SECOND REGULAR SESSION
SENATE COMMITTEE SUBSTITUTE FOR
SENATE BILL NO. 834
102ND GENERAL ASSEMBLY
3270S.03C KRISTINA MARTIN, Secretary
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 1
one new section, to be known as section 375.1183, to read as 2
follows:3
375.1183. 1. Contracts reinsuring policies of life or 1
health insurance or annuities referred to in section 2
375.1178 issued by a ceding insurer that has been placed in 3
conservation or rehabilitation proceedings under sections 4
375.1150 to 375.1246 shall be continued or terminated under 5
the terms and conditions of each contract and the provisions 6
of this section. 7
2. Contracts reinsuring policies of life or health 8
insurance or annuities referred to in section 375.1178 9
issued by a ceding insurer that has been placed into 10
liquidation under sections 375.1150 to 375.1246 shall be 11
continued, subject to the prov isions of this section, unless: 12
(1) The contracts were terminated pursuant to their 13
terms prior to the date of the order of liquidation; or 14
(2) The contracts were terminated pursuant to the 15
order of liquidation, in which case the provisions o f 16
subsection 9 of this section shall apply. 17 SCS SB 834 2
3. (1) At any time within one hundred eighty days of 18
the date of the order of liquidation, a guaranty association 19
covering policies of life or health insurance or annuities 20
referred to in section 375.1 178, in whole or in part, may 21
elect to assume the rights and obligations of the ceding 22
insurer that relate to the policies or annuities under any 23
one or more reinsurance contracts between the ceding insurer 24
and its reinsurers. Any such assumption shal l be effective 25
as of the date of the order of liquidation. The election 26
shall be made by the guaranty association or the national 27
organization of life and health insurance guaranty 28
associations on its behalf by sending written notice, return 29
receipt requested, to the affected reinsurers. 30
(2) To facilitate the decision, the receiver and each 31
affected reinsurer shall make available upon request to the 32
guaranty association or to the national organization of life 33
and health insurance guaranty ass ociations on its behalf: 34
(a) Copies of in-force reinsurance contracts and all 35
related files and records relevant to the determination of 36
whether such contracts should be assumed; and 37
(b) Notices of any defaults under the reinsurance 38
contracts or any known event or condition which with the 39
passage of time could become a default under the reinsurance 40
contracts. 41
(3) Paragraphs (a) through (d) of this subdivision 42
shall apply to reinsurance contracts so assumed by a 43
guaranty association: 44
(a) The guaranty association shall be responsible for 45
all unpaid premiums due under the reinsurance contracts, for 46
periods both before and after the date of the order of 47
liquidation, and shall be responsible for the performance of 48 SCS SB 834 3
all other obligations to be performed after the date of the 49
order of liquidation. 50
(b) The guaranty association shall be entitled to any 51
amounts payable by the reinsurer under the reinsurance 52
contracts with respect to losses or events that occur in 53
periods on or after the date of the order of liquidation. 54
(c) Within thirty days following the date of the 55
guaranty association's election to assume a reinsurance 56
contract, the guaranty association and the reinsurer shall 57
calculate the balance due to or from the guaranty 58
association under each reinsurance contract as of the date 59
of such election, and the guaranty association or reinsurer 60
shall pay any remaining balance due the other within thirty - 61
five days of the date of such election. Any disputes over 62
the amounts due to either the guaranty association or the 63
reinsurer shall be resolved by arbitration pursuant to the 64
terms of the affected reinsurance contract or, if the 65
contract contains no arbitration clause, pursuant to the 66
provisions of subdivisio n (3) of subsection 9 of this 67
section. 68
(d) If the guaranty association, or receiver on behalf 69
of such guaranty association, within sixty days of the date 70
of the guaranty association's election to assume a 71
reinsurance contract, pays the unpaid pre miums due for 72
periods both before and after the date of such election that 73
are due pursuant to the reinsurance contract, the reinsurer 74
shall not be entitled to terminate the reinsurance contract 75
for failure to pay premiums, and shall not be entitled to 76
set off any unpaid amounts due under other contracts, or 77
unpaid amounts due from parties other than the guaranty 78
association, against amounts due such guaranty association. 79 SCS SB 834 4
4. If a receiver continues policies of life or health 80
insurance or annuities referred to in section 375.1178 in 81
force following an order of liquidation, and the policies or 82
annuities are not covered in whole or in part by one or more 83
guaranty associations, the receiver may, within one hundred 84
eighty days of the date of the order of liquidation, elect 85
to assume the rights and obligations of the ceding insurer 86
under any one or more of the reinsurance contracts that 87
relate to the policies or annuities, provided the contracts 88
have not been terminated as set forth in subsect ion 2 of 89
this section. The election shall be made by sending written 90
notice, return receipt requested, to the affected 91
reinsurers. In that event, payment of premiums on the 92
reinsurance contracts for the policies and annuities, for 93
periods both before and after the date of the order of 94
liquidation, shall be chargeable against the estate as a 95
class 1 administrative expense. Amounts paid by the 96
reinsurer on account of losses on the policies and annuities 97
shall be to the estate of the ceding insurer . 98
5. During the period from the date of the order of 99
liquidation until the date the guaranty association or the 100
receiver elects to assume the rights and obligations of the 101
ceding insurer under any one or more of the reinsurance 102
contracts that relate to the policies or annuities as 103
provided for in subsection 3 or 4 of this section, the 104
guaranty association, the receiver, and the reinsurer shall 105
not have any rights or obligations under any reinsurance 106
contract that is eligible for assumption by such association 107
or the receiver. 108
6. (1) If the guaranty association or the receiver, 109
as the case may be, has timely elected to assume a 110
reinsurance contract pursuant to subsection 3 or 4 of this 111 SCS SB 834 5
section, as applicable, the parties' rights and o bligations 112
shall be governed by the provisions of subsection 3 or 4 of 113
this section, as applicable. 114
(2) Where the guaranty association covering policies 115
of life or health insurance or annuities referred to in 116
section 375.1178 or the receiver, as the case may be, does 117
not timely elect to assume a reinsurance contract pursuant 118
to subsection 3 or 4 of this section, as applicable, the 119
reinsurance contract shall be terminated retroactively 120
effective on the date of the order of liquidation and 121
subsection 9 of this section shall apply. 122
7. When policies of life or health insurance or 123
annuities referred to in section 375.1178, or the 124
obligations of the guaranty association with respect 125
thereto, are transferred to an assuming insurer, reinsuran ce 126
on the policies or annuities may also be transferred by the 127
guaranty association, in the case of contracts assumed under 128
subsection 3 of this section, or the receiver, in the case 129
of contracts assumed under subsection 4 of this section, 130
subject to the following: 131
(1) Unless the reinsurer and the assuming insurer 132
agree otherwise, the reinsurance contract transferred shall 133
not cover any new policies or annuities in addition to those 134
transferred; 135
(2) The obligations described in subsectio ns 3 and 4 136
of this section shall no longer apply with respect to 137
matters arising after the effective date of the transfer; and 138
(3) Notice shall be given in writing, return receipt 139
requested, by the transferring party to the affected 140
reinsurer not less than thirty days prior to the effective 141
date of the transfer. 142 SCS SB 834 6
8. The provisions of this section shall, to the extent 143
provided in sections 375.1150 to 375.1246, supersede the 144
provisions of any law or of any affected reinsurance 145
contract that provides for or requires any payment of 146
reinsurance proceeds, on account of losses or events that 147
occur in periods after the date of the order of liquidation, 148
to the receiver of the ceding insurer or any other person. 149
The receiver shall remain entitl ed to any amounts payable by 150
the reinsurer under the reinsurance contracts with respect 151
to losses or events that occur in periods prior to the date 152
of the order of liquidation, subject to provisions of 153
sections 375.1150 to 375.1246 including applicable setoff 154
provisions. 155
9. When a reinsurance contract is terminated pursuant 156
to sections 375.1150 to 375.1246, the reinsurer and the 157
receiver shall commence a mandatory negotiation procedure in 158
accordance with this subsection: 159
(1) No later than thirty days after the date of 160
termination, each party shall appoint an actuary to 161
determine an estimated sum due as a result of the 162
termination of the reinsurance contract calculated in a way 163
expected to make the parties economically indifferent as t o 164
whether the reinsurance contract continues or terminates, 165
giving due regard to the economic effects of the 166
insolvency. The sum shall take into account the present 167
value of future cash flows expected under the reinsurance 168
contract and be based on a gross premium valuation of net 169
liability using current assumptions that reflect post - 170
insolvency experience expectations, with no additional 171
margins, net of any amounts payable and receivable, with a 172
market value adjustment to reflect premature sale of assets 173
to fund the settlement; 174 SCS SB 834 7
(2) Within ninety days of the date of termination, 175
each party shall provide the other party with its estimate 176
of the sum due as a result of the termination of the 177
reinsurance contract, together with all relevant doc uments 178
and other information supporting the estimate. The parties 179
shall make a good faith effort to reach agreement on the sum 180
due; 181
(3) If the parties are unable to reach agreement 182
within ninety days following the submission of materials 183
required in subdivision (2) of this subsection, either party 184
may initiate arbitration proceedings as provided in the 185
reinsurance contract. In the event that the reinsurance 186
contract does not contain an arbitration clause, either 187
party may initiate arbitrati on pursuant to this subdivision 188
by providing the other party with a written demand for 189
arbitration. The arbitration shall be conducted pursuant to 190
the following procedures: 191
(a) Venue for the arbitration shall be within the 192
county of the court's jurisdiction pursuant to section 193
375.1154, or another location agreed to by the parties; 194
(b) Within thirty days of the responding party's 195
receipt of the arbitration demand, each party shall appoint 196
an arbitrator who is a disinterested active or re tired 197
officer or executive of a life or health insurance or 198
reinsurance company, or other professional with no less than 199
ten years' experience in or relating to the field of life or 200
health insurance or reinsurance. The two arbitrators shall 201
appoint an independent, impartial, disinterested umpire who 202
is an active or retired officer or executive of a life or 203
health insurance or reinsurance company, or other 204
professional with no less than ten years' experience in the 205
field of life or health insurance or reinsurance. If the 206 SCS SB 834 8
arbitrators are unable to agree on an umpire, each 207
arbitrator shall provide the other with the names of three 208
qualified individuals, each arbitrator shall strike two 209
names from the other's list, and the umpire shall be chosen 210
by drawing lots from the remaining individuals; 211
(c) Within sixty days following the appointment of the 212
umpire, the parties shall, unless otherwise ordered by the 213
panel, submit to the arbitration panel their estimates of 214
the sum due as a result of the termination of the 215
reinsurance contract, together with all relevant documents 216
and other information supporting the estimate; 217
(d) The time periods set forth in these paragraphs may 218
be extended upon mutual agreement of the parties; 219
(e) The panel shall have all powers necessary to 220
conduct the arbitration proceedings in a fair and 221
appropriate manner, including the power to request 222
additional information from the parties, authorize 223
discovery, hold hearings, and hear testimony. The panel 224
also may appoint independent actuarial experts, the expense 225
of which shall be shared equally between the parties; 226
(4) An arbitration panel considering the matters set 227
forth in this subsection shall apply the standards set forth 228
in this subsection and shall issue a written award 229
specifying a net settlement amount due from one party or the 230
other as a result of the termination of the reinsurance 231
contract. The receivership court shall confirm that award 232
absent proof of statutory grounds for vacati ng or modifying 233
arbitration awards under the Federal Arbitration Act; 234
(5) If the net settlement amount agreed or awarded 235
pursuant to this subsection is payable by the reinsurer, the 236
reinsurer shall pay the amount due to the estate subject to 237
any applicable set-off under section 375.1198. If the net 238 SCS SB 834 9
settlement amount agreed or awarded pursuant to this 239
subsection is payable by the ceding insurer, the reinsurer 240
shall be deemed to have a timely filed claim against the 241
estate for that amount, whic h claim shall be paid pursuant 242
to the priority established in subsection 5 of section 243
375.1218. The affected guaranty associations shall not be 244
entitled to receive the net settlement amount, except to the 245
extent they are entitled to share in the estat e assets as 246
creditors of the estate, and shall have no responsibility 247
for the net settlement amount. 248
10. Except as otherwise provided in this section, 249
nothing in this section shall alter or modify the terms and 250
conditions of any reinsurance contr act. Nothing in this 251
section shall abrogate or limit any rights of any reinsurer 252
to claim that it is entitled to rescind a reinsurance 253
contract. Nothing in this section shall give a policyholder 254
or beneficiary an independent cause of action against a 255
reinsurer that is not otherwise set forth in the reinsurance 256
contract. Nothing in this section shall limit or affect any 257
guaranty association's rights as a creditor of the estate 258
against the assets of the estate. Nothing in this section 259
shall apply to reinsurance contracts covering property or 260
casualty risks. 261
11. This section and subdivision (10) of subsection 1 262
of section 376.734 shall be construed together in a manner 263
that is consistent with each other and with the purpose 264
provided for in section 376.715. 265