31A-27a-515 - Commutation and release agreements.

31A-27a-515. Commutation and release agreements.
(1) For purposes of this section, "casualty claims" means the insurer's aggregate claimsarising out of insurance contracts in the following lines:
(a) farm owner multiperil;
(b) homeowner multiperil;
(c) commercial multiperil;
(d) medical malpractice;
(e) workers' compensation;
(f) other liability;
(g) products liability;
(h) auto liability;
(i) aircraft, all peril; and
(j) international, for lines listed in Subsections (1)(a) through (i).
(2) (a) Notwithstanding Section 31A-27a-512, the liquidator and a reinsurer maynegotiate a voluntary commutation and release of all obligations arising from a reinsuranceagreement in which the insurer is the ceding party.
(b) A commutation and release agreement voluntarily entered into by the parties shall becommercially reasonable, actuarially sound, and in the best interests of the creditors of theinsurer.
(c) (i) An agreement subject to this Subsection (2) that has a gross consideration inexcess of $250,000 shall be submitted pursuant to Section 31A-27a-107 to the receivership courtfor approval.
(ii) An agreement described in this Subsection (2)(c) shall be approved by thereceivership court if it meets the standards described in this Subsection (2).
(3) Without derogating from Section 31A-27a-512, if the liquidator is unable to negotiatea voluntary commutation with a reinsurer with respect to a reinsurance agreement between theinsurer and that reinsurer, the liquidator may, in addition to any other remedy available underapplicable law, apply to the receivership court, with notice to the reinsurer, for an order requiringthat the parties submit commutation proposals with respect to the reinsurance agreement to apanel of three arbitrators:
(a) at any time after 75% of the actuarially estimated ultimate incurred liability for all ofthe casualty claims against the liquidation estate is reached by allowance of claims in theliquidation estate pursuant to Sections 31A-27a-603 and 31A-27a-605, calculated:
(i) as of the day on which the order of liquidation is entered by or at the instance of theliquidator; and
(ii) for purposes of this Subsection (3), not performed during the five-year periodsubsequent to the day on which the order of liquidation is entered; or
(b) at any time in regard to a reinsurer if that reinsurer has a total adjusted capital that isless than 250% of its authorized control level RBC as defined in Section 31A-17-601.
(4) Venue for the arbitration is within the district of the receivership court's jurisdictionor at another location agreed to by the parties.
(5) (a) If the liquidator determines that commutation would be in the best interests of thecreditors of the liquidation estate, the liquidator may petition the receivership court to orderarbitration.
(b) If the liquidator petitions the receivership court under Subsection (5)(a), the

receivership court shall require that the liquidator and the reinsurer each appoint an arbitratorwithin 30 days after the day on which the order for arbitration is entered.
(c) If either party fails to appoint an arbitrator within the 30-day period, the other partymay appoint both arbitrators and the appointments are binding on the parties.
(d) The two arbitrators shall be active or retired executive officers of insurance orreinsurance companies, not under the control of or affiliated with the insurer or the reinsurer.
(e) (i) Within 30 days after the day on which both arbitrators have been appointed, thetwo arbitrators shall agree to the appointment of a third independent, impartial, disinterestedarbitrator.
(ii) If agreement to the disinterested arbitrator is not reached within the 30-day period,the third arbitrator shall be appointed by the receivership court.
(f) The disinterested arbitrator shall be a person who:
(i) is or, if retired, has been, an executive officer of a United States domiciled insuranceor reinsurance company that is not under the control of or affiliated with either of the parties; and
(ii) has at least 15 years experience in the reinsurance industry.
(6) (a) The arbitration panel may choose to retain as an expert to assist the panel in itsdeterminations, a retired, disinterested executive officer of a United States domiciled insuranceor reinsurance company having at least 15 years loss reserving actuarial experience.
(b) If the arbitration panel is unable to unanimously agree on the identity of the expertwithin 14 days of the day on which the disinterested arbitrator is appointed, the expert shall be:
(i) designated by the commissioner:
(A) by rule made in accordance with Title 63G, Chapter 3, Utah AdministrativeRulemaking Act; and
(B) on the basis of recommendations made by a nationally recognized society ofactuaries; and
(ii) a disinterested person that has knowledge, experience, and training applicable to theline of insurance that is the subject of the arbitration.
(c) The expert:
(i) may not vote in the proceeding; and
(ii) shall issue a written report and recommendations to the arbitration panel within 60days after the day on which the arbitration panel receives the commutation proposals submittedby the parties pursuant to Subsection (7), which report shall:
(A) be included as part of the arbitration record; and
(B) accompany the award issued by the arbitration panel pursuant to Subsection (8).
(d) The cost of the expert is to be paid equally by the parties.
(7) Within 90 days after the day on which the disinterested arbitrator is appointed underSubsection (5), each party shall submit to the arbitration panel:
(a) the party's commutation proposals; and
(b) other documents and information relevant to the determination of the parties' rightsand obligations under the reinsurance agreement to be commuted, including:
(i) a written review of any disputed paid claim balances;
(ii) any open claim files and related case reserves at net present value; and
(iii) any actuarial estimates with the basis of computation of any other reserves and anyincurred-but-not-reported losses at net present value.
(8) (a) Within 90 days after the day on which the parties submit the information required

by Subsection (7), the arbitration panel:
(i) shall issue an award, determined by a majority of the arbitration panel, specifying theterms of a commercially reasonable and actuarially sound commutation agreement between theparties; or
(ii) may issue an award declining commutation between the parties for a period not toexceed two years if a majority of the arbitration panel determines that it is unable to derive acommercially reasonable and actuarially sound commutation on the basis of:
(A) the submissions of the parties; and
(B) if applicable, the report and recommendation of the expert retained in accordancewith Subsection (6).
(b) Following the expiration of the two-year period described in Subsection (8)(a), theliquidator may again invoke arbitration in accordance with Subsection (2), in which eventSubsections (2) through (9) apply to the renewed proceeding, except that the arbitration panel isobliged to issue an award under Subsection (8)(a).
(9) Once an award is issued, the liquidator shall promptly submit the award to thereceivership court for confirmation.
(10) (a) Within 30 days of the day on which the receivership court confirms the award,the reinsurer shall give notice to the receiver that the reinsurer:
(i) will commute the reinsurer's liabilities to the insurer for the amount of the award inreturn for a full and complete release of all liabilities between the parties, whether past, present,or future; or
(ii) will not commute the reinsurer's liabilities to the insurer.
(b) If the reinsurer's liabilities are not commuted under Subsection (10)(a), the reinsurershall:
(i) establish and maintain in accordance with Section 31A-27a-516 a reinsurancerecoverable trust in the amount of 102% of the award; and
(ii) pay the costs and fees associated with establishing and maintaining the trustestablished under this Subsection (10)(b).
(11) (a) If the reinsurer notifies the liquidator that it will commute the reinsurer'sliabilities pursuant to Subsection (10)(a)(i), the liquidator has 30 days from the day on which thereinsurer notifies the liquidator to:
(i) tender to the reinsurer a proposed commutation and release agreement:
(A) providing for a full and complete release of all liabilities between the parties,whether past, present, or future; and
(B) that requires that the reinsurer make payment of the commutation amount within 14days from the day on which the agreement is consummated; or
(ii) reject the commutation in writing, subject to receivership court approval.
(b) If the liquidator rejects the commutation subject to approval of the receivership courtin accordance with Subsection (11)(a)(ii), the reinsurer shall establish and maintain a reinsurancerecoverable trust in accordance with Section 31A-27a-516.
(c) The liquidator and the reinsurer shall share equally in the costs and fees associatedwith establishing and maintaining the trust established under Subsection (11)(b).
(12) Except for the period provided in Subsection (8)(b), the time periods established inSubsections (6), (7), (8), (10), and (11) may be extended:
(a) upon the consent of the parties; or


(b) by order of the receivership court, for good cause shown.
(13) Subject to Subsection (14), this section may not be construed to supersede or impairany provision in a reinsurance agreement that establishes a commercially reasonable andactuarially sound method for valuing and commuting the obligations of the parties to thereinsurance agreement by providing in the contract the specific methodology to be used forvaluing and commuting the obligations between the parties.
(14) (a) A commutation provision in a reinsurance agreement is not effective if it isdemonstrated to the receivership court that the provision is entered into in contemplation of theinsolvency of one or more of the parties.
(b) A contractual commutation provision entered into within one year of the day onwhich the liquidation order of the insurer is entered is rebuttably presumed to have been enteredinto in contemplation of insolvency.

Amended by Chapter 345, 2008 General Session
Amended by Chapter 382, 2008 General Session