Sec. 31.05.08.19. Permitted Conditions Applicable to Reinsurance Contracts

A. Trust Agreement. A reinsurance contract may:

(1) Require the assuming insurer to enter into a trust agreement;

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

(3) Specify what the agreement is to cover.

B. Execution of Assignments or Endorsements. To allow the ceding insurer, or the trustee on the direction of the ceding insurer, to negotiate assets whenever necessary without consent or signature from the assuming insurer or any other entity, a reinsurance agreement may require the assuming insurer, before depositing assets with the trustee, to:

(1) Execute assignments or endorsements in blank; or

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

C. Settlements of Account in Cash or Equivalent. A reinsurance contract may require that all settlements of account between the ceding insurer and the assuming insurer be made in cash or its equivalent.

D. Withdrawal of Assets. A reinsurance contract may stipulate that the assuming insurer and the ceding insurer agree that the assets in the trust account, established under the provisions of the reinsurance contract, may be withdrawn by the ceding insurer at any time, notwithstanding any other provisions in the reinsurance contract, and may be used by the ceding insurer or its successors in interest by operation of law, including 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, for the following purposes:

(1) To pay or reimburse the ceding insurer for:

(a) The assuming insurer's share under the specific reinsurance contract of premiums returned, but not yet recovered from the assuming insurer, to the owners of policies reinsured under the reinsurance contract because of cancellations of the policies;

(b) The assuming insurer's share of surrenders and benefits or losses paid by the ceding insurer under the provisions of the policies reinsured under the reinsurance contract; or

(c) Any other amounts necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer; or

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

E. Transfer of Assets to Assuming Insurer. A reinsurance contract may allow the assuming insurer to seek approval from the ceding insurer, which may not be unreasonably or arbitrarily withheld, to withdraw from the trust account all or any part of the trust assets and transfer those assets to the assuming insurer, if:

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

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

F. Return of Amount Withdrawn; Interest. A reinsurance contract may provide for:

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

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

G. Arbitration Panel or Court-Award of Expenses. A reinsurance contract may allow the award by an arbitration panel or court of competent jurisdiction of:

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

(2) Court or arbitration costs;

(3) Attorney's fees; and

(4) Any other reasonable expenses.