Virginia Law

The purpose of this regulation is: (i) to set forth standards for reinsurance agreements involving life and health business in order that the financial statements of the insurers utilizing such agreements properly reflect the financial condition of the ceding insurer; (ii) to recognize that insurers offering life insurance, annuities, or accident and sickness insurance routinely enter into reinsurance agreements that yield legitimate relief to the ceding insurer from strain to surplus; and (iii) to remind insurers that it is improper for a licensed insurer, in the capacity of ceding insurer, to enter into reinsurance agreements 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 being reinsured. In substance or effect, the expected potential liability to the ceding insurer remains basically unchanged by the reinsurance transaction, notwithstanding certain risk elements in the reinsurance agreement, such as catastrophic mortality or extraordinary survival.

The commission believes that insurers should be precluded from claiming the surplus relief created by the terms of such agreements as referred to herein and described in 14VAC5-280-40 of this chapter, since the recognition of such surplus would be in conflict with:

1. The provisions of §§ 38.2-1300 and 38.2-1301 of the Code of Virginia requiring insurers to file financial statements and reports that disclose full and accurate knowledge of their affairs and condition;

2. The provisions of Article 3.1 (§ 38.2-1316.1 et seq.) of Chapter 13 of Title 38.2 of the Code of Virginia relating to reinsurance reserve credits and a ceding insurer's ability to reduce liabilities or establish assets for reinsurance ceded; and

3. The provisions of §§ 38.2-1038 and 38.2-1040 of the Code of Virginia concerning the manner in which the commission may respond to an insurer whose condition or continued operation may be hazardous to policyholders, creditors and the public in this Commonwealth.