3270S.03C
1
SENATE COMMITTEE SUBSTITUTE
FOR
SENATE BILL NO. 834
AN ACT
To amend chapter 375, RSMo, by adding thereto one new
section relating to the disposition of certain
reinsurance contracts.
Be it enacted by the General Assembly of the State of Missouri, as follows:
Section A. Chapter 375, RSMo, is amended by adding thereto
one new section, to be known as section 375.1183, to read as
follows:
375.1183. 1. Contracts reinsuring policies of life or
health insurance or annuities referred to in section
375.1178 issued by a ceding insurer that has been placed in
conservation or rehabilitation proceedings under sections
375.1150 to 375.1246 shall be continued or terminated under
the terms and conditions of each contract and the provisions
of this section.
2. Contracts reinsuring policies of life or health
insurance or annuities referred to in section 375.1178
issued by a ceding insurer that has been placed into
liquidation under sections 375.1150 to 375.1246 shall be
continued, subject to the prov isions of this section, unless:
(1) The contracts were terminated pursuant to their
terms prior to the date of the order of liquidation; or
(2) The contracts were terminated pursuant to the
order of liquidation, in which case the provisions o f
subsection 9 of this section shall apply.
3. (1) At any time within one hundred eighty days of
the date of the order of liquidation, a guaranty association
covering policies of life or health insurance or annuities
referred to in section 375.1 178, in whole or in part, may
2
elect to assume the rights and obligations of the ceding
insurer that relate to the policies or annuities under any
one or more reinsurance contracts between the ceding insurer
and its reinsurers. Any such assumption shal l be effective
as of the date of the order of liquidation. The election
shall be made by the guaranty association or the national
organization of life and health insurance guaranty
associations on its behalf by sending written notice, return
receipt requested, to the affected reinsurers.
(2) To facilitate the decision, the receiver and each
affected reinsurer shall make available upon request to the
guaranty association or to the national organization of life
and health insurance guaranty ass ociations on its behalf:
(a) Copies of in-force reinsurance contracts and all
related files and records relevant to the determination of
whether such contracts should be assumed; and
(b) Notices of any defaults under the reinsurance
contracts or any known event or condition which with the
passage of time could become a default under the reinsurance
contracts.
(3) Paragraphs (a) through (d) of this subdivision
shall apply to reinsurance contracts so assumed by a
guaranty association:
(a) The guaranty association shall be responsible for
all unpaid premiums due under the reinsurance contracts, for
periods both before and after the date of the order of
liquidation, and shall be responsible for the performance of
all other obligations to be performed after the date of the
order of liquidation.
(b) The guaranty association shall be entitled to any
amounts payable by the reinsurer under the reinsurance
contracts with respect to losses or events that occur in
periods on or after the date of the order of liquidation.
3
(c) Within thirty days following the date of the
guaranty association's election to assume a reinsurance
contract, the guaranty association and the reinsurer shall
calculate the balance due to or from the guaranty
association under each reinsurance contract as of the date
of such election, and the guaranty association or reinsurer
shall pay any remaining balance due the other within thirty
five days of the date of such election. Any disputes over
the amounts due to either the guaranty association or the
reinsurer shall be resolved by arbitration pursuant to the
terms of the affected reinsurance contract or, if the
contract contains no arbitration clause, pursuant to the
provisions of subdivisio n (3) of subsection 9 of this
section.
(d) If the guaranty association, or receiver on behalf
of such guaranty association, within sixty days of the date
of the guaranty association's election to assume a
reinsurance contract, pays the unpaid pre miums due for
periods both before and after the date of such election that
are due pursuant to the reinsurance contract, the reinsurer
shall not be entitled to terminate the reinsurance contract
for failure to pay premiums, and shall not be entitled to
set off any unpaid amounts due under other contracts, or
unpaid amounts due from parties other than the guaranty
association, against amounts due such guaranty association.
4. If a receiver continues policies of life or health
insurance or annuities referred to in section 375.1178 in
force following an order of liquidation, and the policies or
annuities are not covered in whole or in part by one or more
guaranty associations, the receiver may, within one hundred
eighty days of the date of the order of liquidation, elect
to assume the rights and obligations of the ceding insurer
under any one or more of the reinsurance contracts that
4
relate to the policies or annuities, provided the contracts
have not been terminated as set forth in subsect ion 2 of
this section. The election shall be made by sending written
notice, return receipt requested, to the affected
reinsurers. In that event, payment of premiums on the
reinsurance contracts for the policies and annuities, for
periods both before and after the date of the order of
liquidation, shall be chargeable against the estate as a
class 1 administrative expense. Amounts paid by the
reinsurer on account of losses on the policies and annuities
shall be to the estate of the ceding insurer .
5. During the period from the date of the order of
liquidation until the date the guaranty association or the
receiver elects to assume the rights and obligations of the
ceding insurer under any one or more of the reinsurance
contracts that relate to the policies or annuities as
provided for in subsection 3 or 4 of this section, the
guaranty association, the receiver, and the reinsurer shall
not have any rights or obligations under any reinsurance
contract that is eligible for assumption by such association
or the receiver.
6. (1) If the guaranty association or the receiver,
as the case may be, has timely elected to assume a
reinsurance contract pursuant to subsections 3 or 4 of this
section, as applicable, the parties' rights and obligations
shall be governed by the provisions of subsections 3 or 4 of
this section, as applicable.
(2) Where the guaranty association covering policies
of life or health insurance or annuities referred to in
section 375.1178 or the receiver, a s the case may be, does
not timely elect to assume a reinsurance contract pursuant
to subsections 3 or 4 of this section, as applicable, the
reinsurance contract shall be terminated retroactively
5
effective on the date of the order of liquidation and
subsection 9 of this section shall apply.
7. When policies of life or health insurance or
annuities referred to in section 375.1178, or the
obligations of the guaranty association with respect
thereto, are transferred to an assuming insurer, reinsu rance
on the policies or annuities may also be transferred by the
guaranty association, in the case of contracts assumed under
subsection 3 of this section, or the receiver, in the case
of contracts assumed under subsection 4 of this section,
subject to the following:
(1) Unless the reinsurer and the assuming insurer
agree otherwise, the reinsurance contract transferred shall
not cover any new policies or annuities in addition to those
transferred;
(2) The obligations described in subsec tions 3 and 4
of this section shall no longer apply with respect to
matters arising after the effective date of the transfer; and
(3) Notice shall be given in writing, return receipt
requested, by the transferring party to the affected
reinsurer not less than thirty days prior to the effective
date of the transfer.
8. The provisions of this section shall, to the extent
provided in sections 375.1150 to 375.1246, supersede the
provisions of any law or of any affected reinsurance
contract that provides for or requires any payment of
reinsurance proceeds, on account of losses or events that
occur in periods after the date of the order of liquidation,
to the receiver of the ceding insurer or any other person.
The receiver shall remain ent itled to any amounts payable by
the reinsurer under the reinsurance contracts with respect
to losses or events that occur in periods prior to the date
of the order of liquidation, subject to provisions of
6
sections 375.1150 to 375.1246 including applica ble setoff
provisions.
9. When a reinsurance contract is terminated pursuant
to sections 375.1150 to 375.1246, the reinsurer and the
receiver shall commence a mandatory negotiation procedure in
accordance with this subsection:
(1) No later than thirty days after the date of
termination, each party shall appoint an actuary to
determine an estimated sum due as a result of the
termination of the reinsurance contract calculated in a way
expected to make the parties economically indifferent a s to
whether the reinsurance contract continues or terminates,
giving due regard to the economic effects of the
insolvency. The sum shall take into account the present
value of future cash flows expected under the reinsurance
contract and be based on a gross premium valuation of net
liability using current assumptions that reflect post -
insolvency experience expectations, with no additional
margins, net of any amounts payable and receivable, with a
market value adjustment to reflect premature sale of assets
to fund the settlement;
(2) Within ninety days of the date of termination,
each party shall provide the other party with its estimate
of the sum due as a result of the termination of the
reinsurance contract, together with all relevant documents
and other information supporting the estimate. The parties
shall make a good faith effort to reach agreement on the sum
due;
(3) If the parties are unable to reach agreement
within ninety days following the submission of materials
required in subdivision (2) of this subsection, either party
may initiate arbitration proceedings as provided in the
reinsurance contract. In the event that the reinsurance
7
contract does not contain an arbitration clause, either
party may initiate arbitr ation pursuant to this subdivision
by providing the other party with a written demand for
arbitration. The arbitration shall be conducted pursuant to
the following procedures:
(a) Venue for the arbitration shall be within the
county of the court's jurisdiction pursuant to section
375.1154, or another location agreed to by the parties;
(b) Within thirty days of the responding party's
receipt of the arbitration demand, each party shall appoint
an arbitrator who is a disinterested active or retired
officer or executive of a life or health insurance or
reinsurance company, or other professional with no less than
ten years' experience in or relating to the field of life or
health insurance or reinsurance. The two arbitrators shall
appoint an independent, impartial, disinterested umpire who
is an active or retired officer or executive of a life or
health insurance or reinsurance company, or other
professional with no less than ten years' experience in the
field of life or health insura nce or reinsurance. If the
arbitrators are unable to agree on an umpire, each
arbitrator shall provide the other with the names of three
qualified individuals, each arbitrator shall strike two
names from the other's list and the umpire shall be chosen
by drawing lots from the remaining individuals;
(c) Within sixty days following the appointment of the
umpire, the parties shall, unless otherwise ordered by the
panel, submit to the arbitration panel their estimates of
the sum due as a result o f the termination of the
reinsurance contract, together with all relevant documents
and other information supporting the estimate;
(d) The time periods set forth in these paragraphs may
be extended upon mutual agreement of the parties;
8
(e) The panel shall have all powers necessary to
conduct the arbitration proceedings in a fair and
appropriate manner, including the power to request
additional information from the parties, authorize
discovery, hold hearings and hear testimony. The panel also
may appoint independent actuarial experts, the expense of
which shall be shared equally between the parties;
(4) An arbitration panel considering the matters set
forth in this subsection shall apply the standards set forth
in this subsection and shall issue a written award
specifying a net settlement amount due from one party or the
other as a result of the termination of the reinsurance
contract. The receivership court shall confirm that award
absent proof of statutory grounds for vacat ing or modifying
arbitration awards under the Federal Arbitration Act;
(5) If the net settlement amount agreed or awarded
pursuant to this subsection is payable by the reinsurer, the
reinsurer shall pay the amount due to the estate subject to
any applicable set-off under section 375.1198. If the net
settlement amount agreed or awarded pursuant to this
subsection is payable by the ceding insurer, the reinsurer
shall be deemed to have a timely filed claim against the
estate for that amount, whi ch claim shall be paid pursuant
to the priority established in subsection 5 of section
375.1218. The affected guaranty associations shall not be
entitled to receive the net settlement amount, except to the
extent they are entitled to share in the esta te assets as
creditors of the estate, and shall have no responsibility
for the net settlement amount.
10. Except as otherwise provided in this section,
nothing in this section shall alter or modify the terms and
conditions of any reinsurance cont ract. Nothing in this
section shall abrogate or limit any rights of any reinsurer
9
to claim that it is entitled to rescind a reinsurance
contract. Nothing in this section shall give a policyholder
or beneficiary an independent cause of action against a
reinsurer that is not otherwise set forth in the reinsurance
contract. Nothing in this section shall limit or affect any
guaranty association's rights as a creditor of the estate
against the assets of the estate. Nothing in this section
shall apply to reinsurance contracts covering property or
casualty risks.
11. This section and subdivision (10) of subsection 1
of section 376.734 shall be construed together in a manner
that is consistent with each other and with the purpose
provided for in section 376.715.