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(a) The trust fund maintained by an unauthorized assuming insurer must exist under a trust agreement that
(1) is entered into between the beneficiary, the grantor, and a trustee that is a qualified United States financial institution;
(2) creates a trust fund into which assets are deposited and held at the trustee's office in the United States;
(3) provides that the beneficiary has the right to withdraw assets from the trust fund at any time, upon written demand to the trustee, without notice to the grantor and without any other statement or document, but the trustee may require a receipt from the beneficiary acknowledging withdrawal of the assets;
(5) does not contain references to any other agreement or document other than a reinsurance contract;
(6) is established for the sole benefit of the beneficiary;
(7) requires the trustee to
(A) receive and hold the assets in a safe place;
(B) determine that the assets are in a form that the beneficiary or trustee, upon direction by the beneficiary, may negotiate without consent or signature from the grantor or other person or entity;
(C) furnish to the grantor and the beneficiary a statement of all assets in the trust upon its inception and at least quarterly after that;
(D) notify the grantor and the beneficiary within 10 days of a deposit to or withdrawal from the trust fund;
(E) upon written demand of the beneficiary, immediately transfer all right, title, and interest in and physical custody of the assets held in the trust fund to the beneficiary;
(F) allow no substitution or withdrawal of assets from the trust fund without written instructions from the beneficiary; but the trustee may, upon written notice to the beneficiary and upon call or maturity of a trust fund asset, convert the asset if the proceeds are paid directly into the trust fund; and
(G) deliver to the beneficiary written notice of the termination of the trust fund no less than 30 and no more than 45 days before its termination;
(8) is governed by the laws of the state in which the trust fund is established;
(9) prohibits invasion of the trust fund corpus for the purpose of paying compensation to, or reimbursing the expenses of, the trustee;
(10) provides that in order for a letter of credit to qualify as an asset of the trust, the trustee must have the right and the obligation under a binding agreement to immediately draw down the full amount of the letter of credit and hold the proceeds in trust for the beneficiary of the trust if the letter of credit will otherwise expire without being renewed or replaced;
(11) provides that the trustee is liable for its own negligence, wilful misconduct, or lack of good faith; the failure of the trustee to draw against a letter of credit in circumstances where a draw would be required will be considered by the director to be negligence or wilful misconduct;
(12) provides that assets deposited in the trust fund will be valued according to their current fair market value and will consist only of cash in United States dollars, certificates of deposit issued by a qualified United States bank and payable in United States dollars, or investments of a type permitted by AS 21.21.020 , or any combination of these; but investments in or issued by an entity controlling, controlled by, or under common control with either the grantor or the beneficiary of the trust fund may not exceed five percent of the total investments; the trust agreement may further specify the types of investments that may be deposited according to the requirements of this section; and
(13) notwithstanding any other provisions in the trust agreement, if the grantor of the trust fund has been declared insolvent or placed into receivership, rehabilitation, liquidation, or similar proceedings under the laws of the state or country in which the grantor is domiciled,
(A) the trustee shall comply with an order of the official with regulatory oversight over the trust fund or court of competent jurisdiction directing the trustee to transfer to the official with regulatory oversight or other designated receiver all of the assets of the trust fund;
(B) the assets must be applied according to the priority prescribed in the laws of the state in which the trust fund is domiciled that are applicable to the assets of an insurance company in liquidation; and
(C) if the official with regulatory oversight determines that the assets of the trust fund or any part of them are not necessary to satisfy claims of the beneficiary of the trust fund, the assets or any part of them must be returned to the trustee for distribution in accordance with the trust agreement.
(b) A trust fund may be used to reduce any liability for reinsurance ceded to an unauthorized assuming insurer in a statutory financial statement that is required to be filed with the director under AS 21.09.200 and 21.09.205 only if the trust fund is established on or before the date of filing of the statutory financial statement of the ceding insurer. The reduction taken for the existence of a trust fund may be no more than the current fair market value of acceptable assets available to be withdrawn from the trust fund at that time and no greater than the specific obligation under the reinsurance agreement that the trust fund was established to secure.
(c) The director may take action under applicable state law involving a trust agreement that does not specifically identify a beneficiary.
(d) Until exhausted, a specific security provided to a ceding insurer by an unauthorized assuming insurer must be applied to the payment of liabilities of the unauthorized assuming insurer to the ceding insurer holding the specific security before presentation of a claim by the ceding insurer for payment by a trustee of a trust fund established by the unauthorized assuming insurer under this section.
History: Eff. 11/25/94, Register 132; am 11/21/2004, Register 172
Authority: AS 21.06.090
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Last modified 7/05/2006