SESSION OF 2002

SUPPLEMENTAL NOTE ON SENATE BILL NO. 390

As Recommended by Senate Committee on

Financial Institutions and Insurance

Brief

       SB 390 concerns reinsurance and the type of depository that may be used to hold funds as security under a trust agreement between an insurance company and a reinsurer, or which may issue a letter of credit constituting security for the insurance company. The bill changes the designation consistently throughout the statute from “bank” to “qualified United States financial institution.”

       To be a qualified United States financial institution for the purpose of acting as a fiduciary of a trust, an institution must be organized under the laws of the United States or any state, have been granted fiduciary (trust) powers, and be regulated by a federal or state authority regulating banks and trust companies. To be qualified to issue a letter of credit, the institution must meet the above description and be determined by the Insurance Commissioner to meet standards of financial condition and standing considered necessary and appropriated to regulate the quality of financial institutions whose letters of credit will be acceptable to the Commissioner.

       Additionally, the bill deletes from the law applicable to a title insurance company the prohibition from taking reserve credit on business ceded to an unauthorized insurer.

Background

       SB 390 was requested by the Insurance Commissioner whose representative explained that passage of the bill would be beneficial in the Department’s efforts to monitor and regulate the insurance industry, and would, in turn, be in the best interest of policyholders.

       The provision related to title companies gives to those companies the same authorization for taking reserve credit on ceded business as allowed to any other company.

       There were no opponents to the bill.

       The fiscal note from the Division of the Budget indicates the passage of the bill would have no fiscal impact.