangement; and

(11) other information as determined by the commissioner.

(e) Based on the analysis conducted under paragraph (d), clause (5), of a certified
reinsurer's reputation for prompt payment of claims, the commissioner may make appropriate
adjustments in the security the certified reinsurer is required to post to protect its liabilities
to United States ceding insurers, provided that the commissioner shall, at a minimum,
increase the security the certified reinsurer is required to post by one rating level under
paragraph (d), clause (1), if the commissioner finds that:

(1) more than 15 percent of the certified reinsurer's ceding insurance clients have overdue
reinsurance recoverables on paid losses of 90 days or more which are not in dispute and
which exceed $100,000 for each cedent; or

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

(f) The assuming insurer must submit such forms as required by the commissioner as
evidence of its submission to the jurisdiction of this state, appoint the commissioner as an
agent for service of process in this state, and agree to provide security for 100 percent 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. The commissioner shall
not certify an assuming insurer that is domiciled in a jurisdiction that the commissioner has
determined does not adequately and promptly enforce final United States judgments or
arbitration awards.

(g) The certified reinsurer must agree to meet filing requirements as determined by the
commissioner, both with respect to an initial application for certification and on an ongoing
basis. All data submitted by certified reinsurers to the commissioner is nonpublic under
section 13.02, subdivision 9. The certified reinsurer must file with the commissioner:

(1) a notification within ten days of any regulatory actions taken against the certified
reinsurer, any change in the provisions of its domiciliary license, or any change in rating
by an approved rating agency, including a statement describing such changes and the reasons
therefore;

(2) an annual report regarding reinsurance assumed, in a form determined by the
commissioner;

(3) an annual report of the independent auditor on the financial statements of the insurance
enterprise, on the basis described in clause (4);

(4) an annual audited financial statement, regulatory filings, and actuarial opinion filed
with the certified reinsurer's supervisor. Upon the initial certification, audited financial
statements for the last three years filed with the certified reinsurer's supervisor;

(5) at least annually, an updated list of all disputed and overdue reinsurance claims
regarding reinsurance assumed from United States domestic ceding insurers;

(6) 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; and

(7) any other relevant information as determined by the commissioner.

Subd. 3.

Change in rating or revocation of certification.

(a) In the case of a downgrade
by a rating agency or other disqualifying circumstance, the commissioner shall upon written
notice assign a new rating to the certified reinsurer in accordance with the requirements of
subdivision 2, paragraph (d).

(b) The commissioner may suspend, revoke, or otherwise modify a certified reinsurer's
certification at any time if the certified reinsurer fails to meet its obligations or security
requirements under this section, or if other financial or operating results of the certified
reinsurer, or documented significant delays in payment by the certified reinsurer, lead the
commissioner to reconsider the certified reinsurer's ability or willingness to meet its
contractual obligations.

(c) If the rating of a certified reinsurer is upgraded by the commissioner, 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. If the rating of a certified reinsurer is downgraded by
the commissioner, the commissioner shall require the certified reinsurer to meet the security
requirements applicable to its new rating for all business it has assumed as a certified
reinsurer.

(d) Upon revocation of the certification of a certified reinsurer by the commissioner, the
assuming insurer shall be required to post security in accordance with section 60A.093 in
order for the ceding insurer to continue to take credit for reinsurance ceded to the assuming
insurer. If funds continue to be held in trust in accordance with section 60A.092, the
commissioner may allow additional credit equal to the ceding insurer's pro rata share of
such funds, discounted to reflect the risk of uncollectibility and anticipated expenses of trust
administration. Notwithstanding the change of a certified reinsurer's rating or revocation of
its certification, a domestic insurer that has ceded reinsurance to that certified reinsurer may
not be denied credit for reinsurance for a period of three months for all reinsurance ceded
to that certified reinsurer, unless the reinsurance is found by the commissioner to be at high
risk of uncollectibility.

Subd. 4.

Qualified jurisdictions.

(a) If, upon conducting an evaluation under this section
with respect to the reinsurance supervisory system of any non-United States assuming
insurer, the commissioner determines that the jurisdiction qualifies to be recognized as a
qualified jurisdiction, the commissioner shall publish notice and evidence of such recognition
in an appropriate manner. The commissioner may establish a procedure to withdraw
recognition of those jurisdictions that are no longer qualified.

(b) In order to determine whether the domiciliary jurisdiction of a non-United States
assuming insurer is eligible to be recognized as a qualified jurisdiction, the commissioner
shall evaluate the reinsurance supervisory system of the non-United States jurisdiction, both
initially and on an ongoing basis, and consider the rights, benefits, and the extent of reciprocal
recognition afforded by the non-United States jurisdiction to reinsurers licensed and
domiciled in the United States. The commissioner shall determine the appropriate approach
for evaluating the qualifications of such jurisdictions, and create and publish a list of
jurisdictions whose reinsurers may be approved by the commissioner as eligible for
certification. A qualified jurisdiction must agree to share information and cooperate with
the commissioner with respect to all certified reinsurers domiciled within that jurisdiction.
Additional factors to be considered in determining whether to recognize a qualified
jurisdiction, in the discretion of the commissioner, include but are not limited to:

(1) the framework under which the assuming insurer is regulated;

(2) the structure and authority of the domiciliary regulator with regard to solvency
regulation requirements and financial surveillance;

(3) the substance of financial and operating standards for assuming insurers in the
domiciliary jurisdiction;

(4) the form and substance of financial reports required to be filed or made publicly
available by reinsurers in the domiciliary jurisdiction and the accounting principles used;

(5) the domiciliary regulator's willingness to cooperate with United States regulators in
general and the commissioner in particular;

(6) the history of performance by assuming insurers in the domiciliary jurisdiction;

(7) any documented evidence of substantial problems with the enforcement of final
United States judgments in the domiciliary jurisdiction. A jurisdiction will not be considered
to be a qualified jurisdiction if the commissioner has determined that it does not adequately
and promptly enforce final United States judgments or arbitration awards;

(8) any relevant international standards or guidance with respect to mutual recognition
of reinsurance supervision adopted by the International Association of Insurance Supervisors
or a successor organization; and

(9) other matters as determined by the commissioner.

(c) A list of qualified jurisdictions shall be published through the NAIC committee
process. The commissioner shall consider this list in determining qualified jurisdictions. If
the commissioner approves a jurisdiction as qualified that does not appear on the list of
qualified jurisdictions, the commissioner shall provide thoroughly documented justification
with respect to the criteria provided under paragraph (b).

(d) United States jurisdictions that meet the requirements for accreditation under the
NAIC financial standards and accreditation program shall be recognized as qualified
jurisdictions.

Subd. 5.

Recognition of certification issued by a NAIC-accredited jurisdiction.

(a)
If an applicant for certification has been certified as a reinsurer in a NAIC-accredited
jurisdiction, the commissioner may defer to that jurisdiction's certification, and to the rating
assigned by that jurisdiction, if the assuming insurer submits information in the form required
by the commissioner. The assuming insurer shall be considered to be a certified reinsurer
in this state.

(b) 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
ten days after receiving notice of the change.

(c) The commissioner may withdraw recognition of the other jurisdiction's rating at any
time and assign a new rating in accordance with subdivision 2, paragraph (d).

(d) 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 subdivision 3, the certified
reinsurer's certification shall remain in good standing in this state for a period of three
months, which shall be extended if additional time is necessary to consider the assuming
insurer's application for certification in this state.

Subd. 6.

Mandatory funding clause.

In addition to the requirements of section 60A.092,
subdivision 11, reinsurance contracts entered into or renewed under this section must include
a requirement that the certified reinsurer provide and maintain security in an amount sufficient
to avoid the imposition of any financial statement penalty on the ceding insurer under this
section for reinsurance ceded to the certified reinsurer.

Subd. 7.

Commissioner requirement.

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

Sec. 4.

Minnesota Statutes 2016, section 60A.093, is amended to read:


60A.093 REDUCTION FROM LIABILITY FOR REINSURANCE CEDED BY A
DOMESTIC INSURER; COLLATERAL REQUIREMENTS.

Subdivision 1.

Reduction allowed.

A reduction from liability for reinsurance ceded by
a domestic insurer to an assuming insurer not meeting the requirements of section 60A.092
shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer.
Such 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, as security for the payment of obligations
under the reinsurance contract with the assuming insurer. Such security must be held in the
United States subject to withdrawal solely by, and under the exclusive control of, the ceding
insurer; or, in the case of a trust, held in a qualified United States financial institution. The
funds held as security may be in any form of security acceptable to the commissioner or in
the form of:

(1) cash;

(2) 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 and, with the exception of United States treasury notes, readily marketable
over a national exchange or NASDAQ with maturity dates within one year; or

(3) clean, irrevocable, unconditional letters of credit issued or confirmed by a qualified
United States financial institution no later than December 31 in respect of the year for which
filing is being made, and in the possession of, or in trust for, the ceding company insurer
on or before the filing date of its annual statement. The financial institution must meet the
standards of financial condition and standing considered necessary and appropriate to
regulate the quality of financial institutions as determined by either the commissioner or
the Securities Valuation Office of the National Association of Insurance Commissioners,
and the financial institution's letters of credit must be acceptable to the commissioner.

Subd. 2.

Letters of credit continued acceptance.

Letters of credit meeting applicable
standards of issuer acceptability as of the dates of their issuance or confirmation must
continue to be acceptable as security until their expiration, extension, renewal, modification,
or amendment, whichever comes first.

The letter of credit of an institution failing the standards of subdivision 1, clause (3),
continues to be acceptable for no more than 30 days.

Sec. 5.

Minnesota Statutes 2016, section 60A.096, is amended to read:


60A.096 QUALIFYING LETTER OF CREDIT.

Subdivision 1.

Generally.

An admitted asset or a reduction in liability for reinsurance
ceded to an unauthorized assuming insurer providing a letter of credit pursuant to section
60A.093 shall only be allowed when the letter of credit meets the requirements of this
section.

Subd. 2.

Content.

The letter of credit must be clean, irrevocable, and unconditional and
issued or confirmed by a qualified United States financial institution as defined in section
60A.091. The letter of credit must contain an issue date and date of expiration and must
stipulate that the beneficiary need only draw a sight draft under the letter of credit and
present it to obtain funds and that no other document need be presented. The letter of credit
must also state that it is not subject to any condition or qualification outside of the letter of
credit. In addition, the letter of credit must not contain reference to any other agreements,
documents, or entities, except as provided in subdivision 10, paragraph (a).

As used in this section, "beneficiary" means the domestic insurer for whose benefit the
letter of credit has been established and any successor of the beneficiary by operation of
law. If a court of law appoints a successor in interest to the named beneficiary, then the
named beneficiary includes and is limited to the court appointed domiciliary receiver,
including conservator, rehabilitator, or liquidator.

Subd. 3.

Form.

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

Subd. 4.

Reimbursement contingency prohibited.

The letter of credit must 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 to it.

Subd. 5.

Expiration.

The term of the letter of credit must be for at least one year and
must contain an "evergreen clause" which prevents the expiration of the letter of credit
without due notice from the issuer. The "evergreen clause" must provide for a period of no
less than 30 days' notice before the expiration date or nonrenewal.

Subd. 6.

Governing law.

The letter of credit must 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 400) (Publication 600)
(UCP 600) or International Standby Practices of the International Chamber of Commerce
Publication 590 (ISP98), or any successor publication
, and that all drafts drawn under it
shall be presentable at an office in the United States of a qualified United States financial
institution.

Subd. 7.

Extensions.

If the letter of credit is made subject to the Uniform Customs and
Practice for Documentary Credits of the International Chamber of Commerce (Publication
400)
(Publication 600), or any successor publication, then the letter of credit must specifically
address and make provision 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 19 36 of Publication 400
600, or any other successor publication,
occur.

Subd. 8.

Issuance or confirmation.

The letter of credit must be issued or confirmed by
a qualified United States financial institution authorized to issue letters of credit under
section 60A.093.

Subd. 9.

Additional requirements.

If the letter of credit is issued by a qualified United
States
financial institution authorized to issue letters of credit, other than a qualified United
States financial institution as described in subdivision 8 section 60A.093, then the following
additional requirements must be met:

(1) the issuing qualified United States financial institution shall formally designate the
confirming qualified United States financial institution as its agent for the receipt and
payment of the drafts; and

(2) the "evergreen clause" must provide for no less than 30 days' notice before the
expiration date or nonrenewal.

Subd. 10.

Reinsurance agreements provisions.

(a) The reinsurance agreement in
conjunction with which the letter of credit is obtained may contain provisions which:

(1) require the assuming insurer to provide letters of credit to the ceding insurer and
specify what they are to cover;

(2) stipulate that the assuming insurer and ceding insurer agree that the letter of credit
provided by the assuming insurer pursuant to the provisions of the reinsurance agreement
may be drawn upon at any time, notwithstanding any other provisions in the agreement,
and must be utilized by the ceding insurer or its successors in interest only for one or more
of the following reasons: to reimburse the ceding insurer for the assuming insurer's share
of premiums returned to the owners of policies reinsured under the reinsurance agreement
on account of cancellations of these policies; to reimburse the ceding insurer for the assuming
insurer's share of surrenders and benefits or losses paid by the ceding insurer under the
terms and provisions of the policies reinsured under the reinsurance agreement; to fund an
account with the ceding insurer in an amount at least equal to the deduction, for reinsurance
ceded, from the ceding insurer's liabilities for policies ceded under the agreement, including
but not limited to, amounts for policy reserves, claims and losses incurred, and unearned
premium reserves; and to pay any other amounts the ceding insurer claims are due under
the reinsurance agreement; and

(3) provide that all of the provisions of this paragraph should be applied without
diminution because of insolvency of the ceding insurer or assuming insurer.

(b) Nothing in this subdivision precludes the ceding insurer and assuming insurer from
providing for:

(1) an interest payment, at a rate not in excess of the prime rate of interest, on the amounts
held under paragraph (a), clause (2); and

(2) the return of any amounts drawn down on the letters of credit in excess of the actual
amounts required or, in the case of paragraph (a), clause (2), any amounts that are
subsequently determined not to be due.

(c) When a letter of credit is obtained in conjunction with a reinsurance agreement
covering risks other than life, annuities, and health, where it is customary practice to provide
a letter of credit for a specific purpose, then the reinsurance agreement may, in lieu of
paragraph (a), clause (2), require that the parties enter into a "trust agreement" which may
be incorporated into the reinsurance agreement or be a separate document.

Subd. 11.

Limitation on use.

A letter of credit may not be used to reduce any liability
for reinsurance ceded to an unauthorized assuming insurer in financial statements required
to be filed with the commissioner unless an acceptable letter of credit with the filing ceding
insurer as beneficiary has been issued on or before the date of filing of the financial statement.
Further, the reduction for the letter of credit may be up to the amount available under the
letter of credit but no greater than the specific obligation under the reinsurance agreement
which the letter of credit was intended to secure.

Subd. 12.

Existing documents.

Notwithstanding the effective date of this section (August
1, 1994), any letter of credit or underlying reinsurance agreement in existence prior to
August 1, 1994, will continue to be acceptable until December 31, 1995, at which time the
agreements will have to be in full compliance with this section for the letter of credit to be
acceptable; provided however that the letter of credit or underlying reinsurance agreement
has been in compliance with laws or regulations in existence immediately preceding August
1, 1994.

Sec. 6.

Minnesota Statutes 2016, section 60A.097, is amended to read:


60A.097 QUALIFYING TRUST AGREEMENTS.

Subdivision 1.

Requirements.

An admitted asset or a reduction in liability for reinsurance
ceded to an unauthorized assuming insurer providing a trust fund pursuant to section 60A.093
shall only be allowed if the requirements of this section are met.

Subd. 2.

Definitions.

As used in this section, the following terms have the meanings
given:

(a) "Beneficiary" means the entity for whose sole benefit the trust has been established
and any successor of the beneficiary by operation of law. If a court of law appoints a
successor in interest to the named beneficiary, the named beneficiary includes and is limited
to the court appointed domiciliary receiver, including a conservator, rehabilitator, or
liquidator.

(b) "Grantor" means the entity that has established a trust for the sole benefit of the
beneficiary. When established in conjunction with a reinsurance agreement, the grantor is
the unlicensed, unaccredited assuming insurer.

(c) "Obligations" as used in subdivision 3, paragraph (k), means:

(1) reinsured losses and allocated loss expenses paid by the ceding company, but not
recovered from the assuming insurer;

(2) reserves for reinsured losses reported and outstanding;

(3) reserves for reinsured losses incurred but not reported; and

(4) reserves for allocated reinsured loss expenses and unearned premiums.

"Obligations" excludes liabilities that are otherwise secured by acceptable means.

Subd. 3.

Required conditions.

(a) The trust agreement must be entered into between
the beneficiary, the grantor, and a trustee which must be a qualified United States financial
institution as defined in section 60A.091.

(b) The trust agreement must create a trust account into which assets must be deposited.

(c) All assets in the trust account must be held by the trustee at the trustee's office in the
United States, except that a bank may apply for the commissioner's permission to use a
foreign branch office of the bank as trustee for trust agreements established pursuant to this
section. If the commissioner approves the use of the foreign branch office as trustee, then
its use must be approved by the beneficiary in writing and the trust agreement must provide
that the written notice described in paragraph (d), clause (1), must also be presentable, as
a matter of legal right, at the trustee's principal office in the United States
.

(d) The trust agreement must provide that:

(1) the beneficiary shall have the right to withdraw assets from the trust account at any
time, without notice to the grantor, subject only to written notice from the beneficiary to
the trustee;

(2) no other statement or document is required to be presented in order to withdraw
assets, except that the beneficiary may be required to acknowledge receipt of withdrawn
assets;

(3) it is not subject to any conditions or qualifications outside of the trust agreement;
and

(4) it shall not contain references to any other agreements or documents except as
provided for under paragraph (k).

(e) The trust agreement must be established for the sole benefit of the beneficiary.

(f) The trust agreement must require the trustee to:

(1) receive assets and hold all assets in a safe place;

(2) determine that all assets are in such form that the beneficiary, or the trustee upon
direction by the beneficiary, may whenever necessary negotiate the assets, without consent
or signature from the grantor or any other person or entity;

(3) furnish to the grantor and the beneficiary a statement of all assets in the trust account
upon its inception and at intervals no less frequent than the end of each calendar quarter;

(4) notify the grantor and the beneficiary within ten days of any deposits to or withdrawals
from the trust account;

(5) upon written demand of the beneficiary, immediately take any and all steps necessary
to transfer absolutely and unequivocally all right, title, and interest in the assets held in the
trust account to the beneficiary and deliver physical custody of the assets to the beneficiary;
and

(6) allow no substitutions or withdrawals of assets from the trust account, except on
written instructions from the beneficiary, except that the trustee may, without the consent
of but with notice to the beneficiary, upon call or maturity of any trust asset, withdraw the
asset upon condition that the proceeds are paid into the trust account.

(g) The trust agreement must provide that at least 30 days, but not more than 45 days,
before termination of the trust account, written notification of termination must be delivered
by the trustee to the beneficiary.

(h) The trust agreement must be made subject to and governed by the laws of the state
in which the trust is established.

(i) The trust agreement must prohibit invasion of the trust corpus for the purpose of
paying compensation to, or reimbursing the expenses of, the trustee.

(j) The trust agreement must provide that the trustee is liable for its own negligence,
willful misconduct, or lack of good faith.

(k) Notwithstanding other provisions of this section, when a trust agreement is established
in conjunction with a reinsurance agreement covering risks other than life, annuities, and
accident and health, where it is customary practice to provide a trust agreement for a specific
purpose, the trust agreement may, notwithstanding any other conditions in this section,
provide that the ceding insurer must undertake to use and apply amounts drawn upon the
trust account, without diminution because of the insolvency of the ceding insurer or the
assuming insurer for the following purposes:

(1) to pay or reimburse the ceding insurer for the assuming insurer's share under the
specific reinsurance agreement regarding any losses and allocated loss expenses paid by
the ceding insurer, but not recovered from the assuming insurer, or for unearned premiums
due to the ceding insurer if not otherwise paid by the assuming insurer;

(2) to make payment to the assuming insurer of any amounts held in the trust account
that exceed 102 percent of the actual amount required to fund the assuming insurer's
obligations under the specific reinsurance agreement; or

(3) where the ceding insurer has received notification of termination of the trust account
and where the assuming insurer's entire obligations under the specific reinsurance agreement
remain unliquidated and undischarged ten days before the termination date, to withdraw
amounts equal to the obligations and deposit those amounts in a separate account, in the
name of the ceding insurer in any qualified United States financial institution as defined in
section 60A.091 apart from its general assets, in trust for the uses and purposes specified
in paragraphs (1) and (2) that remain executory after the withdrawal and for any period after
the termination date.

(l) The reinsurance agreement entered into in conjunction with the trust agreement may,
but need not, contain the provisions required by subdivision 5, paragraph (a), clause (2), so
long as these required conditions are included in the trust agreement.
Assets in the trust
account must meet the requirements of section 60A.093, subdivision 1. The trust agreement
must stipulate that assets deposited in the trust account shall be valued according to their
current fair market value. The agreement may further specify the types of investments to
be deposited. If the reinsurance agreement covers life, annuities, or accident and health
risks, then the provisions required by this paragraph must be included in the reinsurance
agreement.

(m) A letter of credit may be a trust asset if the trust agreement, deed of trust, or other
binding agreement, as approved by the commissioner, provides that if the letter of trust
expires without being renewed or replaced, the trustee must immediately draw down the
full amount of the letter of credit and hold the proceeds in trust for the beneficiary.

Subd. 4.

Permitted conditions.

(a) The trust agreement may provide that the trustee
may resign upon delivery of a written notice of resignation, effective not less than 90 days
after receipt by the beneficiary and grantor of the notice and that the trustee may be removed
by the grantor by delivery to the trustee and the beneficiary of a written notice of removal,
effective not less than 90 days after receipt by the trustee and the beneficiary of the notice.
No resignation or removal is effective until a successor trustee has been appointed and
approved by the beneficiary and the grantor and all assets in the trust have been duly
transferred to the new trustee.

(b) The grantor may have the full and unqualified right to vote any shares or stock in
the trust account and to receive from time to time payment of any dividends or interest upon
any shares of stock or obligations included in the trust account. Interest or dividends must
be either forwarded promptly upon receipt to the grantor or deposited in a separate account
established in the grantor's name.

(c) The trustee may be given authority to invest, and accept substitutions of, any funds
in the account. No investment or substitution must be made without prior approval of the
beneficiary, unless the trust specifies categories of investments acceptable to the beneficiary
and authorizes the trustee to invest funds and to accept substitutions which the trustee
determines are at least equal in market value to the assets withdrawn and that are consistent
with the restrictions in subdivision 5, paragraph (a), clause (2).

(d) The trust agreement may provide that the beneficiary may at any time designate a
party to which all or part of the trust assets are to be transferred. The transfer may be
conditioned upon the trustee receiving, prior to or simultaneously, other specified assets.

(e) The trust agreement may provide that, upon termination of the trust account, all assets
not previously withdrawn by the beneficiary shall, with written approval by the beneficiary,
be delivered to the grantor.

Subd. 5.

Additional conditions applicable to reinsurance agreements.

(a) A reinsurance
agreement, which is entered into in conjunction with a trust agreement and the establishment
of a trust account, may contain provisions that:

(1) require the assuming insurer to enter into a trust agreement and to establish a trust
account for the benefit of the ceding insurer, and specifying what the agreement is to cover;

(2) stipulate that assets deposited in the trust account must be valued according to their
current fair market value and must consist only of United States legal tender, certificates
of deposit issued by a United States bank and payable in United States legal tender, and
investments of the types permitted by state insurance law or any combination of the above,
if the investments are issued by an institution that is not the parent, subsidiary or affiliate
of either the grantor or the beneficiary. The reinsurance agreement may further specify the
types of investments to be deposited. Where a trust agreement is entered into in conjunction
with a reinsurance agreement covering risks other than life, annuities, and accident and
health, then the trust agreement may contain the provisions in this paragraph in lieu of
including these provisions in the reinsurance agreement;

(3) (2) require the assuming insurer, before depositing assets with the trustee, to execute
assignments or endorsements in blank, or to transfer legal title to the trustee of all shares,
obligations or any other assets requiring assignments, in order that the ceding insurer, or
the trustee upon the direction of the ceding insurer, may whenever necessary negotiate these
assets without consent or signature from the assuming insurer or any other entity;

(4) (3) require that all settlements of account between the ceding insurer and the assuming
insurer be made in cash or its equivalent; and

(5) (4) stipulate that the assuming insurer and the ceding insurer agree that the assets in
the trust account, established pursuant to the provisions of the reinsurance agreement, may
be withdrawn by the ceding insurer at any time, notwithstanding any other provisions in
the reinsurance agreement, and must be utilized and applied by the ceding insurer or its
successors in interest by operation of law, including without limitation any liquidator,
rehabilitator, receiver or conservator of the company, without diminution because of
insolvency on the part of the ceding insurer or the assuming insurer, only for the following
purposes:

(i) to reimburse the ceding insurer for the assuming insurer's share of premiums returned
to the owners of policies reinsured under the reinsurance agreement because of cancellations
of the policies;

(ii) to reimburse the ceding insurer for the assuming insurer's share of surrenders and
benefits or losses paid by the ceding insurer pursuant to the provisions of the policies
reinsured under the reinsurance agreement;

(iii) to fund an account with the ceding insurer in an amount at least equal to the
deduction, for reinsurance ceded, from the ceding insurer liabilities for policies ceded under
the agreement. The account must include, but not be limited to, amounts for policy reserves,
claims and losses incurred, including losses incurred but not reported, loss adjustment
expenses, and unearned premium reserves; and

(iv) to pay any other amounts the ceding insurer claims are due under the reinsurance
agreement.

(b) The reinsurance agreement may also contain provisions that:

(1) give the assuming insurer the right to seek approval from the ceding insurer to
withdraw from the trust account all or any part of the trust assets and transfer those assets
to the assuming insurer, and provide that the ceding insurer shall not unreasonably or
arbitrarily withhold its approval, provided:

(i) the assuming insurer shall, at the time of withdrawal, replace the withdrawn assets
with other qualified assets having a current fair market value equal to the market value of
the assets withdrawn so as to maintain at all times the deposit in the required amount; or

(ii) after withdrawal and transfer, the current fair market value of the trust account is no
less than 102 percent of the required amount;

(2) provide for:

(i) the return of any amount withdrawn in excess of the actual amounts required for
paragraph (a), clause (5), items (i), (ii), and (iii), or in the case of paragraph (a), clause (5),
item (iv), any amounts that are subsequently determined not to be due; and

(ii) interest payments, at a rate not in excess of the prime rate of interest, on the amounts
held pursuant to paragraph (a), clause (5), item (iii); and

(3) permit the award by any arbitration panel or court of competent jurisdiction of:

(i) interest at a rate different from that provided in clause (2), item (ii);

(ii) court or arbitration costs;

(iii) attorney's fees; and

(iv) any other reasonable expenses.

Subd. 6.

Financial reporting.

A trust agreement may be used to reduce any liability for
reinsurance ceded to an unauthorized assuming insurer in financial statements required to
be filed with the commissioner when established on or before the date of filing of the
financial statement of the ceding insurer. Further, the reduction for the existence of an
acceptable trust account may be up to the current fair market value of acceptable assets
available to be withdrawn from the trust account at that time, but the reduction must be no
greater than the specific obligations under the reinsurance agreement that the trust account
was established to secure.

Subd. 7.

Existing agreements.

Notwithstanding the effective date of this section (August
1, 1994), any trust agreement or underlying reinsurance agreement in existence prior to
August 1, 1994, will continue to be acceptable until December 31, 1995, at which time the
agreements will have to be in full compliance with this section for the trust agreement to
be acceptable; provided however that the trust agreement or underlying reinsurance agreement
has been in compliance with laws or regulations in existence immediately preceding August
1, 1994.

Subd. 8.

Effect of failure to identify beneficiary.

The failure of any trust agreement
to specifically identify the beneficiary, as defined in subdivision 2, paragraph (a), must not
be construed to affect any actions or rights which the commissioner may take or possess
pursuant to the laws of this state.

Sec. 7. EFFECTIVE DATE.

Sections 1 to 6 are effective January 1, 2019, and apply to reinsurance contracts entered
into or renewed on or after that date. Notwithstanding this effective date, a letter of credit
or underlying reinsurance agreement under section 5 will continue to be acceptable until
December 31, 2019, at which time it must be in full compliance with section 5 to be
acceptable; provided, however, that the letter of credit or underlying reinsurance agreement
has been in compliance with the laws or regulations in existence immediately preceding
January 1, 2019.

1.1 1.2 1.3 1.4 1.5 1.6
1.7 1.8 1.9 1.10
1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.20 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14 2.15 2.16 2.17 2.18 2.19 2.20 2.21 2.22 2.23 2.24 2.25 2.26 2.27 2.28 2.29 2.30 2.31 2.32 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 3.13 3.14 3.15 3.16 3.17 3.18 3.19 3.20 3.21 3.22 3.23 3.24 3.25 3.26 3.27 3.28 3.29 3.30 3.31 3.32 3.33 3.34 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 4.21 4.22 4.23 4.24 4.25 4.26 4.27 4.28 4.29 4.30 4.31 4.32 4.33 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 5.13 5.14 5.15 5.16 5.17 5.18 5.19 5.20 5.21 5.22 5.23 5.24 5.25 5.26 5.27 5.28 5.29 5.30 5.31 5.32 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23 6.24 6.25 6.26 6.27 6.28 6.29 6.30 6.31 6.32 6.33 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 7.10 7.11 7.12 7.13 7.14 7.15 7.16 7.17 7.18 7.19 7.20 7.21 7.22 7.23 7.24 7.25 7.26 7.27 7.28 7.29 7.30 7.31 7.32 7.33 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 8.10 8.11 8.12 8.13 8.14 8.15 8.16 8.17 8.18 8.19 8.20 8.21 8.22 8.23 8.24 8.25 8.26 8.27 8.28 8.29 8.30 8.31 8.32 8.33 8.34 9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 9.9 9.10 9.11 9.12 9.13 9.14 9.15 9.16 9.17 9.18 9.19 9.20 9.21 9.22 9.23 9.24 9.25 9.26 9.27 9.28 9.29 9.30 9.31 9.32 9.33 9.34 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 10.20
10.21 10.22 10.23 10.24 10.25 10.26 10.27 10.28 10.29 10.30 10.31 10.32 10.33 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 11.9 11.10 11.11 11.12 11.13 11.14 11.15 11.16 11.17 11.18 11.19 11.20 11.21 11.22 11.23 11.24 11.25 11.26 11.27 11.28 11.29 11.30 11.31 11.32 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 12.10 12.11 12.12 12.13 12.14 12.15 12.16 12.17 12.18 12.19 12.20 12.21 12.22 12.23 12.24 12.25 12.26 12.27 12.28 12.29 12.30 12.31 12.32 13.1 13.2 13.3 13.4 13.5 13.6 13.7 13.8 13.9 13.10 13.11 13.12 13.13 13.14 13.15 13.16 13.17 13.18 13.19 13.20 13.21 13.22 13.23 13.24 13.25 13.26 13.27 13.28 13.29 13.30 13.31 13.32 13.33 13.34 14.1 14.2 14.3 14.4 14.5 14.6 14.7 14.8 14.9 14.10 14.11 14.12 14.13 14.14 14.15 14.16 14.17 14.18 14.19 14.20 14.21 14.22 14.23 14.24 14.25 14.26 14.27 14.28 14.29 14.30 14.31 14.32 14.33 15.1 15.2 15.3 15.4 15.5 15.6 15.7 15.8 15.9 15.10 15.11 15.12 15.13 15.14 15.15 15.16 15.17 15.18 15.19 15.20 15.21 15.22 15.23 15.24 15.25 15.26 15.27 15.28 15.29 15.30 15.31 15.32 15.33 16.1 16.2 16.3 16.4 16.5 16.6 16.7 16.8 16.9 16.10 16.11 16.12 16.13 16.14 16.15 16.16 16.17 16.18 16.19 16.20 16.21 16.22 16.23 16.24 16.25 16.26 16.27 16.28 16.29 16.30 16.31 16.32 16.33 16.34 16.35 17.1 17.2 17.3 17.4 17.5 17.6 17.7 17.8 17.9 17.10 17.11 17.12 17.13 17.14 17.15 17.16 17.17 17.18 17.19 17.20 17.21 17.22 17.23 17.24 17.25 17.26 17.27 17.28 17.29 17.30 17.31 17.32 18.1 18.2 18.3 18.4 18.5 18.6 18.7 18.8 18.9 18.10 18.11 18.12 18.13 18.14 18.15 18.16 18.17 18.18 18.19 18.20 18.21 18.22
18.23 18.24 18.25 18.26 18.27 18.28 18.29 18.30 18.31 18.32 18.33 19.1 19.2 19.3 19.4 19.5 19.6 19.7 19.8 19.9 19.10 19.11 19.12 19.13 19.14 19.15 19.16 19.17 19.18 19.19 19.20 19.21 19.22
19.23 19.24 19.25 19.26 19.27 19.28 19.29 19.30 19.31 19.32 19.33 20.1 20.2 20.3 20.4 20.5 20.6 20.7 20.8 20.9 20.10 20.11 20.12 20.13 20.14 20.15 20.16 20.17 20.18 20.19 20.20 20.21 20.22 20.23 20.24 20.25 20.26 20.27 20.28 20.29 20.30 20.31 20.32 21.1 21.2 21.3 21.4 21.5 21.6 21.7 21.8 21.9 21.10 21.11 21.12 21.13 21.14 21.15 21.16 21.17 21.18 21.19 21.20 21.21 21.22 21.23 21.24 21.25 21.26 21.27 21.28 21.29 21.30 21.31 21.32 22.1 22.2 22.3 22.4 22.5 22.6 22.7 22.8 22.9 22.10 22.11 22.12 22.13 22.14 22.15 22.16 22.17 22.18 22.19 22.20 22.21 22.22 22.23 22.24 22.25 22.26
22.27 22.28 22.29 22.30 22.31 22.32 22.33 23.1 23.2 23.3 23.4 23.5 23.6 23.7 23.8 23.9 23.10 23.11 23.12 23.13 23.14 23.15 23.16 23.17 23.18 23.19 23.20 23.21 23.22 23.23 23.24 23.25 23.26 23.27 23.28 23.29 23.30 24.1 24.2 24.3 24.4 24.5 24.6 24.7 24.8 24.9 24.10 24.11 24.12 24.13 24.14 24.15 24.16 24.17 24.18 24.19 24.20 24.21 24.22 24.23 24.24 24.25 24.26 24.27 24.28 24.29 24.30 24.31 24.32 25.1 25.2 25.3 25.4 25.5 25.6 25.7 25.8 25.9 25.10 25.11 25.12 25.13 25.14 25.15 25.16 25.17 25.18 25.19 25.20 25.21 25.22 25.23 25.24 25.25 25.26 25.27 25.28 25.29 25.30 25.31 25.32 25.33 26.1 26.2 26.3 26.4 26.5 26.6 26.7 26.8 26.9 26.10 26.11 26.12 26.13 26.14 26.15 26.16 26.17 26.18 26.19 26.20 26.21 26.22 26.23 26.24 26.25 26.26 26.27 26.28 26.29 26.30 26.31 26.32 26.33 26.34 27.1 27.2 27.3 27.4 27.5 27.6 27.7 27.8 27.9 27.10 27.11 27.12 27.13 27.14 27.15 27.16 27.17 27.18 27.19 27.20 27.21 27.22 27.23 27.24 27.25 27.26 27.27 27.28 27.29 27.30 27.31 27.32 27.33 27.34 28.1 28.2 28.3 28.4 28.5 28.6 28.7 28.8 28.9 28.10 28.11 28.12 28.13 28.14 28.15 28.16 28.17 28.18 28.19 28.20 28.21 28.22 28.23 28.24 28.25 28.26 28.27 28.28 28.29 28.30 28.31 29.1 29.2 29.3 29.4 29.5 29.6 29.7 29.8 29.9 29.10 29.11 29.12 29.13
29.14 29.15 29.16 29.17 29.18 29.19 29.20 29.21

700 State Office Building, 100 Rev. Dr. Martin Luther King Jr. Blvd., St. Paul, MN 55155 ♦ Phone: (651) 296-2868 ♦ TTY: 1-800-627-3529 ♦ Fax: (651) 296-0569