Chapter 3901-3 | Acquisitions and Mergers; Insurance Holding Company Systems

Ohio Administrative Code

3901

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Rule

Rule 3901-3-01 | Requirement for approval of the proposed acquisition of control of or merger with a domestic insurer.

Effective:

November 14, 2021

Promulgated Under:

119.03

PDF:

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(A) Purpose

The purpose of this rule is to establish the content of and form to be used in the application for approval of the proposed transaction with an insurer domiciled in this state. Section 3901.321 of the Revised Code requires any person who wishes to engage in any transaction described in division (B)(1) of section 3901.321 of the Revised Code to file with the superintendent an information statement (hereinafter called "form A").

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.321 and 3901.041 of the Revised Code.

In addition to the information expressly required to be included in form A, there shall be added such further material information, if any, as may be necessary to make the information contained therein not misleading. The superintendent reserves the right to request other information or documentation that in the superintendent's sole discretion is deemed necessary or appropriate for the protection of policyholders of the domestic insurer or in the public interest.

(D) Exhibits

Applicants may file supplemental exhibits as desired in addition to those expressly required by form A. Exhibits shall clearly indicate the subject matter to which they refer.

(E) Amendments or modifications

Applicants shall promptly advise the superintendent of any changes in the information furnished on form A arising subsequent to the date upon which the information was furnished.

(F) Definitions

Terms found in this regulation are used as defined in the Insurance Holding Company Systems Regulatory Act, sections 3901.32 to 3901.37 of the Revised Code, and rule 3901-3-02 of the Administrative Code.

(G) General requirements

Applicants must file the information statement in the exact form as set forth in paragraph (H) of this rule. The statement shall contain the numbers and captions of all items. If the answer to any item is in the negative, an appropriate statement to that effect shall be made. The information statement, including exhibits and all other documents filed as a part thereof, shall be filed with the superintendent in physical or electronic form. The information statement, including exhibits and all other documents filed as a part thereof shall be clear, easily readable and in the English language with monetary values stated in United States currency. If any exhibit or document filed is in a foreign language it shall be accompanied by a translation into the English language and any monetary value shown in a foreign currency shall be converted into United States currency.

(H) Information to be included in form A.

"Form A

Statement regarding the acquisition of control of or merger with a domestic insurer

_____________________________________________________

Name of domestic insurer

_____________________________________________________

Name and address of acquiring person

Filed with the insurance department of

_____________________________________________________

(State of domicile of insurer being acquired)

Dated: ________________________________, 20_____

Name, title, address and telephone number of individual to whom notices and correspondence concerning this statement should be addressed:

_____________________________________________________

Item 1. Insurer and method of acquisition

State the name and address of the domestic insurer to which this application relates and a brief description of how control is to be acquired.

Item 2. Identity and background of the applicant

(A) State the name and address of the applicant seeking to acquire control of the insurer.

(B) If the applicant is not an individual, state the nature of its business operations for the past five years or for such lesser period as such person and any predecessors thereof shall have been in existence. Briefly describe the business intended to be done by the applicant and the applicant's subsidiaries.

(C) Furnish a chart or listing clearly presenting the identities of and inter-relationships among the applicant and all affiliates of the applicant. Indicate in such chart or listing the percentage of voting securities of each such person which is owned or controlled by the applicant or by any other such person. If control of any person is maintained other than by the ownership or control of voting securities, indicate the basis of such control. As to each person specified in such chart or listing indicate the type of organization (e.g., corporation, trust, partnership) and the state or other jurisdiction of domicile. If court proceedings involving a reorganization or liquidation are pending with respect to any such person, indicate which person, and set forth the title of the court, nature of proceedings and the date when commenced.

Item 3. Identity and background of individuals associated with the applicant

(1) Identify the applicant if (s)he is an individual or, if the applicant is not an individual, all persons who are directors, executive officers or owners of ten percent or more of the voting securities of the applicant.

(2) Each individual applicant or all persons who are directors, executive officers or owners of ten percent or more of the voting securities of the applicant shall complete a biographical affidavit and authority for release of information that is prescribed for such use by the superintendent.

Item 4. Nature, source and amount of consideration

(A) Describe the nature, source and amount of funds or other consideration used or to be used in effecting the proposed transaction. If any part of the consideration is or is to be borrowed or otherwise obtained for the purpose of acquiring, holding or trading securities, furnish a description of the transaction, the names of the parties thereto, the relationship, if any (whether direct or indirect), between the borrower and the lender, the amounts borrowed or to be borrowed, and copies of all agreements, understanding, promissory notes and security arrangements relating thereto. If the stock or any asset of the domestic insurer is to be pledged or hypothecated in any way, so describe and provide a copy of the agreement or arrangement.

(B) Explain the criteria used in determining the nature and amount of such consideration.

Item 5. Future plans of insurer

(1) Describe any contemplated or actual plans or proposals which the applicant may have to: cause the insurer to declare dividends, liquidate or dissolve the insurer, sell any asset of the insurer, enter into any rental, leasing, service or financial, or other arrangements with the insurer, or merge/reorganize the insurer with any person or persons. Provide terms and conditions of all applicable arrangements to the transaction.

(2) Provide a plan of operation for the domestic insurer for three years following consummation of the proposed transaction including: type of business to be written, amount of anticipated premiums, investment policy, marketing plans, relocation of home office or of corporate records and changes in reinsurance or reinsurers.

(3) Describe all changes planned to be made after consummation of the proposed transaction concerning the board of directors or executive officers of the domestic insurer and those of the organization which will succeed the latter as a result of the proposed transaction. Describe the nature, extent and amount of any commitments to or agreements or understandings with the present officers and directors of the domestic insurer. Attach copies of all contemplated or actual contracts, commitments, agreements or understandings for: employment, consultation, advice, management or services.

(4) Provide pro forma balance sheets and income statements of the insurer prepared in accordance with statutory accounting principles, for three years following consummation of the proposed transaction. If any part of the consideration for the proposed transaction involves borrowed funds, describe debt service in detail. If any part of the consideration is to be obtained from or financed by an affiliate of the applicant, identify the source of funds and describe the method of distribution.

(5) If the insurer will be a member of an insurance holding company system following consummation of the proposed transaction, provide the following:

(a) A pro forma balance sheet and income statement showing the effect of the proposed transaction, prepared on a consolidated and applicant-only basis.

(b) If the applicant is an insurer actively engaged in the business of insurance, the statements shall be prepared in accordance with statutory accounting principles.

(c) If the applicant is not an insurer actively engaged in the business of insurance, the statements shall be prepared in accordance with generally accepted accounting principles.

(6) State the amount of premiums written by the domestic insurer and all affiliates for each line of business transacted in Ohio, as of the thirty-first day of December next preceding. State the amount of premiums written by the applicant and all affiliates for each line of business transacted in Ohio, as of the thirty-first day of December next preceding.

Item 6. Voting securities to be acquired

State the number of shares of the insurer's voting securities which the applicant, its affiliates and any person listed in item 3, plans to acquire. Describe the terms of the offer, request, invitation, agreement or acquisition. State the method used to determine the fairness of the proposal.

Item 7. Ownership of voting securities

State the amount of each class of any voting security of the insurer which is beneficially owned or concerning which there is a right to acquire beneficial ownership by the applicant, its affiliates or any person listed in item 3.

Item 8. Contracts, arrangements, or understandings with respect to voting securities of the insurer

Fully describe any contracts, arrangements or understandings with respect to any voting security of the insurer in which the applicant, its affiliates or any person listed in item 3 is involved, including but not limited to: transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or guarantees of profits, division of losses or profits or the giving or withholding of proxies. Identify the persons with whom such contracts, arrangements or understandings have been entered.

File as exhibits copies of all tender offers for, requests or invitations for, tenders of, exchange offers for, and agreements to acquire or exchange any voting securities of the insurer and, if distributed, of additional soliciting material relating thereto and annual reports to the stockholders of the insurer and applicant for the last two fiscal years.

Item 9. Recent purchases of voting securities

Describe any purchases of any voting securities of the insurer by the applicant, its affiliates or any person listed in item 3 during the twelve calendar months preceding the filing of this statement. Include in the description the dates of purchase, the names of the purchasers, and the consideration paid or agreed to be paid therefore. State whether any such shares are pledged or hypothecated.

Item 10. Recent recommendations to purchase

Describe any recommendations to purchase any voting security of the insurer made by the applicant, its affiliates or any person listed in item 3, or by anyone based upon interviews or at the suggestion of the applicant, its affiliates or any person listed in item 3 during the twelve calendar months preceding the filing of this statement.

Item 11. Agreements with broker-dealers

Describe the terms of any agreement, contract or understanding made with any broker-dealer as to solicitation of voting securities of the insurer for tender and the amount of any fees, commissions or other compensation to be paid to broker-dealers with regard thereto.

Item 12. Financial statements

(A) Financial statements shall be attached to this statement as exhibits. However, list under this item the financial statements so attached.

(B) The financial statements shall include: (1) the annual financial statements of the persons identified in item 2(C) for the preceding five fiscal years or for such lesser period as such applicant and its affiliates and any of its predecessors shall have been in existence and (2) similar information covering the period from the end of such person's last fiscal year, if such information is available. Such statements may be prepared on either an individual basis or, unless the superintendent otherwise requires, on a consolidated basis, if the consolidated statements are prepared in the usual course of business.

(C) The annual financial statements of the applicant shall be accompanied by the certificate of an independent public accountant to the effect that such statements present fairly the financial position of the applicant and the results of its operations for the year then ended, in conformity with generally accepted accounting principles or with requirements of insurance or other accounting principles prescribed or permitted under law. If the applicant is an insurer which is actively engaged in the business of insurance, the financial statements must be based on the annual statement of such person filed with the insurance department of the person's domiciliary state and be in accordance with the requirements of insurance or other accounting principles prescribed or permitted under the law and regulations of such state.

Item 13. Corporate authority

If the applicant is not an individual, file a certified copy of:

(1) The resolution of the board of directors of the applicant approving the transaction and directing that the agreement underlying the transaction be submitted to a vote of the shareholders, members or policyholders entitled to vote on the matter.

(2) The resolution of the shareholders, members or policyholders of the applicant approving the transaction.

Item 14. Notice to domestic insurer

State whether the applicant has sent a copy of form A to the domestic insurer.

Item 15. Signature and certification

Signature and certification required as follows:

Signature

Pursuant to the requirements of section 3901.321 of the Revised Code ________________ has caused this application to be duly signed on its behalf in the city of ______________ and state of______________ on the ___________ day of __________, 20______.

____________________________________________________

Name of applicant

By: _____________________________,	its: _____________________________
(Name)
Attest:
________________________________,	________________________________
(Signature of officer)	(Title)

Certification

The undersigned deposes and says that (s)he has duly executed the attached application dated __________________, 20_____, for and on behalf of _________________________(Name of applicant), and that (s)he is authorized to execute and file such instrument. Deponent further says that (s)he is the ________________________ of such company and that (s)he is familiar with such instrument and the contents thereof, and that the facts therein set forth are true to the best of his or her knowledge, information and belief.

	(Signature) ___________________________
	____________________________________
	(Type or print name)

State of _______________________ )
	ss
County of _____________________ )

The foregoing instrument was acknowledged before me this___________ day of ______________, 20____.

_______________________________

Notary public"

(I) Severability

If any paragraph, term or provision of this rule is adjudged invalid for any reason, the judgment shall not affect, impair or invalidate any other paragraph, term or provision of this rule, but the remaining paragraphs, terms and provisions shall be and continue in full force and effect.

Last updated November 15, 2021 at 8:35 AM

Supplemental Information

Authorized By: 3901.041, 3901.321
Amplifies: 3901.321
Five Year Review Date: 8/30/2025
Prior Effective Dates: 4/13/2006

Rule 3901-3-02 | Regulation and registration of insurers under the Insurance Holding Company Regulatory Act.

Effective:

June 1, 2023

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to interpret certain terms, establish standards, and to promulgate forms to be adhered to in the regulation and registration of insurers authorized to do business in this state.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under section 3901.041 of the Revised Code. Sections 3901.32 to 3901.37 of the Revised Code, provide for the regulation and registration of insurance holding company systems.

(1) "Executive officer" means any individual charged with active management and control, in an executive capacity, including a president, vice president, treasurer, secretary, controller, and any other individual performing for a person, whether incorporated or unincorporated, functions corresponding to those performed by the foregoing officers.

(2) "Ultimate controlling person" means that person within an insurance holding company system which is not controlled by any other person.

(3) "Insurer" as defined in division (F) of section 3901.32 of the Revised Code includes, but is not limited to, domestic, foreign, and alien stock or mutual insurance companies, mutual protective insurance associations, fraternal benefit societies, risk retention groups domiciled in this state as described in division (A) of section 3960.02 of the Revised Code, reciprocals, title guarantee and trust companies, health insuring corporations, and any other persons engaged either directly or indirectly in this state in the business of insurance which is subject to regulation by the superintendent of insurance.

(4) "Applicant" means a person or persons seeking to control an insurer.

(5) All other terms used herein shall have the same meanings prescribed in section 3901.32 of the Revised Code unless the context otherwise requires. Other nomenclature or terminology is according to the Revised Code, or insurance usage if not defined by the Revised Code.

(D) Registration of insurer--statement filing

An insurer required to file a registration statement or an amendment thereto pursuant to section 3901.33 of the Revised Code shall furnish the required information on form B as outlined in paragraph (M) of this rule.

(E) Amendments

(1) Form B is the annual registration statement to be filed annually by the registered insurer on or before June one, each year after the initial registration. Such annual filing shall restate the form B and make current all information in the form B, including amendments filed during the current reporting year.

(2) An amendment to form B shall be filed within fifteen days after the end of any month in which the following occurs:

(a) There is a change in the control of the registered insurer, in which case the entire form B shall be made current;

(b) There is a material change in or addition to the information given in item 5 or item 6 of form B.

(F) Alternative and consolidated registrations

(1) Any insurer authorized to do business in this state may file a registration statement on behalf of any affiliated insurer or insurers which are required to register under section 3901.33 of the Revised Code. Such registration statement may include information regarding any insurer in the insurance holding company system even if such insurer is not authorized to do business in this state. In lieu of filing a registration statement on form B, an insurer authorized to do business in this state may file a copy of the registration statement or similar report which it is required to file in its state of domicile, provided:

(a) The statement or report contains substantially similar information required to be furnished on form B; and

(b) The filing insurer is the principal insurance company in the insurance holding company system.

(2) The question of whether the filing insurer is the principal insurance company in the insurance holding company system is a question of fact and an insurer filing a registration statement or report in lieu of form B on behalf of an affiliated insurer shall set forth a simple statement of facts which will substantiate the filing insurer's claim that it, in fact, is the principal insurer in the insurance holding company system.

(3) With the prior approval of the superintendent, an insurer not authorized to do business in this state may follow any of the procedures which could be done by an insurer authorized to do business in this state under paragraph (F)(1) of this rule.

(4) Two or more affiliated insurers subject to registration may file a consolidated registration statement or consolidated reports amending their consolidated registration statement or their individual registration statements. The superintendent, however, reserves the right to require individual registration statements if he deems it necessary in the interest of clarity, ease of administration or the public good.

(G) Exemptions

(1) A foreign or alien insurer otherwise subject to section 3901.33 of the Revised Code shall not be required to register pursuant to section 3901.33 of the Revised Code if it is subject to disclosure requirements and standards adopted by statute or regulation in the jurisdiction of its domicile which are substantially similar to those contained in section 3901.33 of the Revised Code.

(2) The state of entry of an alien insurer shall be deemed to be its domiciliary state for the purposes of section 3901.33 of the Revised Code.

(3) Any insurer not otherwise exempt from section 3901.33 of the Revised Code may apply for an exemption from the requirements of section 3901.33 of the Revised Code by submitting a statement to the superintendent setting forth its reasons for being exempt. No exemption shall be granted except upon written order of the superintendent, stating his findings, made after a hearing held upon not less than ten days written notice to the insurer requesting the exemption.

(H) Disclaimers and termination of registration

(1) A disclaimer of affiliation pursuant to division (J) of section 3901.33 of the Revised Code or a request for termination of registration pursuant to division (F) of section 3901.33 of the Revised Code claiming that a person does not, or will not upon the taking of some proposed action, control any other person (hereinafter referred to as the "subject") shall contain the following:

(a) The number of authorized, issued and outstanding voting securities of the subject:

(b) With respect to the person whose control is denied and all affiliates of such person:

(i) The number and percentage of shares of the subject's voting securities which are held of record or know to be beneficially owned, and the number of such shares concerning which there is a right to acquire, directly or indirectly;

(ii) Information as to all transactions in any voting securities of the subject which were effected during the past six months by such persons;

(c) All material relationships and bases for affiliations between the subject and the person whose control is denied and all affiliates of such person;

(d) A statement explaining why such person should not be considered to control the subject.

(2) A request for termination of registration shall be deemed to have been granted unless the superintendent, within thirty days after he received the request, notifies the registered insurer otherwise.

(I) Enterprise risk report

The ultimate controlling person of an insurer required to file an enterprise risk report, pursuant to division (K) of section 3901.33 of the Revised Code, shall furnish the required information on form F, hereby made a part of this rule.

(J) Group capital calculation

(1) Where an insurance holding company system has previously filed the annual group capital calculation at least once, the lead state commissioner has the discretion to exempt the ultimate controlling person from filing the annual group capital calculation if the lead state commissioner makes a determination based upon that filing that the insurance holding company system meets all of the following criteria:

(a) Has annual direct written and unaffiliated assumed premium (including international direct and assumed premium), but excluding premiums reinsured with the "Federal Crop Insurance Corporation" and "Federal Flood Program," of less than one billion dollars;

(b) Has no insurers within its holding company structure that are domiciled outside of the United States or one of its territories;

(c) Has no banking, depository or other financial entity that is subject to an identified regulatory capital framework within its holding company structure;

(d) The holding company system attests that there are no material changes in the transactions between insurers and non-insurers in the group that have occurred since the last filing of the annual group capital; and

(e) The non-insurers within the holding company system do not pose a material financial risk to the insurer's ability to honor policyholder obligations.

(2) Where an insurance holding company system has previously filed the annual group capital calculation at least once, the lead state commissioner has the discretion to accept in lieu of the group capital calculation a limited group capital filing if:

The insurance holding company system has annual direct written and unaffiliated premium (including international direct and assumed premium), but excluding premiums reinsured with the "Federal Crop Insurance Corporation" and "Federal Flood Program," of less than one billion dollars; and all of the following additional criteria are met:

(a) Has no insurers within its holding company structure that are domiciled outside of the United States or one of its territories;

(b) Does not include a banking, depository or other financial entity that is subject to an identified regulatory capital framework; and

(c) The holding company system attests that there are no material changes in transactions between insurers and non-insurers in the group that have occurred since the last filing of the report to the lead state commissioner and the non-insurers within the holding company system do not pose a material financial risk to the insurers ability to honor policyholder obligations.

(3) For an insurance holding company that has previously met an exemption with respect to the group capital calculation pursuant to paragraph (J)(1) or (J)(2) of this rule, the lead state commissioner may require at any time the ultimate controlling person to file an annual group capital calculation, completed in accordance with the NAIC group capital calculation instructions, if any of the following criteria are met:

(a) Any insurer within the insurance holding company system is in a risk-based capital action level event as set forth in section 3903.84 of the Revised Code or a similar standard for a non-U.S. insurer; or

(b) Any insurer within the insurance holding company system meets one or more of the standards of an insurer deemed to be in hazardous financial condition as defined in rule 3901-3-04 of the Administrative Code; or

(c) Any insurer within the insurance holding company system otherwise exhibits qualities of a troubled insurer as determined by the lead state commissioner based on unique circumstances including, but not limited to, the type and volume of business written, ownership and organizational structure, federal agency requests, and international supervisor requests.

(4) A non-U.S. jurisdiction is considered to "recognize and accept" the group capital calculation if it satisfies the following criteria:

(a) With respect to the division (L)(4)(d) of section 3901.33 of the Revised Code:

(i) The non-U.S. jurisdiction recognizes the U.S. state regulatory approach to group supervision and group capital, by providing confirmation by a competent regulatory authority, in such jurisdiction, that insurers and insurance groups whose lead state is accredited by the NAIC under the NAIC accreditation program shall be subject only to worldwide prudential insurance group supervision including worldwide group governance, solvency and capital, and reporting, as applicable, by the lead state and will not be subject to group supervision, including worldwide group governance, solvency and capital, and reporting, at the level of the worldwide parent undertaking of the insurance or reinsurance group by the non-U.S. jurisdiction; or

(ii) Where no U.S. insurance groups operate in the non-U.S. jurisdiction, that non-U.S. jurisdiction indicates formally in writing to the lead state with a copy to the international association of insurance supervisors that the group capital calculation is an acceptable international capital standard. This will service as the documentation otherwise required in paragraph (J)(4)(a)(i) of this rule.

(b) The non-U.S. jurisdiction provides confirmation by a competent regulatory authority in such jurisdiction that information regarding insurers and their parent, subsidiary, or affiliated entities, if applicable, shall be provided to the lead state commissioner in accordance with a memorandum of understanding or similar document between the commissioner and such jurisdiction, including but not limited to the international association of insurance supervisors multilateral memorandum of understanding or other multilateral memoranda of understanding coordinated by the NAIC. The commissioner shall determine, in consultation with the NAIC committee process, if the requirements of the information sharing agreements are in force.

(5) A list of non-U.S. jurisdictions that "recognize and accept" the group capital calculation will be published through the NAIC committee process:

(a) A list of jurisdictions that "recognize and accept" the group capital calculation pursuant to division (L)(4)(d) of section 3901.33 of the Revised Code, is published through the NAIC committee process to assist the lead state commissioner in determining which insurers shall file an annual group capital calculation. The list will clarify those situations in which a jurisdiction is exempted from filing under division (L)(4)(d) of section 3901.33 of the Revised Code. To assist with a determination under division (L)(5) of section 3901.33 of the Revised Code, the list will also identify whether a jurisdiction that is exempted under either division (L)(4)(c) or (L)(4)(d) of section 3901.33 of the Revised Code requires a group capital filing for any U.S. based insurance group's operations in that non-U.S. jurisdiction.

(b) For a non-U.S. jurisdiction where no U.S. insurance groups operate, the confirmation provided to meet the requirement of paragraph (J)(4)(a)(ii) of this rule will serve as support for recommendation to be published as a jurisdiction that "recognizes and accepts" the group capital calculation through the NAIC committee process.

(c) If the lead state commissioner makes a determination pursuant to division (L)(4)(d) of section 3901.33 of the Revised Code that differs from the NAIC list, the lead state commissioner shall provide thoroughly documented justification to the NAIC and other states.

(d) Upon determination by the lead state commissioner that a non-U.S. jurisdiction no longer meets one or more of the requirements to "recognize and accept" the group capital calculation, the lead state commissioner may provide a recommendation to the NAIC that the non-U.S. jurisdiction be removed from the list of jurisdictions that "recognize and accepts" the group capital calculation.

(K) Extraordinary dividends and other distributions

Request for approval of extraordinary dividends or any other extraordinary distribution shall include the following:

(1) The amount of extraordinary dividend or extraordinary distribution;

(2) The date established for payment of the dividend or distribution;

(3) A statement as to whether the dividend or distribution is to be in cash or other property and, if in property, a description thereof, its cost, and the fair market value of such property together with an explanation of the basis for valuation;

(4) The amounts and dates of all dividends or distributions paid within the period of twelve consecutive months ending on the date fixed for payment of the proposed dividend or distribution for which approval is sought and commencing on the day after the same day of the same month in the last preceding year;

(5) A balance sheet and statement of income for the period intervening from the last annual statement filed with the superintendent and the end of the month preceding the month in which the request for dividend or distribution approval is submitted;

(6) A brief statement as to the effect of the proposed dividend or distribution upon the insurer's surplus and the reasonableness of surplus in relation to the insurer's outstanding liabilities and the adequacy of surplus relative to the insurer's financial needs.

(L) Form B: instructions

(1) General requirements

(a) Form B is intended to be a guide in the preparation of the statement required by section 3901.33 of the Revised Code. It is not intended to be a blank form which is to be filled in. The statement filed shall contain the numbers and captions of all items, but the text of the items may be omitted provided the answers thereto are so prepared as to indicate to the reader the coverage of the items without the necessity of his referring to the text of the items or the instructions thereto. All instructions, whether appearing under the items of the form or elsewhere therein, are to be omitted. Unless expressly provided otherwise, if any item is not applicable or the answer thereto is in the negative, an appropriate statement to that effect shall be made;

(b) Each statement, including exhibits and all other documents filed as a part thereof, shall be filed with the superintendent in physical or electronic form. If a consolidated report is made to amend the individual registration statement of more than one insurer, one complete copy of such report shall be filed. If the signature of any person is affixed pursuant to a power of attorney or other similar authority, a copy of such power of attorney or other authority shall also be filed with the statement or report;

(c) All copies of any statement, report, financial statement, or exhibits shall be clear and easily readable. Debits in credit categories shall be designed so as to be clearly distinguishable as such. Statements or reports shall be in the English language and monetary values shall be stated in United States currency. If any exhibit or other document filed with the statement or report is in a foreign language, it shall be accompanied by a translation into the English language and any monetary value shown in a foreign currency shall be converted into United States currency.

(2) Incorporation by reference, summaries and omissions.

(a) Information required by an item of form B may be incorporated by reference in answer or partial answer to any other item. Information contained in any financial statement, annual report, proxy statement, statement filed with a governmental authority, or any other document may be incorporated by reference in answer or partial answer to any item of form B provided such document is filed as an exhibit to the statement or report. Excerpts of documents may be filed as exhibits if the documents are extensive. Documents already on file with the superintendent need not be attached as exhibits. References to information contained in exhibits or in documents already on file shall clearly identify the material and shall specifically indicate that such material is to be incorporated by reference in answer to the item. Matter shall not be incorporated by reference in any case where such incorporation would render the statement or report incomplete, unclear or confusing;

(b) Where an item requires a summary or outline of the provisions of any document, only a brief statement shall be made as to the most important provisions of the document. In addition to such statement, the summary or outline may incorporate by reference particular parts of any exhibit or document on file with the superintendent and may be qualified in its entirety by such reference. In any case where two or more documents required to be filed as exhibits are substantially identical in all material respects except as to the parties thereto, the dates of execution, or other details, a copy of only one of the documents need be filed with a schedule identifying the omitted documents and setting forth the material details in which such omitted documents differ from the document of which a copy is filed. The superintendent may at any time in his discretion require the filing of copies of any omitted documents.

(3) Information unknown or unavailable and extension of time to furnish:

(a) Information required need be given only insofar as it is known or reasonably available to the registered insurer. If any required information is unknown and not reasonably available to the registered insurer, either because the obtaining thereof would involve unreasonable effort or expense, or because it rests peculiarly within the knowledge of another person not affiliated with the registered insurer filing, the information may be omitted, subject to the following conditions:

(i) The registered insurer shall give such information on the subject as it possesses or can acquire without unreasonable effort or expense, together with the sources thereof; and

(ii) The registered insurer shall include a statement either showing that unreasonable effort or expense would be involved or indicating the absence of any affiliation with the person within whose knowledge the information rests and stating the result of a request made to such person for the information.

(b) If it is impractical to furnish any required information, document or report at the time it is required to be filed, there may be filed with the superintendent as a separate document an application (i) identifying the information, document or report in question, (ii) stating why the filing thereof at the time required is impractical, and (iii) requesting an extension of time for filing the information, document or report to a specified date. The application shall be deemed granted unless the superintendent within thirty days after receipt thereof, shall enter an order denying the application.

(4) Additional information and exhibits.

In addition to the information expressly required to be included in form B, there shall be added such further material information, if any, as may be necessary to make the information contained therein not misleading. The person filing may also file such exhibits as it may desire in addition to those expressly required by the statement. Such exhibits shall be so marked as to indicate clearly the subject matters to which they refer.

(5) Amendments

Any amendment to form B shall include on the top of the cover page the phrase: "amendment no. _____ to" and shall indicate the date of the amendment and the date of the original filing of the statement being amended.

(M) Form B: Information to be included in form B

"Insurance holding company system registration statement

Filed with the insurance department of the state of Ohio by

______________________________________________________________

Name of registrant (or registrants if this is a consolidated registration statement)

"NAIC Group No." _____________________

On behalf of the following insurance companies:

____________________________________________________________

Dated: ________________, 20__

Name, title and address of officer to whom notices and correspondence concerning this statement should be addressed:

____________________________________________________________

Item 1. Identity and control of registrant

Furnish the exact name of each insurer registering or being registered (hereinafter called "the registrant"), the home office address and principal executive officers of each, the date on which each registrant became part of the insurance holding company system, and the method(s) by which control of each registrant was acquired and is maintained.

Item 2. Organizational chart

Furnish a chart or listing clearly presenting the identities of and interrelationships amount all affiliated persons within the insurance holding company system. The chart or list should show the percentage of each class of voting securities of each affiliate which is owned, directly or indirectly, by another affiliate. If control of any person within the system is maintained other than by the ownership or control of voting securities, indicate the basis of such control. As to each person specified in such chart or listing, indicate the type or organization (e.g., corporation, trust, partnership) and the state or other jurisdiction of domicile.

Item 3. The ultimate controlling person

As to the ultimate controlling person, furnish the following information:

(a) Name;

(b) Home office address;

(d) The organizational structure of the person, e.g., corporation, partnership, individual, trust, etc.;

(e) The principal business of the person;

(f) The name and address of any person who holds ten percent or more of any class of voting security of the ultimate controlling person, the class of such security, the name of shares held of record or known to be beneficially owned, and the percentage of class so held or owned.

Item 4. Biographical information

Furnish the following information on the directors or trustees, the members of a non- profit corporation, as well as the executive officers of the insurer and ultimate controlling person, beneficial or record owners of ten percent or more of any class of voting security of the ultimate controlling person:

(a) For new registrants, provide a biographical affidavit on a form prescribed by the superintendent for all persons described in item 4.

(b) For registrants without any changes to the list of persons described in item 4 since the previous filing, provide each person's name and address, his principal occupation and all offices and positions held during the past five years, and any conviction of crimes other than minor traffic violations during the past ten years.

(c) For registrants with changes to the list of persons described in item 4 since the previous filing, provide a biographical affidavit on a form prescribed by the superintendent for any person not previously required to submit biographical information; for all others provide the information described in paragraph (b) of item 4.

Item 5. Transaction, relationships and agreements

Briefly describe the following agreements in force, relationships subsisting, and transactions currently outstanding between the registrant and its affiliates:

(a) Loans, other investments, or purchases, sales or exchanges of securities of the affiliated by the registrant or of the registrant by its affiliates;

(b) Purchases, sales or exchanges of assets;

(d) Guarantees or undertakings for the benefit of an affiliate which result in an actual contingent exposure of the registrant's assets to liability, other than insurance contracts entered into in the ordinary course of the registrant's business;

(e) All management and service contracts and all cost sharing arrangements;

(f) Reinsurance agreements;

(g) Dividends and other distributions to shareholders;

(h) Consolidated tax allocation agreements;

(i) Any pledge of the insurer's stock, including stock of any subsidiary or controlling affiliate, for a loan made to any member of the insurance holding company system, and

(j) Other matters concerning transactions between registered insures and any affiliates as may be included from time to time in any registration forms adopted or approved by the superintendent.

No Information need be disclosed if such information is not material. Sales purchases, exchanges, loans or extensions of credit or investments involving one-half of one per cent or less of the registrant's admitted assets as of the thirty-first day of December next preceding shall not be deemed material.

The description shall be in a manner as to permit the proper evaluation thereof by the superintendent, and shall include at least the following: the nature and purpose of the transaction; the nature and the amounts of any payments or transfers of assets between the parties; the identity of all parties to such transaction; the relationship of the affiliated parties to the registrant; and if applicable the date upon which the agreements, relationships, transactions and distributions described in item 5 of paragraph (M) of this rule were reported to the superintendent pursuant to division (C) of section 3901.34 or section 3901.341 of the Revised Code.

Item 6. Litigation or administrative proceedings

A brief description of any litigation or administrative proceedings of the following types, either then pending or concluded within the preceding fiscal year, to which the ultimate controlling person or any directors or executive officers of the ultimate controlling person was a party or of which the property of any such person is or was the subject; give the names of the parties, the court or agency in which such litigation or proceeding is or was pending, and the date when commenced:

(a) Criminal prosecutions or administrative proceedings by any governmental agency or authority which may be relevant to the trustworthiness or any party thereto; and

(b) Proceedings which may have a material effect upon the solvency or capital structure of the ultimate controlling person including, but not necessarily limited to, bankruptcy, liquidation, receivership, or corporate reorganizations.

Item 7. Financial statements and exhibits

(a) Financial statements and exhibits for registrants shall be attached to this statement as an appendix unless incorporated herein by reference to such statements or exhibits already filed with the superintendent;

(b) The financial statements shall include the annual financial statements of the ultimate controlling person in the insurance holding company system as of the end of such person's latest fiscal year.

If at the time of the initial registration, any annual financial statements required to be filed for the latest fiscal year are not available, annual statements for the previous fiscal year may be filed and similar financial information shall be filed for any subsequent period to the extent such information is available. Financial statements may be prepared on either an individual basis, or unless the superintendent otherwise requires, on a consolidated basis if such consolidated statements are prepared in the usual course of business.

Unless the superintendent otherwise permits, the annual financial statements shall be accompanied by the certificate of an independent public accountant to the effect that such statements present fairly the financial position of the ultimate controlling person and the results of its operations for the year then ended, in conformity with generally accepted accounting principles or with requirements of insurance or other accounting principles prescribed or permitted under law. If the ultimate controlling person is an insurer which is actively engaged in the business of insurance, the annual financial statements need not be certified, provided they are based on the annual statement of such insurer filed with the insurance department of the insurer's domiciliary state and are in accordance with requirements of insurance or other accounting principles prescribed or permitted under the law and regulations of such state.

(c) Exhibits shall include copies of the latest annual reports to shareholders of the ultimate controlling person and proxy material used by the ultimate controlling person.

Signatures

Signatures and certification of the forms as follows:

Pursuant to the requirements of section 3901.33 of the Revised Code and rule 3901-3-02 of the Administrative Code, the registrant has caused this registration statement to be duly signed on its behalf in the city of __________ and state of __________ on the _____ day of __________, 20___.

__________________________________ (Name) (Title)

(Seal)

______________________________ (Name of registrant)

Attest:

_______________________ (Signature of officer)

_______________________ (Title)

The undersigned deposes and says the he has duly executed the attached registration statement dated __________, 20___, for and on behalf of __________; that he is the __________ (Title of officer) of such company, and that he has the authority to execute and file such instrument. Deponent further says that he is familiar with such instrument and that the facts therein set forth are true to the best of his knowledge, information and belief.

(Signature)__________________________

(Type or print name beneath) __________________________"

(N) Summary of registration statement

A form C summary of registration statement, must be prepared and filed with each form B filing in the following form:

Form C

Summary of registration statement

Filed with the insurance department of the state of __________

________________________________

Name of registrant

"NAIC Group No." ______________________________

On behalf of following insurance companies

Name address

_________________________________________________________

Date: __________, 20___

Name, title, address and telephone number of individual to whom notices and correspondence concerning this statement should be addressed:

_________________________________________________________

Furnish a brief description of all items in the current annual registration statement which represent changes from the prior year's annual registration statement. The description shall be in a manner as to permit the proper evaluation thereof by the superintendent, and shall include specific references to item numbers in the annual registration statement and to the terms contained therein.

Changes occurring under item 2 of form B insofar as changes in the percentage of each class of voting securities held by each affiliate is concerned, need only be included where such changes are ones which result in ownership or holdings of ten per cent or more of voting securities, loss or transfer of control, or acquisition or loss of partnership interest.

Changes occurring under item 4 of form B need only be included where an individual is, for the first time, made a director or executive officer of the ultimate controlling person; a director or executive officer terminates his or her responsibilities with the ultimate controlling person; or in the event an individual is named president of the ultimate controlling person.

If a transaction disclosed on the prior year's annual registration statement has been changed, the nature of such change shall be included. If a transaction disclosed on the prior year's annual registration statement has been effectuated, furnish the mode of completion and any flow of funds between affiliates resulting from the transaction.

The insurer shall furnish a statement that transactions entered into since the filing of the prior year's annual registration statement are not part of a plan or series of like transactions whose purpose it is to avoid statutory threshold amounts and the review that might otherwise occur.

Signature and certification

Signature and certification required as follows:

Pursuant to the requirements of section 3901.33 of the Revised Code, registrant has caused this registration statement summary be duly signed on its behalf of the city of __________ and state of __________ on the _____ day of __________, 20___.

(Seal) ________________________

Name of applicant

By ________________________

(Name) (Title)

Attest:

_________________________

(Signature of officer)

_________________________

(Title)

Certification

The undersigned deposes and says that (s)he has duly executed the attached annual registration statement dated __________, 20___, for and on behalf of __________ (name of applicant); that (s)he is the __________ (title of officer) of such company and that (s)he is authorized to execute and file such instrument. Deponent further says that (s)he is familiar with such instrument and the contents thereof, and that the facts therein set forth are true to the best of his/her knowledge, information and belief.

(Signature) _______________________

(Type or print name beneath) _______________________

(O) Form F: Information to be included in form F

"Form F

Enterprise risk report

Filed with the insurance department of the state of Ohio

By __________________________________

Name of registrant/applicant

On behalf of/related to the following insurance companies

Name address

__________________________________________________________

Date: __________, 20___

Name, title, address and telephone number of individual to whom notices and correspondence concerning this statement should be addressed:

__________________________________________________________

Item 1. Enterprise risk

The registrant/applicant, to the best of its knowledge and belief, shall provide information regarding the following areas that could produce enterprise risk as defined in division (K) of section 3901.33 of the Revised Code, provided such information is not disclosed in the insurance holding company system annual registration statement filed on behalf of this or another insurer for which it is the ultimate controlling person:

(a) Any material developments regarding strategy, internal audit findings, compliance or risk management affecting the insurance holding company system;

(b) Acquisition or disposal of insurance entities and reallocating of existing financial or insurance entities within the insurance holding company system;

(c) Any changes of shareholders of the insurance holding company system exceeding ten per cent or more of voting securities;

(d) Developments in various investigations, regulatory activities or litigation that may have a significant bearing or impact on the insurance holding company system;

(e) Business plan of the insurance holding company system and summarized strategies for next twelve months;

(f) Identification of material concerns of the insurance holding company system raised by supervisory college, if any, in last year;

(g) Identification of insurance holding company system capital resources and material distribution patterns;

(h) Identification of any negative movement, or discussions with rating agencies which may have caused, or may cause, potential negative movement in the credit ratings and individual insurer financial strength ratings assessment of the insurance holding company system (including both the rating score and outlook);

(i) Information on corporate or parental guarantees throughout the holding company and the expected source of liquidity should such guarantees be called upon; and

(j) Identification of any material activity or development of the insurance holding company system that, in the opinion of senior management, would adversely affect the insurance holding company system.

The registrant/applicant may attach the appropriate form most recently filed with the "United States Securities and Exchange Commission," provided the registrant/applicant includes specific references to those areas listed in item 1 for which the form provides responsive information. If the registrant/applicant is not domiciled in the United States, it may attach its most recent public audited financial statement filed in its country of domicile, provided the registrant/applicant includes specific references to those areas listed in item 1 for which the financial statement provides responsive information.

Item 2. Obligation to report

If the registrant/applicant has not disclosed any information pursuant to item 1, the registrant/applicant shall include a statement affirming that, to the best of its knowledge and belief, it has not identified enterprise risk subject to disclosure pursuant to item 1."

(P) Severability

Last updated June 1, 2023 at 8:27 AM

Supplemental Information

Authorized By: 3901.041
Amplifies: 3901.32 to 3901.37
Five Year Review Date: 8/30/2025
Prior Effective Dates: 12/1/2014

Rule 3901-3-03 | Transactions subject to prior notice - notice filing.

Effective:

June 1, 2023

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to establish the form and content an insurer must use in order to give notice of a proposed transaction under section 3901.341 of the Revised Code.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 3901.341 of the Revised Code.

(D) Written notice

In giving notice to the superintendent of a proposed transaction pursuant to section 3901.341 of the Revised Code, the insurer shall use the form set forth in this paragraph.

Form D

Prior notice of a transaction

Filed with the insurance department of the state of Ohio

__________________________________________

Name of registrant

On behalf of the following insurance companies

Name	Address
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________

Date: __________________, 20__

Name, title, address and telephone number of individual to whom notices and correspondence concerning this statement should be addressed:

______________________________________________________

Item 1. Identity of parties to transaction

Furnish the following information for each of the parties to the transaction:

(a) Name.

(b) Home office address.

(d) The organizational structure, e.g. corporation, partnership, individual, trust, etc.

(e) A description of the nature of the parties' business operations.

(f) Relationship to the insurer of other parties to the transaction, if any, including any ownership or debtor/creditor interest by any other parties to the transaction in the insurer, or by the insurer in the affiliated parties.

(g) Where the transaction is with a non-affiliate, the name(s) of the affiliate(s) which will receive, in whole or in substantial part, the proceeds of the transaction.

Item 2. Description of the transaction

Furnish the following information in electronic form prescribed by the superintendent for each transaction for which notice is being given:

(a) A statement as to whether notice is being given under division (A)(1), (A)(2), (A)(3), (A)(4), or (A)(5) of section 3901.341 of the Revised Code.

(b) A statement of the nature of the transaction and a complete copy of the agreement to include amendments if applicable.

(c) A statement of how the transaction meets the "fair and reasonable" standard of division (B) of section 3901.341 of the Revised Code.

(d) The proposed effective date of the transaction.

Item 3. Sales, purchases, exchanges, loans, extensions of credit, guarantees or investments

If notice is being given under division (A)(1) of section 3901.341 of the Revised Code, furnish a brief description of the amount and source of funds, securities, property or other consideration for the sale, purchase, exchange of assets, loan, extension of credit, guarantee, or investment. If any securities are involved in the transaction, provide a description of the terms of the securities.

If consideration for the transaction is other than cash describe the consideration, its cost, and fair market value, and explain the basis for evaluation.

If the transaction involves a loan, extension of credit or a guarantee, furnish a description of the maximum amount which the insurer will be obligated to make available under such loan, extension of credit or guarantee, the date on which the credit or guarantee will terminate, and any provisions for the accrual of or deferral of interest.

If the transaction involves an investment, guarantee or other arrangement, state the time period during which the investment, guarantee or other arrangement will remain in effect, together with any provisions for extensions or renewals of such investments, guarantees or arrangements. Furnish a brief statement as to the effect of the transaction upon the insurer's surplus.

No notice need be given if the maximum amount which can at any time be outstanding or for which the insurer can be legally obligated under the loan, extension of credit or guarantee is less than, (a) in the case of non-life insurers, the lesser of three percent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders or, (b) in the case of life insurers, three percent of the insurer's admitted assets, each as of the thirty-first day of December next preceding.

Item 4. Loans or extensions of credit to a non-affiliate

If the transaction involves a loan or extension of credit to any person who is not an affiliate, furnish a brief description of the agreement or understanding whereby the proceeds of the proposed transaction, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase the assets of, or to make investments in, any affiliate of the insurer making such loans or extensions of credit, and specify in what manner the proceeds are to be used to loan to, extend credit to, purchase assets of or make investments in any affiliate. Describe the amount and source of funds, securities, property or other consideration for the loan or extension of credit and, if the transaction is one involving consideration other than cash, a description of its cost and its fair market value together with an explanation of the basis for evaluation. Furnish a brief statement as to the effect of the transaction upon the insurer's surplus.

No notice need be given if the loan or extension of credit is one which equals less than, in the case of non-life insurers, the lesser of three percent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders or, with respect to life insurers, three percent of the insurer's admitted assets, each as of the thirty-first day of December next preceding.

Item 5. Reinsurance

If the transaction is a reinsurance agreement or modification thereto, as described by division (A)(3) of section 3901.341 of the Revised Code, furnish a description of the known and/or estimated amount of liability to be ceded and/or assumed in each calendar year, the period of time during which the agreement will be in effect, and a statement whether an agreement or understanding exists between the insurer and non-affiliate to the effect that any portion of the assets constituting the consideration for the agreement will be transferred to one or more of the insurer's affiliates. Furnish a brief description of the consideration involved in the transaction, and a brief statement as to the effect of the transaction upon the insurer's surplus.

No notice need be given for reinsurance agreements or modifications thereto if the reinsurance premium or a change in the insurer's liabilities in connection with the reinsurance agreement or modification thereto is less than five percent of the insurer's surplus as regards policyholders, as of the thirty-first day of December next preceding.

Item 6. Management agreements, service agreements, cost-sharing arrangements and tax allocation agreements.

For management and service agreements, furnish:

(a) A brief description of the managerial responsibilities, or services to be performed.

(b) A brief description of the agreement, including a statement of its duration, together with brief descriptions of the basis for compensation and the terms under which payment or compensation is to be made.

For cost-sharing arrangements, furnish:

(a) A brief description of the purpose of the agreement.

(b) A description of the period of time during which the agreement is to be in effect.

(d) A brief description of the accounting basis to be used in calculating each party's costs under the agreement.

(e) A brief statement as to the effect of the transaction upon the insurer's policyholder surplus;

(f) A statement regarding the cost allocation methods that specifies whether proposed charges are based on "cost or market." If market based, rationale for using market instead of cost, including justification for the company's determination that amounts are fair and reasonable; and

(g) A statement regarding compliance with the national association of insurance commissioners (NAIC) "Accounting Practices and Procedures Manual" regarding expense allocation.

Item 7. Signature and certification

Signature and certifications required as follows:

Signature

Pursuant to the requirements of section 3901.341 of the Revised Code,___________ has caused this notice to be duly signed on its behalf in the city of _______________________________ and state of ________________________on the _______ day of ________, 20____.

(Seal)	_________________________________
	Name of applicant
	By ______________________________
	(Name) (Title)
Attest:
______________________________
(Signature of officer)
______________________________
(Title)

Certification

The undersigned deposes and says that (s)he has duly executed the attached notice dated _______, 20____, for and on behalf of __________________(Name of applicant); that (s)he is the _____________________ (Title of officer) of such company and that (s)he is authorized to execute and file such instrument. Deponent further says the (s)he is familiar with such instrument and the contents thereof, and that the facts therein set forth are true to the best of his/her knowledge, information and belief.

(Signature) _______________________________________

(Type or print name beneath)__________________________

________________________________________________

(E) Agreements for cost sharing services and management services shall at a minimum and as applicable:

(1) Identify the person providing services and the nature of such services;

(2) Set forth the methods to allocate costs;

(3) Require timely settlement, not less frequently than on a quarterly basis, and compliance with the requirements in the NAIC "Accounting Practices and Procedures Manual";

(4) Prohibit advancement of funds by the insurer to the affiliate except to pay for services defined in the agreement;

(5) State that the insurer will maintain oversight for functions provided to the insurer by the affiliate and that the insurer will monitor services annually for quality assurance;

(6) Define records and data of the insurer to include all records and data developed or maintained under or related to the agreement that are otherwise the property of the insurer, in whatever form maintained, including, but not limited to, claims and claim files, policyholder lists, application files, litigation files, premium records, rate books, underwriting manuals, personnel records, financial records or similar records within the possession, custody or control of the affiliate;

(7) Specify that all records and data of the insurer are and remain the property of the insurer, and;

(a) Are subject to control of the insurer;

(b) Are identifiable; and

(c) Are segregated from all other persons' records and data or are readily capable of segregation at no additional cost to the insurer.

(8) State that all funds and invested assets of the insurer are the exclusive property of the insurer, held for the benefit of the insurer and are subject to the control of the insurer;

(9) Include standards for termination of the agreement with and without cause;

(10) Include provisions for indemnification of the insurer in the event of gross negligence or willful misconduct on the part of the affiliate providing the services and for any actions by the affiliate that violate provisions of the agreement required in paragraphs (E)(11), (E)(12), (E)(13), (E)(14) and (E)(15) of this rule;

(11) Specify that, if any action is taken against the insurer pursuant to the insurers supervision, rehabilitation, and liquidation act:

(a) All of the rights of the insurer under the agreement extend to the rehabilitator or the superintendent to the extent permitted by Ohio law;

(b) All records and data of the insurer shall be identifiable and segregated from all other persons' records and data or readily capable of segregation at no additional cost to the rehabilitator or superintendent;

(c) A complete set of records and data of the insurer will immediately be made available to the rehabilitator or the superintendent, shall be made available in a usable format immediately upon request, and the cost to transfer data to the rehabilitator or the superintendent shall be fair and reasonable; and

(d) The affiliated person(s) will make available all employees essential to the operations of the insurer and the services associated therewith for the immediate continued performance of the essential services ordered or directed by the rehabilitator or superintendent.

(12) Specify that the affiliate has no automatic right to terminate the agreement if any action is taken against the insurer pursuant to the insurers supervision, rehabilitation, and liquidation act; and

(13) Specify that the affiliate will provide the essential services for a minimum period of time specified in the agreement after termination of the agreement, if any action is taken against the insurer pursuant to the insurers supervision, rehabilitation, and liquidation act. Performance of the essential services will continue to be provided without regard to pre-rehabilitation unpaid fees, so long as the affiliate continues to receive timely payment for post-rehabilitation services rendered, unless released by the rehabilitator, superintendent or supervising court.

(14) Specify that the affiliate will continue to maintain any systems, programs, or other infrastructure notwithstanding any action being taken against the insurer pursuant to the insurers supervision, rehabilitation, and liquidation act, and will make them available to the rehabilitator or the superintendent as ordered or directed by the rehabilitator or superintendent for so long as the affiliate continues to receive timely payment for post-rehabilitation services rendered, and unless released by the rehabilitator, superintendent or supervising court; and

(15) Specify that, in furtherance of the cooperation between the rehabilitator and the affected guaranty association(s) and subject to the rehabilitator's authority over the insurer, if any action is taken against the insurer pursuant to the insurers supervision, rehabilitation, and liquidation act, and portions of the insurer's policies or contracts are eligible for coverage by one or more guaranty associations, the affiliate's commitments under paragraphs (E)(11), (E)(12), (E)(13), and (E)(14) of this rule will extend to such guaranty association(s).

(F) Severability

If any paragraph, term or provision of this rule is adjudged invalid for any reason, the judgement shall not affect, impair or invalidate any other paragraph, term or provision of this rule, but the remaining paragraphs, terms and provisions shall be and continue in full force and effect.

Last updated June 1, 2023 at 8:27 AM

Supplemental Information

Authorized By: 3901.041, 3901.341
Amplifies: 3901.341
Five Year Review Date: 8/30/2025

Rule 3901-3-04 | Hazardous financial condition standards.

Effective:

October 29, 2015

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to facilitate the department of insurance's surveillance of the financial condition of insurers by setting out standards which the superintendent may use for identifying insurers whose condition is such as to render the continuance of their business hazardous to their policyholders, creditors, or the general public. This rule shall not be interpreted to limit the powers granted the superintendent by any laws of this state.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041, 3903.09 and 3903.71 of the Revised Code.

(1) The following standards, either singly or a combination of two or more, may be considered by the superintendent to determine whether the continued operation of any insurer might be deemed to be hazardous to their policyholders, creditors, or the general public. The superintendent may consider:

(a) Adverse findings reported in financial condition or market conduct examination reports, statutory audit reports, and actuarial opinions, reports or summaries;

(b) The "National Association of Insurance Commissioners (NAIC) Insurance Regulatory Information System" and its other financial analysis solvency tools and reports;

(c) Whether the insurer has made adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contracted obligations and related expenses of the insurer, when considered in light of the assets held by the insurer with respect to such reserves and related actuarial items including, but not limited to, the investment earnings on such assets, and the considerations anticipated to be received and retained under such policies and contracts;

(d) The ability of an assuming reinsurer to perform and whether the insurer's reinsurance program provides sufficient protection for the insurer's remaining surplus after taking into account the insurer's cash flow and the classes of business written as well as the financial condition of the assuming reinsurer;

(e) As reported in the most recent quarterly or annual statutory financial statement filing, the insurer's net loss or negative net income in the last twelve month period or any shorter period of time, including but not limited to net unrealized capital gains or losses, change in non-admitted assets, and the payment of cash dividends to shareholders which are greater than fifty per cent of such insurer's remaining capital and surplus as regards policyholders in excess of the minimum amount required and/or;

(f) As reported in the most recent quarterly or annual statutory financial statement filing, the insurer's net decrease in capital and policyholders surplus, in the last twelve month period or any shorter period of time, is greater than fifty per cent of such insurer's remaining capital and policyholders surplus in excess of the minimum required;

(g) As reported in the most recent quarterly or annual statutory financial statement filing, whether the insurer's net loss or negative net income in the last twelve month period or any shorter period of time, excluding net realized capital gains and losses, is greater than twenty per cent of the insurer's remaining surplus as regards policyholders in excess of the minimum required;

(h) Whether a reinsurer, obligor, or any entity within the insurer's insurance holding company system is insolvent, threatened with insolvency, or delinquent in payment of its monetary or other obligation and which in the opinion of the superintendent may affect the solvency of the insurer;

(i) Contingent liabilities, pledges or guarantees which either individually or collectively involve a total amount which in the opinion of the superintendent may affect the solvency of the insurer;

(j) Whether any person, exercising control of an insurer as defined in division (C) of section 3905.61 of the Revised Code is delinquent in the transmitting to, or payment of, net premiums to such insurer;

(k) The age and collectability of receivables;

(l) Whether the management of an insurer, including officers, directors, or any other person who directly or indirectly controls the operation of such insurer, fails to possess and demonstrate the competence, fitness and reputation deemed necessary to serve the insurer in such position;

(m) Whether management of an insurer has failed to respond to inquiries relative to the condition of the insurer or has furnished false and misleading information concerning an inquiry;

(n) Whether the insurer has failed to meet financial and holding company filing requirements in the absence of a reason satisfactory to the superintendent;

(o) Whether management of an insurer has filed any false or misleading sworn financial statement, or has released false or misleading financial statements to lending institutions or to the general public, or has made a false or misleading entry, or has omitted an entry of material amount in the books of the insurer;

(p) Whether the insurer has grown so rapidly and to such an extent that it lacks adequate financial and administrative capacity to meet its obligations in a timely manner;

(q) Whether the insurer has experienced or will experience in the foreseeable future cash flow and/or liquidity problems;

(r) Whether an insurer has failed to comply with paragraph (J) of rule 3901-1-50 of the Administrative Code;

(s) Whether the insurer meets measures of capital adequacy adopted by statute or rule;

(t) Whether management has established reserves that do not comply with state insurance laws, regulations, statutory accounting standards, sound actuarial principles, and standards of practice;

(u) Whether management engages in reporting inadequate reserve levels that result in material adverse development;

(v) Whether a material change during the year to the insurer's financial condition, including, but not limited to, changes in assets, liabilities, surplus, premium growth, mix of business, reinsurance, or operating performance that may adversely impact the result of the next year-end risk based capital calculation to a level that would require regulatory action;

(w) Whether transactions among affiliates, subsidiaries, or controlling persons for which the insurer receives assets or capital gains, or both, do not provide sufficient value, liquidity or diversity to assure the insurer's ability to meet its outstanding obligations as they mature;

(x) Any other finding determined by the superintendent to be hazardous to the insurer's policyholders, creditors, or general public.

(2) For the purposes of making a determination of an insurer's financial condition under this rule the superintendent may:

(a) Disregard any credit or amount receivable resulting from transactions with a reinsurer which is insolvent, impaired or otherwise subject to a delinquency proceeding;

(b) Make appropriate adjustments including disallowance to asset values attributable to investments in or transactions with parents, subsidiaries, or affiliates, consistent with the NAIC accounting practices and procedures manual, state laws and regulations;

(c) Refuse to recognize the stated value of accounts receivable if the ability to collect receivables is highly speculative in view of the age of the account or the financial condition of the debtor;

(d) Refuse to recognize the stated value of assets pledged or in any way hypothecated to secure a liability to the extent that they are in excess of the specific recorded liability of the insurer;

(e) Increase the insurer's liability in an amount equal to any contingent liability, pledge, or guarantee not otherwise included if there is a substantial risk that the insurer will be called upon to meet the obligation undertaken within the next twelve-month period.

(D) If the superintendent determines that the continued operation of an insurer licensed to transact business in this state may be hazardous to its policyholders, creditors or the general public, the superintendent, in lieu of placing a domestic insurer into supervision, rehabilitation or liquidation pursuant to Ohio's insurers supervision, rehabilitation or liquidation act, or suspending the license of a foreign insurer pursuant to section 3903.71 of the Revised Code, may take other action to correct the hazard, including, but not limited to, either entering into a memorandum of understanding with the insurer or issuing an order requiring the insurer to:

(1) Reduce the total amount of present and potential liability for policy benefits by reinsurance;

(2) Reduce, suspend or limit the volumes of business being accepted or renewed;

(3) Reduce general insurance and commission expenses by specified methods;

(4) Increase the insurer's capital and surplus;

(5) Suspend or limit the declaration and payment of dividend by an insurer to its stockholders or its policyholders;

(6) File reports in a form acceptable to the superintendent concerning the market value of an insurer's assets;

(7) Limit or withdraw from certain investments or discontinue certain investment practices to the extent the superintendent deems necessary;

(8) Document the adequacy of premium rates in relation to the risks insured;

(9) File, in addition to regular annual statements, interim financial reports on the form adopted by the NAIC or in such format as promulgated by the superintendent;

(10) Correct corporate governance practice deficiencies, and adopt and utilize governance practices acceptable to the superintendent;

(11) Provide a business plan to the superintendent in order to continue to transact business in the state; and

(12) Take any other action necessary to cure the conditions which resulted in the finding that the insurer's continued operation may be hazardous to its policyholders, creditors, or the general public.

(E) Severability

Last updated October 11, 2023 at 1:50 PM

Supplemental Information

Authorized By: 3901.041
Amplifies: 3903.09, 3903.71
Five Year Review Date: 8/30/2025
Prior Effective Dates: 10/21/1991, 7/10/2009

Rule 3901-3-05 | Valuation of investments.

Effective:

March 21, 2005

Promulgated Under:

119.03

PDF:

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(A) Purpose

The purpose of this rule is to facilitate the department's analysis and examination of the financial condition of insurers by establishing procedures for the valuing of investments to be used by insurers in the preparation and filing of statutory financial statements and other financial information.

(B) Authority

This rule is issued pursuant to the authority vested in the superintendent of insurance under sections 3901.041, 3901.77, 3907.20 and 1751.47 of the Revised Code.

The "Valuation of Securities Manual", "Purposes and Procedures Manual of the NAIC Securities Valuation Office", and the "Accounting Practices and Procedures Manual" as published by the national association of insurance commissioners (NAIC) have been adopted for use in Ohio by section 3901.77 of the Revised Code. The procedures outlined in these publications are to be used for valuing investments for which valuations are not otherwise defined by statute or rule. The superintendent shall disallow any accounting practice or procedure prescribed by the publications if he deems it necessary to ascertain the condition and affairs of any company. In making the disallowance determination, the superintendent shall consider such factors as the nature of the investment; the financial stability of the issuing company; the applicability of other standardized accounting procedures; and other factors affecting the accuracy of the valuation.

(D) Valuations of investments otherwise defined.

A company which has an investment which cannot be valued in accordance with paragraph (C) of this rule shall be a non-admitted investment and afforded a value of zero in any filing of statutory financial statements and other financial information.

(E) Severability

If any section, term or provision of this rule is adjudged invalid for any reason, such judgment shall not affect, impair or invalidate any other section, term or provision of this rule, but the remaining sections, terms and provisions shall be and continue in full force and effect.

Last updated November 4, 2024 at 12:36 PM

Supplemental Information

Authorized By: 3901.041, 3901.77, 3907.20, 1751.47
Amplifies: 3901.77, 3907.20, 1751.47
Five Year Review Date: 8/30/2029

Rule 3901-3-07 | Credit for life reinsurance agreements.

Effective:

April 13, 2006

Promulgated Under:

119.03

PDF:

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(A) Scope

This rule shall apply to all domestic life insurers and to all other licensed life insurers which are not subject to a substantially similar regulation in their state of domicile. This rule shall also apply to all domestic property and casualty insurers with respect to their accident and health business and to all other licensed property and casualty insurers with respect to their accident and health business which are not subject to a substantially similar regulation in their state of domicile. This rule shall not apply to assumption reinsurance, yearly renewable term reinsurance or certain nonproportional reinsurance such as stop loss or catastrophe reinsurance.

(B) Purpose

The purpose of this rule is to facilitate the department's surveillance of the financial condition of insurers by establishing accounting requirements for insurers to reduce any liability or establish any asset in any financial statement filed with the department based on reinsurance ceded by the insurer. These requirements are to ensure that financial statements accurately reflect the financial condition of a ceding insurer, and that a ceding insurer has not reduced liabilities or established assets through the improper use of reinsurance reserve credits.

This rule is issued under the authority vested in the superintendent under sections 3901.041, 3901.62 and 3901.77 of the Revised Code.

(D) Accounting requirements

(1) No insurer subject to this rule shall, for reinsurance ceded, reduce any liability or establish any asset in any financial statement filed with the department if, by the terms of the reinsurance agreement, in substance or effect, any of the following conditions exist:

(a) Renewal expense allowance provided or to be provided to the ceding insurer by the reinsurer in any accounting period, are not sufficient to cover anticipated allocable renewal expenses of the ceding insurer on the portion of the business reinsured, unless a liability is established for the present value of the shortfall (using assumptions equal to the applicable statutory reserve basis on the business reinsured). Those expenses include commissions, premium taxes and direct expenses including, but not limited to, billing, valuation, claims and maintenance expected by the company at the time the business is reinsured;

(b) The ceding insurer can be deprived of surplus or assets at the reinsurer's option or automatically upon the occurrence of some event, such as the insolvency of the ceding insurer, except that termination of the reinsurance agreement by the reinsurer for nonpayment of reinsurance premiums or other amounts due, such as modified coinsurance reserve adjustments, interest and adjustments on funds withheld, and tax reimbursements, shall not be considered to be such a deprivation of surplus or assets;

(c) The ceding insurer is required to reimburse the reinsurer for negative experience under the reinsurance agreement, except that neither offsetting experience refunds against current and prior years' losses under the agreement nor payment by the ceding insurer of an amount equal to the current and prior years' losses under the agreement upon voluntary termination of in force reinsurance by the ceding insurer shall be considered such a reimbursement to the reinsurer for negative experience. Voluntary termination does not include situations where termination occurs because of unreasonable provisions which allow the reinsurer to reduce its risk under the agreement. An example of such a provision is the right of the reinsurer to increase reinsurance premiums or risk and expense charges to excessive levels forcing the ceding company to prematurely terminate the reinsurance treaty;

(d) The ceding insurer must, at specific points in time scheduled in the agreement, terminate or automatically recapture all or part of the reinsurance ceded;

(e) The reinsurance agreement involves the possible payment by the ceding insurer to the reinsurer of amounts other than from income realized from the reinsured policies. For example, it is improper for a ceding company to pay reinsurance premiums, or other fees or charges to a reinsurer which are greater than the direct premiums collected by the ceding company;

(f) The treaty does not transfer all of the significant risk inherent in the business being reinsured. The following table identifies for a representative sampling of products or type of business, the risks which are considered to be significant. For products not specifically included, the risks determined to be significant shall be consistent with this table.

Risk categories:

(i) Morbidity

(ii) Mortality

(iii) Lapse

This is the risk that a policy will voluntarily terminate prior to the recoupment of a statutory surplus strain experienced at issuance of the policy.

(iv) Credit quality (C1)

This is the risk that invested assets supporting the reinsured business will decrease in value. The main hazards are that assets will default or that there will be a decrease in earning power. It excludes market value declines due to changes in interest rate.

(v) Reinvestment (C3)

This is the risk that interest rates will fall and funds reinvested (coupon payments or monies received upon asset maturity or call) will therefore earn less than expected. If asset durations are less than liability durations, the mismatch will increase.

(vi) Disintermediation (C3)

This is the risk that interest rates rise and policy loans and surrenders increase or maturing contracts do not renew at anticipated rates of renewal. If asset durations are greater than the liability durations, the mismatch will increase. Policyholders will move their funds into new products offering higher rates. The company may have to sell assets at a loss to provide for these withdrawals.

+ - significant 0 - insignificant
RISK CATEGORY
	a	b	c	d	e	f
Health insurance - other thanLTC/LTD*	+	0	+	0	0	0
Health insurance - LTC/LTD*	+	0	+	+	+	0
Immediate annuities	0	+	0	+	+	0
Single premium deferred annuities	0	0	+	+	+	+
Flexible premium deferred annuities	0	0	+	+	+	+
Guaranteed interest contracts	0	0	0	+	+	+
Other annuity deposit business	0	0	+	+	+	+
Single premium whole life	0	+	+	+	+	+
Traditional non-par permanent	0	+	+	+	+	+
Traditional non-par term	0	+	+	0	0	0
Traditional par permanent	0	+	+	+	+	+
Traditional par term	0	+	+	0	0	0
Adjustable premium permanent	0	+	+	+	+	+
Indeterminate premium permanent	0	+	+	+	+	+
Universal life flexible premium	0	+	+	+	+	+
Universal life fixed premium	0	+	+	+	+	+
Universal life fixed premium	0	+	+	+	+	+
Dump-in premiums allowed
*LTC = long term care insurance
LTD = long term disability insurance

(g)

(i) The credit quality, reinvestment, or disintermediation risk is significant for the business reinsured and the ceding company does not (other than for the classes of business excepted in paragraph (D)(1)(g)(ii) of this rule either transfer the underlying assets to the reinsurer or legally segregate such assets in a trust or escrow account or otherwise establish a mechanism satisfactory to the superintendent which legally segregates, by contract or contract provision, the underlying assets.

(ii) Notwithstanding the requirements of paragraph (D)(1)(g)(i) of this rule, the assets supporting the reserves for the following classes of business and any classes of business which do not have a significant credit quality, reinvestment or disintermediation risk may be held by the ceding company without segregation of such assets:

(a) Health insurance - LTC/LTD

(b) Traditional non-par permanent

(d) Adjustable premium permanent

(e) Indeterminate premium permanent

(f) Universal life fixed premium (no dump-in premiums allowed)

The associated formula for determining the reserve interest rate adjustment must use a formula which reflects the ceding company's investment earnings and incorporates all realized and unrealized gains and losses reflected in the statutory statement. The following is an acceptable formula:

Where: I is the net investment income

CG is capital gains less capital losses

X is the current year cash and invested assets plus investment income due and accrued less borrowed money

Y is the same as X but for the prior year

(h) Settlements are made less frequently than quarterly or payments due from the reinsurer are not made in cash within ninety days of the settlement date.

(i) The ceding insurer is required to make representations or warranties not reasonably related to the business being reinsured.

(j) The ceding insurer is required to make representations or warranties about future performance of the business being reinsured.

(k) The 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 of 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 paragraph (D)(1) of this rule, an insurer subject to this rule may, with the prior approval of the superintendent take such reserve credit as the superintendent may deem consistent with the insurance law, rules and regulations, including actuarial interpretations or standards adopted by the department.

(3)

(a) Agreements entered into after the effective date of this regulation which involve the reinsurance of business issued prior to the effective date of the agreements, along with any subsequent amendments thereto, shall be filed by the ceding company with the commissioner within thirty days from its date of execution. Each filing shall include data detailing the financial impact of the transaction. The ceding insurer's actuary who signs the financial statement actuarial opinion with respect to valuation of reserves shall consider this rule and any applicable actuarial standards of practice when determining the proper credit in financial statements filed with this department. The actuary should maintain adequate documentation and be prepared upon request to describe the actuarial work performed for inclusion in the financial statements and to demonstrate that such work conforms to this rule.

(b) Any increase in surplus net of federal income tax resulting from arrangements described in paragraph (D)(3)(a) of this rule 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 four 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 four of the annual statement as earnings emerge from the business reinsured.

{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 thirty-four per cent tax rate, the net increase in surplus at inception is $13.2 million ($20 million - $6.8 million) which is reported on the "Aggregate write-ins for gains and losses in surplus" line in the capital and surplus account. $6.8 million (thirty-four percent of $20 million) is reported as income on the "Commissions and expense allowances on reinsurance ceded" line of the summary of operations.

At the end of year N + 1 the business has earned $4 million. ABC has paid $.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 (sixty-six percent of ($4 million - $1 million - $.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.}

(E) Written agreements

(1) No reinsurance agreement or amendment to any agreement may be used to reduce any liability or to establish any asset in any financial statement filed with the department, unless the agreement, amendment or a letter of intent has been duly executed by both parties no later than the "as of date" of the financial statement.

(2) In the case of a letter of intent, a reinsurance agreement or an amendment to a reinsurance agreement must be executed within a reasonable period of time, not exceeding ninety days from the execution date of the letter of intent, in order for credit to be granted for the reinsurance ceded.

(F) Existing agreements

Insurers subject to this regulation shall reduce to zero by December 31, 1997 any reserve credits or assets established with respect to reinsurance agreements entered into prior to the effective date of this rule which, under the provisions of this regulation would not be entitled to recognition of the reserve credits or assets; provided, however, that the reinsurance agreements shall have been in compliance with laws or rules in existence immediately preceding the effective date of this rule.

(G) Severability

If any section, term, or paragraph of this rule is adjudged invalid for any reason, such judgment shall not affect, impair or invalidate any other section, term or paragraph of this rule, but the remaining section, terms and paragraph shall be and continue in full force and effect.

Last updated October 11, 2023 at 1:51 PM

Supplemental Information

Authorized By: 3901.041
Amplifies: 3901.62, 3901.77
Five Year Review Date: 8/30/2025
Prior Effective Dates: 10/20/1991

Rule 3901-3-08 | Definition of work papers.

Effective:

October 29, 2015

Promulgated Under:

119.03

PDF:

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(A) Purpose

Section 3901.07 of the Revised Code provides authority to the superintendent of insurance to review the financial affairs of all insurance companies. The purpose of this rule is to define the term "work papers" as employed in section 3901.48 of the Revised Code as it relates to the surveillance and examination of insurers pursuant to section 3901.07 of the Revised Code.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under section 3901.041 of the Revised Code.

The term "work papers" means the records kept by the superintendent of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his or her examination and surveillance of the financial affairs of an insurer. Work papers may include audit planning documentation, work programs, analyses, memoranda, notes, letters of confirmation and representation, copies of work papers of certified public accountants, abstracts or copies of company documents and schedules of commentaries prepared or obtained by the superintendent in the course of his or her examination and surveillance of the financial affairs of an insurer.

Information related to the financial affairs of insurers maintained by the "National Association of Insurance Commissioners" that is available to the superintendent in his surveillance of the financial affairs of insurers is also considered a "Work Paper," and may include but is not limited to: formulae, ratios and data known as "Risk Based Capital," "Analyst Team," "Jumpstart," "Financial Analysis Solvency Tools," "Insurance Regulatory Information System," Ratios used by the "Financial Analysis Working Group" or other financial information deemed to be confidential by the "National Association of Insurance Commissioners."

The term "Work Paper" does not mean the annual and quarterly financial statements and exhibits, or the audited financial statements prepared by independent certified public accountants which an insurer is required to file with the department of insurance. The term also does not mean a financial examination report issued by the department of insurance pursuant to section 3901.07 of the Revised Code.

(D) Severability

Last updated October 11, 2023 at 1:51 PM

Supplemental Information

Authorized By: 3901.041
Amplifies: 3901.48
Five Year Review Date: 8/30/2025
Prior Effective Dates: 9/6/1994

Rule 3901-3-09 | Requirements for domestic insurers employing the services of reinsurance intermediaries.

Effective:

October 29, 2015

Promulgated Under:

119.03

PDF:

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(A) Purpose

The purpose of this rule is to establish minimum contractual terms between domestic insurers, domestic reinsurers and reinsurance intermediaries. This rule also establishes standards for business assumed by domestic reinsurers through reinsurance intermediaries as reported in their annual statement.

The rule also sets out the information reinsurers and reinsurance intermediaries must maintain for the purpose of examination under section 3901.07 of the Revised Code as "documents of ... other persons that are relevant to [an] examination."

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 3901.07 of the Revised Code, and division (B) of section 3901.77 of the Revised Code.

As used in this rule:

(1) "Insurer" means a person licensed to operate or to do business in this state under Chapter 1751. of the Revised Code or Title XXXIX of the Revised Code, who is domiciled in the state of Ohio.

(2) "Person" means a person, firm, association or corporation.

(3) "Qualified United States Financial Institution" means an institution that meets all of the following conditions:

(a) The institution is organized or, in the case of a United States office of a foreign banking organization, licensed, under the laws of the United States or any state of the United States;

(b) The institution is regulated, supervised, and examined by authorities of the United States or any state of the United States having regulatory authority over banks and trust companies;

(c) The institution has been determined by either the superintendent of insurance, or the "Securities Valuation Office of the National Association of Insurance Commissioners" (NAIC), to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the superintendent.

(4) "Reinsurance intermediary" means a reinsurance intermediary-broker or a reinsurance intermediary-manager.

(5) "Reinsurance intermediary-broker" means a person, other than an officer or employee of the ceding insurer, that solicits, negotiates, or places reinsurance cessions or retrocessions on behalf of a ceding insurer without the authority or power to bind reinsurance on behalf of such insurer.

(6)

(a) "Reinsurance intermediary-manager" means a person who has authority to bind or manages all or part of the assumed reinsurance business of a reinsurer, including the management of a separate division, department, or underwriting office; and acts as an agent for the reinsurer whether known as a reinsurance intermediary-manager, manager or other similar term.

(b) "Reinsurance intermediary-manager" does not include any of the following:

(i) An employee of the reinsurer;

(ii) A United States manager of the United States branch of an alien reinsurer;

(iii) An underwriting manager that, pursuant to contract, manages all or part of the reinsurance operations of the reinsurer, is under common control with the reinsurer, subject to sections 3901.32 to 3901.37 of the Revised Code, and whose compensation is not based on the volume of premiums written;

(iv) The manager of a group, association, pool or organization of insurers that engages in joint underwriting or joint reinsurance and that are subject to examination by the insurance regulatory authority of the state in which the manager's principal business office is located.

(7) "Reinsurer" means a person licensed in this state pursuant to Title XXXIX of the Revised Code as an insurer with the authority to assume reinsurance, who is domiciled in the state of Ohio.

(D) Required contract provisions between an insurer and a reinsurance intermediary-broker.

Transactions between the reinsurance intermediary-broker and the insurer it represents may only be entered into pursuant to a written authorization which specifies the responsibilities of each party. The authorization, at a minimum, shall provide all of the following:

(1) The insurer may terminate the reinsurance intermediary-broker's authority at any time.

(2) The reinsurance intermediary-broker shall render accounts to the insurer accurately detailing all material transactions, including information necessary to support all commissions, charges, and other fees received by, or owing, to the reinsurance intermediary-broker, and remit all funds due to the insurer within thirty days after receipt.

(3) All funds collected for the insurer's account shall be held by the reinsurance intermediary-broker in a fiduciary capacity in a bank which is a "Qualified United States Financial Institution."

(4) The reinsurance intermediary-broker shall comply with the written standards established by the insurer for the cession or retrocession of all risks.

(5) The reinsurance intermediary-broker shall disclose to the insurer any relationship with any reinsurer to which business will be ceded or retroceded.

(6) The reinsurance intermediary-broker shall agree to maintain for at least ten years after the expiration of each contract of reinsurance transacted a complete record of each transaction showing all of the following:

(a) The type of contract, limits, underwriting restrictions, classes or risks, and territory;

(b) Period of coverage, including effective and expiration dates, cancellation provisions, and notice required of cancellation;

(d) Rate used to compute the reinsurance premium;

(e) Names and addresses of assuming reinsurers;

(f) Rates of all reinsurance commissions, including the commissions on any retrocessions handled by the reinsurance intermediary-broker;

(g) Related correspondence and memoranda;

(h) Proof of placement;

(i) Details regarding retrocessions handled by the reinsurance intermediary-broker including the identity of retrocessionaires and percentage of each contract assumed or ceded;

(j) Financial records, including premium and loss accounts;

(k) Written evidence:

(i) That the assuming reinsurer has agreed to assume the risk, where the reinsurance intermediary-broker, on behalf of a domestic ceding insurer, procures a reinsurance contract directly from the assuming reinsurer; or

(ii) That the assuming reinsurer has delegated binding authority to the representative, where the reinsurance intermediary-broker, on behalf of a domestic ceding insurer, procures a reinsurance contract placed through a representative, other than an employee, of the assuming reinsurer.

(7) The reinsurance intermediary-broker shall agree to provide the ceding insurer with access, the right to copy, and the right to audit all accounts and records maintained by the reinsurance intermediary-broker related to the insurer's business in a form usable by the insurer.

(8) The reinsurance intermediary-broker agrees to provide annually to the insurer copies of statements of the reinsurance intermediary-broker's financial condition prepared by an independent certified public accountant.

(E) Prohibited acts - insurer

(1) No insurer shall employ a reinsurance intermediary-broker that is not licensed by an insurance regulatory authority of any state of the United States of America as a reinsurance intermediary-broker.

(2) No insurer shall jointly employ an individual who also is employed by a reinsurance intermediary-broker with which the insurer transacts business, unless the reinsurance intermediary-broker is under common control with the insurer and subject to sections 3901.32 to 3901.37 of the Revised Code.

(F) Required contract provisions between a reinsurer and a reinsurance intermediary-manager.

Transactions between a reinsurance intermediary-manager and the reinsurer it represents in the capacity of a reinsurance intermediary-manager shall be entered into only pursuant to a written contract, specifying the responsibilities of each party. The contract shall be approved by the reinsurer's board of directors. The reinsurer shall maintain a copy of the approved contract for review at the request of the superintendent of insurance. The contract, at a minimum, shall provide all of the following:

(1) The reinsurer may terminate the contract for cause upon written notice to the reinsurance intermediary-manager. The reinsurer may immediately suspend the authority of the reinsurance intermediary-manager to assume or cede business during the pendency of any dispute regarding the cause for termination.

(2) The reinsurance intermediary-manager shall render accounts to the reinsurer accurately detailing all material transactions, including information necessary to support all commissions, charges, and other fees received by, or owing to, the reinsurance intermediary-manager, and shall remit all funds due under the contract to the reinsurer on at least a monthly basis.

(3) Any funds collected for the reinsurer's account shall be held by the reinsurance intermediary-manager in a fiduciary capacity in a bank that is a "Qualified United States Financial Institution." The reinsurance intermediary-manager shall retain no more than three months' estimated claims payments and allocated loss adjustment expenses. The reinsurance intermediary-manager shall maintain a separate bank account for each reinsurer it represents.

(4) For at least ten years after the expiration of each contract of reinsurance transacted by the reinsurance intermediary-manager, the reinsurance intermediary-manager shall keep a complete record for each transaction showing all of the following:

(a) The type of contract, limits, underwriting restrictions, classes or risks, and territory;

(b) Period of coverage, including effective and expiration dates, cancellation provisions, and notice required of cancellation, and disposition of outstanding reserves on covered risks;

(d) Rate used to compute the reinsurance premium;

(e) Names and addresses of reinsurers;

(f) Rates of all reinsurance commissions, including the commissions on any retrocessions handled by the reinsurance intermediary-manager;

(g) Related correspondence and memoranda;

(h) Proof of placement;

(i) Details regarding retrocessions handled by the reinsurance intermediary-manager pursuant to paragraph (F)(14) of this rule, including the identity of retrocessionaires and percentage of each contract assumed or ceded;

(j) Financial records, including premium and loss accounts;

(k)

(i) Written evidence that the assuming reinsurer has agreed to assume the risk, where the reinsurance intermediary-manager, on behalf of a ceding insurer, places a reinsurance contract directly from the assuming reinsurer; or

(ii) Written evidence that the assuming reinsurer has delegated binding authority to the representative, where the reinsurance intermediary-manager, on behalf of a ceding insurer, places a reinsurance contract through a representative, other than an employee, of the assuming reinsurer.

(5) The reinsurer shall have access to and the right to copy all accounts and records maintained by the reinsurance intermediary-manager related to the reinsurer's business in a form usable by the reinsurer.

(6) The contract cannot be assigned in whole or in part by the reinsurance intermediary-manager.

(7) The reinsurance intermediary-manager shall comply with the written underwriting and rating standards established by the insurer for the acceptance, rejection, or cession of all risks.

(8) The rates, terms, and purposes of commissions, charges, and other fees that the reinsurance intermediary-manager may levy against the reinsurer.

(9) If the contract permits the reinsurance intermediary-manager to settle claims on behalf of the reinsurer:

(a) All claims shall be reported to the insurer in a timely manner;

(b) A copy of the claim file shall be sent to the reinsurer at its request or as soon as it becomes known that any of the following applies:

(i) The claim has the potential to exceed the limit set by the reinsurer;

(ii) The claim involves a coverage dispute;

(iii) The claim may exceed the reinsurance intermediary-manager's claims settlement authority;

(iv) The claim is open for more than six months;

(v) The claim is closed by payment of an amount set by the reinsurer.

(c) All claim files shall be the joint property of the reinsurer and the reinsurance intermediary-manager. However, upon an order of rehabilitation or liquidation of the reinsurer such files shall become the sole property of the reinsurer or its estate, but the reinsurance intermediary-manager shall have reasonable access to and the right to copy the files on a timely basis.

(d) Any settlement authority granted to the reinsurance intermediary-manager may be terminated for cause upon the reinsurer's written notice to the reinsurance intermediary-manager or upon the termination of the contract. The reinsurer may suspend the settlement authority during the pendency of the dispute regarding the cause of termination.

(10) If the contract provides for a sharing of interim profits by the reinsurance intermediary-manager, the interim profits shall not be paid until one year after the end of each underwriting period for property business, five years after the end of each underwriting period for casualty business, and not until the adequacy of reserves on remaining claims has been verified pursuant to paragraph (F)(15) of this rule.

(11) The reinsurance intermediary-manager shall annually provide the reinsurer with a statement of its financial condition prepared by an independent certified public accountant.

(12) The reinsurer shall periodically, but at least semi-annually, conduct an on-site review of the underwriting and claims processing operations of the reinsurance intermediary-manager.

(13) The reinsurance intermediary-manager shall disclose to the reinsurer any relationship it has with any insurer prior to ceding or assuming any business with such insurer pursuant to the contract.

(14) Binding authority for all retrocessional contracts or participation in reinsurance syndicates shall rest with an officer of the reinsurer. The officer shall not be affiliated with the reinsurance intermediary-manager.

(15) If a reinsurance intermediary-manager establishes loss reserves, the reinsurer shall annually obtain the opinion of an actuary attesting to the adequacy of loss reserves established for losses incurred and outstanding on business produced by the reinsurance intermediary-manager. This opinion shall be in addition to any other required loss reserve certification. As used in this paragraph, "actuary" means a person who is a member in good standing of the "American Academy of Actuaries".

(16) Within the scope of its actual or apparent authority the acts of the reinsurance intermediary-manager are deemed to be the acts of the reinsurer on whose behalf it is acting.

(17) The reinsurance intermediary-manager shall maintain a bond for the protection of the reinsurer in an amount, and from an insurer, acceptable to the superintendent of insurance.

(18) The reinsurer shall require the reinsurance intermediary-manager to maintain an errors and omissions policy.

(G) Prohibited acts - reinsurer

(1) No reinsurer shall employ a reinsurance intermediary-manager that is not licensed by an insurance regulatory authority of any state of the United States of America, as a reinsurance intermediary-manager.

(2) No reinsurer shall permit its reinsurance intermediary-manager to do any of the following:

(a) Cede retrocessions on behalf of the reinsurer. However, the reinsurance intermediary-manager may cede facultative retrocessions pursuant to obligatory facultative agreements if the contract with the reinsurer contains reinsurance underwriting guidelines for such retrocessions. The guidelines shall include all of the following:

(i) A list of reinsurers with which automatic agreements are in effect;

(ii) For each such reinsurer, the coverages and amounts or percentages that may be reinsured;

(iii) Commission schedules.

(b) Commit the reinsurer to participate in reinsurance syndicates.

(c) Appoint any producer without assuring that the producer is lawfully licensed to transact the type of reinsurance for which he is appointed.

(d) Without prior approval of the reinsurer, pay or commit the reinsurer to pay a claim, net of retrocessions, that exceeds the lesser of an amount specified by the reinsurer or one per cent of the reinsurer's policyholder's surplus as of the thirty-first day of December of the last complete calendar year.

(e) Collect any payment from a retrocessionaire or commit the reinsurer to any claim settlement with a retrocessionaire, without prior approval of the reinsurer.

(f) Jointly employ an individual who is employed by the reinsurer unless the reinsurance intermediary-manager is under common control with the reinsurer subject to sections 3901.32 to 3901.37 of the Revised Code.

(g) Appoint a sub-reinsurance intermediary-manager.

(3) A reinsurer shall not appoint to its board of directors, any officer, director, employee, controlling shareholder or subproducer of its reinsurance intermediary-manager.

(H) Severability

If any paragraph, term or provision of this rule be adjudged invalid for any reason, the judgment shall not affect, impair or invalidate any other paragraph, term or provision of this rule, but the remaining paragraphs, terms and provisions shall be and continue in full force and effect.

Last updated October 11, 2023 at 1:51 PM

Supplemental Information

Authorized By: 3901.041, 3901.07, 3901.77
Amplifies: 3901.07, 3901.77
Five Year Review Date: 8/30/2025
Prior Effective Dates: 1/1/1993

Rule 3901-3-10 | Licensing of managing general agents.

Effective:

May 1, 1993

Promulgated Under:

Ch 119.

PDF:

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(A) Authority

This rule is issued by the superintendent of insurance pursuant to section 3901.041 and 3905.79 of the Revised Code.

(B) Purpose

Section 3905.72 of the Revised Code sets out the requirements for licensing of managing general agents. The purpose of this rule is to establish the procedures to be used in the licensing of managing general agents.

(1) Every person who seeks a license as a managing general agent under section 3905.71 to 3905.79 of the Revised Code shall make application in writing to the superintendent of insurance on a form provided by the superintendent.

(2) In addition to the information required by section 3905.72(B)(1) to (6) of the Revised Code the application form shall also contain:

(a) Questions to determine if the applicant has had any criminal or administrative action taken against the applicant;

(b) Questions to determine if the applicant has ever been involved with an entity which was placed in bankruptcy, conservatorship, or similar supervision;

(3) When the applicant applies for a license the applicant shall provide a list, including addresses, of all the applicant's agents, producers, or subproducers, which shall be kept current by filing notice of any changes within thirty days of the end of each calendar quarter.

(4) The application fee of twenty dollars shall be submitted with the application.

(D) Effective date

The date on which an applicant is assigned a license number by the department is the effective date of that license. The license shall expire on the last day of February of each calendar year, except that if an insurer terminates the appointment of a managing general agent the license will expire on the date of the termination. An insurer shall immediately notify the superintendent of insurance when it terminates the appointment of a managing general agent and such termination shall be effective on the date it is received by the department.

(E) Change of address

Every licensed managing general agent shall notify the superintendent in writing of any change in their business or residence address within thirty days of the change. This change of address shall be made on a form provided by the superintendent of insurance, and merely placing the new address on correspondence or filings with the department without filing a change of address notice is not sufficient to comply with this requirement.

(F) Violation

Failure to comply with any requirements set out in this rule shall be grounds for the revocation or suspension of a managing general agent license.

(G) Severability

Last updated October 11, 2023 at 1:51 PM

Supplemental Information

Authorized By: –
Amplifies: –
Five Year Review Date:

Rule 3901-3-12 | Derivative use plan.

Effective:

November 27, 2014

Promulgated Under:

119.03

PDF:

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(A) Purpose

The purpose of this rule is to establish the content of the derivative use plans to be filed with the superintendent as required by sections 3906.12, 3907.14, and 3925.08 of the Revised Code.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041, 3906.12, 3907.14 and 3925.08 of the Revised Code.

(1) The insurer shall submit a derivative use plan, or amendment thereto, to the superintendent. The derivative use plan or the amendment thereto will be referred to as "the plan" hereinafter. The filing shall include a certified copy of the authorization by the insurer's board of directors, or a committee thereof charged with the responsibility for supervising investments, pursuant to sections 3906.12, 3907.14 and 3925.08 of the Revised Code. When submitting its plan, the insurer shall also provide to the superintendent:

(a) In the event the plan is adopted by a committee of the insurer's board of directors, information with respect to the composition, in terms of title and position, of such committee; and

(b) The name and title of the senior most investment person responsible for derivative transactions; a description of his or her duties and responsibilities, as well as a curriculum vitae or equivalent document. Such information shall be updated and provided to the superintendent as changes occur.

(2) The plan shall contain written guidelines to be followed in engaging in derivative transactions. The guidelines shall include or address:

(a) The type, maturity and diversification of derivative instruments;

(b) The limitation on counterparty exposures, including limitations based on credit ratings;

(d) Asset/liability management practices with respect to derivative transactions;

(e) The liquidity needs and the company's capital and surplus as it relates to the derivative use plan;

(f) The policy objectives of management specific enough to outline permissible derivative strategies;

(g) The relationship of the derivative strategies to the insurer's operations;

(h) A requirement that management establishes and executes management oversight standards as required by paragraph (D) of this rule and a description of these standards;

(i) A requirement that management establishes and executes internal controls and reporting standards as required by paragraph (E) of this rule and a description of these standards; and

(j) A requirement that management establishes and executes documentation and reporting standards as required by paragraph (F) of this rule and a description of these standards.

(3) The plan shall contain, to the extent applicable to the specific derivative transactions authorized, guidelines for the insurer's acceptable levels of basis risk, credit risk, foreign currency risk, interest rate risk, market risk, operational risk and option risk. The plan shall also provide that the board of directors, or a committee thereof charged with the responsibility for supervising investments, and senior management shall comply with risk oversight functions and adhere to laws, rules, regulations, prescribed practices or ethical standards.

(D) Management oversight standards

(1) In order to address the need for appropriate oversight by senior management and by the board of directors, or a committee thereof charged with the responsibility for supervising investments, and to provide for a comprehensive risk management process for derivative instruments, an insurer shall establish the following with respect to derivative transactions:

(a) Appropriate limits for various identified risks relevant to the derivative transactions used by the insurer;

(b) Procedures and practices that control the nature and amount of such risks;

(d) Systems or processes for documenting, monitoring and reporting risk exposures on a timely basis; and

(e) Systems or processes of internal review and audit to ensure the integrity of the overall risk management process.

(2) The board of directors, or a committee thereof charged with the responsibility for supervising investments, shall receive and review quarterly reports which shall include:

(a) Information to ascertain that all derivative transactions have been made in accordance with delegations, standards, limitations and investment objectives contained in the derivative use plan;

(b) The outstanding derivative positions; the unrealized gains or losses thereon;

(d) A performance review of the derivative transactions;

(e) An evaluation of the risks and benefits of the derivative transactions; and

(f) Other information necessary to ensure that the internal control procedures are being followed.

(3) The board of directors, or a committee thereof charged with the responsibility for supervising investments, shall establish the following management oversight standards for derivative transactions:

(a) The board of directors, or a committee thereof charged with the responsibility for supervising investments, has an affirmative obligation to prior approve its desired risk tolerance levels. Management shall appropriately translate these risk tolerance levels into effective policies and procedures that address both individual transactions and entire portfolios;

(b) Management and the board of directors, or a committee thereof charged with the responsibility for supervising investments, shall receive sufficient information to assess the strengths and limitations of the insurer's risk measurement systems in order to determine appropriate risk limits. The board of directors, or a committee thereof charged with the responsibility for supervising investments, shall also review management's response to strengths and limitations identified through oversight processes such as stress testing, independent validation and back-testing of risk measurement models. Management and the board of directors, or a committee thereof charged with the responsibility for supervising investments, shall consider the information identified by the oversight processes, including the potential for indirect effects of downside performance beyond the insurer's finances, when they determine and communicate their risk profile;

(c) When management or the board of directors, or a committee thereof charged with the responsibility for supervising investments, identifies weaknesses in the risk management process, they shall consider alternatives and take steps to strengthen that process;

(d) Actions shall be taken to correct any deficiencies in internal controls relative to derivative transactions, including any deficiencies determined by the independent certified public accountant in the evaluation of accounting procedures and internal controls;

(e) Risk oversight functions shall possess independence, authority, and expertise; and

(f) Issuer and counterparty credit decisions for each transaction shall be consistent with the overall credit standards of the insurer.

(E) Internal controls and reporting

Before engaging in derivative transactions, an insurer shall establish adequate internal control procedures to deal with derivatives, which shall include but not be limited to:

(1) Systems or processes for periodic valuation of derivative transactions including mechanisms for compensating for any lack of independence in valuing trading positions;

(2) Systems or processes for determining whether a derivative instrument used for hedging has been effective;

(3) Credit risk management systems or processes for over-the-counter derivative transactions that measure credit risk exposure using the counterparty exposure amount and clearly articulated policies for the establishment of collateral arrangements with counterparties;

(4) A determination of whether the insurer has adequate professional personnel, technical expertise and systems to implement and control investment practices involving derivatives;

(5) Systems or processes for regular reports to management, segregation of duties and internal review procedures; and

(6) Systems or procedures for conducting initial and ongoing legal review of derivative transactions including assessments of contract enforceability.

(F) Documentation and reporting requirements:

The insurer shall maintain documentation and records relating to each derivative transaction including:

(1) The purpose or purposes of the transaction;

(2) The assets or liabilities (or portfolios thereof) to which the transaction relates;

(3) The specific derivative instruments used in the transaction;

(4) For over-the-counter derivative transactions, the name of the counterparty, and counterparty exposure amount; and

(5) For exchange-traded derivative instruments, the name of the exchange and the name of the firm handling the trade.

(G) Severability

Last updated November 4, 2024 at 12:36 PM

Supplemental Information

Authorized By: 3901.041, 3906.12, 3907.14 and 3925.08
Amplifies: 3901.041, 3906.12, 3907.14 and 3925.08
Five Year Review Date: 8/30/2029

Rule 3901-3-13 | Health insurance reserves.

Effective:

February 14, 2022

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to establish the minimum reserve standards for all individual and group health insurance coverages, including single premium credit disability insurance. All other credit insurance is not subject to this rule.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under section 3901.041 and division (Q) of section 3903.723 of the Revised Code.

(1) These standards establish a minimum reserve standard for all individual and group health insurance coverages, including single premium credit disability insurance. When an insurer determines that adequacy of its health insurance reserves requires reserves in excess of the minimum standards specified herein, such increased reserves shall be held and shall be considered the minimum reserves for that insurer.

(2) With respect to any block of contracts, or with respect to an insurer's health business as a whole, a prospective gross premium valuation is the ultimate test of reserve adequacy as of a given valuation date. Such a gross premium valuation will take into account, for contracts in force, in a claims status, or in a continuation of benefits status on the valuation date, the present value as of the valuation date of: all expected benefits unpaid, all expected expenses unpaid, and all unearned or expected premiums, adjusted for future premium increases reasonably expected to be put into effect.

(3) Such a gross premium valuation is to be performed whenever a significant doubt exists as to reserve adequacy with respect to any major block of contracts, or with respect to the insurer's health business as a whole. In the event inadequacy is found to exist, immediate loss recognition shall be made and the reserves restored to adequacy. Adequate reserves (inclusive of claim, premium and contract reserves, if any) shall be held with respect to all contracts, regardless of whether contract reserves are required for such contracts under these standards.

(4) Whenever minimum reserves, as defined in these standards, exceed reserve requirements as determined by a prospective gross premium valuation, such minimum reserves remain the minimum requirement under these standards.

(5) This rule sets forth minimum standards for three categories of health insurance reserves: claim reserves, premium reserves and contract reserves. Adequacy of an insurer's health insurance reserves is to be determined on the basis of all three categories combined. However, these standards emphasize the importance of determining appropriate reserves for each of these categories separately.

(D) Definitions

(1) "Annual claim cost" means the net annual cost per unit of benefit before the addition of expenses, including claim settlement expenses, and a margin for profit or contingencies. For example, the annual claim cost for a one hundred dollar monthly disability benefit, for a maximum disability benefit period of one year, with an elimination period of one week, with respect to a male at age thirty-five, in a certain occupation might be twelve dollars, while the gross premium for this benefit might be eighteen dollars. The additional six dollars would cover expenses and profit or contingencies.

(2) "Claims accrued" means that portion of claims incurred on or prior to the valuation date which result in liability of the insurer for the payment of benefits for medical services which have been rendered on or prior to the valuation date, and for the payment of benefits for days of hospitalization and days of disability which have occurred on or prior to the valuation date, which the insurer has not paid as of the valuation date, but for which it is liable, and will have to pay after the valuation date. This liability is sometimes referred to as a liability for "accrued" benefits. A claim reserve, which represents an estimate of this accrued claim liability, must be established.

(3) "Claims reported" means a claim that has been incurred on or prior to the valuation date and the insurer has been informed of it on or before the valuation date. This claim is considered a reported claim for annual statement purposes.

(4) "Claims unaccrued" means that portion of claims incurred on or prior to the valuation date which result in liability of the insurer for the payment of benefits for medical services expected to be rendered after the valuation date, and for benefits expected to be payable for days of hospitalization and days of disability occurring after the valuation date. This liability is sometimes referred to as a liability for unaccrued benefits. A claim reserve, which represents an estimate of the unaccrued claim payments expected to be made (which may or may not be discounted with interest), must be established.

(5) "Claims unreported" means a claim that has been incurred on or prior to the valuation date but the insurer has not been informed of it on or before the valuation date. This claim is considered an unreported claim for annual statement purposes.

(6) "Date of disablement" means the earliest date the insured is considered as being disabled under the definition of disability in the contract, based on a doctor's evaluation or other evidence. Normally this date will coincide with the start of any elimination period.

(7) "Elimination period" means a specified number of days, weeks, or months starting at the beginning of each period of loss, during which no benefits are payable.

(8) "Gross premium" means the amount of premium charged by the insurer. It includes the net premium (based on claim-cost) for the risk, together with any loading for expenses, profit or contingencies.

(9) "Group insurance" means blanket insurance and franchise insurance and any other forms of group insurance.

(10) "Group long-term disability income insurance" means any group insurance policy or rider advertised, marketed, offered or designed to provide group disability income coverage with a maximum benefit duration longer than two years that is based on a group pricing structure. The term "group long-term disability income insurance" does not include voluntary group disability income insurance coverage that is priced on an individual risk structure and generally sold in the workplace.

(11) "Level premium" means a premium calculated to remain unchanged throughout either the lifetime of the policy, or for some shorter projected period of years. The premium need not be guaranteed; in which case, although it is calculated to remain level, it may be changed if any of the assumptions on which it was based are revised at a later time. Generally, the annual claim costs are expected to increase each year and the insurer, instead of charging premiums that correspondingly increase each year, charges a premium calculated to remain level for a period of years or for the lifetime of the contract. In this case the benefit portion of the premium is more than needed to provide for the cost of benefits during the earlier years of the policy and less than the actual cost in the later years. The building of a prospective contract reserve is a natural result of level premiums.

(12) "Long-term care insurance" means any insurance policy or rider advertised, marketed, offered or designed to provide coverage for not less than twelve consecutive months for each covered person on an expense incurred, indemnity, prepaid or other basis; for one or more necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance or personal care services, provided in a setting other than an acute care unit of a hospital. Such term also includes a policy or rider which provides for payment of benefits based upon cognitive impairment or the loss of functional capacity. Long-term care insurance may be issued by insurers; fraternal benefit societies; nonprofit health, hospital, and medical service corporations; prepaid health plans; health maintenance organizations or any similar organization to the extent they are otherwise authorized to issue life or health insurance. Long-term care insurance shall not include any insurance policy which is offered primarily to provide basic medicare supplement coverage, basic hospital expense coverage, basic medical-surgical expense coverage, hospital confinement indemnity coverage, major medical expense coverage, disability income or related asset-protection coverage, accident only coverage, specified disease or specified accident coverage, or limited benefit health coverage.

(13) "Modal premium" means the premium paid on a contract based on a premium term which could be annual, semi-annual, quarterly, monthly, or weekly. Thus if the annual premium is one hundred dollars and if, instead, monthly premiums of nine dollars are paid then the modal premium is nine dollars.

(14) "Negative reserve" means the terminal reserve where the values of the benefits are decreasing with advancing age or duration such that it results in a negative value, called a negative reserve. Normally the terminal reserve is a positive value.

(15) "Preliminary term reserve method" means the method of valuation where the valuation net premium for each year falling within the preliminary term period is exactly sufficient to cover the expected incurred claims of that year, so that the terminal reserves will be zero at the end of the year. As of the end of the preliminary term period, a new constant valuation net premium (or stream of changing valuation premiums) becomes applicable such that the present value of all such premiums is equal to the present value of all claims expected to be incurred following the end of the preliminary term period.

(16) "Present value of amounts not yet due on claims" means the reserve for "claims unaccrued" which may be discounted at interest.

(17) "Rating block" means a grouping of contracts determined by the valuation actuary based on common characteristics filed with the superintendent, such as a policy form or forms having similar benefit designs.

(18) "Reserve" means all items of benefit liability, whether in the nature of incurred claim liability or in the nature of contract liability relating to future periods of coverage, and whether the liability is accrued or unaccrued. An insurer under its contracts promises benefits which result in:

(a) Claims which have been incurred, that is, for which the insurer has become obligated to make payment, on or prior to the valuation date, (on these claims, payments expected to be made after the valuation date for accrued and unaccrued benefits are liabilities of the insurer which should be provided for by establishing claim reserves); or

(b) Claims which are expected to be incurred after the valuation date, (any present liability of the insurer for these future claims should be provided for by the establishment of contract reserves and unearned premium reserves.)

(19) "Terminal reserve" means the reserve at the end of the contract year which is equal to the present value of benefits expected to be incurred after the contract year minus the present value of future valuation net premiums.

(20) "Unearned premium reserve" means that portion of the premium paid or due to the insurer which is applicable to the period of coverage extending beyond the valuation date. Thus if an annual premium of one hundred twenty dollars was paid on November first, twenty dollars would be earned as of December thirty-first and the remaining one hundred dollars would be unearned. The unearned premium reserve could be on a gross basis as in this example, or on a valuation net premium basis.

(21) "Valuation manual" means the manual produced by the "National Association of Insurance Commissioners" (NAIC) and updated annually that contains the minimum reserve and related requirements for life, accident and health insurance.

(22) "Valuation net modal premium" means the modal fraction of the valuation net annual premium that corresponds to the gross modal premium in effect on any contract to which contract reserves apply. Thus if the mode of payment in effect is quarterly, the valuation net modal premium is the quarterly equivalent of the valuation net annual premium.

(23) "Worksite franchise disability insurance" means any insurance policy or rider advertised, marketed, offered or designed to provide individual disability coverage that is sold at the worksite through employer-sponsored enrollment and complies with section 3923.11 of the Revised Code. Worksite franchise disability insurance does not include coverage for business overhead expense, disability buyout, or key person policies.

(24) "Worksite individual disability insurance" means any insurance policy or rider advertised, marketed, offered or designed to provide personal disability coverage that is sold to an individual at the worksite, and is not associated with employer-sponsored enrollment. Worksite individual disability insurance does not include business overhead expense, disability buyout, or key person policies.

(E) Claim reserves

(1) General

(a) Claim reserves are required for all incurred but unpaid claims on all health insurance policies. For contracts with an elimination period, the duration of disablement shall be measured as dating from the time that benefits would have begun to accrue had there been no elimination period.

(b) Appropriate claim expense reserves are required with respect to the estimated expense of settlement of all incurred but unpaid claims.

(c) All such reserves for prior valuation years are to be tested for adequacy and reasonableness along the lines of claim runoff schedules in accordance with the statutory financial statement including consideration of any residual unpaid liability.

(d) For claim reserves on policies that require contract reserves, the claim incurral date is to be considered the "issue date" for determining the table and interest rate to be used for claim reserves.

(e) The maximum interest rate for claim reserves is specified in paragraph (I) of this rule.

(f) With respect to claim reserves for policies issued prior to January 1, 2017, the operative date of the valuation manual, the requirements for claim reserves on claims incurred after that date shall be as described in the valuation manual based on the incurred date of the claim.

(2) Minimum morbidity standards for individual disability income claim reserves

(a) For claims incurred prior to January 1, 2005, each insurer may elect which of the following to use as the minimum morbidity standard for claim reserves:

(i) The minimum morbidity standard in effect for claim reserves as of the date the claim was incurred, or

(ii) The standards as defined in paragraph (E)(2)(b) or (E)(2)(c) of this rule, applied to all open claims. Once an insurer elects to calculate reserves for all open claims on the standard defined in either paragraph (E)(2)(b) or (E)(2)(c) of this rule, all future valuations must be on that basis.

(b) For claims incurred on or after January 1, 2005 and prior to the effective date for the company as determined in paragraph (E)(2)(e) of this rule, the minimum standards with respect to morbidity are those specified in paragraph (I) of this rule, except that, at the option of the insurer, assumptions regarding claim termination rates for the period less than two years from the date of disablement may be based on the insurer's experience, if such experience is considered credible, or upon other assumptions and methods designed to place a sound value on the liabilities.

(c) For claims incurred on or after January 1, 2020, the minimum standards are those specified in paragraph (I) of this rule, including (as derived in accordance with actuarial guideline L, as included in the 2019 version of the NAIC accounting practices and procedures manual):

(i) The use of the insurer's own experience; and

(ii) An adjustment to include the insurer's own experience measurement margin; and

(iii) The application of a credibility factor.

(d) In determining the minimum reserves in accordance with paragraph (E)(2)(c) of this rule, the provisions in paragraphs (E)(2)(c)(i) to (E)(2)(c)(iii) of this rule are not required if:

(i) The insurer meets the own experience measurement exemption provided in actuarial guideline L as included in the 2019 version of the NAIC accounting practices and procedures manual; or

(ii) For worksite franchise disability insurance policies with benefit periods of up to two years, at the option of the insurer, disabled life reserves may be based on the insurer's experience, if such experience is considered credible, or upon other assumptions and methods designed to place a sound value on the liabilities.

(e) An insurer may begin to use the minimum reserve standards in paragraph (E)(2)(c) of this rule at a date earlier than the effective date of this rule.

(f) An insurer may apply the new standards in paragraph (E)(2)(c) of this rule to all open claims regardless of incurred date. Once an insurer elects to calculate reserves for all open claims based on paragraph (E)(2)(c) of this rule, all future valuations must be on that basis.

(3) Minimum morbidity standards for group disability income claim reserves

(a) For claims incurred prior to January 1, 2005, each insurer may elect which of the following to use as the minimum morbidity standard for claim reserves:

(i) The minimum morbidity standard in effect for claim reserves as of the date the claim was incurred; or

(ii) The standards as defined in paragraph (E)(3)(b) of this rule, applied to all open group long-term disability income insurance claims; or

(iii) The standards as defined in paragraph (E)(3)(c) of this rule, applied to all open group disability income insurance claims.

Once an insurer elects to calculate reserves for all open claims on a more recent standard, then all future valuations must be on that basis.

(b) For group long-term disability income insurance claims incurred on or after January 1, 2005, but before the effective date in paragraph (E)(3)(c) of this rule, and group disability income insurance claims incurred on or after January 1, 2005, that are not group long-term disability income, the minimum standards with respect to morbidity are those specified in paragraph (I) of this rule, except that, at the option of the insurer:

(i) Assumptions regarding claim termination rates for the period less than two years from the date of disablement may be based on the insurer's experience, if the experience is considered credible, or upon other assumptions and methods designed to place a sound value on the liabilities.

(ii) Assumptions regarding claim termination rates for the period two or more years but less than five years from the date of disablement may, with the approval of the superintendent, be based on the insurer's experience for which the insurer maintains underwriting and claim administration control. The request for such approval of a plan of modification to the reserve basis must include:

(a) An analysis of the credibility of the experience;

(b) A description of how all of the insurer's experience is proposed to be used in setting reserves;

(d) A summary of the financial impact that the proposed plan of modification would have had on the insurer's last filed annual statement;

(e) A copy of the approval of the proposed plan of modification by the insurance regulatory agency of the insurer's state of domicile; and

(f) Any other information deemed necessary by the superintendent.

(iii) Each insurer may elect which of the following to use as the minimum morbidity standard for group long-term disability income insurance claim reserves:

(a) The minimum morbidity standard in effect for claim reserves as of the date the claim was incurred, or

(b) The standards as defined in paragraph (E)(3)(c) of this rule, applied to all open claims.

Once an insurer elects to calculate reserves for all open claims on a more recent standard, then all future valuations must be on that basis.

(c) For group long-term disability income insurance claims incurred on or after January 1, 2020, the minimum standards with respect to morbidity shall be based on the 2012 GLTD termination table in accordance with actuarial guideline XLVII, as included in the 2019 version of the NAIC accounting practices and procedures manual with considerations of:

(i) The use of the insurer's own experience; and

(ii) An adjustment to include the insurer's own experience measurement margin; and

(iii) The application of a credibility factor.

(d) An insurer may begin to use the minimum reserve standards in paragraph (E)(3)(c) of this rule at a date earlier than the effective date of this rule. An insurer may apply the standards in paragraph (E)(3)(c) of this rule to all open claims incurred prior to the effective date of paragraph (E)(3)(c) of this rule for the insurer. Once an insurer elects to calculate reserves for all open claims based on paragraph (E)(3)(c) of this rule, all future valuations must be on that basis.

(4) Minimum morbidity or other contingency standard for other health insurance claim reserves

The reserve must be based on the insurer's experience, if the experience is considered credible, or upon other assumptions and methods designed to place a sound value on the liabilities.

(5) Claim reserve methods generally

A generally accepted actuarial reserving method or other reasonable method, based on information and data describing the proposed method, or a combination of methods may be used to estimate all claim liabilities if approved by the superintendent prior to the statement date. The methods used for estimating liabilities generally may be aggregate methods, or various reserve items may be separately valued. Approximations based on groupings and averages may also be employed. Adequacy of the claim reserves, however, shall be determined in the aggregate.

(F) Premium reserves

(1) General

(a) Unearned premium reserves are required for all contracts, except individual and group single premium credit disability insurance, with respect to the period of coverage for which premiums, other than premiums paid in advance, have been paid beyond the date of valuation.

(b) If premiums due and unpaid are carried as an asset, such premiums must be treated as premiums in force, subject to unearned premium reserve determination. The value of unpaid commissions, premium taxes and the cost of collection associated with due and unpaid premiums shall be carried as an offsetting liability.

(c) The gross premiums paid in advance for a period of coverage commencing after the next premium due date which follows the date of valuation may be appropriately discounted to the valuation date and shall be held either as a separate liability or as an addition to the unearned premium reserve which would otherwise be required as a minimum.

(2) Minimum standards for unearned premium reserves

(a) The minimum unearned premium reserve with respect to any contract is the pro rata unearned modal premium that applies to the premium period beyond the valuation date, with such premium determined on the basis of:

(i) The valuation net modal premium on the contract reserve basis applying to the contract; or

(ii) The gross modal premium for the contract if no contract reserve applies.

(b) In no event may the sum of the unearned premium and contract reserves for all contracts of the insurer subject to contract reserve requirements be less than the gross modal unearned premium reserve on all such contracts, as of the date of valuation. Such reserve shall never be less than the expected claims for the period beyond the valuation date represented by such unearned premium reserve, to the extent not provided for elsewhere.

(3) Premium reserve methods generally

The insurer may employ suitable approximations and estimates; including, but not limited to groupings, averages and aggregate estimation; in computing premium reserves. Such approximations or estimates should be tested periodically to determine their continuing adequacy and reliability.

(G) Contract reserves

(1) General

(a) Contract reserves are required, unless otherwise specified in paragraph (G)(1)(b) of this rule for:

(i) All individual and group contracts with which level premiums are used; or

(ii) All individual and group contracts with respect to which, due to the gross premium pricing structure at issue, the value of the future benefits at any time exceeds the value of any appropriate future valuation net premiums at that time. This evaluation may be applied on a rating block basis if the total premiums for the block were developed to support the total risk assumed and expected expenses for the block each year, and a qualified actuary certifies the premium development. The actuary should state in the certification that premiums for the rating block were developed such that each year's premium was intended to cover that year's costs without any prefunding. If the premium is also intended to recover costs for any prior years, the actuary should also disclose the reasons for and magnitude of such recovery. The values specified in paragraph (G)(1)(a)(ii) of this rule shall be determined on the basis specified in paragraph (G)(2) of this rule.

(b) Contracts not requiring a contract reserve are:

(i) Contracts which cannot be continued after one year from issue; or

(ii) Contracts already in force on the effective date of this rule for which no contract reserve was required under the immediately preceding standards.

(d) The methods and procedures for contract reserves should be consistent with those for claim reserves for any contract, or else appropriate adjustment must be made when necessary to assure provision for the aggregate liability. The definition of the date of incurral must be the same in both determinations.

(e) The contract reserves for single premium credit disability insurance shall never be less than the expected claims for the period beyond the valuation date.

(f) The total contract reserve established shall incorporate provisions for moderately adverse deviations.

(2) Minimum standards for contract reserves

(a) Basis

(i) Morbidity or other contingency. Minimum standards with respect to morbidity are those set forth in paragraph (I) of this rule. Valuation net premiums used under each contract must have a structure consistent with the gross premium structure at issue of the contract as this relates to advancing age of insured, contract duration and period for which gross premiums have been calculated.

Contracts for which tabular morbidity standards are not specified in paragraph (I) of this rule shall be valued using tables established for reserve purposes by a qualified actuary and acceptable to the superintendent. The morbidity tables shall contain a pattern for incurred claims cost that reflects the underlying morbidity and shall not be constructed for the primary purpose of minimizing reserves.

(a) In determining the morbidity assumptions, the actuary shall use assumptions that represent the best estimate of anticipated future experience, but shall not incorporate any expectation of future morbidity improvement. Morbidity improvement is a change, in the combined effect of claim frequency and the present value of future expected claim payments given that a claim has occurred, from the current morbidity tables or experience that will result in a reduction to reserves. It is not the intent of this provision to restrict the ability of the actuary to reflect the morbidity impact for a specific known event that has occurred and that is able to be evaluated and quantified.

(b) Business in force as of the effective date of paragraph (G)(2)(a)(iii)(c) of this rule may be permitted to retain the original reserve basis which may not meet the provisions of paragraph (G)(2)(a)(i)(a) of this rule, subject to the acceptability of the superintendent.

(ii) Interest. The maximum interest rate is specified in paragraph (I) of this rule.

(iii) Termination rates. Termination rates used in the computation of reserves shall be on the basis of a mortality table as specified in paragraph (I) of this rule except as noted in paragraphs (G)(2)(a)(iii)(a), (G)(2)(a)(iii)(b), and (G)(2)(a)(iii)(c) of this rule.

(a) Under contracts for which premium rates are not guaranteed, and where the effects of insurer underwriting are specifically used by policy duration in the valuation morbidity standard or for return of premium or other deferred cash benefits, total termination rates may be used at ages and durations where these exceed specified mortality table rates, but not in excess of the lesser of:

(i) Eighty per cent of the total termination rate used in the calculation of the gross premiums, or

(ii) Eight per cent.

(b) For long-term care individual policies or group certificates issued after December 31, 2003, the contract reserve may be established on a basis of separate:

(i) Mortality (as specified in paragraph (I) of this rule); and

(ii) Terminations other than mortality, where the terminations are not to exceed:

(A) For policy years one through four, the lesser of eighty per cent of the voluntary lapse rate used in the calculation of gross premiums and eight per cent;

(B) For policy years five and later, the lesser of one hundred per cent of the voluntary lapse rate used in the calculation of gross premiums and four per cent.

(c) For long-term care individual policies or group certificates issued on or after January 1, 2011, the contract reserve may be established on a basis of separate:

(i) Mortality (as specified in paragraph (I) of this rule); and

(ii) Terminations other than mortality, where the terminations are not to exceed;

(A) For policy year one, the lesser of eighty per cent of the voluntary lapse rate used in the calculation of gross premiums and six per cent;

(B) For policy year two through four, the lesser of eighty per cent of the voluntary lapse rate used in the calculation of gross premiums and four per cent;

(C) For policy year five and later, the lesser of one hundred per cent of the voluntary lapse rate used in the calculation of gross premiums and two per cent, except for group long-term care insurance as defined in section 3923.41 of the Revised Code where the two per cent shall be three per cent.

(d) Where a morbidity standard specified in paragraph (I) of this rule is on an aggregate basis, such morbidity standard may be adjusted to reflect the effect of insurer underwriting by policy duration. The adjustments must be appropriate to the underwriting and be acceptable to the superintendent.

(b) Reserve method

(i) The preliminary term method may be applied only in relation to the date of issue of a contract. Reserve adjustments introduced later, as a result of rate increases, revisions in assumptions (e.g., projected inflation rates) or for other reasons, are to be applied immediately as of the effective date of adoption of the adjusted basis.

(ii) For insurance except long-term care and return of premium or other deferred cash benefits, the minimum reserve is the reserve calculated on the two-year full preliminary term method; that is, under which the terminal reserve is zero at the first and also the second contract anniversary.

(iii) For long-term care insurance, the minimum reserve is the reserve calculated as follows:

(a) For individual policies and group certificates issued on or before December 31, 1996, reserves calculated on the two-year full preliminary term method;

(b) For individual policies and group certificates issued on or after January 1, 1997, reserves calculated on the one-year full preliminary term method.

(iv) For return of premium or other deferred cash benefits, the minimum reserve is the reserve calculated as follows:

(a) On the one year preliminary term method if such benefits are provided at any time before the twentieth anniversary;

(b) On the two year preliminary term method if such benefits are only provided on or after the twentieth anniversary.

(c) Negative reserves. Negative reserves on any benefit may be offset against positive reserves for other benefits in the same contract, but the total contract reserve with respect to all benefits combined may not be less than zero.

(d) Nonforfeiture benefits for long-term care insurance. The contract reserve on a policy basis shall not be less than the net single premium for the nonforfeiture benefits at the appropriate policy duration, where the net single premium is computed according to the listed specifications.

(3) Alternative valuation methods and assumptions generally

Provided the contract reserve on all contracts to which an alternative method or basis is applied is not less in the aggregate than the amount determined according to the applicable standards specified above; an insurer may use any reasonable assumptions as to interest rates, termination and mortality rates, and rates of morbidity or other contingency. Also, subject to the preceding condition, the insurer may employ methods other than the methods stated above in determining a sound value of its liabilities under such contracts, including, but not limited to the following: the net level premium method; the one-year full preliminary term method; prospective valuation on the basis of actual gross premiums with reasonable allowance for future expenses; the use of approximations such as those involving age groupings, groupings of several years of issue, average amounts of indemnity, grouping of similar contract forms; the computation of the reserve for one contract benefit as a percentage of, or by other relation to, the aggregate contract reserves exclusive of the benefit or benefits so valued; and the use of a composite annual claim cost for all or any combination of the benefits included in the contracts valued.

(4) Tests for adequacy and reasonableness of contract reserves

Annually, an appropriate review shall be made of the insurer's prospective contract liabilities on contracts valued by tabular reserves, to determine the continuing adequacy and reasonableness of the tabular reserves giving consideration to future gross premiums. The insurer shall make appropriate increments to such tabular reserves if such tests indicate that the basis of such reserves is no longer adequate; subject, however, to the minimum standards of paragraph (G)(2) of this rule.

In the event a company has a contract or a group of related similar contracts, for which future gross premiums will be restricted by contract, or is otherwise restricted by law, such that the future gross premiums reduced by expenses for administration, commissions, and taxes will be insufficient to cover future claims, the company shall establish contract reserves for such shortfall in the aggregate.

(H) Reinsurance

Increases to, or credits against reserves carried, arising because of reinsurance assumed or reinsurance ceded, must be determined in a manner consistent with these minimum reserve standards and with all applicable provisions of the reinsurance contracts which affect the insurer's liabilities.

(I) Specific standards for morbidity, interest and mortality

(1) Morbidity

(a) Minimum morbidity standards for valuation of specified individual contract health insurance benefits are as follows:

(i) Disability income insurance benefits due to accident or sickness.

(a) Contract reserves:

(i) Contracts issued on or after January 1, 1965 and prior to January 1, 1992:

The 1964 commissioners disability table (64CDT).

(ii) Contracts issued on or after January 1, 1992 and prior to January 1, 2020:

(A) The 1985 commissioners individual disability tables A (85CIDA); or

(B) The 1985 commissioners individual disability tables B (85CIDB).

(iii) Contracts issued during 1987 to 1991:

(A) Optional use of either the 1964 table or the 1985 tables; and

(B) Each insurer shall elect, with respect to all individual contracts issued in any one statement year, whether it will use tables A or tables B as the minimum standard. The insurer may, however, elect to use the other tables with respect to any subsequent statement year.

(iv) Contracts issued on or after January 1, 2020:

(A) The 2013 IDI valuation table with modifiers as described in actuarial guideline L as included in the 2019 version of the NAIC accounting practices and procedures manual; and

(B) An insurer may begin to use the 2013 IDI valuation table with modifiers at a date earlier than the effective date of this rule.

(v) Once an insurer begins to use the 2013 IDI valuation table the insurer may elect to apply that morbidity standard for all policies issued subject to other valuation tables. This may be done if the following conditions are met:

(A) The insurer must apply the morbidity standard to all in-force policies and incurred claims;

(B) The insurer elects or has elected to apply the 2013 IDI valuation table to all claims incurred regardless of incurred date;

(C) The insurer maintains adequate policy records on policies issued prior to 2020 that allow the insurer to apply the 2013 IDI valuation table appropriately; and

(D) Once an insurer elects to calculate reserves for all in-force policies based on the current morbidity standard, all future valuations must be on that basis.

(b) Claim reserves:

(i) For claims incurred prior to January 1, 2004:

Each insurer may elect which of the following to use as the minimum standard for claims incurred prior to January 1, 2004:

(A) The minimum morbidity standard in effect for contract reserves on currently issued contracts, as of the date the claim is incurred; or

(B) The standard as defined in paragraph (I)(1)(a)(i)(b)(ii) or (I)(1)(a)(i)(b)(iii) of this rule, applied to all open non-worksite claims provided the insurer maintains adequate claim records to allow the insurer to apply the standard defined in paragraph (I)(1)(a)(i)(b)(ii) or (I)(1)(a)(i)(b)(iii) of this rule appropriately; and

(C) Once an insurer elects to calculate reserves for all open claims on the standard defined in paragraph (I)(1)(a)(i)(b)(ii) or (I)(1)(a)(i)(b)(iii) of this rule, all future valuations must be on that basis. This option, with respect to paragraph (I)(1)(a)(i)(b)(iii) of this rule, may be selected only if the insurer maintains adequate claim records for all claims incurred to use the 2013 IDI valuation table appropriately.

(ii) For claims incurred on or after January 1, 2004 and prior to January 1, 2020:

The 1985 commissioners individual disability table A (85CIDA) with claim termination rates multiplied by the following adjustment factors:

Duration	Adjustment Factor	Adjusted Termination Rates*

Week 1	0.366	0.04831
2	0.366	0.04172
3	0.366	0.04063
4	0.366	0.04355
5	0.365	0.04088
6	0.365	0.04271
7	0.365	0.04380
8	0.365	0.04344
9	0.370	0.04292
10	0.370	0.04107
11	0.370	0.03848
12	0.370	0.03478
13	0.370	0.03034

Month 4	0.391	0.08758
5	0.371	0.07346
6	0.435	0.07531
7	0.500	0.07245
8	0.564	0.06655
9	0.613	0.05520
10	0.663	0.04705
11	0.712	0.04486
12	0.756	0.04309
13	0.800	0.04080
14	0.844	0.03882
15	0.888	0.03730
16	0.932	0.03448
17	0.976	0.03026
18	1.020	0.02856
19	1.049	0.02518
20	1.078	0.02264
21	1.107	0.02104
22	1.136	0.01932
23	1.165	0.01865
24	1.195	0.01792

Year 3	1.369	0.16839
4	1.204	0.10114
5	1.199	0.07434
6 and later	1.000	**

*The adjusted termination rates derived from the application of the adjustment factors to the DTS valuation table termination rates shown in exhibits 3a, 3b, 3c, 4, and 5 (transactions of the society of actuaries (TSA) XXXVII, pages 457 to 463) is displayed. The adjustment factors for age, elimination period, class, sex, and cause displayed in exhibits 3a, 3b, 3c, and 4 should be applied to the adjusted termination rates shown in this table.

**Applicable DTS valuation table duration rate from exhibits 3c and 4 (TSA XXXVII, pages 462 to 463).

The 85CIDA table so adjusted for the computation of claim reserves shall be known as 85CIDC (the 1985 commissioners individual disability table C).

(iii) For claims incurred on or after January 1, 2020, the 2013 IDI valuation table with modifiers and adjustments for company experience as prescribed in actuarial guideline L, as included in the 2019 version of the NAIC accounting practices and procedures manual, except for worksite disability insurance policies with benefit periods of twenty-four months or less.

For worksite franchise disability insurance policies with benefit periods of twenty-four months or less, claim reserves may be calculated using claim run-out analysis or claim triangles, or other methods that place a sound value on the reserves that are appropriate for the business and risks involved.

(ii) Hospital benefits, surgical benefits and maternity benefits (scheduled benefits or fixed time period benefits only).

(a) Contract reserves:

(i) Contracts issued on or after January 1, 1955, and prior to January 1, 1982:

The 1956 intercompany hospital-surgical tables.

(ii) Contracts issued on or after January 1, 1982:

The 1974 medical expense tables, table A, TSA XXX, page 63. Refer to the paper (in the same volume, page 9) to which this table is appended, including its discussions, for methods of adjustment for benefits not directly valued in table A: development of the 1974 medical expense benefits, Houghton and Wolf.

(b) Claim reserves:

Standards are based on paragraphs (E)(4) and (E)(5) of this rule.

(iii) Cancer expense benefits:

(a) Contract reserves:

(i) Contract issued on or after January 1, 1986 and prior to January 1, 2019:

The 1985 NAIC cancer claim cost tables (1985 CCCT).

(ii) Contracts issued on or after January 1, 2019:

(A) For first occurrence and hospitalization benefits:

The 2016 NAIC cancer claim cost valuation tables (2016 CCCVT);

(B) For all other benefits:

Assumptions based on company experience, relevant industry experience, and actuarial judgement. Such assumptions should be appropriate for valuation which considers a margin for adverse experience.

(b) Claim reserves:

No specific standard. See paragraph (I)(1)(a)(vi) of this rule.

(iv) Accidental death benefits.

(a) Contract reserves:

Contracts issued on or after January 1, 1965:

The 1959 accidental death benefits table.

(b) Claim reserves:

Actual amount incurred.

(v) Single premium credit disability.

(a) Contract reserves:

(i) For contracts issued prior to January 1, 2004, each insurer may elect either paragraph (I)(1)(a)(v)(a)(i)(A) or (I)(1)(a)(v)(a)(i)(B) of this rule to use as the minimum standard. Once an insurer elects to calculate reserves for all contracts on the standard defined in paragraph (I)(1)(a)(v)(a)(i) of this rule, all future valuations must be on that basis.

(A) The minimum morbidity standard in effect for contract reserves on currently issued contracts, as of the date the contract was issued; or

(B) The standard as defined in paragraph (I)(1)(a)(v)(a)(ii) of this rule, applied to all contracts.

(ii) For contracts issued on or after January 1, 2004:

(A) For plans having less than a thirty day elimination period, the 1985 commissioners individual disability table A (85CIDA) with claim incidence rates increased by twelve per cent.

(B) For plans having a thirty day and greater elimination period, the 85CIDA for a fourteen day elimination period with claim incidence rates increased by twelve per cent.

(b) Claim reserves:

Claim reserves are to be determined as provided in (paragraphs (E)(4) and (E)(5) of this rule.

(vi) Other individual contract benefits.

(a) Contract reserves:

For all other individual contract benefits, morbidity assumptions are to be determined as provided in the reserve standards.

(b) Claim reserves:

For all benefits other than disability income insurance, claim reserves are to be determined as provided in the standards.

(b) Minimum morbidity standards for valuation of specified group contract health insurance benefits are as follows:

(i) Disability income insurance benefits due to accident or sickness, where this rule references this paragraph (I)(1)(b)(i) of this rule, paragraphs (I)(1)(b)(i)(a) and (I)(1)(b)(i)(b) of this rule apply; otherwise actuarial guideline XLVII, as included in the 2019 version of the NAIC accounting practices and procedures manual.

(a) Contract reserves:

(i) Contracts issued prior to January 1, 1992:

The same basis, if any, as that employed by the insurer as of January 1, 1992.

(ii) Contracts issued on or after January 1, 1992:

The 1987 commissioners group disability income table (87CGDT).

(b) Claim reserves:

(i) For claims incurred on or after January 1, 1992:

The 1987 commissioners group disability income table (87CGDT).

(ii) For claims incurred prior to January 1, 1992:

Use of the 87CGDT is optional.

(ii) Single premium credit disability

(a) Contract reserves:

(i) For contracts issued prior to January 1, 2004, each insurer may elect either paragraph (I)(1)(b)(ii)(a)(i)(A) or (I)(1)(b)(ii)(a)(i)(B) of this rule to use as the minimum standard. Once an insurer elects to calculate reserves for all contracts on the standard defined in paragraph (I)(1)(b)(ii)(a)(ii) of this rule, all future valuations must be on that basis.

(A) The minimum morbidity standard in effect for contract reserves on currently issued contracts, as of the date the contract was issued; or

(B) The standard as defined in paragraph (I)(1)(b)(ii)(a)(ii) of this rule, applied to all contracts.

(ii) For contracts issued on or after January 1, 2004:

(A) For plans having less than a thirty day elimination period, the 1985 commissioners individual disability table A (85CIDA) with claim incidence rates increased by twelve per cent.

(B) For plans having a thirty day and greater elimination period, the 85CIDA for a fourteen day elimination period with the adjustment in paragraph (I)(1)(b)(ii)(a)(i)(A) of this rule.

(b) Claim reserves:

Claim reserves are to be determined as provided in paragraphs (E)(4) and (E)(5) of this rule.

(iii) Other group contract benefits.

(a) Contract reserves:

For all other group contract benefits, morbidity assumptions are to be determined as provided in the reserve standards.

(b) Claim reserves:

For all benefits other than disability income insurance, claim reserves are to be determined as provided in the standards.

(2) Interest

(a) For contract reserves the maximum interest rate is the maximum rate permitted by law in the valuation of whole life insurance issued on the same date as the health insurance contract.

(b) For claim reserves on policies that require contract reserves, the maximum interest rate is the maximum rate permitted by law in the valuation of whole life insurance issued on the same date as the claim incurral date.

(c) For claim reserves on policies not requiring contract reserves, the maximum interest rate is the maximum rate permitted by law in the valuation of single premium immediate annuities issued on the same date as the claim incurral date, reduced by one hundred basis points.

(3) Mortality

(a) Except as provided in paragraphs (I)(3)(b) and (I)(3)(c) of this rule, the mortality basis used for all policies, except long-term care individual policies and group certificates and for long-term care individual policies or group certificates issued prior to January 1, 2004 shall be according to a table (but without use of selection factors) permitted by law for the valuation of whole life insurance issued on the same date as the health insurance contract. For long-term care insurance individual policies or group certificates issued on or after January 1, 2004, the mortality basis used shall be the 1983 group annuity mortality table without projection. For long-term care insurance individual policies or group certificates issued on or after January 1, 2011, the mortality basis used shall be the 1994 group annuity mortality static table.

(b) Other mortality tables adopted by the NAIC and promulgated by the superintendent may be used in the calculation of the minimum reserves if appropriate for the type of benefits and if approved by the superintendent. The request for such approval must include the proposed mortality table and the reason that the standard specified in paragraph (I)(3)(a) of this rule is inappropriate.

(J) Reserves for waiver of premium

(1) Waiver of premium reserves involve several special considerations. First, the disability valuation tables promulgated by the NAIC are based on exposures that include contracts on premium waiver as in-force contracts. Hence, contract reserves based on these tables are not reserves on active lives but rather reserves on contracts in force. This is true for the 1964 CDT and for both the 1985 CIDA and CIDB tables.

(2) Accordingly, tabular reserves using any of these tables should value reserves on the following basis:

(a) Claim reserves should include reserves for premiums expected to be waived, valuing as a minimum the valuation net premium being waived;

(b) Premium reserves should include contracts on premium waiver as in-force contracts, valuing as a minimum the unearned modal valuation net premium being waived; and

(c) Contract reserves should include recognition of the waiver of premium benefit in addition to other contract benefits provided for, valuing as a minimum the valuation net premium to be waived.

(3) If an insurer is, instead, valuing reserves on what is truly an active life table, or if a specific valuation table is not being used but the insurer's gross premiums are calculated on a basis that includes in the projected exposure only those contracts for which premiums are being paid, then it may not be necessary to provide specifically for waiver of premium reserves. Any insurer using such a true active life basis should carefully consider, however, whether or not additional liability should be recognized on account of premiums waived during periods of disability or during claim continuation.

(K) Severability

If any paragraph, term or provision of this rule is adjudged invalid for any reason, the judgment shall not affect, impair or invalidate any other paragraph, term or provision of this rule, but the remaining paragraphs, terms, and provisions shall continue in full force and effect.

Last updated February 14, 2022 at 8:55 AM

Supplemental Information

Authorized By: 3901.041, 3903.723(Q)
Amplifies: 3903.723(Q)
Five Year Review Date: 8/31/2026
Prior Effective Dates: 11/18/2010

Rule 3901-3-16 | Credit for reinsurance.

Effective:

June 20, 2021

Promulgated Under:

119.03

PDF:

Download Authenticated PDF

(A) Purpose

The purpose of this rule is to set out procedural requirements which the superintendent deems necessary to carry out the provisions of sections 3901.61 to 3901.65 of the Revised Code, credit for reinsurance ceded. The information and procedures set out in this rule are necessary for the protection of ceding insurers domiciled in this state.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 3901.65 of the Revised Code.

Pursuant to division (A)(1) of section 3901.62 of the Revised Code the superintendent shall allow credit for reinsurance ceded by a domestic insurer to assuming insurers which were licensed in this state as of the date of the ceding insurer's statutory financial statement.

(D) Credit for reinsurance when a reinsurer is accredited in this state

(1) Pursuant to division (A)(2) of section 3901.62 of the Revised Code the superintendent shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is accredited as a reinsurer in this state as of the date on which statutory financial statement credit for reinsurance is claimed. An accredited reinsurer must:

(a) File a properly executed form AR-1 (attached as an appendix to this rule) as evidence of its submission to this state's jurisdiction and to this state's authority to examine its books and records;

(b) File with the superintendent a certified copy of a certificate of authority or other acceptable evidence that it is licensed to transact insurance or reinsurance in at least one state, or, in the case of a United States branch of an alien assuming insurer, is entered through and licensed to transact insurance or reinsurance in at least one state;

(c) File annually with the superintendent a copy of its annual statement filed with the insurance department of its state of domicile or, in the case of an alien assuming insurer, with the state through which it is entered and in which it is licensed to transact insurance or reinsurance, and a copy of its most recent audited financial statement; and

(d) Maintain a surplus as regards policyholders in an amount not less than twenty million dollars, or obtain the affirmative approval of the superintendent upon a finding that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers.

(2) If the superintendent determines that the assuming insurer has failed to meet or maintain any of these qualifications, the superintendent may upon written notice and opportunity for hearing, suspend or revoke the accreditation. Credit shall not be allowed a domestic ceding insurer under this paragraph if the assuming insurer's accreditation has been revoked by the superintendent, or if the reinsurance was ceded while the assuming insurer's accreditation was under suspension by the superintendent.

(E) Credit for reinsurance when reinsurers maintain trust funds

(1) Pursuant to division (A)(4) of section 3901.62 of the Revised Code, the superintendent shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer which, as of the date of the ceding insurer's statutory financial statement maintains a trust fund in an amount prescribed below in a qualified United States financial institution as defined in division (B)(2) of section 3901.63 of the Revised Code, for the payment of the valid claims of its United States policyholders and ceding insurers, their assigns and successors in interest. The assuming insurer shall report annually to the superintendent substantially the same information as that required to be reported on the national association of insurance commissioners (NAIC) annual statement form by licensed insurers, to enable the superintendent to determine the sufficiency of the trust fund.

(2) The following requirements apply to the following categories of assuming insurer:

(a) The trust fund for a single assuming insurer shall consist of funds in trust in an amount not less than the assuming insurer's liabilities attributable to business written in the United States, and in addition, a trusteed surplus of not less than twenty million dollars except as provided in paragraph (E)(2)(b) of this rule.

(b) At any time after the assuming insurer has permanently discontinued underwriting new business secured by the trust for at least three full years, the superintendent with principal regulatory oversight of the trust may authorize a reduction in the required trusteed surplus, but only after a finding, based on an assessment of the risk, that the new required surplus level is adequate for the protection of United States ceding insurers, policyholders and claimants in light of reasonably foreseeable adverse loss development. The risk assessment may involve an actuarial review, including an independent analysis of reserves and cash flows, and shall consider all material risk factors, including when applicable the lines of business involved, the stability of the incurred loss estimates and the effect of the surplus requirements on the assuming insurer's liquidity or solvency. The minimum required trusteed surplus may not be reduced to an amount less than thirty per cent of the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust.

(c) The trust fund for a group of individual unincorporated under writers shall consist of funds in trust in an amount not less than the group's aggregate liabilities attributable to business written in the United States and, in addition, the group shall maintain a trusteed surplus of which one hundred million dollars shall be held jointly for the benefit of the United States ceding insurers of any member of the group. The group shall make available to the superintendent annual certifications by the group's domiciliary regulator and its independent public accountants of the solvency of each under writer member of the group.

(d) The trust fund for a group of incorporated insurers under common administration, whose members possess aggregate policyholders surplus of ten billion dollars (calculated and reported in substantially the same manner as prescribed by the annual statement instructions and "Accounting Practices and Procedures Manual" of the NAIC) and which has continuously transacted an insurance business outside the United States for at least three years immediately prior to assuming reinsurance shall consist of funds in trust in an amount not less than the assuming insurers' liabilities attributable to business ceded by United States ceding insurers to any members of the group pursuant to reinsurance contracts issued in the name of such group and, in addition, the group shall maintain a joint trusteed surplus of which one hundred million dollars shall be held jointly for the benefit of United States ceding insurers of any member of the group. The group shall file a properly executed form AR-1 as evidence of the submission to this state's authority to examine the books and records of any of its members and shall certify that any member examined will bear the expense of any such examination. The group shall make available to the superintendent annual certifications by the members' domiciliary regulators and their independent public accountants of the solvency of each member of the group.

(e) The incorporated members of the group shall not be engaged in any business other than underwriting as a member of the group and shall be subject to the same level of regulation and solvency control by the group's domiciliary regulator as are the unincorporated members. The group shall, within ninety days after its financial statements are due to be filed with the group's domiciliary regulator, provide to the superintendent:

(i) An annual certification by the group's domiciliary regulator of the solvency of each underwriter member of the group; or

(ii) If a certification is unavailable, a financial statement, prepared by independent public accountants, of each underwriter member of the group.

(3) The trust shall be established in a form approved by the superintendent and complying with division (C) of section 3901.62 of the Revised Code. The trust instrument shall provide that:

(a) Contested claims shall be valid and enforceable out of funds in trust to the extent remaining unsatisfied thirty days after entry of the final order of any court of competent jurisdiction in the United States.

(b) Legal title to the assets of the trust shall be vested in the trustee for the benefit of the grantor's United States policyholders and ceding insurers, their assigns and successors in interest.

(d) The trust shall remain in effect for as long as the assuming insurer, or any member or former member of a group of insurers, shall have outstanding obligations under reinsurance agreements subject to the trust.

(e) No later than February twenty-eighth of each year the trustees of the trust shall report to the superintendent in writing setting forth the balance in the trust and listing the trust's investments at the preceding year end, and shall certify the date of termination of the trust, if so planned, or certify that the trust shall not expire prior to the next following December thirty-first.

(f) No amendment to the trust shall be effective unless reviewed and approved in advance by the superintendent.

(F) Credit for reinsurance for a certified reinsurer

(1) Pursuant to division (A)(5) of section 3901.62 of the Revised Code, the superintendent shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that has been certified as a reinsurer in this state at all times for which statutory financial statement credit for reinsurance is claimed under this paragraph. The credit allowed shall be based upon the security held by or on behalf of the ceding insurer in accordance with a rating assigned to the certified reinsurer by the superintendent. The security shall be in a form consistent with the provisions of division (A)(5) of section 3901.62 or section 3901.63 of the Revised Code and paragraph (J), (K) or (L) of this rule. The amount of security required in order for full credit to be allowed shall correspond with the following requirements:

(a)

Ratings	Security required
Secure - 1	0%
Secure - 2	10 %
Secure - 3	20%
Secure - 4	50%
Secure - 5	75%
Vulnerable - 6	100%

(b) Affiliated reinsurance transactions shall receive the same opportunity for reduced security requirements as all other reinsurance transactions.

(c) The superintendent shall require the certified reinsurer to post one hundred per cent, for the benefit of the ceding insurer or its estate, security upon the entry of an order of rehabilitation, liquidation or conservation against the ceding insurer.

(d) In order to facilitate the prompt payment of claims, a certified reinsurer with a rating of secure 1, secure 2 or secure 3 shall not be required to post security for catastrophe recoverables for a period of one year from the date of the first instance of a liability reserve entry by the ceding company as a result of a loss from a catastrophic occurrence as recognized by the superintendent. The one year deferral period is contingent upon the certified reinsurer continuing to pay claims in a timely manner. Reinsurance recoverables for only the following lines of business as reported on the NAIC annual financial statement related specifically to the catastrophic occurrence will be included in the deferral:

(i) Line 1: Fire

(ii) Line 2: Allied lines

(iii) Line 3: Farmowners multiple peril

(iv) Line 4: Homeowners multiple peril

(v) Line 5: Commercial multiple peril

(vi) Line 9: Inland marine

(vii) Line 12: Earthquake

(viii) Line 21: Auto physical damage

(e) Credit for reinsurance under this paragraph shall apply only to reinsurance contracts entered into or renewed on or after the effective date of the certification of the assuming insurer. Any reinsurance contract entered into prior to the effective date of the certification of the assuming insurer that is subsequently amended after the effective date of the certification of the assuming insurer, or a new reinsurance contract, covering any risk for which collateral was provided previously, shall only be subject to this paragraph with respect to losses incurred and reserves reported from and after the effective date of the amendment or new contract.

(f) Nothing in this paragraph shall prohibit the parties to a reinsurance agreement from agreeing to provisions establishing security requirements that exceed the minimum security requirements established for certified reinsurers under this paragraph.

(2) Certification procedure

(a) The superintendent shall post notice on the insurance department's website promptly upon receipt of any application for certification, including instructions on how members of the public may respond to the application. The superintendent may not take final action on the application until at least thirty days after posting the notice required by this paragraph.

(b) The superintendent shall issue written notice to an assuming insurer that has made application and been approved as a certified reinsurer. Included in such notice shall be the rating assigned the certified reinsurer in accordance with paragraph (F)(1) of this rule. The superintendent shall publish a list of all certified reinsurers and their ratings.

(i) The assuming insurer must be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the superintendent pursuant to paragraph (F)(3) of this rule.

(ii) The assuming insurer must maintain capital and surplus, or its equivalent, of no less than two hundred fifty million dollars calculated in accordance with paragraph (F)(2)(d)(viii) of this rule. This requirement may also be satisfied by an association including incorporated and individual unincorporated underwriters having minimum capital and surplus equivalents (net of liabilities) of at least two hundred fifty million dollars and a central fund containing a balance of at least two hundred fifty million dollars.

(iii) The assuming insurer must maintain financial strength ratings from two or more rating agencies deemed acceptable by the superintendent. These ratings shall be based on interactive communication between the rating agency and the assuming insurer and shall not be based solely on publicly available information. These financial strength ratings will be one factor used by the superintendent in determining the rating that is assigned to the assuming insurer. Acceptable rating agencies include the following:

(a) "Standard & Poor's";

(b) "Moody's Investors Service";

(d) "A.M. Best Company";

(e) "Kroll Bond Rating Agency";

(f) "Demotech, Inc. - Financial Stability Ratings"; or

(g) Any other nationally recognized statistical rating organization.

(iv) The certified reinsurer must comply with any other requirements reasonably imposed by the superintendent.

(d) Each certified reinsurer shall be rated on a legal entity basis, with due consideration being given to the group rating where appropriate, except that an association including incorporated and individual unincorporated underwriters that has been approved to do business as a single certified reinsurer may be evaluated on the basis of its group rating. Factors that may be considered as part of the evaluation process include, but are not limited, to the following:

(i) The certified reinsurer's financial strength rating from an acceptable rating agency. The maximum rating that a certified reinsurer may be assigned will correspond to its financial strength rating as outlined in the table below. The superintendent shall use the lowest financial strength rating received from an approved rating agency in establishing the maximum rating of a certified reinsurer. A failure to obtain or maintain at least two financial strength ratings from acceptable rating agencies will result in loss of eligibility for certification;

Ratings	Best	S&P	Moody's	Fitch
Secure - 1	A++	AAA	Aaa	AAA
Secure - 2	A+	AA+, AA, AA-	Aa1, Aa2, Aa3	AA+, AA, AA-
Secure - 3	A	A+, A	A1, A2	A+, A
Secure - 4	A-	A-	A3	A-
Secure - 5	B++, B+	BBB+, BBB, BBB-	Baa1, Baa2, Baa3	BBB+, BBB, BBB-
Vulnerable - 6	B, B-c++, C+, C, C-, D, E, F	BB+, BB, BB-, B+, B, B-, CCC, CC, C, D, R	Ba1, Ba2, Ba3, B1, B2, B3, Caa, Ca, C	BB+, BB, BB-, B+, B, B-, CCC+, CC, CCC-, DD

(ii) The business practices of the certified reinsurer in dealing with its ceding insurers, including its record of compliance with reinsurance contractual terms and obligations;

(iii) For certified reinsurers domiciled in the United States, a review of the most recent applicable NAIC annual statement blank, either schedule F (for property/casualty reinsurers) or schedule S (for life and health reinsurers);

(iv) For certified reinsurers not domiciled in the United States, a review annually of form CR-F (for property/casualty reinsurers) or form CR-S (for life and health reinsurers) (attached as appendix to this rule);

(v) The reputation of the certified reinsurer for prompt payment of claims under reinsurance agreements, based on an analysis of ceding insurers' schedule F reporting of overdue reinsurance recoverables, including the proportion of obligations that are more than ninety days past due or are in dispute, with specific attention given to obligations payable to companies that are in administrative supervision or receivership;

(vi) Regulatory actions against the certified reinsurer;

(vii) The report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in paragraph (F)(2)(d)(viii) of this rule;

(viii) For certified reinsurers not domiciled in the United States, audited financial statements, regulatory filings, and actuarial opinion (as filed with the non-United States jurisdiction supervisor, with a translation into English). Upon the initial application for certification, the superintendent will consider audited financial statements for the last two years filed with its non-United States jurisdiction supervisor;

(ix) The liquidation priority of obligations to a ceding insurer in the certified reinsurer's domiciliary jurisdiction in the context of an insolvency proceeding;

(x) A certified reinsurer's participation in any solvent scheme of arrangement, or similar procedure, which involves United States ceding insurers. The superintendent shall receive prior notice from a certified reinsurer that proposes participation by the certified reinsurer in a solvent scheme of arrangement; and

(xi) Any other information deemed relevant by the superintendent.

(e) Based on the analysis conducted under paragraph (F)(2)(d)(v) of this rule, of a certified reinsurer's reputation for prompt payment of claims, the superintendent may make appropriate adjustments in the security the certified reinsurer is required to post to protect its liabilities to United States ceding insurers, provided that the superintendent shall, at a minimum, increase the security the certified reinsurer is required to post by one rating level under paragraph (F)(2)(d)(i) of this rule if the superintendent finds that:

(i) More than fifteen per cent of the certified reinsurer's ceding insurance clients have overdue reinsurance recoverables on paid losses of ninety days or more which are not in dispute and which exceed one hundred thousand dollars for each cedent; or

(ii) The aggregate amount of reinsurance recoverables on paid losses which are not in dispute that are overdue by ninety days or more exceeds fifty million dollars.

(f) The assuming insurer must submit a properly executed form CR-1 (attached as an appendix to this rule) as evidence of its submission to the jurisdiction of this state, appointment of the superintendent as an agent for service of process in this state, and agreement to provide security for one hundred per cent of the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers if it resists enforcement of a final United States judgment. The superintendent shall not certify any assuming insurer that is domiciled in a jurisdiction that the superintendent has determined does not adequately and promptly enforce final United States judgments or arbitration awards.

(g) The certified reinsurer must agree to meet applicable information filing requirements as determined by the superintendent, both with respect to an initial application for certification and on an on-going basis. The applicable information filing requirements are, as follows:

(i) Notification within ten days of any regulatory actions taken against the certified reinsurer, any change in the provisions of its domiciliary license or any change in rating by an approved rating agency, including a statement describing such changes and the reasons therefore;

(ii) Annually, form CR-F or CR-S, as applicable;

(iii) Annually, the report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in paragraph (F)(2)(g)(iv) of this rule;

(iv) Annually, the most recent audited financial statements, regulatory filings, and actuarial opinion (as filed with the certified reinsurer's supervisor, with a translation into English). Upon the initial certification, audited financial statements for the last two years filed with the certified reinsurer's supervisor;

(v) At least annually, an updated list of all disputed and overdue reinsurance claims regarding reinsurance assumed from United States domestic ceding insurers;

(vi) A certification from the certified reinsurer's domestic regulator that the certified reinsurer is in good standing and maintains capital in excess of the jurisdiction's highest regulatory action level; and

(vii) Any other information that the superintendent may reasonably require.

(h) Change in rating or revocation of certification

(i) In the case of a downgrade by a rating agency or other disqualifying circumstance, the superintendent shall upon written notice assign a new rating to the certified reinsurer in accordance with the requirements of paragraph (F)(2)(d)(i) of this rule.

(ii) The superintendent shall have the authority to suspend, revoke, or otherwise modify a certified reinsurer's certification at any time if the certified reinsurer fails to meet its obligations or security requirements under this paragraph, or if other financial or operating results of the certified reinsurer, or documented significant delays in payment by the certified reinsurer, lead the superintendent to reconsider the certified reinsurer's ability or willingness to meet its contractual obligations.

(iii) If the rating of a certified reinsurer is upgraded by the superintendent, the certified reinsurer may meet the security requirements applicable to its new rating on a prospective basis, but the superintendent shall require the certified reinsurer to post security under the previously applicable security requirements as to all contracts in force on or before the effective date of the upgraded rating. If the rating of a certified reinsurer is downgraded by the superintendent, the superintendent shall require the certified reinsurer to meet the security requirements applicable to its new rating for all business it has assumed as a certified reinsurer.

(iv) Upon revocation of the certification of a certified reinsurer by the superintendent, the assuming insurer shall be required to post security in accordance with paragraph (I) of this rule in order for the ceding insurer to continue to take credit for reinsurance ceded to the assuming insurer. If funds continue to be held in trust in accordance with paragraph (E) of this rule, the superintendent may allow additional credit equal to the ceding insurer's pro rata share of such funds, discounted to reflect the risk of uncollectibility and anticipated expenses of trust administration. Notwithstanding the change of a certified reinsurer's rating or revocation of its certification, a domestic insurer that has ceded reinsurance to that certified reinsurer may not be denied credit for reinsurance for a period of three months for all reinsurance ceded to that certified reinsurer, unless the reinsurance is found by the superintendent to be at high risk of uncollectibility.

(3) Qualified jurisdictions

(a) If, upon conducting an evaluation under this paragraph with respect to the reinsurance supervisory system of any non-United States assuming insurer, the superintendent determines that the jurisdiction qualifies to be recognized as a qualified jurisdiction, the superintendent shall publish notice and evidence of such recognition in an appropriate manner. The superintendent may establish a procedure to withdraw recognition of those jurisdictions that are no longer qualified.

(b) In order to determine whether the domiciliary jurisdiction of a non-United States assuming insurer is eligible to be recognized as a qualified jurisdiction, the superintendent shall evaluate the reinsurance supervisory system of the non-United States jurisdiction, both initially and on an ongoing basis, and consider the rights, benefits and the extent of reciprocal recognition afforded by the non-United States jurisdiction to reinsurers licensed and domiciled in the United States. The superintendent shall determine the appropriate approach for evaluating the qualifications of such jurisdictions, and create and publish a list of jurisdictions whose reinsurers may be approved by the superintendent as eligible for certification. A qualified jurisdiction must agree to share information and cooperate with the superintendent with respect to all certified reinsurers domiciled within that jurisdiction. Additional factors to be considered in determining whether to recognize a qualified jurisdiction, in the discretion of the superintendent, include but are not limited to the following:

(i) The framework under which the assuming insurer is regulated.

(ii) The structure and authority of the domiciliary regulator with regard to solvency regulation requirements and financial surveillance.

(iii) The substance of financial and operating standards for assuming insurers in the domiciliary jurisdiction.

(iv) The form and substance of financial reports required to be filed or made publicly available by reinsurers in the domiciliary jurisdiction and the accounting principles used.

(v) The domiciliary regulator's willingness to cooperate with United States regulators in general and the superintendent in particular.

(vi) The history of performance by assuming insurers in the domiciliary jurisdiction.

(vii) Any documented evidence of substantial problems with the enforcement of final United States judgments in the domiciliary jurisdiction. A jurisdiction will not be considered to be a qualified jurisdiction if the superintendent has determined that it does not adequately and promptly enforce final United States judgments or arbitration awards.

(viii) Any relevant international standards or guidance with respect to mutual recognition of reinsurance supervision adopted by the "International Association of Insurance Supervisors" or successor organization.

(ix) Any other matters deemed relevant by the superintendent.

(c) If the NAIC publishes a list of qualified jurisdictions, the superintendent shall consider the list in determining qualified jurisdictions. If the superintendent approves a jurisdiction as qualified that does not appear on the list of qualified jurisdictions, the superintendent shall document compliance with the criteria provided under paragraphs (F)(3)(b)(i) to (F)(3)(b)(vii) of this rule. Such documentation is a public record.

(d) United States jurisdictions that meet the requirements for accreditation under the NAIC financial standards and accreditation program shall be recognized as qualified jurisdictions.

(4) Recognition of certification issued by an NAIC accredited jurisdiction

(a) If an applicant for certification has been certified as a reinsurer in an NAIC accredited jurisdiction, the superintendent has the discretion to defer to that jurisdiction's certification, and to defer to the rating assigned by that jurisdiction, if the assuming insurer submits a properly executed form CR-1 and such additional information as the superintendent requires. The assuming insurer shall be considered to be a certified reinsurer in this state.

(b) Any change in the certified reinsurer's status or rating in the other jurisdiction shall apply automatically in this state as of the date it takes effect in the other jurisdiction. The certified reinsurer shall notify the superintendent of any change in its status or rating within ten days after receiving notice of the change.

(c) The superintendent may withdraw recognition of the other jurisdiction's rating at any time and assign a new rating in accordance with paragraph (F)(2)(h) of this rule.

(d) The superintendent may withdraw recognition of the other jurisdiction's certification at any time, with written notice to the certified reinsurer. Unless the superintendent suspends or revokes the certified reinsurer's certification, the certified reinsurer's certification shall remain in good standing in this state for a period of three months, which shall be extended if additional time is necessary to consider the assuming insurer's application for certification in this state.

(5) Mandatory funding clause. In addition to the clauses required under paragraph (M) of this rule, reinsurance contracts entered into or renewed under this paragraph shall include a proper funding clause, which requires the certified reinsurer to provide and maintain security in an amount sufficient to avoid the imposition of any financial statement penalty on the ceding insurer under this paragraph for reinsurance ceded to the certified reinsurer.

(6) The superintendent shall comply with all reporting and notification requirements that may be established by the NAIC with respect to certified reinsurers and qualified jurisdictions.

(G) Credit for reinsurance for a reciprocal jurisdiction

(1) Pursuant to division (A)(6) of section 3901.62 of the Revised Code, the superintendent shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is licensed to write reinsurance by, and has its head office or is domiciled in, a reciprocal jurisdiction, and which meets the other requirements of this rule.

(2) A "Reciprocal Jurisdiction" is a jurisdiction, as designated by the superintendent pursuant to paragraph (G)(4) of this rule, that meets one of the following:

(a) A non-U.S. jurisdiction that is subject to an in-force covered agreement with the United States, each within its legal authority, or, in the case of a covered agreement between the United States and the European Union, is a member state of the European Union. For purposes of this paragraph, a "covered agreement" is an agreement entered into pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, 31 U.S.C. sections 313 and 314, that is currently in effect or in a period of provisional application and addresses the elimination, under specified conditions, of collateral requirements as a condition for entering into any reinsurance agreement with a ceding insurer domiciled in this state or for allowing the ceding insurer to recognize credit for reinsurance;

(b) A U.S. jurisdiction that meets the requirements for accreditation under the NAIC financial standards and accreditation program; or

(c) A qualified jurisdiction, as determined by the superintendent pursuant to division (D)(3) of section 3901.62 of the Revised Code and paragraph (F)(3) of this rule, which is not otherwise described in paragraph (G)(2)(a) or (G)(2)(b) of this rule and which the superintendent determines meets all of the following additional requirements:

(i) Provides that an insurer which has its head office or is domiciled in such qualified jurisdiction shall receive credit for reinsurance ceded to a U.S. domiciled assuming insurer in the same manner as credit for reinsurance is received for reinsurance assumed by insurers domiciled in such qualified jurisdiction;

(ii) Does not require a U.S. domiciled assuming insurer to establish or maintain a local presence as a condition for entering into a reinsurance agreement with any ceding insurer subject to regulation by the non-U.S. jurisdiction or as a condition to allow the ceding insurer to recognize credit for such reinsurance;

(iii) Recognizes the U.S. state regulatory approach to group supervision and group capital, by providing written confirmation by a competent regulatory authority, in such qualified jurisdiction, that insurers and insurance groups that are domiciled or maintain their headquarters in this state or another jurisdiction accredited by the NAIC shall be subject only to worldwide prudential insurance group supervision including worldwide group governance, solvency and capital, and reporting, as applicable, by the superintendent or the superintendent of the domiciliary state and will not be subject to group supervision at the level of the worldwide parent undertaking of the insurance or reinsurance group by the qualified jurisdiction; and

(iv) Provides written confirmation by a competent regulatory authority in such qualified jurisdiction that information regarding insurers and their parent, subsidiary, or affiliated entities, if applicable, shall be provided to the superintendent in accordance with a memorandum of understanding or similar document between the superintendent and such qualified jurisdiction, including but not limited to the "International Association of Insurance Supervisors Multilateral Memorandum of Understanding" or other multilateral memoranda of understanding coordinated by the NAIC.

(3) Credit shall be allowed when the reinsurance is ceded from an insurer domiciled in this state to an assuming insurer meeting each of the conditions set forth as follows:

(a) The assuming insurer must be licensed to transact reinsurance by, and have its head office or be domiciled in, a reciprocal jurisdiction.

(b) The assuming insurer must have and maintain on an ongoing basis minimum capital and surplus, or its equivalent, calculated on at least an annual basis as of the preceding December thirty-one or at the annual date otherwise statutorily reported to the reciprocal jurisdiction, and confirmed as set forth in paragraph (G)(3)(g) of this rule according to the methodology of its domiciliary jurisdiction, in the following amounts:

(i) No less than two hundred fifty million dollars; or

(ii) If the assuming insurer is an association, including incorporated and individual unincorporated underwriters:

(a) Minimum capital and surplus equivalents (net of liabilities) or own funds of the equivalent of at least two hundred fifty million dollars; and

(b) A central fund containing a balance of the equivalent of at least two hundred fifty million dollars.

(c) The assuming insurer must have and maintain on an ongoing basis a minimum solvency or capital ratio, as applicable, as follows:

(i) If the assuming insurer has its head office or is domiciled in a reciprocal jurisdiction as defined in paragraph (G)(2)(a) of this rule, the ratio specified in the applicable covered agreement;

(ii) If the assuming insurer is domiciled in a reciprocal jurisdiction as defined in paragraph (G)(2)(b) of this rule, a risk-based capital (RBC) ratio of three hundred per cent of the authorized control level, calculated in accordance with the formula developed by the NAIC; or

(iii) If the assuming insurer is domiciled in a reciprocal jurisdiction as defined in paragraph (G)(2)(c) of this rule, after consultation with the reciprocal jurisdiction and considering any recommendations published through the NAIC committee process, such solvency or capital ratio as the superintendent determines to be an effective measure of solvency.

(d) The assuming insurer must agree to and provide adequate assurance, in the form of a properly executed form RJ-1 (attached as appendix to this rule), of its agreement to the following:

(i) The assuming insurer must agree to provide prompt written notice and explanation to the superintendent if it falls below the minimum requirements set forth in paragraph (G)(3)(b) or (G)(3)(c) of this rule, or if any regulatory action is taken against it for serious noncompliance with applicable law.

(ii) The assuming insurer must consent in writing to the jurisdiction of the courts of this state and to the appointment of the superintendent as agent for service of process.

(a) The superintendent may also require that such consent be provided and included in each reinsurance agreement under the superintendent's jurisdiction.

(b) Nothing in this provision shall limit or in any way alter the capacity of parties to a reinsurance agreement to agree to alternative dispute resolution mechanisms, except to the extent such agreements are unenforceable under applicable insolvency or delinquency laws.

(iii) The assuming insurer must consent in writing to pay all final judgments, wherever enforcement is sought, obtained by a ceding insurer, that have been declared enforceable in the territory where the judgment was obtained.

(iv) Each reinsurance agreement must include a provision requiring the assuming insurer to division (D) of section 3901.62 and section 3901.63 of the Revised Code and provide security in an amount equal to one hundred per cent of the assuming insurer's liabilities attributable to reinsurance ceded pursuant to that agreement if the assuming insurer resists enforcement of a final judgment that is enforceable under the law of the jurisdiction in which it was obtained or a properly enforceable arbitration award, whether obtained by the ceding insurer or by its legal successor on behalf of its estate, if applicable.

(v) The assuming insurer must confirm that it is not presently participating in any solvent scheme of arrangement, which involves this state's ceding insurers, and agrees to notify the ceding insurer and the superintendent and to provide one hundred per cent security to the ceding insurer consistent with the terms of the scheme, should the assuming insurer enter into such a solvent scheme of arrangement. Such security shall be in a form consistent with the provisions of paragraph (J), (K) or (L) of this rule. For purposes of this rule, the term "solvent scheme of arrangement" means a foreign or alien statutory or regulatory compromise procedure subject to requisite majority creditor approval and judicial sanction in the assuming insurer's home jurisdiction either to finally commute liabilities of duly noticed classed members or creditors of a solvent debtor, or to reorganize or restructure the debts and obligations of a solvent debtor on a final basis, and which may be subject to judicial recognition and enforcement of the arrangement by a governing authority outside the ceding insurer's home jurisdiction.

(vi) The assuming insurer must agree in writing to meet the applicable information filing requirements as set forth in paragraph (G)(3)(e) of this rule.

(e) The assuming insurer or its legal successor must provide, if requested by the superintendent, on behalf of itself and any legal predecessors, the following documentation to the superintendent:

(i) For the two years preceding entry into the reinsurance agreement and on an annual basis thereafter, the assuming insurer's annual audited financial statements, in accordance with the applicable law of the jurisdiction of its head office or domiciliary jurisdiction, as applicable, including the external audit report;

(ii) For the two years preceding entry into the reinsurance agreement, the solvency and financial condition report or actuarial opinion, if filed with the assuming insurer's supervisor;

(iii) Prior to entry into the reinsurance agreement and not more than semi-annually thereafter, an updated list of all disputed and overdue reinsurance claims outstanding for ninety days or more, regarding reinsurance assumed from ceding insurers domiciled in the United States; and

(iv) Prior to entry into the reinsurance agreement and not more than semi-annually thereafter, information regarding the assuming insurer's assumed reinsurance by ceding insurer, ceded reinsurance by the assuming insurer, and reinsurance recoverable on paid and unpaid losses by the assuming insurer to allow for the evaluation of the criteria set forth in paragraph (G)(3)(f) of this rule.

(f) The assuming insurer must maintain a practice of prompt payment of claims under reinsurance agreements. The lack of prompt payment will be evidenced if any of the following criteria is met:

(i) More than fifteen per cent of the reinsurance recoverables from the assuming insurer are overdue and in dispute as reported to the superintendent;

(ii) More than fifteen per cent of the assuming insurer's ceding insurers or reinsurers have overdue reinsurance recoverable on paid losses of ninety days or more which are not in dispute and which exceed for each ceding insurer one hundred thousand dollars, or as otherwise specified in a covered agreement; or

(iii) The aggregate amount of reinsurance recoverable on paid losses which are not in dispute, but are overdue by ninety days or more, exceeds fifty million dollars, or as otherwise specified in a covered agreement.

(g) The assuming insurer's supervisory authority must confirm to the superintendent on an annual basis that the assuming insurer complies with the requirements set forth in paragraphs (G)(3)(b) and (G)(3)(c) of this rule.

(h) Nothing in this provision precludes an assuming insurer from providing the superintendent with information on a voluntary basis.

(4) The superintendent shall timely create and publish a list of reciprocal jurisdictions.

(a) A list of reciprocal jurisdictions is published through the NAIC committee process. The superintendent's list shall include any reciprocal jurisdiction as defined under paragraphs (G)(2)(a) and (G)(2)(b) of this rule, and shall consider any other reciprocal jurisdiction included on the NAIC list. The superintendent may approve a jurisdiction that does not appear on the NAIC list of reciprocal jurisdictions as provided by applicable law, rule, regulation, or in accordance with criteria published through the NAIC committee process.

(b) The superintendent may remove a jurisdiction from the list of reciprocal jurisdictions upon a determination that the jurisdiction no longer meets one or more of the requirements of a reciprocal jurisdiction, as provided by applicable law, rule, regulation, or in accordance with a process published through the NAIC committee process, except that the superintendent shall not remove from the list a reciprocal jurisdiction as defined under paragraphs (G)(2)(a) and (G)(2)(b) of this rule. Upon removal of a reciprocal jurisdiction from this list credit for reinsurance ceded to an assuming insurer domiciled in that jurisdiction shall be allowed, if otherwise allowed pursuant to section 3901.62 or 3901.63 of the Revised Code or this rule.

(5) The superintendent shall timely create and publish a list of assuming insurers that have satisfied the conditions set forth in this paragraph and to which cessions shall be granted credit in accordance with this paragraph.

(a) If a NAIC accredited jurisdiction has determined that the conditions set forth in paragraph (G)(3) of this rule have been met, the superintendent has the discretion to defer to that jurisdiction's determination, and add such assuming insurer to the list of assuming insurers to which cessions shall be granted credit in accordance with this paragraph. The superintendent may accept financial documentation filed with another NAIC accredited jurisdiction or with the NAIC in satisfaction of the requirements of paragraph (G)(3) of this rule.

(b) When requesting that the superintendent defer to another NAIC accredited jurisdiction's determination, an assuming insurer must submit a properly executed form RJ-1 and additional information as the superintendent may require. A state that has received such a request will notify other states through the NAIC committee process and provide relevant information with respect to the determination of eligibility.

(6) If the superintendent determines that an assuming insurer no longer meets one or more of the requirements under this paragraph, the superintendent may revoke or suspend the eligibility of the assuming insurer for recognition under this paragraph.

(a) While an assuming insurer's eligibility is suspended, no reinsurance agreement issued, amended or renewed after the effective date of the suspension qualifies for credit except to the extent that the assuming insurer's obligations under the contract are secured in accordance with paragraph (I) of this rule.

(b) If an assuming insurer's eligibility is revoked, no credit for reinsurance may be granted after the effective date of the revocation with respect to any reinsurance agreements entered into by the assuming insurer, including reinsurance agreements entered into prior to the date of revocation, except to the extent that the assuming insurer's obligations under the contract are secured in a form acceptable to the superintendent and consistent with the provisions of paragraph (I) of this rule.

(7) Before denying statement credit or imposing a requirement to post security with respect to paragraph (G)(6) of this rule or adopting any similar requirement that will have substantially the same regulatory impact as security, the superintendent shall:

(a) Communicate with the ceding insurer, the assuming insurer, and the assuming insurer's supervisory authority that the assuming insurer no longer satisfies one of the conditions listed in paragraph (G)(3) of this rule;

(b) Provide the assuming insurer with thirty days from the initial communication to submit a plan to remedy the defect, and ninety days from the initial communication to remedy the defect, except in exceptional circumstances in which a shorter period is necessary for policyholder and other consumer protection;

(c) After the expiration of ninety days or less, as set out in paragraph (G)(7)(b) of this rule, if the superintendent determines that no or insufficient action was taken by the assuming insurer, the superintendent may impose any of the requirements as set out in paragraph (G)(7) of this rule; and

(d) Provide a written explanation to the assuming insurer of any of the requirements set out in paragraph (G)(7) of this rule.

(8) If subject to a legal process of rehabilitation, liquidation or conservation, as applicable, the ceding insurer, or its representative, may seek and, if determined appropriate by the court in which the proceedings are pending, may obtain an order requiring that the assuming insurer post security for all outstanding liabilities.

(H) Credit for reinsurance required by law

Pursuant to division (A)(3) of section 3901.62 of the Revised Code, the superintendent shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of division (A)(1), (A)(2), (A)(4), (A)(5), or (A)(6) of section 3901.62 of the Revised Code, but only with respect to the insurance of risks located in jurisdictions where such reinsurance is required by the applicable law, rule, or regulation of that jurisdiction. As used in this paragraph, "jurisdiction" means any state, district or territory of the United States and any lawful national government.

(I) Reduction from liability for reinsurance ceded to an unauthorized assuming insurer

Pursuant to section 3901.63 of the Revised Code, the superintendent shall allow a reduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of division (A) of section 3901.62 of the Revised Code in an amount not exceeding the liabilities carried by the ceding insurer. Such reduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the exclusive benefit of the ceding insurer, under a reinsurance contract with such assuming insurer as security for the payment of obligations thereunder. Such security must be held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer or, in the case of a trust, held in a qualified United States financial institution as defined in division (B)(2) of section 3901.63 of the Revised Code. This security may be in the form of any of the following.

(1) Cash.

(2) Securities listed by the securities valuation office of the national association of insurance commissioners, including those deemed exempt from filing as defined by the "Purposes and Procedures Manual of the Securities Valuation Office," and qualifying as admitted assets.

(3) Clean, irrevocable, unconditional and "evergreen" letters of credit issued or confirmed by a qualified United States institution, as defined in division (C)(3) of section 3901.63 of the Revised Code, effective no later than December thirty-first of the year for which filing is being made, and in the possession of the ceding insurer on or before the filing date of its annual statement. Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance (or confirmation) shall, notwithstanding the issuing (or confirming) institution's subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever first occurs.

(4) Any other form of security acceptable to the superintendent.

An admitted asset or a reduction from liability for reinsurance ceded to an unauthorized assuming insurer pursuant to paragraph (I) of this rule shall be allowed only when the requirements of paragraph (J), (K), or (L) of this rule are met.

(J) Trust agreements qualified under paragraph (I) of this rule

(1) As used in this paragraph:

(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, then the named beneficiary includes and is limited to the court appointed domiciliary receiver (including 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.

(i) Reinsured losses and allocated loss expenses paid by the ceding company, but not recovered from the assuming insurer;

(ii) Reserves for reinsured losses reported and outstanding;

(iii) Reserves for reinsured losses incurred but not reported; and

(iv) Reserves for allocated reinsured loss expenses and unearned premiums.

(2) Required conditions.

(a) The trust agreement shall be entered into between the beneficiary, the grantor and a trustee which shall be a qualified United States financial institution as defined in division (B)(2) of section 3901.63 of the Revised Code.

(b) The trust agreement shall create a trust account into which assets shall be deposited.

(c) All assets in the trust account shall be held by the trustee at the trustee's office in the United States, except that a bank may apply for the superintendent's permission to use a foreign branch office of such bank as trustee for trust agreements established pursuant to this paragraph. If the superintendent approves the use of such 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 (J)(2)(d)(i) of this rule must also be presentable, as a matter of legal right, at the trustee's principal office in the United States.

(d) The trust agreement shall provide that:

(i) 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;

(ii) 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;

(iii) It is not subject to any conditions or qualifications outside of the trust agreement; and

(iv) It shall not contain references to any other agreements or documents except as provided for under paragraph (J)(2)(k) of this rule.

(e) The trust agreement shall be established for the sole benefit of the beneficiary.

(f) The trust agreement shall require the trustee to:

(i) Receive assets and hold all assets in a safe place;

(ii) Determine that all assets are in such form that the beneficiary, or the trustee upon direction by the beneficiary, may whenever necessary negotiate any such assets, without consent or signature from the grantor or any other person or entity;

(iii) 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;

(iv) Notify the grantor and the beneficiary within ten days, of any deposits to or withdrawals from the trust account;

(v) 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

(vi) 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 such asset upon condition that the proceeds are paid into the trust account.

(g) The trust agreement shall provide that at least thirty days, but not more than forty-five days, prior to termination of the trust account, written notification of termination shall be delivered by the trustee to the beneficiary.

(h) The trust agreement shall be made subject to and governed by the laws of the state in which the trust is established.

(i) The trust agreement shall prohibit invasion of the trust corpus for the purpose of paying compensation to, or reimbursing the expense of, the trustee.

(j) The trust agreement shall provide that the trustee shall be liable for its own negligence, willful misconduct or lack of good faith.

(k) Notwithstanding other provisions of this regulation, 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, such a trust agreement may, notwithstanding any other conditions in this regulation, provide that the ceding insurer shall 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:

(i) 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;

(ii) To make payment to the assuming insurer of any amounts held in the trust account that exceed one hundred two per cent of the actual amount required to fund the assuming insurer's obligations under the specific reinsurance agreement; or

(iii) 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 prior to 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 division (B)(2) of section 3901.63 of the Revised Code apart from its general assets, in trust for such uses and purposes specified in paragraphs (J)(2)(k)(i) and (J)(2)(k)(ii) of this rule as may remain executory after such 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 paragraph (J)(4)(a)(i) of this rule, so long as these required conditions are included in the trust agreement.

(m) Either the reinsurance agreement or the trust agreement must stipulate that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in United States dollars, certificates of deposit issued by a United States bank and payable in United States dollars, and investments permitted by the insurance code or any combination of the above, provided investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the trust shall not exceed five per cent of total investments. The agreement may further specify the types of investments to be deposited. If the reinsurance agreement covers life, annuities or accident and health risks, then the provisions required by this paragraph must be included in the reinsurance agreement.

(3) 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 ninety 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 ninety days after receipt by the trustee and the beneficiary of the notice, provided that no such resignation or removal shall be effective until a successor trustee has been duly 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 of stock in the trust account and to receive from time to time payments of any dividends or interest upon any shares of stock or obligations included in the trust account. Any such interest or dividends shall 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, provided that no investment or substitution shall be made without prior approval of the beneficiary, unless the trust agreement 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 paragraph (J)(4)(a)(ii) of this rule.

(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. Such 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 over to the grantor.

(4) 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:

(i) 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;

(ii) Require the assuming insurer, prior to 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;

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

(iv) 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 shall 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 such company, without diminution because of insolvency on the part of the ceding insurer or the assuming insurer, only for the following purposes:

(a) 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 such policies;

(b) 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;

(c) 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 shall 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

(d) To pay any other amounts the ceding insurer claims are due under the reinsurance agreement.

(v) The reinsurance agreement may also contain provisions that:

(a) 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, 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 current fair 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 current fair market value of the trust account is no less than one hundred two per cent of the required amount.

The ceding insurer shall not unreasonably or arbitrarily withhold its approval.

(b) Provide for:

(i) The return of any amount withdrawn in excess of the actual amounts required for paragraph (J)(4)(a)(iv) of this rule, or in the case of paragraph (J)(4)(a)(iv)(d) of this rule, 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 (J)(4)(a)(iv)(c) of this rule.

(i) Interest at a rate different from that provided in paragraph (J)(4)(b)(ii) of this rule,

(ii) Court of arbitration costs,

(iii) Attorney's fees, and

(iv) Any other reasonable expenses.

(b) 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 this department in compliance with the provisions of this regulation 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 such reduction shall be no greater than the specific obligations under the reinsurance agreement that the trust account was established to secure.

(c) Existing agreements. Notwithstanding the effective date of this regulation, any trust agreement or underlying reinsurance agreement in existence prior to December 31, 1997 will continue to be acceptable until December 31, 1998, at which time the agreements will have to be in full compliance with this regulation for the trust agreement to be acceptable.

(d) The failure of any trust agreement to specifically identify the beneficiary as defined in paragraph (J)(1)(a) of this rule shall not be construed to affect any actions or rights which the superintendent may take or possess pursuant to the provisions of the laws of this state.

(K) Letter of credit qualified under paragraph (I) of this rule

(1) The letter of credit must be clean, irrevocable and unconditional and issued or confirmed by a qualified United States financial institution as defined in division (B)(2) of section 3901.63 of the Revised Code. The letter of credit shall contain an issue date and date of expiration and shall stipulate that the beneficiary need only draw a sight draft under the letter of credit and present it to obtain funds and that no other document need be presented. The letter of credit shall also indicate that it is not subject to any condition or qualifications outside of the letter of credit. In addition, the letter of credit itself shall not contain reference to any other agreements, documents or entities, except as provided in paragraph (K)(9)(a) of this rule. As used in this paragraph, "beneficiary" means the domestic insurer for whose benefit the letter of credit 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, then the named beneficiary includes and is limited to the court appointed domiciliary receiver (including conservator, rehabilitator or liquidator).

(2) The heading of the letter of credit may include a boxed section which contains the name of the applicant and other appropriate notations to provide a reference for the letter of credit. The boxed section shall be clearly marked to indicate that such information is for internal identification purposes only.

(3) The letter of credit shall contain a statement to the effect that the obligation of the qualified United States financial institution under the letter of credit is in no way contingent upon reimbursement with respect thereto.

(4) The term of the letter of credit shall be for at least one year and shall contain an "evergreen clause" which prevents the expiration of the letter of credit without due notice from the issuer. The "evergreen clause" shall provide for a period of no less than thirty days' notice prior to expiry date or nonrenewal.

(5) The letter of credit shall state whether it is subject to and governed by the laws of this state or the "Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce Publication 600 (UCP 600) or International Standby Practices of the International Chamber of Commerce Publication 590 (ISP98)," and all drafts drawn thereunder shall be presentable at an office in the United States of a qualified United States financial institution.

(6) If the letter of credit is made subject to the "Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication 600)," then the letter of credit shall specifically address and make provision for an extension of time to draw against the letter of credit in the event that one or more of the occurrences specified in "Article 19 of Publication 600 occur."

(7) The letter of credit shall be issued or confirmed by a qualified United States financial institution authorized to issue letters of credit, pursuant to division (B)(2) of section 3901.63 of the Revised Code.

(8) If the letter of credit is issued by a financial institution authorized to issue letters of credit, other than a qualified United States financial institution as described in paragraph (K)(7) of this rule, then the following additional requirements shall be met:

(a) The issuing financial institution shall formally designate the confirming qualified United States financial institution as its agent for the receipt and payment of the drafts, and

(b) The "evergreen clause" shall provide for thirty days' notice prior to expiry date for nonrenewal.

(9) Reinsurance agreement provisions.

(a) The reinsurance agreement in conjunction with which the letter of credit is obtained may contain provisions which:

(i) Require the assuming insurer to provide letters of credit to the ceding insurer and specify what they are to cover.

(ii) Stipulate that the assuming insurer and ceding insurer agree that the letter of credit provided by the assuming insurer pursuant to the provisions of the reinsurance agreement may be drawn upon at any time, notwithstanding any other provisions in the agreement, and shall be utilized by the ceding insurer or its successors in interest only for one or more of the following reasons:

(a) To reimburse the ceding insurer for the assuming insurer's share of premiums returned to the owners of policies reinsured under the reinsurance agreement on account of cancellations of such policies;

(b) To reimburse the ceding insurer for the assuming insurer's share of surrenders and benefits or losses paid by the ceding insurer under the terms and provisions of the policies reinsured under the reinsurance agreement;

(c) To fund an account with the ceding insurer in an amount at least equal to the deduction, for reinsurance ceded, from the ceding insurer's liabilities for policies ceded under the agreement (such amount shall include, but not be limited to, amounts for policy reserves, claims and losses incurred and unearned premium reserves); and

(d) To pay any other amounts the ceding insurer claims are due under the reinsurance agreement.

(iii) All of the foregoing provisions of paragraph (K)(9) of this rule should be applied without diminution because of insolvency on the part of the ceding insurer or assuming insurer.

(b) Nothing contained in paragraph (K)(9) of this rule shall preclude the ceding insurer and assuming insurer from providing for:

(i) An interest payment, at a rate not in excess of the prime rate of interest, on the amounts held pursuant to paragraph (K)(9)(a)(ii) of this rule and/or

(ii) The return of any amounts drawn down on the letters of credit in excess of the actual amounts required for the above or, in the case of paragraph (K)(9)(a)(ii)(c) of this rule, any amounts that are subsequently determined not to be due.

(c) When a letter of credit is obtained in conjunction with a reinsurance agreement covering risks other than life, annuities and health, where it is customary practice to provide a letter of credit for a specific purpose, then the reinsurance agreement may, in lieu of paragraph (K)(9)(a)(ii) of this rule, require that the parties enter into a "Trust Agreement" which may be incorporated into the reinsurance agreement or be a separate document.

(10) A letter of credit may not be used to reduce any liability for reinsurance ceded to an unauthorized assuming insurer in financial statements required to be filed with this department unless an acceptable letter of credit with the filing ceding insurer as beneficiary has been issued on or before the date of filing of the financial statement. Further, the reduction for the letter of credit may be up to the amount available under the letter of credit but no greater than the specific obligation under the reinsurance agreement which the letter of credit was intended to secure.

(L) Other security

A ceding insurer may take credit for unencumbered funds withheld by the ceding insurer in the United States subject to withdrawal solely by the ceding insurer and under its exclusive control.

(M) Reinsurance contract

Credit will not be granted to a ceding insurer for reinsurance effected with assuming reinsurers meeting the requirements of this rule after the effective date of this rule unless the reinsurance agreement:

(1) Includes a proper insolvency clause pursuant to divisions (A)(1) and (A)(2) of section 3901.64 of the Revised Code; and

(2) Includes a provision whereby the assuming insurer, if an unauthorized assuming insurer, has submitted to the jurisdiction of an alternate dispute resolution panel or court of competent jurisdiction within the United States, has agreed to comply with all requirements necessary to give such court or panel jurisdiction, has designated an agent upon whom service of process may be effected, and has agreed to abide by the final decision of such court or panel.

(N) Contracts affected

All new and renewal reinsurance transactions entered into after December 31, 1997 shall conform to the requirements of sections 3901.61 to 3901.65 of the Revised Code and this rule if credit is to be given to the ceding insurer for such reinsurance.

(O) Severability

View Appendix View Appendix View Appendix

Last updated June 21, 2021 at 9:34 AM

Supplemental Information

Authorized By: 3901.041, 3901.65
Amplifies: 3901.61 to 3901.65
Five Year Review Date: 8/30/2025
Prior Effective Dates: 7/18/1997, 11/6/2014, 10/29/2015

Rule 3901-3-17 | New annuity mortality tables for use in determining reserve liabilities for annuities.

Effective:

October 29, 2015

Promulgated Under:

119.03

PDF:

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(A) Purpose

The purpose of this rule is to recognize new annuity mortality tables for use in determining the minimum standard of valuation for annuity and pure endowment contracts.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041, 3903.723 and 3903.725 of the Revised Code.

(1) The "1983 table 'A'" means the mortality table developed by the society of actuaries committee to recommend a new mortality basis for individual annuity valuation and adopted as a recognized mortality table for annuities in June 1982 by the national association of insurance commissioners (NAIC). (See appendix A to this rule).

(2) The "1983 GAM table" means the mortality table developed by the society of actuaries committee on annuities and adopted as a recognized mortality table for annuities in December 1983 by the NAIC. (See appendix B to this rule).

(3) The "1994 GAR table" means the mortality table developed by the society of actuaries group annuity valuation task force and adopted as a recognized mortality table for annuities in December 1996 by the NAIC. (See appendix C to this rule for males and appendix D to this rule for females).

(4) The "Annuity 2000 Mortality Table" means the mortality table developed by the society of actuaries committee on life insurance research and adopted as a recognized mortality table for annuities in December 1996 by the NAIC. (See appendix E to this rule).

(5) "Period Table" means a table of mortality rates applicable to a given calendar year (the period).

(6) "Generational Mortality Table" means a mortality table containing a set of mortality rates that decrease for a given age from one year to the next based on a combination of a period table and a projection scale containing rates of mortality improvement.

(7) "2012 IAR Table" means that generational mortality table developed by the society of actuaries committee on life insurance research and containing rates, q_x²⁰¹²⁺ⁿ, derived from a combination of the 2012 IAM period table and projection scale G2, using the methodology in paragraph (E) of this rule.

(8) "2012 Individual Annuity Mortality Period Life (2012 IAM Period) Table" means the period table containing loaded mortality rates for calendar year 2012. This table contains rates, q_x²⁰¹², developed by the society of actuaries committee on life insurance research (see appendices F and G to this rule).

(9) "Projection Scale G2 (Scale G2)" is a table of annual rates, G2_x, of mortality improvement by age for projecting future mortality rates beyond calendar year 2012. This table was developed by the society of actuaries committee on life insurance research (see appendices H and I to this rule).

(D) Individual annuity or pure endowment contracts

(1) Except as provided in paragraph (D)(2) of this rule, the 1983 table "A" and the annuity 2000 mortality table are recognized and approved as individual annuity mortality tables for valuation, and, at the option of the company, may be used for purposes of determining the minimum standard of valuation for any individual annuity or pure endowment contract issued on or after January 1, 1979.

(2) Except as provided in paragraphs (D)(3) and (D)(4) of this rule, the annuity 2000 mortality table shall be used for determining the minimum standard of valuation for any individual annuity or pure endowment contract issued on or after January 1, 1999.

(3) Except as provided in paragraph (D)(4) of this rule, the 2012 IAR mortality table shall be used for determining the minimum standard of valuation for any individual annuity or pure endowment contract issued on or after January 1, 2016.

(4) The 1983 table "A" without projection is to be used for determining the minimum standards of valuation for an individual annuity or pure endowment contract issued on or after January 1, 1999, solely when the contract is based on life contingencies and is issued to fund periodic benefits arising from:

(a) Settlements of various forms of claims pertaining to court settlements or out of court settlements from tort actions;

(b) Settlements involving similar actions such as worker's compensation claims; or

(c) Settlements of long term disability claims where a temporary or life annuity has been used in lieu of continuing disability payments.

(E) Application of the 2012 IAR mortality table

In using the 2012 IAR mortality table, the mortality rate for a person age x in year (2012+n) is calculated as follows:

q_x²⁰¹²⁺ⁿ=q_x²⁰¹²(1-G2_x)ⁿ

The resulting q_x²⁰¹²⁺ⁿ shall be rounded to three decimal places per one thousand, e.g., 0.741 deaths per one thousand. Also, the rounding shall occur according to the formula, starting at the 2012 period table rate.

For example, for a male age thirty, q_x²⁰¹²=0.741.

q_x²⁰¹³=0.741*(1-0.010)^1=0.73359, which is rounded to 0.734.

q_x²⁰¹⁴=0.741*(1-0.010)^2=0.7262541, which is rounded to 0.726.

A method leading to incorrect rounding would be to calculate q_x²⁰¹⁴ as q_x²⁰¹³*(1-0.010), or 0.734*0.99=0.727.

It is incorrect to use the already rounded q_x²⁰¹³ to calculate q_x²⁰¹⁴.

(F) Group annuity or pure endowment contracts

(1) The 1983 GAM table, the 1983 table "A" and the 1994 GAR table are recognized and approved as group annuity mortality tables for valuation, and, at the option of the company, any one of these tables may be used for purposes of valuation for any annuity or pure endowment purchased on or after January 1, 1979 under a group annuity or pure endowment contract.

(2) The 1994 GAR table shall be used for determining the minimum standard of valuation for any annuity or pure endowment purchased on or after January 1, 1999 under a group annuity or pure endowment contract.

(G) Application of the 1994 GAR table

In using the 1994 GAR table, the mortality rate for a person age x in year (1994 + n) is calculated as follows:

q_x^{1994 + n} = q_x¹⁹⁹⁴(1 - AA_x)ⁿ

Where the q_x¹⁹⁹⁴s and the AA_xs are as specified in the 1994 GAR table.

(H) Severability

View Appendix

Last updated October 11, 2023 at 1:52 PM

Supplemental Information

Authorized By: 3901.041, 3903.723, 3903.725
Amplifies: 3903.72, 3903.725
Five Year Review Date: 8/30/2025
Prior Effective Dates: 5/1/1998, 4/13/2006

Rule 3901-3-18 | NAIC manuals.

Effective:

November 14, 2019

Promulgated Under:

119.03

PDF:

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(A) Purpose

The purpose of this rule is to adopt the forms, instructions and manuals prescribed by the "National Association of Insurance Commissioners" for the preparation and filing of statutory financial statements and other financial information.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041, 3901.07, 3901.77, 1739.09 and 1751.47 of the Revised Code.

For purposes of this rule, "Insurer" means property and casualty insurance companies, life insurance companies, fraternal benefit associations, title insurance companies, health insuring corporations and multiple employer welfare associations.

(D) Scope

This rule applies to all domestic insurers and the Ohio department of insurance.

(E) Financial examinations and analysis

The Ohio department of insurance shall employ the most current version of "Valuation of Securities Manual", the "Purpose and Procedures Manual of the Securities Valuation Office", the "Accounting Practices and Procedures Manual," The "Financial Condition Examiners Handbook," the "Financial Analysis Handbook," the "annual statement blanks" and the "annual statement instructions" published by the "National Association of Insurance Commissioners" in discharging its duty to examine and analyze the financial condition of insurers authorized to conduct business in the state of Ohio.

(F) Preparation of financial statements

All domestic insurers shall employ the most current version of the "Valuation of Securities Manual", the "Purpose and Procedures Manual of the Securities Valuation Office", the "Accounting Practices and Procedures Manual" and the "annual statement instructions" published by the "National Association of Insurance Commissioners" for the purpose of preparing and filing quarterly and annual statements with the Ohio department of insurance and other financial information.

(G) Severability

Last updated November 4, 2024 at 12:36 PM

Supplemental Information

Authorized By: 3901.041, 3901.07, 3901.77, 1739.09, 1751.47
Amplifies: 3901.07, 3901.77, 1739.09, 1751.47
Five Year Review Date: 8/30/2029
Prior Effective Dates: 12/31/2000

Rule 3901-3-19 | Corporate governance annual disclosure.

Effective:

February 14, 2022

Promulgated Under:

119.03

PDF:

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(A) Purpose

The purpose of this rule is to establish the procedures for filing, and the required content of, the corporate governance annual disclosure, deemed necessary by the superintendent pursuant to sections 3901.072 to 3901.078 of the Revised Code.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 3901.077 of the Revised Code.

(1) "Board" means board of directors of an insurer or an insurance group.

(2) "CGAD" means a corporate governance annual disclosure.

(3) "Insurance Group" has the same meaning as defined in division (B)(2) of section 3901.072 of the Revised Code.

(4) "Insurer" has the same meaning as defined in division (B)(3) of section 3901.072 of the Revised Code.

(5) "NAIC" means the national association of insurance commissioners.

(6) "SEC" means the United States securities and exchange commission.

(7) "Senior Management" means any corporate officer responsible for reporting information to the board at regular intervals or providing this information to shareholders or regulators, and shall include, for example and without limitation, the chief executive officer (CEO), chief financial officer, chief operations officer, chief procurement officer, chief legal officer, chief information officer, chief technology officer, chief revenue officer, chief visionary officer, or any other "C" level executive.

(D) Filing procedure

(1) An insurer, or the insurance group of which the insurer is a member, required to file a CGAD by section 3901.073 of the Revised Code, shall, no later than June first of each calendar year, submit to the superintendent a CGAD that contains the information described in paragraph (E) of this rule.

(2) The CGAD must include a signature of the insurer's or insurance group's chief executive officer or corporate secretary attesting to the best of that individual's belief and knowledge that the insurer or insurance group has implemented the corporate governance practices and that a copy of the CGAD has been provided to the insurer's or insurance groups board or the appropriate committee thereof.

(3) The insurer or insurance group shall have the discretion regarding the appropriate format for providing the information required by these regulations and is permitted to customize the CGAD to provide the most relevant information necessary to permit the superintendent to gain an understanding of the corporate governance structure, policies and practices utilized by the insurer or the insurance group.

(4) For purposes of completing the CGAD, the insurer or insurance group may choose to provide information on governance activities that occur at the ultimate controlling parent level, an intermediate holding company level, and/or the individual legal entity level, depending upon how the insurer or insurance group has structured its system of corporate governance. The insurer or insurance group is encouraged to make the CGAD disclosures at the level at which the insurer's or insurance group's risk appetite is determined, or at which the earnings, capital, liquidity, operations, and reputation of the insurer are overseen collectively and at which the supervision of those factors are coordinated and exercised, or the level at which legal liability for failure of general corporate governance duties would be placed. If the insurer or insurance group determines the level of reporting based on these criteria, it shall indicate which of the three criteria was used to determine the level of reporting and explain any subsequent changes in level of reporting.

(5) Notwithstanding paragraph (D)(1) of this rule, and as outlined in section 3901.073 of the Revised Code, if the CGAD is completed at the insurance group level, then it must be filed with the lead state of the group as determined by the procedures outlined in the most recent financial analysis handbook adopted by the NAIC. In these instances, a copy of the CGAD must also be provided, upon request, to the chief regulatory official of any state in which the insurance group has a domestic insurer.

(6) An insurer or insurance group may comply with this section by referencing other existing documents, such as an own risk and solvency assessment (ORSA) summary report, holding company form B or form F filings, securities and exchange commission proxy statements, foreign regulatory reporting requirements, etc., if the documents provide information that is comparable to the information described in paragraph (E) of this rule. The insurer or insurance group shall clearly reference the location of the relevant information with the CGAD and attach the referenced document if it is not already filed with the department.

(7) Each year following the initial filing of the CGAD, the insurer or insurance group shall file an amended version of the previously filed CGAD, indicating revisions made, or a copy of the prior year filing with a dated statement indicating that no changes have been made in the information or activities reported in the previous year CGAD.

(E) Contents of corporate governance annual disclosure

(1) The insurer or insurance group shall be as descriptive as possible in completing the CGAD, with inclusion of attachments or example documents that are used in the governance process, since these may provide a means to demonstrate the strengths of their governance framework and practices.

(2) The CGAD shall describe the insurer's or insurance group's corporate governance framework and structure including consideration of the following:

(a) The board and various committees thereof ultimately responsible for overseeing the insurer or insurance group and the level(s) at which that oversight occurs, such as ultimate control level, intermediate holding company, legal entity, etc. The insurer or insurance group shall describe and discuss the rationale for the current board size and structure; and

(b) The duties of the board and each of its significant committees and how they are governed, such as bylaws, charters, informal mandates, etc., as well as how the board's leadership is structured, including a discussion of the roles of chief executive officer and chairman of the board within the organization.

(3) The insurer, or insurance group, shall describe the policies and practices of the most senior governing entity and significant committees thereof, including a discussion of the following factors:

(a) How the qualifications, expertise and experience of each board member meet the needs of the insurer or insurance group;

(b) How an appropriate amount of independence is maintained on the board and its significant committees;

(c) The number of meetings held by the board and its significant committees over the past year as well as information on director attendance;

(d) How the insurer or insurance group identifies, nominates and elects members to the board and its committees. The discussion should include, for example:

(i) Whether a nomination committee is in place to identify and select individuals for consideration;

(ii) Whether term limits are placed on directors;

(iii) How the election and re-election processes function; and

(iv) Whether a board diversity policy is in place and if so, how it functions.

(e) The processes in place for the board to evaluate its performance and the performance of its committees, as well as any recent measures taken to improve performance, including any board or committee training programs that have been put in place.

(4) The insurer or insurance group shall describe the policies and practices for directing senior management, including a description of the following factors:

(a) Any process or practices, such as suitability standards, to determine whether officers and key persons in control functions have the appropriate background, experience and integrity to fulfill their prospective roles, including:

(i) Identification of the specific positions for which suitability standards have been developed and a description of the standards employed; and

(ii) Any changes in an officer's or key person's suitability as outlined by the insurer's or insurance group's standards and procedures to monitor and evaluate.

(b) The insurer's or insurance group's code of business conduct and ethic, the discussion of which considers, for example:

(i) Compliance with laws, rules, and regulations; and

(ii) Proactive reporting of any illegal or unethical behavior.

(c) The insurer's or insurance group's processes for performance evaluation, compensation and corrective action to ensure effective senior management throughout the organization, including a description of the general objectives of significant compensation programs and what the programs are designed to reward. The description shall include sufficient detail to allow the superintendent to understand how the organization ensures that compensation programs do not encourage and/or reward excessive risk taking. Elements to be discussed may include, for example:

(i) The board's role in overseeing management compensation programs and practices;

(ii) The various elements of compensation awarded in the insurer's or insurance group's compensation programs and how the insurer or insurance group determines and calculates the amount of each element of compensation paid;

(iii) How compensation programs are related to both company and individual performance over time;

(iv) Whether compensation programs include risk adjustments and how those adjustments are incorporated into the programs for employees at different levels;

(v) Any claw-back provisions built into the programs to recover awards or payments if the performance measures upon which they are based are restated or otherwise adjusted; and

(vi) Any other factors relevant in understanding how the insurer or insurance group monitors its compensation policies to determine whether its risk management objectives are met by incentivizing its employees.

(d) The insurer's or insurance group's plans for CEO and senior management succession.

(5) The insurer or insurance group shall describe the processes by which the board, its committees and senior management ensure an appropriate amount of oversight to the critical risk areas impacting the insurer's business activities including a discussion of:

(a) How oversight and management responsibilities are delegated between the board, its committees, and senior management;

(b) How the board is kept informed of the insurer's strategic plans, the associated risks, and steps that senior management is taking to monitor and manage those risks;

(c) How reporting responsibilities are organized for each critical risk area. The description should allow the superintendent to understand the frequency at which information on each critical risk area is reported to and reviewed by senior management and the board. This description may include, for example, the following critical risk areas of the insurer:

(i) Risk management processes. An insurer, or the insurance group of which the insurer is a member, that files an ORSA summary report with the superintendent pursuant to section 3901.375 of the Revised Code may refer to its ORSA summary report;

(ii) Actuarial function;

(iii) Investment decision-making processes;

(iv) Reinsurance decision-making processes;

(v) Business strategy/finance decision-making processes;

(vi) Compliance function;

(vii) Financial reporting/internal auditing; and

(viii) Market conduct decision-making processes.

(F) Severability

Last updated February 14, 2022 at 8:55 AM

Supplemental Information

Authorized By: 3901.77, 3901.041
Amplifies: 3901.074
Five Year Review Date: 8/31/2026
Prior Effective Dates: 4/20/2017