38.2-1316.6 - Purpose, calculation and effect of reinsurance credits.
§ 38.2-1316.6. Purpose, calculation and effect of reinsurance credits.
A. For the purpose of determining the financial condition of a cedinginsurer, the ceding insurer shall receive credit for any reinsurance forwhich credit is allowed under this article, calculated as follows:
1. For reinsurance of the whole or any part of any risk other than thoserisks specified in subdivision 2 of this subsection, the ceding insurer shallreceive credit for the reinsurance by way of deduction from its:
a. Unearned premium liability specified in §§ 38.2-1312 and 38.2-1315 or §38.2-4610.1, as the case may be; and
b. Loss and expense reserve liability specified in § 38.2-1314 or §38.2-4609, as the case may be, except in the case of reinsurance covering aloss paid by the ceding insurer for which payment is owed but has not beenmade by the assuming insurer, the ceding insurer shall receive credit as anadmitted asset for the amount owed by the assuming insurer until the paymentis made. Reinsurance ceded to an assuming insurer may be deducted on thebasis of the original premiums and original terms except that excess loss orcatastrophe reinsurance may be deducted only on the basis of actualreinsurance premiums and actual reinsurance terms.
2. For reinsurance of the whole or any part of any life insurance, annuity oraccident and sickness insurance risk, the ceding insurer shall receive creditby way of deduction from its reserve liability, specified in § 38.2-1311.The credit shall not exceed the amount which the ceding insurer would havereserved on the reinsured portion of the risk if there had been noreinsurance.
B. For the purpose of determining the financial condition of any reinsurer,the reinsurer shall establish a reserve liability at least equal to theamount that it would be required to maintain in accordance with this title ifit were the direct insurer of the assumed risks as specified in thereinsurance agreement. The reinsurer shall establish unearned premiumliability equal to the amount of the deduction specified in subdivision 1 ofsubsection A of this section.
C. The Commission shall disallow any credit for any reinsurance found by itto have been arranged for the purpose principally of deception or financialstatement distortion as to any insurer's financial condition as of the dateof any financial statement of the insurer. Without limiting the generalpurport of this provision, reinsurance of any substantial part of the cedinginsurer's outstanding risks contracted for in fact within four months priorto the date of any such financial statement and canceled in fact within fourmonths after the date of such statement, or reinsurance under which theassuming insurer bears no substantial insurance risk of net loss to itself,shall prima facie be deemed to have been arranged for the purpose principallyof deception or financial statement distortion within the intent of thisprovision.
(1991, c. 264.)