Under the terms of the act, contracts reinsuring policies of life or health insurance or annuities issued by a ceding insurer that has been placed in conservation or rehabilitation proceedings shall be continued or terminated under the terms of each contract and the provisions of this act. Such reinsurance contracts shall be continued unless the contracts were terminated under their own terms prior to the date of the order of liquidation ("coverage date") or the contracts were terminated under an order of liquidation.

Within 180 days of the date of the order of liquidation, guaranty associations covering policies of life or health insurance or annuities may elect to succeed to the rights of the insolvent insurer with respect to its existing reinsurance contracts.

In order to facilitate the decision of whether to assume the reinsurance contracts, the act requires the receiver and reinsurer of a ceding insurer to make copies of the reinsurance contracts and all related files available to the applicable guaranty association.

If the guaranty association assumes the reinsurance contracts, then it shall be responsible for all unpaid premiums due under such contracts and shall be responsible for the performance of all other obligations to be performed after the coverage date. The guaranty association may charge policies or annuities covered by it the costs for reinsurance in excess of the obligations of the guaranty association.

The act requires the guaranty association and each reinsurer, within 30 days following the guaranty association's election to assume the reinsurance contracts, to calculate the net balance due on the reinsurance contracts. The reinsurer must pay the receiver any amounts due for losses or events prior to the coverage date, subject to any setoff for premiums unpaid for periods prior to the date. Disputes over the amounts due to either the guaranty association or the reinsurer must be resolved by arbitration (either under the terms of the reinsurance contracts or the terms of this act).

Under the act, reinsurers shall not be entitled to terminate reinsurance contracts for failure to pay premiums if the guaranty association pays premiums due within 60 days of assumption.

The act also allows a receiver to elect to succeed to the rights or an reinsurance contract if the policies of insurance are not covered in whole or in part by one or more guaranty associations.

If a guaranty association elects not to assume a reinsurance contract by the election date, then the guaranty association shall no rights or obligations with respect to the reinsurance contract.

Under the act, reinsurance contracts may be transferred by the guaranty association to an assuming insurer when policies and annuities are transferred to the assuming insurer. The transferred reinsurance contract shall not cover any new policies or annuities unless the reinsurer and the assuming insurer agree otherwise.

The act sets forth procedures to follow when a reinsurance contract is terminated. Upon notice of termination, the reinsurer and receiver shall commence a mandatory negotiation and arbitration procedure. Each party must appoint an actuary to determine an estimated sum due as a result of the termination of the reinsurance contract. Each party shall provide the other party with its estimate of the sum due as a result of the termination of the reinsurance contract. If the parties cannot agree on a sum due, either party may initiate arbitration proceedings as provided in the reinsurance contract. If the reinsurance contract does not provide for arbitration, either party may initiate arbitration by providing the other party with a written demand for arbitration. The act establishes the procedures in which the arbitration must be conducted (venue, appointment of arbitrators, discovery, hearings, issuance of an award, etc.).

This act is identical to SB 304 (2011).

STEPHEN WITTE