An Act concerning insurance; reinsurance of risks; amending K.S.A. 1995 Supp. 40-221a and repealing the existing section.

Be it enacted by the Legislature of the State of Kansas:

Section 1. K.S.A. 1995 Supp. 40-221a is hereby amended to read as follows: 40-221a. (a) Any insurance company organized under the laws of this state may (1) with the consent of the commissioner of insurance, cede all of its risks to any other solvent insurance company authorized to trans- act business in this state or accept all of the risks of any other company, (2) accept all or any part of an individual risk or all or any part of a particular class of risks which it is authorized to insure, and (3) cede all or any part of an individual risk or all or any part of a particular class of risks to another solvent insurer or insurers having the power to accept such reinsurance.

(b) Any insurance company organized under the laws of this state may take credit as an asset or as a deduction from loss and unearned premium reserves on such ceded risks to the extent reinsured by an in- surer or insurers authorized to transact business in this state, but such credit on ceded risks reinsured by any insurer which is not authorized to transact business in this state may be taken in an amount not exceeding:

(1) The amount of deposits by, and funds withheld from, the assum- ing insurer pursuant to express provision therefor in the reinsurance con- tract, as security for the payment of the obligations thereunder, if such deposits or funds are held subject to withdrawal by, and under the control of, the ceding insurer or are placed in trust for such purposes in a bank which is insured by the federal deposit insurance corporation or its suc- cessor, if withdrawals from such trust cannot be made without the consent of the ceding company;

(2) the amount of a clean and irrevocable letter of credit issued by a bank which is insured by the federal deposit insurance corporation or its successor if such letter of credit is initially issued for a term of at least one year and by its terms is automatically renewed at each expiration date for at least an additional one-year term unless at least 30 days prior written notice of intention not to renew is given to the ceding company by the issuing bank or the assuming company and provided that such letter of credit is issued under arrangements satisfactory to the commissioner of insurance as constituting security to the ceding insurer substantially equal to that of a deposit under paragraph (1) of this subsection; or

(3) the amount of loss and unearned premium reserves on such ceded risks to a group of underwriters including incorporated and individual unincorporated underwriters, if the assuming underwriters group main- tains a trust fund in a qualified United States financial institution, as defined in subsection (b)(3)(E), for the payment of the valid claims, as determined by the commissioner for the purpose of determining the suf- ficiency of the trust fund, of its United States policyholders and ceding insurers, their assigns and successors in interest. The assuming under- writers group shall report annually to the commissioner information sub- stantially the same as that required to be reported on the national asso- ciation of insurance commissioners annual statement form by licensed insurers to enable the commissioner to determine the sufficiency of the trust fund.

(A) The trust shall consist of a trusteed account representing the group's liabilities attributable to business written in the United States. The group shall maintain a trusteed surplus of which $100,000,000 shall be held jointly for the benefit of United States ceding insurers of any member of the group. The incorporated members of the group shall not be engaged in any business other than underwriting as a member of the group and must be subject to the same level of solvency regulation and control by the group's domiciliary regulator as are the unincorporated members. The group shall make available to the commissioner an annual certification by the group's domiciliary regulator and its independent pub- lic accountants as to the solvency of each underwriter. an assuming in- surer which maintains a trust fund in a qualified United States financial institution, as defined in (b)(3)(D), for the payment of the valid claims of its United States policyholders and ceding insurers, their assigns and suc- cessors in interest. The assuming insurer shall report annually to the com- missioner information substantially the same as that required to be re- ported on the national association of insurance commissioners annual statement form by licensed insurers to enable the commissioner to deter- mine the sufficiency of the trust fund. In the case of a single assuming insurer, the trust shall consist of a trusteed account representing the as- suming insurer's liability attributable to business written in the United States and, in addition, the assuming insurer shall maintain a trusteed surplus of not less than $20,000,000. In the case of a group including incorporated and individual unincorporated underwriters, the trust shall consist of a trusteed account representing the group's liabilities attribut- able to business written in the United States and, in addition, the group shall maintain a trusteed surplus of which $100,000,000 shall be held jointly for the benefit of United States ceding insurers of any member of the group; 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 solvency regulation and control by the group's domiciliary regulator as are the unincorporated members; and the group shall make available to the commissioner an annual certification of the solvency of each underwriter by the group's domiciliary regulator and its independent public accountants.

(B) (A) Such trust must be in a form approved by the commissioner of insurance. The trust instrument shall provide that contested claims shall be valid and enforceable upon the final order of any court of com- petent jurisdiction in the United States. The trust shall vest legal title to its assets in the trustees of the trust for its United States policyholders and ceding insurers, their assigns and successors in interest. The trust and the assuming group or insurer shall be subject to examination as determined by the commissioner. The trust, described herein, must re- main in effect for as long as the assuming group or insurer shall have outstanding obligations due under the reinsurance agreements subject to the trust.

(C) (B) No later than February 28 of each year the trustees of the trust shall report to the commissioner in writing setting forth the balance of 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 31.

(D) (C) The credit authorized under subsection (b)(3)(A) through (C) shall not be allowed unless the assuming group or insurer agrees in the reinsurance agreements:

(i) That in the event of the failure of the assuming group or insurer to perform its obligations under the terms of the reinsurance agreement, the assuming group or insurer, at the request of the ceding insurer, shall submit to the jurisdiction of any court of competent jurisdiction in any state of the United States, will comply with all requirements necessary to give such court jurisdiction, and will abide by the final decision of such court or of any appellate court in the event of an appeal; and

(ii) to designate the commissioner or a designated attorney as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding com- pany.

(iii) This provision is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if such an obligation to do so is created in the agreement.

(E) (D) A ``qualified United States financial institution'' means, for purposes of those provisions of this law specifying those institutions that are eligible to act as a fiduciary of a trust, an institution that:

(i) Is organized, or (in the case of a U.S. branch or agency office of a foreign banking organization) licensed, under the laws of the United States or any state thereof and has been granted authority to operate with fiduciary powers; and

(ii) is regulated, supervised and examined by federal or state author- ities having regulatory authority over banks and trust companies.

The foregoing provisions of paragraphs (1), (2) and (3) of subsection (b) shall not apply to a domestic title insurance company subject to the provisions of K.S.A. 40-1107a and amendments thereto.

(c) Any reinsurance ceded by a company organized under the laws of this state or ceded by any company not organized under the laws of this state and transacting business in this state must, pursuant to express pro- visions contained in the reinsurance agreement, be payable by the assum- ing insurer on the basis of the liability of the ceding company under the contract or contracts reinsured without diminution because of the insol- vency of the ceding company and any such reinsurance agreement which may be canceled on less than 90 days' notice must provide in the rein- surance agreement for a run-off of the reinsurance in force at the date of cancellation.

Sec. 2. K.S.A. 1995 Supp. 40-221a is hereby repealed.

Sec. 3. This act shall take effect and be in force from and after its publication in the statute book.

Approved March 29, 1996.