2004 Minnesota Statutes

     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.  

    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. 

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

    (5) 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 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 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. 

    HIST: 1994 c 426 s 3