(C) traditional par permanent;(D) adjustable premium permanent;
(E) indeterminate premium permanent; and
(F) universal life fixed premium, no dump-in premiums are allowed.
(iii)(A) A formula for determining the reserve interest rate adjustment shall reflect the ceding company's investment earnings and incorporate all realized and unrealized gains and losses reflected in the statutory statement.
(B) The following is an acceptable formula: Rate = 2 (I + CG)/(X + Y - I - CG):
(I) I is the net investment income;
(II) CG is capital gains less capital losses;
(III) X is the current year cash and invested assets plus investment income due and accrued less borrowed money; and
(IV) Y is the same as X but for the prior year.
(h) Settlement is made less frequently than quarterly or payment due from the reinsurer is not made in cash within 90 days of the settlement date.
(i) A ceding insurer shall make a representation or warranty not reasonably related to the business being reinsured.
(j) A ceding insurer shall make a representation or warranty about future performance of the business being reinsured.
(k) A reinsurance agreement is entered into for the principal purpose of producing significant surplus aid for the ceding insurer, typically on a temporary basis, while not transferring all the significant risks inherent in the business reinsured and, in substance or effect, the expected potential liability to the ceding insurer remains basically unchanged.
(2) Notwithstanding Subsection (1), an insurer subject to this rule may, with the prior approval of the commissioner, take reserve credit or establish an asset consistent with Title 31A, Insurance Code, and Title R590 including actuarial interpretations or standards adopted by the department.
(3)(a) An agreement involving the reinsurance of business, along with any subsequent amendments thereto, shall be filed by the ceding company with the commissioner within 30 days from its date of execution and shall include data detailing the financial impact of the transaction.
(b) A ceding insurer's actuary who signs the actuarial opinion regarding valuation of reserves shall comply with this rule and any applicable actuarial standards of practice when determining the proper credit in a financial statement filed with the department.
(c) The actuary shall maintain adequate documentation and be prepared to:
(i) describe the actuarial work performed for inclusion in a financial statement; and
(ii) demonstrate that such work conforms to this rule.
(d)(i) An increase in surplus, net of federal income tax resulting from arrangements described in Subsection (3)(a), shall be identified separately on the insurer's statutory financial statement as a surplus item, aggregate write-ins for gains and losses in surplus in the Capital and Surplus Account, page 4 of the Annual Statement, and recognition of the surplus increase as income shall be reflected on a net of tax basis in the "Reinsurance ceded" line, page 4 of the Annual Statement as earnings emerge from the business reinsured.
(ii)(A) For example, on the last day of calendar year N, company XYZ pays a $20 million initial commission and expense allowance to company ABC for reinsuring an existing block of business. Assuming a 34% tax rate, the net increase in surplus at inception is calculated by multiplying $20 million by 1 minus 0.34, resulting in $13.2 million, which is reported on the "Aggregate write-ins for gains and losses in surplus" line in the Capital and Surplus account. The 34% of $20 million, or $6.8 million, is reported as income on the "Commissions and expense allowances on reinsurance ceded" line of the Summary of Operations.
(B) At the end of year N+1 the business has earned $4 million. ABC has paid $0.5 million in profit and risk charges in arrears for the year and has received a $1 million experience refund. Company ABC's annual statement would report $1.65 million, calculated by taking 66% of the total of $4 million minus $1 million minus $0.5 million, up to a maximum of $13.2 million, on the "Commissions and expense allowance on reinsurance ceded" line of the Summary of Operations, and -$1.65 million on the "Aggregate write-ins for gains and losses in surplus" line of the Capital and Surplus account. The experience refund would be reported separately as a miscellaneous income item in the Summary of Operations.
R590-143-5. Written Agreements.
(1) A reinsurance agreement or an amendment may not be used to reduce a liability or to establish an asset in a financial statement filed with the department, unless an agreement, an amendment, or a binding letter of intent was executed by both parties no later than the "as of date" of the financial statement.
(2) A binding letter of intent, a reinsurance agreement, or an amendment to a reinsurance agreement shall be executed within a reasonable time, not to exceed 90 days from the execution date of the letter of intent, for credit to be granted for the reinsurance ceded.
(3) A reinsurance agreement shall contain the following provisions:
(a) the agreement constitutes the entire agreement between the parties; and
(b) any change or modification to the agreement is void unless made by amendment to the agreement and signed by both parties.
R590-143-6. Severability.
