Brief(1)
S.B. 48, as amended, amends the insurance statutes which govern the reinsurance of risks of and by Kansas insurance companies and the handling of impaired or insolvent insurers.
The bill prohibits an insurance company that cedes (transfers) an insurance risk to a reinsurer (the company assuming the risk) from taking a credit, either as an asset or as a deduction from liability, for reinsurance, unless the reinsurance contract provides that, in the case of insolvency of the ceding insurer, the assuming insurer will pay claims on the basis of the liability of the ceding company under the contract or contracts reinsured, as approved by the liquidation court.
Also, the bill, as amended, requires reinsurance agreements entered into by a Kansas insurer and canceled on less than 90 days notice, to provide for a run-off (pay out) of the reinsurance liability incurred by the reinsurer by the date of cancellation, unless the cancellation resulted from failure of the ceding company to pay a premium or the ceding company committed fraud.
Further, S.B. 48 directs that reinsurance payments be made directly to the ceding insurer or its liquidator, unless the reinsurance contract provides for a different payee in the event of the insolvency of the ceding insurer, or the assuming insurer has assumed the policy obligations of the ceding insurer to the payees of the ceding insurer. The reinsurance agreement also may provide that the liquidator of an insolvent insurer give written notice to the assuming insurer of pending claims against the ceding insurer. Upon making an investigation of those claims, the reinsurer may interpose itself in the liquidation proceedings and claim any expenses for its actions as a claim against the insolvent insurer.
Finally, an additional statute concerning an impaired or insolvent insurer is amended to mirror the changes made regarding the liability of the reinsurer to pay claims on the basis of the liability of the ceding company under contracts reinsured, as approved by the liquidation court.
House Committee amendments clarify what the sponsor and proponents originally intended, i.e., that, in the case of an insolvency of the ceding insurer, the liability of the reinsurer to pay claims would be on the basis of the liability of the ceding company under the contracts reinsured.
Background
S.B. 48, as amended, was requested by the Reinsurance Association of America (RAA) whose representative explained that the changes proposed to this "highly technical area" of insurance law will benefit the insurance marketplace in Kansas and bring Kansas statutes up to par with other states' laws on the subject.
The Insurance Commissioner supported the bill with the amendments negotiated with the RAA.
1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/bill_search.html.