family therapy for at least five years in another jurisdiction. and their spouses who are appropriately licensed in another The applicant must submit an application on forms jurisdiction will receive a status update from the board prescribed by the board in the prescribed manner and pay the within 30 days pertaining to approval or denial of the required licensure fee. Applicants must also have passed the application. Such applicants must provide proof of military Association of Marital and Family Therapy Regulatory status via DD Form 214 as part of the completed application. Board's examination in marital and family therapy. An AUTHORITY NOTE: Promulgated in accordance with R.S. applicant must submit documentation of at least 40 CEHs, in 37:1101-1122. accordance with the requirements listed in Chapter 33, HISTORICAL NOTE: Promulgated by the Department of Health within two years of the date of application for licensure and Hospitals, Licensed Professional Counselors Board of endorsement in Louisiana. An applicant must also be in good Examiners, LR 39:1807 (July 2013).

standing in all jurisdictions in which they are licensed and Mary Alice Olsan must not have been disciplined in any jurisdiction for an act Executive Director that would have constituted grounds for refusal, suspension, 1307#015 or revocation of a license to practice marriage and family therapy in the state of Louisiana at the time the act was RULE committed. B. Upon recommendation of the board and marriage and Department of Insurance family therapy advisory committee, the board shall issue a Office of the Commissioner license to any person licensed as a licensed as a marriage and family therapist for less than five years in another Credit for Reinsurance (LAC 37:XIII.Chapter 35) jurisdiction whose requirements for the license are substantially equivalent to or exceed the requirements of the In accordance with the provisions of the Administrative state of Louisiana. The applicant must submit an application Procedure Act, R.S. 49:950 et seq., and through the authority on forms prescribed by the board in the prescribed manner granted in R.S. 22:2(E), R.S. 22:11, and R.S. 22:651, that the and pay the required licensure fee. Applicants must also commissioner of insurance has amended Chapter 35 to provide proof of having passed the Association of Marital facilitate the reduction of required reinsurance collateral for and Family Therapy Regulatory Board's examination in Louisiana insurers doing business with non-U.S. reinsurers. marital and family therapy. An applicant must also be in Under the prior law and current regulation, non-U.S. good standing in all jurisdictions in which they are licensed reinsurers must provide collateral through a qualified U.S. and must not have been disciplined in any jurisdiction for an financial institution for 100 percent of potential liabilities to act that would have constituted grounds for refusal, U.S. insurers with which they enter into reinsurance suspension, or revocation of a license to practice marriage contracts. The current law maintains the previous system of and family therapy in the state of Louisiana at the time the collateral and provides a method for a highly-rated, non-U.S. act was committed. reinsurer from certain jurisdictions to seek a reduction of the AUTHORITY NOTE: Promulgated in accordance with R.S. amount of required collateral through the certification of 37:1101-1122. reinsurers from qualified jurisdictions. This regulation HISTORICAL NOTE: Promulgated by the Department of Health provides for a system of evaluating reinsurers for and Hospitals, Licensed Professional Counselors Board of certification and jurisdictions for qualification in accordance Examiners, LR 39:1807 (July 2013). with the R.S. 22:651. The permitted collateral reductions §3703. Expedited Processing vary from 25 to 100 percent depending on the rating A. The board does not issue temporary practice permits; assigned to the reinsurer by the commissioner. Certified however, expedited application processing is available. The reinsurers found to be vulnerable would have a 100 percent applicant must submit the completed application (i.e. for collateral requirement. The actions and information required licensure, registration, etc.), expedited processing by this regulation are hereby declared to be necessary and application, and the required fee. Upon receipt of the appropriate in the public interest and for the protection of the aforementioned items, the applicant will receive a response ceding insurers in this state. from a board staff member within five business days Title 37 informing the applicant of the status of their application. If INSURANCE the application materials submitted do not contain all of the Part XIII. Regulations necessary documents to complete the application, the Chapter 35. Regulation 56—Credit for Reinsurance application will be reviewed on the following application §3501. Purpose review date and the expedited processing application fee will A. The purpose of this regulation is to set forth rules and not be refunded. procedural requirements that the commissioner deems B. All applicants whom board staff determines should be necessary to carry out the provisions on credit for denied or reviewed by the board must be presented to the reinsurance, R.S. 22:651 et seq. The actions and information board at the next regularly scheduled board meeting. required by this regulation are hereby declared to be Therefore, a verdict of denial may not be achieved within necessary and appropriate in the public interest and for the five business days of receipt of all application materials for protection of the ceding insurers in this state. expedited processing. Those applicants whom board staff AUTHORITY NOTE: Promulgated in accordance with R.S. determines should be approved will receive notification of 22, Sections 2(E), 11 and 651. approval within five business days. HISTORICAL NOTE: Promulgated by the Department of C. Military personnel (active duty and veterans Insurance, Office of the Commissioner, LR 21:1246 (November honorably discharged within 5 years of the application date) 1995), amended LR 39:1807 (July 2013). 1807 Louisiana Register Vol. 39, No. 07 July 20, 2013 §3503. Severability accreditation has been revoked by the commissioner, or if A. If any provision or item of this regulation, or the the reinsurance was ceded while the assuming insurer’s application thereof, is held invalid, such invalidity shall not accreditation was under suspension by the commissioner. affect other provisions, items, or applications of the AUTHORITY NOTE: Promulgated in accordance with R.S. regulation which can be given effect without the invalid 22, Sections 2(E), 11 and 651. provision, item, or application. HISTORICAL NOTE: Promulgated by the Department of AUTHORITY NOTE: Promulgated in accordance with R.S. Insurance, Office of the Commissioner, LR 21:1246 (November 22, Sections 2(E), 11 and 651. 1995), amended LR 39:1808 (July 2013). HISTORICAL NOTE: Promulgated by the Department of §3509. Credit for Reinsurance—Reinsurers Insurance, Office of the Commissioner, LR 21:1246 (November Maintaining Trust Funds 1995), amended by Louisiana Legislature, House Concurrent A. Pursuant to R.S. 22:651(D), the commissioner shall Resolution Number 135 of the 2001 Regular Session, LR 27:1102 allow credit for reinsurance ceded by a domestic insurer to (July 2001), amended by the Department of Insurance, Office of the an assuming insurer which, as of any date on which statutory Commissioner, LR 39:1808 (July 2013). financial statement credit for reinsurance is claimed, and §3505. Credit for Reinsurance—Reinsurer Authorized thereafter for so long as credit for reinsurance is claimed, in this State maintains a trust fund in an amount prescribed below in a A. Pursuant to R.S. 22:651(B), the commissioner shall qualified United States financial institution as defined in allow credit for reinsurance ceded by a domestic insurer to R.S. 22:653(B), for the payment of the valid claims of its an assuming insurer that was authorized in this state as of United States domiciled ceding insurers, their assigns and any date on which statutory financial statement credit for successors in interest. The assuming insurer shall report reinsurance is claimed. annually to the commissioner substantially the same AUTHORITY NOTE: Promulgated in accordance with R.S. information as that required to be reported on the National 22, Sections 2(E), 11 and 651. Association of Insurance Commissioners (NAIC) annual HISTORICAL NOTE: Promulgated by the Department of Insurance, Office of the Commissioner, LR 21:1246 (November statement form by authorized insurers, to enable the 1995), amended LR 39:1808 (July 2013). commissioner to determine the sufficiency of the trust fund. §3507. Credit for Reinsurance—Accredited Reinsurers B. The following requirements apply to the following A. Pursuant to R.S. 22:651(C) the commissioner shall categories of assuming insurer. allow credit for reinsurance ceded by a domestic insurer to 1. The trust fund for a single assuming insurer shall an assuming insurer that is accredited as a reinsurer in this consist of funds in trust in an amount not less than the state as of the date on which statutory financial statement assuming insurer’s liabilities attributable to reinsurance credit for reinsurance is claimed. An accredited reinsurer ceded by United States domiciled insurers, and in addition, shall: the assuming insurer shall maintain a trusteed surplus of not 1. file a properly executed Form AR-1 (§3525.B) as less than $20,000,000, except as provided in §3509.B.2. evidence of its submission to this state’s jurisdiction and to 2. At any time after the assuming insurer has the authority of the commissioner to examine its books and permanently discontinued underwriting new business records; secured by the trust for at least three full years, the 2. file with the commissioner a certified copy of a commissioner with principal regulatory oversight of the trust certificate of authority or other acceptable evidence that it is may authorize a reduction in the required trusteed surplus, licensed to transact insurance or reinsurance in at least one but only after a finding, based on an assessment of the risk, state, or, in the case of a United States branch of an alien- that the new required surplus level is adequate for the assuming insurer, is entered through and licensed to transact protection of United States ceding insurers, policyholders insurance or reinsurance in at least one state; and claimants in light of reasonably foreseeable adverse loss 3. file annually with the commissioner a copy of its development. The risk assessment may involve an actuarial annual statement filed with the insurance department of its review, including an independent analysis of reserves and state of domicile or, in the case of an alien assuming insurer, cash flows, and shall consider all material risk factors, with the state through which it is entered and in which it is including when applicable the lines of business involved, the licensed to transact insurance or reinsurance, and a copy of stability of the incurred loss estimates and the effect of the its most recent audited financial statement; and surplus requirements on the assuming insurer’s liquidity or 4. maintain a surplus as regards policyholders in an solvency. The minimum required trusteed surplus may not amount not less than $20,000,000, or obtain the affirmative be reduced to an amount less than 30 percent of the approval of the commissioner upon a finding that it has assuming insurer’s liabilities attributable to reinsurance adequate financial capacity to meet its reinsurance ceded by United States ceding insurers covered by the trust. obligations and is otherwise qualified to assume reinsurance 3. In the case of a group including incorporated and from domestic insurers. individual unincorporated underwriters: B. If the commissioner determines that the assuming a. the trust fund shall consist of: insurer has failed to meet or maintain any of these i. for reinsurance ceded under reinsurance qualifications, the commissioner may upon written notice agreements with an inception, amendment or renewal date and opportunity for hearing, suspend or revoke the on or after January 1, 1993, funds in trust in an amount not accreditation. Credit shall not be allowed a domestic ceding less than the respective underwriters’ several liabilities insurer under this Section if the assuming insurer’s attributable to business ceded by United States domiciled ceding insurers to any underwriter of the group;

Louisiana Register Vol. 39, No. 07 July 20, 2013 1808 ii. for reinsurance ceded under reinsurance responsibility for regulatory oversight of the trust. The form agreements with an inception date on or before December of the trust and any trust amendments also shall be filed with 31, 1992, and not amended or renewed after that date, the commissioner of every state in which the ceding insurer notwithstanding the other provisions of this regulation, funds beneficiaries of the trust are domiciled. in trust in an amount not less than the respective 1. The trust instrument shall provide that: underwriters’ several insurance and reinsurance liabilities a. contested claims shall be valid and enforceable attributable to business written in the United States; and out of funds in trust to the extent remaining unsatisfied 30 iii. in addition to these trusts, the group shall days after entry of the final order of any court of competent maintain a trusteed surplus of which $100,000,000 shall be jurisdiction in the United States; held jointly for the benefit of the United States domiciled b. legal title to the assets of the trust shall be vested ceding insurers of any member of the group for all the years in the trustee for the benefit of the grantor’s United States of account; ceding insurers, their assigns and successors in interest; b. the incorporated members of the group shall not c. the trust shall be subject to examination as be engaged in any business other than underwriting as a determined by the commissioner; member of the group and shall be subject to the same level d. the trust shall remain in effect for as long as the of regulation and solvency control by the group’s assuming insurer, or any member or former member of a domiciliary regulator as are the unincorporated members. group of insurers, shall have outstanding obligations under The group shall, within 90 days after its financial statements reinsurance agreements subject to the trust; and are due to be filed with the group’s domiciliary regulator, e. no later than February 28 of each year the trustee provide to the commissioner: of the trust shall report to the commissioner in writing i. an annual certification by the group’s setting forth the balance in the trust and listing the trust’s domiciliary regulator of the solvency of each underwriter investments at the preceding year-end, and shall certify the member of the group; or date of termination of the trust, if so planned, or certify that ii. if a certification is unavailable, a financial the trust shall not expire prior to the following December 31. statement, prepared by independent public accountants, of 2. Notwithstanding any other provisions in the trust each underwriter member of the group. instrument, if the trust fund is inadequate because it contains 4. In the case of a group of incorporated insurers an amount less than the amount required by §3509.C or if under common administration, whose members possess the grantor of the trust has been declared insolvent or placed aggregate policyholders surplus of $10,000,000,000 into receivership, rehabilitation, liquidation or similar (calculated and reported in substantially the same manner as proceedings under the laws of its state or country of prescribed by the annual statement instructions and domicile, the trustee shall comply with an order of the Accounting Practices and Procedures Manual of the NAIC) commissioner with regulatory oversight over the trust or and which has continuously transacted an insurance business with an order of a court of competent jurisdiction directing outside the United States for at least three years immediately the trustee to transfer to the commissioner with regulatory prior to making application for accreditation. oversight over the trust or other designated receiver all of the a. The trust fund shall: assets of the trust fund. i. consist of funds in trust in an amount not less a. The assets shall be distributed by and claims shall than the assuming insurers’ several liabilities attributable to be filed with and valued by the commissioner with business ceded by United States domiciled ceding insurers to regulatory oversight over the trust in accordance with the any members of the group pursuant to reinsurance contracts laws of the state in which the trust is domiciled applicable to issued in the name of such group; the liquidation of domestic insurance companies. ii. maintain a joint trusteed surplus of which b. If the commissioner with regulatory oversight $100,000,000 shall be held jointly for the benefit of United over the trust determines that the assets of the trust fund or States domiciled ceding insurers of any member of the any part thereof are not necessary to satisfy the claims of the group; and United States beneficiaries of the trust, the commissioner iii. file a properly executed Form AR-1 (§3525.B) with regulatory oversight over the trust shall return the as evidence of the submission to the authority of the assets, or any part thereof, to the trustee for distribution in commissioner to examine the books and records of any of its accordance with the trust agreement. members and shall certify that any member examined will c. The grantor shall waive any right otherwise bear the expense of any such examination. available to it under United States law that is inconsistent b. Within 90 days after the statements are due to be with this provision. filed with the group’s domiciliary regulator, the group shall D. For purposes of this section, the term liabilities shall file with the commissioner an annual certification of each mean the assuming insurer’s gross liabilities attributable to underwriter member’s solvency by the member’s reinsurance ceded by United States domiciled insurers domiciliary regulators, and financial statements, prepared by excluding liabilities that are otherwise secured by acceptable independent public accountants, of each underwriter member means, and, shall include: of the group. 1. for business ceded by domestic insurers authorized C. Credit for reinsurance shall not be granted unless the to write accident and health, and property and casualty form of the trust and any amendments to the trust have been insurance: approved by either the commissioner of the state where the a. losses and allocated loss expenses paid by the trust is domiciled or the commissioner of another state who, ceding insurer, recoverable from the assuming insurer; pursuant to the terms of the trust instrument, has accepted b. reserves for losses reported and outstanding;

1809 Louisiana Register Vol. 39, No. 07 July 20, 2013 c. reserves for losses incurred but not reported; than an insurance company) or that are assumed or d. reserves for allocated loss expenses; and guaranteed by a solvent United States institution (other than e. unearned premiums; an insurance company) and that are not in default as to 2. for business ceded by domestic insurers authorized principal or interest if the obligations: to write life, health and annuity insurance: a. are rated A or higher (or the equivalent) by a a. aggregate reserves for life policies and contracts securities rating agency recognized by the Securities net of policy loans and net due and deferred premiums; Valuation Office of the NAIC, or if not so rated, are similar b. aggregate reserves for accident and health in structure and other material respects to other obligations policies; of the same institution that are so rated; c. deposit funds and other liabilities without life or b. are insured by at least one authorized insurer disability contingencies; and (other than the investing insurer or a parent, subsidiary or d. liabilities for policy and contract claims. affiliate of the investing insurer) licensed to insure E. Assets deposited in trusts established pursuant to R.S. obligations in this state and, after considering the insurance, 22:651 and §3509 of this regulation shall be valued are rated AAA (or the equivalent) by a securities rating according to their current fair market value and shall consist agency recognized by the Securities Valuation Office of the only of cash in United States dollars, certificates of deposit NAIC; or issued by a United States financial institution as defined in c. have been designated as class one or class two by R.S. 22:653(A), clean, irrevocable, unconditional and the Securities Valuation Office of the NAIC. “evergreen” letters of credit issued or confirmed by a 3. Obligations issued, assumed or guaranteed by a qualified United States financial institution, as defined in solvent non-United States institution chartered in a country R.S. 22:653(A), and investments of the type specified in that is a member of the Organization for Economic §3509.E of this regulation, but investments in or issued by Cooperation and Development or obligations of United an entity controlling, controlled by or under common control States corporations issued in a non-United States currency, with either the grantor or beneficiary of the trust shall not provided that in either case the obligations are rated A or exceed 5 percent of total investments. No more than 20 higher, or the equivalent, by a rating agency recognized by percent of the total of the investments in the trust may be the Securities Valuation Office of the NAIC. foreign investments authorized under §3509.E.1.e, E.3, E.6.b 4. An investment made pursuant to the provisions of or E.7, and no more than 10 percent of the total of the §3509.E.1-3 shall be subject to the following additional investments in the trust may be securities denominated in limitations: foreign currencies. For purposes of applying the preceding a. an investment in or loan upon the obligations of sentence, a depository receipt denominated in United States an institution other than an institution that issues mortgage- dollars and representing rights conferred by a foreign related securities shall not exceed 5 percent of the assets of security shall be classified as a foreign investment the trust; denominated in a foreign currency. The assets of a trust b. an investment in any one mortgage-related established to satisfy the requirements of R.S. 22:651 shall security shall not exceed 5 percent of the assets of the trust; be invested only as follows. c. the aggregate total investment in mortgage- 1. Government obligations that are not in default as to related securities shall not exceed 25 percent of the assets of principal or interest, that are valid and legally authorized and the trust; and that are issued, assumed or guaranteed by: d. preferred or guaranteed shares issued or a. the United States or by any agency or guaranteed by a solvent United States institution are instrumentality of the United States; permissible investments if all of the institution’s obligations b. a state of the United States; are eligible as investments under §3509.E.2.a and E.2.c, but c. a territory, possession or other governmental unit shall not exceed 2 percent of the assets of the trust. of the United States; 5. As used in this regulation: d. an agency or instrumentality of a governmental Mortgage-Related Security—an obligation that is unit referred to in §3509.E.1.b-c if the obligations shall be rated AA or higher (or the equivalent) by a securities rating by law (statutory of otherwise) payable, as to both principal agency recognized by the Securities Valuation Office of the and interest, from taxes levied or by law required to be NAIC and that either: levied or from adequate special revenues pledged or i. represents ownership of one or more otherwise appropriated or by law required to be provided for promissory notes or certificates of interest or participation in making these payments, but shall not be obligations eligible the notes (including any rights designed to assure servicing for investment under this paragraph if payable solely out of of, or the receipt or timeliness of receipt by the holders of special assessments on properties benefited by local the notes, certificates, or participation of amounts payable improvements; or under, the notes, certificates or participation), that: e. the government of any other country that is a (a). are directly secured by a first lien on a single member of the Organization for Economic Cooperation and parcel of real estate, including stock allocated to a dwelling Development and whose government obligations are rated A unit in a residential cooperative housing corporation, upon or higher, or the equivalent, by a rating agency recognized which is located a dwelling or mixed residential and by the Securities Valuation Office of the NAIC. commercial structure, or on a residential manufactured home 2. Obligations that are issued in the United States, or as defined in 42 U.S.C. §5402(6), whether the manufactured that are dollar denominated and issued in a non-United home is considered real or personal property under the laws States market, by a solvent United States institution (other of the state in which it is located; and

Louisiana Register Vol. 39, No. 07 July 20, 2013 1810 (b). were originated by a savings and loan 8. Investment Companies association, savings bank, commercial bank, credit union, a. Securities of an investment company registered insurance company, or similar institution that is supervised pursuant to the Investment Company Act of 1940, 15 U.S.C. and examined by a federal or state housing authority, or by a §80a, are permissible investments if the investment mortgagee approved by the secretary of Housing and Urban company: Development pursuant to 12 U.S.C.§§1709 and 1715-b, or, i. Invests at least 90 percent of its assets in the where the notes involve a lien on the manufactured home, by types of securities that qualify as an investment under an institution or by a financial institution approved for §3509.E.1-3 or invests in securities that are determined by insurance by the secretary of Housing and Urban the commissioner to be substantively similar to the types of Development pursuant to 12 U.S.C. §1703; or securities set forth in §3509.E.1-3; or ii. is secured by one or more promissory notes or ii. Invests at least 90 percent of its assets in the certificates of deposit or participations in the notes (with or types of equity interests that qualify as an investment under without recourse to the insurer of the notes) and, by its §3509.E.6.a. terms, provides for payments of principal in relation to b. Investments made by a trust in investment payments, or reasonable projections of payments, or notes companies under this Paragraph shall not exceed the meeting the requirements of §3509.E.5.a.i.(a)-(b); following limitations: Promissory Note—when used in connection with a i. an investment in an investment company manufactured home, shall also include a loan, advance or qualifying under §3509.E.8.a.i shall not exceed 10 percent of credit sale as evidenced by a retail installment sales contract the assets in the trust and the aggregate amount of or other instrument. investment in qualifying investment companies shall not 6. Equity Interests exceed 25 percent of the assets in the trust; and a. Investments in common shares or partnership ii. investments in an investment company interests of a solvent United States institution are permissible qualifying under §3509.E.8.a.ii shall not exceed 5 percent of if: the assets in the trust and the aggregate amount of i. its obligations and preferred shares, if any, are investment in qualifying investment companies shall be eligible as investments under §3509.E; and included when calculating the permissible aggregate value of ii. the equity interests of the institution (except an equity interests pursuant to §3509.E.6.a. insurance company) are registered on a national securities 9. Letters of Credit exchange as provided in the Securities Exchange Act of a. In order for a letter of credit to qualify as an asset 1934, 15 U.S.C. §§ 78a to 78kk, or otherwise registered of the trust, the trustee shall have the right and the obligation pursuant to that Act, and if otherwise registered, price pursuant to the deed of trust or some other binding quotations for them are furnished through a nationwide agreement (as duly approved by the commissioner), to automated quotations system approved by the Financial immediately draw down the full amount of the letter of Industry Regulatory Authority, or successor organization. A credit and hold the proceeds in trust for the beneficiaries of trust shall not invest in equity interests under this Paragraph the trust if the letter of credit will otherwise expire without an amount exceeding 1 percent of the assets of the trust even being renewed or replaced. though the equity interests are not so registered and are not b. The trust agreement shall provide that the trustee issued by an insurance company; shall be liable for its negligence, willful misconduct or lack b. investments in common shares of a solvent of good faith. The failure of the trustee to draw against the institution organized under the laws of a country that is a letter of credit in circumstances where such draw would be member of the Organization for Economic Cooperation and required shall be deemed to be negligence and/or willful Development, if: misconduct. i. all its obligations are rated A or higher, or the F. A specific security provided to a ceding insurer by an equivalent, by a rating agency recognized by the Securities assuming insurer pursuant to §3511 shall be applied, until Valuation Office of the NAIC; and exhausted, to the payment of liabilities of the assuming ii. the equity interests of the institution are insurer to the ceding insurer holding the specific security registered on a securities exchange regulated by the prior to, and as a condition precedent for, presentation of a government of a country that is a member of the claim by the ceding insurer for payment by a trustee of a Organization for Economic Cooperation and Development; trust established by the assuming insurer pursuant to this c. an investment in or loan upon any one Section. institution’s outstanding equity interests shall not exceed 1 AUTHORITY NOTE: Promulgated in accordance with R.S. percent of the assets of the trust. The cost of an investment 22, Sections 2(E), 11 and 651. in equity interests made pursuant to this paragraph, when HISTORICAL NOTE: Promulgated by the Department of added to the aggregate cost of other investments in equity Insurance, Office of the Commissioner, LR 21:1246 (November interests then held pursuant to this Paragraph, shall not 1995), amended LR 39:1808 (July 2013). §3510. Credit for Reinsurance––Certified Reinsurers exceed 10 percent of the assets in the trust; A. Pursuant to R.S. 22:651(E), the commissioner shall 7. Obligations issued, assumed or guaranteed by a allow credit for reinsurance ceded by a domestic insurer to multinational development bank, provided the obligations an assuming insurer that has been certified as a reinsurer in are rated A or higher, or the equivalent, by a rating agency this state at all times for which statutory financial statement recognized by the Securities Valuation Office of the NAIC.

1811 Louisiana Register Vol. 39, No. 07 July 20, 2013 credit for reinsurance is claimed under this section. The establishing security requirements that exceed the minimum credit allowed shall be based upon the security held by or on security requirements established for certified reinsurers behalf of the ceding insurer in accordance with a rating under this Section. assigned to the certified reinsurer by the commissioner. The B. Certification Procedure security shall be in a form consistent with the provisions of 1. The commissioner shall post notice on the R.S. 22:651(E) and 652 and §§3515, 3517 or 3519 of this Department of Insurance website promptly upon receipt of regulation. The amount of security required in order for full any application for certification, including instructions on credit to be allowed shall correspond with the following how members of the public may respond to the application. requirements. The commissioner may not take final action on the 1. Ratings/Security Required application until at least 30 days after posting the notice required by this Paragraph. Ratings Security Required 2. The commissioner shall issue written notice to an Secure - 1 0 percent assuming insurer that has made application and been Secure - 2 10 percent approved as a certified reinsurer. Included in such notice Secure - 3 20 percent shall be the rating assigned the certified reinsurer in Secure - 4 50 percent Secure - 5 75 percent accordance with §3510.A. The commissioner shall publish a Vulnerable - 6 100 percent list of all certified reinsurers and their ratings. 3. In order to be eligible for certification, the 2. Affiliated reinsurance transactions shall receive the assuming insurer shall meet the following requirements. same opportunity for reduced security requirements as all a. The assuming insurer must be domiciled and other reinsurance transactions. licensed to transact insurance or reinsurance in a qualified 3. The commissioner shall require the certified jurisdiction, as determined by the commissioner pursuant to reinsurer to post 100 percent, for the benefit of the ceding §3510.C. insurer or its estate, security upon the entry of an order of b. The assuming insurer must maintain capital and rehabilitation, liquidation or conservation against the ceding surplus, or its equivalent, of no less than $250,000,000 insurer. calculated in accordance with §3510.B.4.h. This requirement 4. In order to facilitate the prompt payment of claims, may also be satisfied by an association including a certified reinsurer shall not be required to post security for incorporated and individual unincorporated underwriters catastrophe recoverables for a period of one year from the having minimum capital and surplus equivalents (net of date of the first instance of a liability reserve entry by the liabilities) of at least $250,000,000 and a central fund ceding company as a result of a loss from a catastrophic containing a balance of at least $250,000,000. occurrence as recognized by the commissioner. The one year c. The assuming insurer must maintain financial deferral period is contingent upon the certified reinsurer strength ratings from two or more rating agencies deemed continuing to pay claims in a timely manner. Reinsurance acceptable by the commissioner. These ratings shall be based recoverables for only the following lines of business as on interactive communication between the rating agency and reported on the NAIC annual financial statement related the assuming insurer and shall not be based solely on specifically to the catastrophic occurrence will be included publicly available information. These financial strength in the deferral: ratings will be one factor used by the commissioner in a. line 1: fire; determining the rating that is assigned to the assuming b. line 2: allied lines; insurer. Acceptable rating agencies include the following: c. line 3: farmowners multiple peril; i. Standard and Poor’s; d. line 4: homeowners multiple peril; ii. Moody’s Investors Service; e. line 5: commercial multiple peril; iii. Fitch Ratings; f. line 9: inland marine; iv. A.M. Best Company; or g. line 12: earthquake; v. any other nationally recognized statistical h. line 21: auto physical damage. rating organization. 5. Credit for reinsurance under this Section shall apply d. The certified reinsurer must comply with any only to reinsurance contracts entered into or renewed on or other requirements reasonably imposed by the after the effective date of the certification of the assuming commissioner. insurer. Any reinsurance contract entered into prior to the 4. Each certified reinsurer shall be rated on a legal effective date of the certification of the assuming insurer that entity basis, with due consideration being given to the group is subsequently amended after the effective date of the rating where appropriate, except that an association certification of the assuming insurer, or a new reinsurance including incorporated and individual unincorporated contract, covering any risk for which collateral was provided underwriters that has been approved to do business as a previously, shall only be subject to this section with respect single certified reinsurer may be evaluated on the basis of its to losses incurred and reserves reported from and after the group rating. The commissioner’s evaluation may consider a effective date of the amendment or new contract. variety of factors including the following: 6. Nothing in this section shall prohibit the parties to a a. the commissioner may consider a reinsurer’s reinsurance agreement from agreeing to provisions financial strength rating from an acceptable rating agency. The maximum rating that a certified reinsurer may be

Louisiana Register Vol. 39, No. 07 July 20, 2013 1812 assigned will correspond to its financial strength rating as certified reinsurer. A failure to obtain or maintain at least two outlined in the table below. The commissioner shall use the financial strength ratings from acceptable rating agencies lowest financial strength rating received from an approved will result in loss of eligibility for certification. rating agency in establishing the maximum rating of a

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+, BB+, BB, BB-, Ba1, Ba2, Ba3, BB+, BB, BB-, C, C-, D, E, F B+, B, B-, CCC, CC, C, D, R B1, B2, B3, Caa, Ca, C B+, B, B-, CCC+, CC, CCC-, DD

b. the commissioner may consider the business involves United States ceding insurers. The commissioner practices of the reinsurer in dealing with its ceding insurers, shall receive prior notice from a certified reinsurer that including its record of compliance with reinsurance proposes participation by the certified reinsurer in a solvent contractual terms and obligations; scheme of arrangement; and c. for reinsurers domiciled in the United States, the k. any other information deemed relevant by the commissioner may review the most recent applicable NAIC commissioner. annual statement blank, either schedule F (for 5. Based on the analysis conducted under §3510.B.4.e property/casualty reinsurers) or schedule S (for life and of a certified reinsurer’s reputation for prompt payment of health reinsurers); claims, the commissioner may make appropriate adjustments d. for reinsurers not domiciled in the United States, in the security the certified reinsurer is required to post to the commissioner may review annually Form CR-F (for protect its liabilities to United States ceding insurers, property/casualty reinsurers) or Form CR-S (for life and provided that the commissioner shall, at a minimum, health reinsurers); increase the security the certified reinsurer is required to post e. the commissioner may consider the reputation of by one rating level under §3510.B.4.a if the commissioner the reinsurer for prompt payment of claims under finds that: reinsurance agreements, based on an analysis of ceding a. more than 15 percent of the certified reinsurer’s insurers’ schedule F reporting of overdue reinsurance ceding insurance clients have overdue reinsurance recoverables, including the proportion of obligations that are recoverables on paid losses of 90 days or more which are not more than 90 days past due or are in dispute, with specific in dispute and which exceed $100,000 for each cedent; or attention given to obligations payable to companies that are b. the aggregate amount of reinsurance recoverables in administrative supervision or receivership; on paid losses which are not in dispute that are overdue by f. the commissioner may consider regulatory 90 days or more exceeds $50,000,000. actions against the reinsurer; 6. The assuming insurer must submit a properly g. the commissioner may consider the report of the executed Form CR-1 (§3525.C) as evidence of its independent auditor on the financial statements of the submission to the jurisdiction of this state, appointment of insurance enterprise, on the basis described in §3510.B.4.h; the commissioner as an agent for service of process in this h. for certified reinsurers not domiciled in the state, and agreement to provide security for 100 percent of United States, the commissioner may consider audited the assuming insurer’s liabilities attributable to reinsurance financial statements, (audited United States GAAP basis if ceded by United States ceding insurers if it resists available, audited IFRS basis statements are allowed but enforcement of a final United States judgment. The must include an audited footnote reconciling equity and net commissioner shall not certify any assuming insurer that is income to a United States GAAP basis, or, with the domiciled in a jurisdiction that the commissioner has permission of the state insurance commissioner, audited determined does not adequately and promptly enforce final IFRS statements with reconciliation to United States GAAP United States judgments or arbitration awards. certified by an officer of the company), regulatory filings, 7. The certified reinsurer must agree to meet and actuarial opinion (as filed with the non-United States applicable information filing requirements as determined by jurisdiction supervisor). Upon the initial application for the commissioner, both with respect to an initial application certification, the commissioner will consider audited for certification and on an ongoing basis. All information financial statements for the last three years filed with its submitted by certified reinsurers which is not otherwise non-United States jurisdiction supervisor; exempt from disclosure shall be public under the Public i. the liquidation priority of obligations to a ceding Records Law, R.S. 44:1.1 et seq. The applicable information insurer in the certified reinsurer’s domiciliary jurisdiction in filing requirements are, as follows: the context of an insolvency proceeding; a. notification within 10 days of any regulatory j. a certified reinsurer’s participation in any solvent actions taken against the certified reinsurer, any change in scheme of arrangement, or similar procedure, which the provisions of its domiciliary license or any change in

1813 Louisiana Register Vol. 39, No. 07 July 20, 2013 rating by an approved rating agency, including a statement reflect the risk of uncollectibility and anticipated expenses of describing such changes and the reasons therefore; trust administration. Notwithstanding the change of a b. annually, Form CR-F or CR-S, as applicable; certified reinsurer’s rating or revocation of its certification, a c. annually, the report of the independent auditor on domestic insurer that has ceded reinsurance to that certified the financial statements of the insurance enterprise, on the reinsurer may not be denied credit for reinsurance for a basis described in §3510.B.7.d; period of three months for all reinsurance ceded to that d. annually, audited financial statements (audited certified reinsurer, unless the reinsurance is found by the United States GAAP basis if available, audited IFRS basis commissioner to be at high risk of uncollectibility. statements are allowed but must include an audited footnote C. Qualified Jurisdictions reconciling equity and net income to a Untied States GAAP 1. If, upon conducting an evaluation under this basis, or, with the permission of the commissioner, audited Section with respect to the reinsurance supervisory system IFRS statements with reconciliation to United States GAAP of any non-United States assuming insurer, the certified by an officer of the company), regulatory filings, commissioner determines that the jurisdiction qualifies to be and actuarial opinion (as filed with the certified reinsurer’s recognized as a qualified jurisdiction, the commissioner supervisor). Upon the initial certification, audited financial shall publish notice and evidence of such recognition in an statements for the last three years filed with the certified appropriate manner. The commissioner may establish a reinsurer’s supervisor; procedure to withdraw recognition of those jurisdictions that e. at least annually, an updated list of all disputed are no longer qualified. and overdue reinsurance claims regarding reinsurance 2. In order to determine whether the domiciliary assumed from United States domestic ceding insurers; jurisdiction of a non-United States assuming insurer is f. a certification from the certified reinsurer’s eligible to be recognized as a qualified jurisdiction, the domestic regulator that the certified reinsurer is in good commissioner shall evaluate the reinsurance supervisory standing and maintains capital in excess of the jurisdiction’s system of the non-United States jurisdiction, both initially highest regulatory action level; and and on an ongoing basis, and consider the rights, benefits g. any other information that the commissioner may and the extent of reciprocal recognition afforded by the non- reasonably require. United States jurisdiction to reinsurers licensed and 8. Change in Rating or Revocation of Certification domiciled in the United States. The commissioner shall a. In the case of a downgrade by a rating agency or determine the appropriate approach for evaluating the other disqualifying circumstance, the commissioner shall qualifications of such jurisdictions, and create and publish a upon written notice assign a new rating to the certified list of jurisdictions whose reinsurers may be approved by the reinsurer in accordance with the requirements of commissioner as eligible for certification. A qualified §3510.B.4.a. jurisdiction must agree to share information and cooperate b. The commissioner shall have the authority to with the commissioner with respect to all certified reinsurers suspend, revoke, or otherwise modify a certified reinsurer’s domiciled within that jurisdiction. Additional factors to be certification at any time if the certified reinsurer fails to meet considered in determining whether to recognize a qualified its obligations or security requirements under this section, or jurisdiction, in the discretion of the commissioner include, if other financial or operating results of the certified but are not limited to, the following: reinsurer, or documented significant delays in payment by a. the framework under which the assuming insurer the certified reinsurer, lead the commissioner to reconsider is regulated; the certified reinsurer’s ability or willingness to meet its b. the structure and authority of the domiciliary contractual obligations. regulator with regard to solvency regulation requirements c. If the rating of a certified reinsurer is upgraded and financial surveillance; by the commissioner, the certified reinsurer may meet the c. the substance of financial and operating standards security requirements applicable to its new rating on a for assuming insurers in the domiciliary jurisdiction; prospective basis, but the commissioner shall require the d. the form and substance of financial reports certified reinsurer to post security under the previously required to be filed or made publicly available by reinsurers applicable security requirements as to all contracts in force in the domiciliary jurisdiction and the accounting principles on or before the effective date of the upgraded rating. If the used; rating of a certified reinsurer is downgraded by the e. the domiciliary regulator’s willingness to commissioner, the commissioner shall require the certified cooperate with United States regulators in general and the reinsurer to meet the security requirements applicable to its commissioner in particular; new rating for all business it has assumed as a certified f. the history of performance by assuming insurers reinsurer. in the domiciliary jurisdiction; d. Upon revocation of the certification of a certified g. any documented evidence of substantial reinsurer by the commissioner, the assuming insurer shall be problems with the enforcement of final United States required to post security in accordance with §3513 in order judgments in the domiciliary jurisdiction. A jurisdiction will for the ceding insurer to continue to take credit for not be considered to be a qualified jurisdiction if the reinsurance ceded to the assuming insurer. If funds continue commissioner has determined that it does not adequately and to be held in trust in accordance with §3509, the promptly enforce final United States judgments or commissioner may allow additional credit equal to the arbitration awards; ceding insurer’s pro rata share of such funds, discounted to h. any relevant international standards or guidance with respect to mutual recognition of reinsurance

Louisiana Register Vol. 39, No. 07 July 20, 2013 1814 supervision adopted by the International Association of §3511. Credit for Reinsurance Required by Law Insurance Supervisors or successor organization; A. Pursuant to R.S. 22:651(F), the commissioner shall i. any other matters deemed relevant by the allow credit for reinsurance ceded by a domestic insurer to commissioner. an assuming insurer not meeting the requirements of R.S. 3. A list of qualified jurisdictions shall be published 22:651(B), (C), (D), or (E) but only as to the insurance of through the NAIC committee process. The commissioner risks located in jurisdictions where the reinsurance is shall consider this list in determining qualified jurisdictions. required by the applicable law or regulation of that If the commissioner approves a jurisdiction as qualified that jurisdiction. As used in §3511: does not appear on the list of qualified jurisdictions, the Jurisdictionstate, district or territory of the United commissioner shall provide thoroughly documented States and any lawful national government. justification with respect to the criteria provided under AUTHORITY NOTE: Promulgated in accordance with R.S. §3510.C.2.a-i. 22, Sections 2(E), 11 and 651. 4. United States jurisdictions that meet the HISTORICAL NOTE: Promulgated by the Department of requirements for accreditation under the NAIC financial Insurance, Office of the Commissioner, LR 21:1246 (November standards and accreditation program shall be recognized as 1995), amended LR 39:1815 (July 2013). qualified jurisdictions. §3513. Reduction from Liability for Reinsurance Ceded D. Recognition of Certification Issued by an NAIC to an Unauthorized Assuming Insurer Accredited Jurisdiction A. Pursuant to R.S. 22:652, the commissioner shall allow 1. If an applicant for certification has been certified as a reduction from liability for reinsurance ceded by a a reinsurer in an NAIC accredited jurisdiction, the domestic insurer to an assuming insurer not meeting the commissioner has the discretion to defer to that jurisdiction’s requirements of R.S. 22:651 in an amount not exceeding the certification, and to defer to the rating assigned by that liabilities carried by the ceding insurer. The reduction shall jurisdiction, if the assuming insurer submits a properly be in the amount of funds held by or on behalf of the ceding executed Form CR-1 (§3525.C) and such additional insurer, including funds held in trust for the exclusive benefit information as the commissioner requires. The assuming of the ceding insurer, under a reinsurance contract with such insurer shall be considered to be a certified reinsurer in this assuming insurer as security for the payment of obligations state. under the reinsurance contract. The security shall be held in 2. Any change in the certified reinsurer’s status or the United States subject to withdrawal solely by, and under rating in the other jurisdiction shall apply automatically in the exclusive control of, the ceding insurer or, in the case of this state as of the date it takes effect in the other a trust, held in a qualified United States financial institution jurisdiction. The certified reinsurer shall notify the as defined in R.S. 22:653(B). This security may be in the commissioner of any change in its status or rating within 10 form of any of the following: days after receiving notice of the change. 1. cash; 3. The commissioner may withdraw recognition of the 2. securities listed by the Securities Valuation Office other jurisdiction’s rating at any time and assign a new rating of the NAIC, including those deemed exempt from filing as in accordance with §3510.B.7.a. defined by the purposes and procedures manual of the 4. The commissioner may withdraw recognition of the Securities Valuation Office, and qualifying as admitted other jurisdiction’s certification at any time, with written assets; notice to the certified reinsurer. Unless the commissioner 3. clean, irrevocable, unconditional and evergreen suspends or revokes the certified reinsurer’s certification in letters of credit issued or confirmed by a qualified United accordance with §3510.B.7.b, the certified reinsurer’s States financial institution, as defined in R.S. 22:653(A), certification shall remain in good standing in this state for a effective no later than December 31 of the year for which period of three months, which shall be extended if additional filing is being made, and in the possession of, or in trust for, time is necessary to consider the assuming insurer’s the ceding insurer on or before the filing date of its annual application for certification in this state. statement. Letters of credit meeting applicable standards of E. Mandatory Funding Clause. In addition to the clauses issuer acceptability as of the dates of their issuance (or required under §3521, reinsurance contracts entered into or confirmation) shall, notwithstanding the issuing (or renewed under this section shall include a proper funding confirming) institution’s subsequent failure to meet clause, which requires the certified reinsurer to provide and applicable standards of issuer acceptability, continue to be maintain security in an amount sufficient to avoid the acceptable as security until their expiration, extension, imposition of any financial statement penalty on the ceding renewal, modification or amendment, whichever first occurs; insurer under this section for reinsurance ceded to the or certified reinsurer. 4. any other form of security acceptable to the F. The commissioner shall comply with all reporting and commissioner. notification requirements that may be established by the B. An admitted asset or a reduction from liability for NAIC with respect to certified reinsurers and qualified reinsurance ceded to an unauthorized assuming insurer jurisdictions. pursuant to §3513.A shall be allowed only when the AUTHORITY NOTE: Promulgated in accordance with R.S. requirements of §3521 and the applicable portions of 22, Sections 2(E), 11 and 651. §§3515, 3517 or 3519 have been satisfied. HISTORICAL NOTE: Promulgated by the Department of AUTHORITY NOTE: Promulgated in accordance with R.S. Insurance, Office of the Commissioner, LR 21:1246 (November 22, Sections 2(E), 11 and 651. 1995), amended LR 39:1811 (July 2013).

1815 Louisiana Register Vol. 39, No. 07 July 20, 2013 HISTORICAL NOTE: Promulgated by the Department of d. notify the grantor and the beneficiary within 10 Insurance, Office of the Commissioner, LR 21:1246 (November days, of any deposits to or withdrawals from the trust 1995), amended LR 39:1815 (July 2013). account; §3515. Trust Agreements Qualified under §3513 e. upon written demand of the beneficiary, A. As used in §3515: immediately take any and all steps necessary to transfer Beneficiary―the entity for whose sole benefit the trust absolutely and unequivocally all right, title and interest in has been established and any successor of the beneficiary by the assets held in the trust account to the beneficiary and operation of law. If a court of law appoints a successor in deliver physical custody of the assets to the beneficiary; and interest to the named beneficiary, then the named beneficiary f. allow no substitutions or withdrawals of assets includes, and is limited to, the court appointed domiciliary from the trust account, except on written instructions from receiver (including conservator, rehabilitator, or liquidator). the beneficiary, except that the trustee may, without the Grantor―the entity that has established a trust for the consent of but with notice to the beneficiary, upon call or sole benefit of the beneficiary. When established in maturity of any trust asset, withdraw such asset upon conjunction with a reinsurance agreement, the grantor is the condition that the proceeds are paid into the trust account. unlicensed, unaccredited assuming insurer. 7. The trust agreement shall provide that at least 30 Obligations―as used in §3515.B.11, means: days, but not more than 45 days, prior to termination of the a. reinsured losses and allocated loss expenses paid trust account, written notification of termination shall be by the ceding company, but not recovered from the assuming delivered by the trustee to the beneficiary. insurer; 8. The trust agreement shall be made subject to and b. reserves for reinsured losses reported and governed by the laws of the state in which the trust is outstanding; domiciled. c. reserves for reinsured losses incurred but not 9. The trust agreement shall prohibit invasion of the reported; and trust corpus for the purpose of paying commission to, or d. reserves for allocated reinsured loss expenses and reimbursing the expenses of, the trustee. In order for a letter unearned premiums. of credit to qualify as an asset of the trust, the trustee shall B. Required Conditions have the right and the obligation pursuant to the deed of trust 1. The trust agreement shall be entered into between or some other binding agreement (as duly approved by the the beneficiary, the grantor and a trustee, which shall be a commissioner), to immediately draw down the full amount qualified United States financial institution as defined in of the letter of credit and hold the proceeds in trust for the R.S. 22:653(B). beneficiaries of the trust if the letter of credit will otherwise 2. The trust agreement shall create a trust account into expire without being renewed or replaced. which assets shall be deposited. 10. The trust agreement shall provide that the trustee 3. All assets in the trust account shall be held by the shall be liable for its negligence, willful misconduct or lack trustee at the trustee’s office in the United States. of good faith. The failure of the trustee to draw against the 4. The trust agreement shall provide that: letter of credit in circumstances where such draw would be a. the beneficiary shall have the right to withdraw required shall be deemed to be negligence and/or willful assets from the trust account at any time, without notice to misconduct. the grantor, subject only to written notice from the 11. Notwithstanding other provisions of this regulation, beneficiary to the trustee; when a trust agreement is established in conjunction with a b. no other statement or document is required to be reinsurance agreement covering risks other than life, presented to withdraw assets, except that the beneficiary annuities and accident and health, where it is customary may be required to acknowledge receipt of withdrawn practice to provide a trust agreement for a specific purpose, assets; the trust agreement may provide that the ceding insurer shall c. it is not subject to any conditions or undertake to use and apply amounts drawn upon the trust qualifications outside of the trust agreement; and account, without diminution because of the insolvency of the d. it shall not contain references to any other ceding insurer or the assuming insurer, only for the agreements or documents except as provided for in following purposes: §3515.B.11-12. a. to pay or reimburse the ceding insurer for the 5. The trust agreement shall be established for the sole assuming insurer’s share under the specific reinsurance benefit of the beneficiary. agreement regarding any losses and allocated loss expenses 6. The trust agreement shall require the trustee to: paid by the ceding insurer, but not recovered from the a. receive assets and hold all assets in a safe place; assuming insurer, or for unearned premiums due to the b. determine that all assets are in such form that the ceding insurer if not otherwise paid by the assuming insurer; beneficiary, or the trustee upon direction by the beneficiary, b. to make payment to the assuming insurer of any may whenever necessary negotiate any such assets, without amounts held in the trust account that exceed 102 percent of consent or signature from the grantor or any other person or the actual amount required to fund the assuming insurer’s entity; obligations under the specific reinsurance agreement; or c. furnish to the grantor and the beneficiary a c. where the ceding insurer has received notification statement of all assets in the trust account upon its inception of termination of the trust account and where the assuming and at intervals no less frequent than the end of each insurer’s entire obligations under the specific reinsurance calendar quarter;

Louisiana Register Vol. 39, No. 07 July 20, 2013 1816 agreement remain unliquidated and undischarged 10 days C. Permitted Conditions prior to the termination date, to withdraw amounts equal to 1. The trust agreement may provide that the trustee the obligations and deposit those amounts in a separate may resign upon delivery of a written notice of resignation, account, in the name of the ceding insurer in any qualified effective not less than 90 days after the beneficiary and United States financial institution as defined in R.S. grantor receive the notice and that the trustee may be 22:653(B) apart from its general assets, in trust for such uses removed by the grantor by delivery to the trustee and the and purposes specified in §3515.B.11.a-b as may remain beneficiary of a written notice of removal, effective not less executory after such withdrawal and for any period after the than 90 days after the trustee and the beneficiary receive the termination date. notice, provided that no such resignation or removal shall be 12. Notwithstanding other provisions of this regulation, effective until a successor trustee has been duly appointed when a trust agreement is established to meet the and approved by the beneficiary and the grantor and all requirements of §3513 in conjunction with a reinsurance assets in the trust have been duly transferred to the new agreement covering life, annuities or accident and health trustee. risks, where it is customary to provide a trust agreement for 2. The grantor may have the full and unqualified right a specific purpose, the trust agreement may provide that the to vote any shares of stock in the trust account and to receive ceding insurer shall undertake to use and apply amounts from time to time payments of any dividends or interest drawn upon the trust account, without diminution because of upon any shares of stock or obligations included in the trust the insolvency of the ceding insurer or the assuming insurer, account. Any interest or dividends shall be either forwarded only for the following purposes: promptly upon receipt to the grantor or deposited in a a. to pay or reimburse the ceding insurer for: separate account established in the grantor’s name. i. the assuming insurer’s share under the specific 3. The trustee may be given authority to invest, and reinsurance agreement of premiums returned, but not yet accept substitutions of, any funds in the account, provided recovered from the assuming insurer, to the owners of that no investment or substitution shall be made without policies reinsured under the reinsurance agreement on prior approval of the beneficiary, unless the trust agreement account of cancellations of the policies; and specifies categories of investments acceptable to the ii. the assuming insurer’s share under the specific beneficiary and authorizes the trustee to invest funds and to reinsurance agreement of surrenders and benefits or losses accept substitutions that the trustee determines are at least paid by the ceding insurer, but not yet recovered from the equal in current fair market value to the assets withdrawn assuming insurer, under the terms and provisions of the and that are consistent with the restrictions in §3515.D.1.b. policies reinsured under the reinsurance agreement; 4. The trust agreement may provide that the b. to pay to the assuming insurer amounts held in beneficiary may at any time designate a party to which all or the trust account in excess of the amount necessary to secure part of the trust assets are to be transferred. Transfer may be the credit or reduction from liability for reinsurance taken by conditioned upon the trustee receiving, prior to or the ceding insurer; or simultaneously, other specified assets. c. where the ceding insurer has received notification 5. The trust agreement may provide that, upon of termination of the trust and where the assuming insurer’s termination of the trust account, all assets not previously entire obligations under the specific reinsurance agreement withdrawn by the beneficiary shall, with written approval by remain unliquidated and undischarged 10 days prior to the the beneficiary, be delivered over to the grantor. termination date, to withdraw amounts equal to the assuming D. Additional Conditions Applicable to Reinsurance insurer’s share of liabilities, to the extent that the liabilities Agreements have not yet been funded by the assuming insurer, and 1. A reinsurance agreement may contain provisions deposit those amounts in a separate account, in the name of that: the ceding insurer in any qualified United States financial a. require the assuming insurer to enter into a trust institution apart from its general assets, in trust for the uses agreement and to establish a trust account for the benefit of and purposes specified in §3515.B.12.a-b as may remain the ceding insurer, and specifying what the agreement is to executory after withdrawal and for any period after the cover; termination date. b. require the assuming insurer, prior to depositing 13. Either the reinsurance agreement or the trust assets with the trustee, to execute assignments or agreement must stipulate that assets deposited in the trust endorsements in blank, or to transfer legal title to the trustee account shall be valued according to their current fair market of all shares, obligations or any other assets requiring value and shall consist only of cash in United States dollars, assignments, in order that the ceding insurer, or the trustee certificates of deposit issued by a United States bank and upon the direction of the ceding insurer, may whenever payable in United States dollars, and investments permitted necessary negotiate these assets without consent or signature by the Louisiana Insurance Code or any combination of the from the assuming insurer or any other entity; above, provided investments in or issued by an entity c. require that all settlements of account between controlling, controlled by or under common control with the ceding insurer and the assuming insurer be made in cash either the grantor or the beneficiary of the trust shall not or its equivalent; and exceed 5 percent of total investments. The agreement may d. stipulate that the assuming insurer and the ceding further specify the types of investments to be deposited. If insurer agree that the assets in the trust account, established the reinsurance agreement covers life, annuities or accident pursuant to the provisions of the reinsurance agreement, may and health risks, then the provisions required by this be withdrawn by the ceding insurer at any time, paragraph must be included in the reinsurance agreement. notwithstanding any other provisions in the reinsurance

1817 Louisiana Register Vol. 39, No. 07 July 20, 2013 agreement, and shall be utilized and applied by the ceding F. Notwithstanding the effective date of this regulation, insurer or its successors in interest by operation of law, any trust agreement or underlying reinsurance agreement in including without limitation any liquidator, rehabilitator, existence prior to September 1, 2013 will continue to be receiver or conservator of such company, without diminution acceptable until August 30, 2014, after which date the because of insolvency on the part of the ceding insurer or the agreements will have to fully comply with this regulation for assuming insurer, only for the following purposes: the trust agreement to be acceptable. i. to pay or reimburse the ceding insurer for: G. The failure of any trust agreement to specifically (a). the assuming insurer’s share under the identify the beneficiary as defined in §3515.A shall not be specific reinsurance agreement of premiums returned, but construed to affect any actions or rights that the not yet recovered from the assuming insurer, to the owners commissioner may take or possess pursuant to the provisions of policies reinsured under the reinsurance agreement of the laws of this state. because of cancellations of such policies; AUTHORITY NOTE: Promulgated in accordance with R.S. (b). the assuming insurer’s share of surrenders 22, Sections 2(E), 11 and 651. and benefits or losses paid by the ceding insurer pursuant to HISTORICAL NOTE: Promulgated by the Department of the provisions of the policies reinsured under the reinsurance Insurance, Office of the Commissioner, LR 21:1246 (November agreement; and 1995), amended LR 39:1816 (July 2013). §3517. Letters of Credit Qualified under §3513 (c). any other amounts necessary to secure the A. The letter of credit must be clean, irrevocable, credit or reduction from liability for reinsurance taken by the unconditional and issued or confirmed by a qualified United ceding insurer; States financial institution as defined in R.S. 22:653(A). The ii. to make payment to the assuming insurer of letter of credit shall contain an issue date and expiration date amounts held in the trust account in excess of the amount and shall stipulate that the beneficiary need only draw a necessary to secure the credit or reduction from liability for sight draft under the letter of credit and present it to obtain reinsurance taken by the ceding insurer. funds and that no other document need be presented. The 2. The reinsurance agreement also may contain letter of credit also shall indicate that it is not subject to any provisions that: condition or qualifications outside of the letter of credit. In a. give the assuming insurer the right to seek addition, the letter of credit itself shall not contain reference approval from the ceding insurer, which shall not be to any other agreements, documents or entities, except as unreasonably or arbitrarily withheld, to withdraw from the provided in §3517.H.1. As used in §3517: trust account all or any part of the trust assets and transfer those assets to the assuming insurer, provided: Beneficiarythe domestic insurer for whose benefit the i. the assuming insurer shall, at the time of letter of credit has been established and any successor of the withdrawal, replace the withdrawn assets with other beneficiary by operation of law. If a court of law appoints a qualified assets having a current fair market value equal to successor in interest to the named beneficiary, then the the market value of the assets withdrawn so as to maintain at named beneficiary includes, and is limited to, the court all times the deposit in the required amount; or appointed domiciliary receiver (including conservator, ii. after withdrawal and transfer, the current fair rehabilitator, or liquidator). market value of the trust account is no less than 102 percent B. The heading of the letter of credit may include a of the required amount; boxed section containing the name of the applicant and other b. provide for the return of any amount withdrawn appropriate notations to provide a reference for the letter of in excess of the actual amounts required for §3515.D.1.e and credit. The boxed section shall be clearly marked to indicate for interest payments at a rate not in excess of the prime rate that such information is for internal identification purposes of interest on such amounts; only. c. permit the award by any arbitration panel or court C. The letter of credit shall contain a statement to the of competent jurisdiction of: effect that the obligation of the qualified United States i. interest at a rate different from that provided in financial institution under the letter of credit is in no way §3515.D.2.b; contingent upon reimbursement with respect thereto. ii. court or arbitration costs; D. The term of the letter of credit shall be for at least one iii. attorney’s fees; and year and shall contain an “evergreen clause” that prevents iv. any other reasonable expenses. the expiration of the letter of credit without due notice from E. A trust agreement may be used to reduce any liability the issuer. The “evergreen clause” shall provide for a period for reinsurance ceded to an unauthorized assuming insurer in of no less than 30 days notice prior to expiration date or financial statements required to be filed with this department nonrenewal. in compliance with the provisions of this regulation when E. The letter of credit shall state whether it is subject to established on or before the date of filing of the financial and governed by the laws of this state or the Uniform statement of the ceding insurer. Further, the reduction for the Customs and Practice for Documentary Credits of the existence of an acceptable trust account may be up to the International Chamber of Commerce Publication 600 (UCP current fair market value of acceptable assets available to be 600) or International Standby Practices of the International withdrawn from the trust account at that time, but such Chamber of Commerce Publication 590 (ISP98), or any reduction shall be no greater than the specific obligations successor publication, and all drafts drawn thereunder shall under the reinsurance agreement that the trust account was be presentable at an office in the United States of a qualified established to secure. United States financial institution.

Louisiana Register Vol. 39, No. 07 July 20, 2013 1818 F. If the letter of credit is made subject to the Uniform c. all of the provisions of §3517.H.1 shall be Customs and Practice for Documentary Credits of the applied without diminution because of insolvency on the International Chamber of Commerce (Publication 500), or part of the ceding insurer or assuming insurer. any successor publication, then the letter of credit shall 2. Nothing contained §3517.H.1 shall preclude the specifically address and provide for an extension of time to ceding insurer and assuming insurer from providing for: draw against the letter of credit in the event that one or more a. an interest payment, at a rate not in excess of the of the occurrences specified in article 17 of Publication 500 prime rate of interest, on the amounts held pursuant to or any other successor publication, occur. §3517.H.1.b; or G. If the letter of credit is issued by a financial institution b. the return of any amounts drawn down on the authorized to issue letters of credit, other than a qualified letters of credit in excess of the actual amounts required for United States financial institution as described in §3517.A, the above or any amounts that are subsequently determined then the following additional requirements shall be met: not to be due. 1. the issuing financial institution shall formally AUTHORITY NOTE: Promulgated in accordance with R.S. designate the confirming qualified United States financial 22, Sections 2(E), 11 and 651. institution as its agent for the receipt and payment of the HISTORICAL NOTE: Promulgated by the Department of drafts; and Insurance, Office of the Commissioner, LR 21:1246 (November 1995), amended LR 39:1818 (July 2013). 2. the “evergreen clause” shall provide for 30 days §3519. Other Security notice prior to expiration date for nonrenewal. A. A ceding insurer may take credit for unencumbered H. Reinsurance Agreement Provisions funds withheld by the ceding insurer in the United States 1. The reinsurance agreement in conjunction with subject to withdrawal solely by the ceding insurer and under which the letter of credit is obtained may contain provisions its exclusive control. that: AUTHORITY NOTE: Promulgated in accordance with R.S. a. require the assuming insurer to provide letters of 22, Sections 2(E), 11 and 651. credit to the ceding insurer and specify what they are to HISTORICAL NOTE: Promulgated by the Department of cover; Insurance, Office of the Commissioner, LR 21:1246 (November b. stipulate that the assuming insurer and ceding 1995), amended LR 39:1819 (July 2013). insurer agree that the letter of credit provided by the §3521. Reinsurance Contract assuming insurer pursuant to the provisions of the A. Credit will not be granted, nor an asset or reduction reinsurance agreement may be drawn upon at any time, from liability allowed, to a ceding insurer for reinsurance notwithstanding any other provisions in the agreement, and effected with assuming insurers meeting the requirements of shall be utilized by the ceding insurer or its successors in §§3505, 3507, 3509, 3510, or 3511 or otherwise in interest only for one or more of the following reasons: compliance with R.S. 22:651 after the adoption of this i. to pay or reimburse the ceding insurer for: regulation unless the reinsurance agreement includes: (a). the assuming insurer’s share under the 1. a proper insolvency clause, which stipulates that specific reinsurance agreement of premiums returned, but reinsurance is payable directly to the liquidator or successor not yet recovered from the assuming insurers, to the owners without diminution regardless of the status of the ceding of policies reinsured under the reinsurance agreement on company, pursuant to R.S. 22:651(H)(2); account of cancellations of such policies; 2. a includes a provision pursuant to R.S. (b). the assuming insurer’s share, under the 22:651(G)(1)(a)(i) whereby the assuming insurer, if an specific reinsurance agreement, of surrenders and benefits or unauthorized assuming insurer, has submitted to the losses paid by the ceding insurer, but not yet recovered from jurisdiction of an alternative dispute resolution panel or the assuming insurers, under the terms and provisions of the court of competent jurisdiction within the United States, has policies reinsured under the reinsurance agreement; and agreed to comply with all requirements necessary to give the (c). any other amounts necessary to secure the court or panel jurisdiction, has designated an agent upon credit or reduction from liability for reinsurance taken by the whom service of process may be effected, and has agreed to ceding insurer; abide by the final decision of the court or panel; and ii. where the letter of credit will expire without 3. a includes a proper reinsurance intermediary clause, renewal or be reduced or replaced by a letter of credit for a if applicable, which stipulates that the credit risk for the reduced amount and where the assuming insurer’s entire intermediary is carried by the assuming insurer. obligations under the reinsurance agreement remain AUTHORITY NOTE: Promulgated in accordance with R.S. unliquidated and undischarged 10 days prior to the 22, Sections 2(E), 11 and 651. termination date, to withdraw amounts equal to the assuming HISTORICAL NOTE: Promulgated by the Department of insurer’s share of the liabilities, to the extent that the Insurance, Office of the Commissioner, LR 21:1246 (November liabilities have not yet been funded by the assuming insurer 1995), amended LR 39:1819 (July 2013). and exceed the amount of any reduced or replacement letter §3523. Agreements Requiring Approval of credit, and deposit those amounts in a separate account in A. The following kinds of reinsurance agreements shall the name of the ceding insurer in a qualified United States not be entered into by any domestic insurer unless they are financial institution apart from its general assets, in trust for first submitted to the commissioner of insurance for his such uses and purposes specified in §3517.H.1.b.i as may written approval, who shall approve the same if the terms remain after withdrawal and for any period after the thereof do not injuriously affect the rights of policyholders termination date; of any of the insurers parties thereto:

1819 Louisiana Register Vol. 39, No. 07 July 20, 2013 1. agreements of reinsurance of any life insurer other 4. Submits with this form a current list of insurers domiciled in than agreements made in the ordinary course of business Louisiana reinsured by Assuming Insurer and undertakes to submit additions to or deletions from the list to the Insurance Commissioner at least covering reinsurance of individual lives or joint lives under once per calendar quarter. reinsurance agreements relating to current business; or Dated:______2. agreements whereby any insurer, other than a life (name of assuming insurer) insurer, cedes any existing outstanding reserves to an insurer BY: ______not authorized to transact business in this state, or cedes to (name of officer) any insurer or insurers at one time, or during a period of six ______consecutive months more than 20 percent of the total amount (title of officer) of its outstanding reserves, not including in either case C. Form CR-1 premiums ceded by agreements made in the ordinary course of business covering the reinsurance of individual risks FORM CR-1 under reinsurance relating to current business. CERTIFICATE OF CERTIFIED REINSURER B. If the commissioner of insurance refuses to approve I, ______, any such agreement submitted for his approval, he shall ______grant the insurer a hearing upon request. (name of officer) (title of officer) C. In addition to the requirements of §3523.A, the of commissioner may require that any reinsurance agreement ______must be approved, in writing, by the commissioner when the (“Assuming Insurer”), the (name of assuming insurer) agreement is between a Louisiana domestic insurer and a assuming insurer under a reinsurance agreement with one or more insurers nonadmitted or unauthorized assuming insurer. domiciled in Louisiana, in order to be considered for approval in Louisiana, hereby certify that Assuming Insurer: AUTHORITY NOTE: Promulgated in accordance with R.S. 1. Submits to the jurisdiction of any court of competent jurisdiction 22, Sections 2(E), 11 and 651. in Louisiana for the adjudication of any issues arising out of the reinsurance HISTORICAL NOTE: Promulgated by the Department of agreement, agrees to comply with all requirements necessary to give such Insurance, Office of the Commissioner, LR 21:1246 (November court jurisdiction, and will abide by the final decision of such court or any 1995), amended LR 39:1819 (July 2013). appellate court in the event of an appeal. Nothing in this paragraph §3525. Contracts Affected constitutes or should be understood to constitute a waiver of Assuming Insurer’s rights to commence an action in any court of competent A. All new and renewal reinsurance transactions entered jurisdiction in the United States, to remove an action to a United States into after December 31, 2013 shall conform to the District Court, or to seek a transfer of a case to another court as permitted requirements of the Act and this regulation if credit is to be by the laws of the United States or of any state in the United States. This given to the ceding insurer for such reinsurance. paragraph is not intended to conflict with or override the obligation of the parties to the reinsurance agreement to arbitrate their disputes if such an B. Form AR-1 obligation is created in the agreement. FORM AR-1 2. Designates the Commissioner of Insurance of Louisiana as its lawful attorney upon whom may be served any lawful process in any action, CERTIFICATE OF ASSUMING INSURER suit or proceeding arising out of the reinsurance agreement instituted by or I, ______, on behalf of the ceding insurer. ______3. Agrees to provide security in an amount equal to 100 percent of (name of officer) (title of officer) liabilities attributable to United States ceding insurers if it resists enforcement of a final United States judgment or properly enforceable of arbitration award. ______4. Agrees to provide notification within 10 days of any regulatory (“Assuming Insurer”), the (name of assuming insurer) actions taken against it, any change in the provisions of its domiciliary license or any change in its rating by an approved rating agency, including a assuming insurer under a reinsurance agreement with one or more insurers statement describing such changes and the reasons therefore. domiciled in Louisiana, hereby certify that Assuming Insurer: 5. Agrees to annually file information comparable to relevant 1. Submits to the jurisdiction of any court of competent jurisdiction provisions of the NAIC financial statement for use by insurance markets in in Louisiana for the adjudication of any issues arising out of the reinsurance accordance with LAC 37:XIII.3510.B.7.d. agreement, agrees to comply with all requirements necessary to give such 6. Agrees to annually file the report of the independent auditor on court jurisdiction, and will abide by the final decision of such court or any the financial statements of the insurance enterprise. appellate court in the event of an appeal. Nothing in this paragraph 7. Agrees to annually file audited financial statements, regulatory constitutes or should be understood to constitute a waiver of Assuming filings, and actuarial opinion in accordance with LAC 37:XIII.3510.B.7.d. Insurer’s rights to commence an action in any court of competent 8. Agrees to annually file an updated list of all disputed and jurisdiction in the United States, to remove an action to a United States overdue reinsurance claims regarding reinsurance assumed from United District Court, or to seek a transfer of a case to another court as permitted States domestic ceding insurers. by the laws of the United States or of any state in the United States. This 9. Is in good standing as an insurer or reinsurer with the supervisor paragraph is not intended to conflict with or override the obligation of the of its domiciliary jurisdiction. parties to the reinsurance agreement to arbitrate their disputes if such an Dated:______obligation is created in the agreement. (name of assuming insurer) 2. Designates the Commissioner of Insurance of Louisiana as its lawful attorney upon whom may be served any lawful process in any action, BY: ______suit or proceeding arising out of the reinsurance agreement instituted by or (name of officer) on behalf of the ceding insurer. ______3. Submits to the authority of the Commissioner of Insurance of (title of officer) Louisiana to examine its books and records and agrees to bear the expense of any such examination.

Louisiana Register Vol. 39, No. 07 July 20, 2013 1820 D. Form CR-F

Form CR-F – PART 1 Assumed Reinsurance as of December 31, Current Year (000 Omitted)

Form CR-F – PART 2 Ceded Reinsurance as of December 31, Current Year (000 Omitted)

1821 Louisiana Register Vol. 39, No. 07 July 20, 2013

E. Form CR-S

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1823 Louisiana Register Vol. 39, No. 07 July 20, 2013

AUTHORITY NOTE: Promulgated in accordance with R.S. of ingredients contained in the hydraulic fracturing fluid, the 22, Sections 2(E), 11 and 651. associated CAS registry number, and the maximum HISTORICAL NOTE: Promulgated by the Department of concentration of each chemical ingredient in percent by Insurance, Office of the Commissioner, LR 21:1246 (November mass that is subject to certain federal regulations of the 1995), amended LR 39:1820 (July 2013). Occupational Safety and Health Administration. In the case

that an ingredient is subject to trade secret protection under James J. Donelon the criteria cited in 42 USC 11042(a)(2), and specifically Commissioner enumerated at 42 USC 11042(b), the operator shall provide 1307#025 the contact information of the entity claiming the protection RULE and shall report, at a minimum, the chemical family associated with such ingredient. These requirements do not Department of Natural Resources apply to operations conducted solely for the purpose of sand Office of Conservation control or reduction of near wellbore damage. Title 43 Statewide Order No. 29-BHydraulic Fracture NATURAL RESOURCES Stimulation Operations (LAC 43:XIX.118) Part XIX. Office of Conservation—General Operations Subpart 1. Statewide Order No. 29-B The Department of Natural Resources, Office of Chapter 1. General Provisions Conservation amended LAC 43:XIX.118 in accordance with §118. Hydraulic Fracture Stimulation Operations the provisions of the Administrative Procedure Act, R.S. A. The provisions of this Section shall apply to all new 49:950 et seq., and pursuant to the power delegated under wells for which an initial drilling permit is issued on or after the laws of the state of Louisiana. The proposed amendment the effective date of this Section that are stimulated by the does not substantially change the requirements currently application of fluids, which contain proppant such as sand or found in LAC 43:XIX.118 but provides for implementation man-made inert material, with force and/or pressure in order of Act 812 of the 2012 Regular Session requiring operators to create artificial fractures in the formation for the purpose to report the type and volume of hydraulic fracturing fluid of improving the capacity to produce hydrocarbons. The within 20 days after the completion of such operations. This provisions of this Section shall not apply to operations report shall include a list of additives used, including the conducted solely for the purposes of sand control or specific trade name and the supplier of the additive; and list reduction of near wellbore damage.

Louisiana Register Vol. 39, No. 07 July 20, 2013 1824