Trust Agreements, Bulletin 2001-5

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BULLETIN 2001-5

TO:

All Kansas Domestic Insurance Companies

FROM:

Kathleen Sebelius

Commissioner of Insurance

RE:

Requirements of Trust Agreements and Letters of Credit referred to in K.S.A. 40-221a

DATE:

October 18, 2001

According to K.S.A. 40-221a, a domestic insurer may take credit as an asset or as a

deduction from loss and unearned premium reserves on such ceded risks to the extent reinsured by

an insurer or insurers authorized to do business in the state of Kansas, but such credit on ceded risks

reinsured by any insurer unauthorized to do business in the state of Kansas may be taken under

certain conditions which involve trust agreements and letters of credit. The statute sets forth some

requirements regarding the use of trust agreements and letters of credit. The following are

additional requirements which the Kansas Insurance Department maintains should be followed

effective on and after the date of this bulletin when domestic insurers take reserve credit on risks

ceded to unauthorized insurers in the state of Kansas through trust agreements or letters of credit.

Trust Agreements

A.

As used in this section:

(1)

"Beneficiary" means the entity for whose sole benefit the trust has been established and any

successor of the beneficiary by operation of law. If a court of law appoints a successor in interest to

the named beneficiary, then the named beneficiary includes and is limited to the court appointed

domiciliary receiver (including conservator, rehabilitator or liquidator).

(2)

"Grantor" means the entity that has established a trust for the sole benefit of the beneficiary.

When established in conjunction with a reinsurance agreement, the grantor is the unlicensed,

unaccredited assuming insurer.

(3)

"Obligations," as used Subsection B(11) of this section means:

(a)

Reinsured losses and allocated loss expenses paid by the ceding company, but not recovered

from the assuming insurer;

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that has established a trust for the sole benefit of the beneficiary.

When established in conjunction with a reinsurance agreement, the grantor is the unlicensed,

unaccredited assuming insurer.

(3)

"Obligations," as used Subsection B(11) of this section means:

(a)

Reinsured losses and allocated loss expenses paid by the ceding company, but not recovered

from the assuming insurer;

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(b)

Reserves for reinsured losses reported and outstanding;

(c)

Reserves for reinsured losses incurred but not reported; and

(d)

Reserves for allocated reinsured loss expenses and unearned premiums.

B.

Required conditions.

(1)

The trust agreement shall be entered into between the beneficiary, the grantor and a trustee,

which shall be a qualified United States financial institution as defined in K.S.A. 40-221a.

(2)

The trust agreement shall create a trust account into which assets shall be deposited.

(3)

All assets in the trust account shall be held by the trustee at the trustee's office in the United

States .

(4)

The trust agreement shall provide that:

(a)

The beneficiary shall have the right to withdraw assets from the trust account at any time,

without notice to the grantor, subject only to written notice from the beneficiary to the trustee;

(b)

No other statement or document is required to be presented to withdraw assets, except that

the beneficiary may be required to acknowledge receipt of withdrawn assets;

(c)

It is not subject to any conditions or qualifications outside of the trust agreement; and

(d)

It shall not contain references to any other agreements or documents except as provided for

in Paragraph (11) of this subsection.

(5)

The trust agreement shall be established for the sole benefit of the beneficiary.

(6)

The trust agreement shall require the trustee to:

(a)

Receive assets and hold all assets in a safe place;

r qualifications outside of the trust agreement; and

(d)

It shall not contain references to any other agreements or documents except as provided for

in Paragraph (11) of this subsection.

(5)

The trust agreement shall be established for the sole benefit of the beneficiary.

(6)

The trust agreement shall require the trustee to:

(a)

Receive assets and hold all assets in a safe place;

(b)

Determine that all assets are in such form that the beneficiary, or the trustee upon direction

by the beneficiary, may whenever necessary negotiate any such assets, without consent or signature

from the grantor or any other person or entity;

(c)

Furnish to the grantor and the beneficiary a statement of all assets in the trust account upon

its inception and at intervals no less frequent than the end of each calendar quarter;

(d)

Notify the grantor and the beneficiary within ten (10) days, of any deposits to or

withdrawals from the trust account;

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(e)

Upon written demand of the beneficiary, immediately take any and all steps necessary to

transfer absolutely and unequivocally all right, title and interest in the assets held in the trust

account to the beneficiary and deliver physical custody of the assets to the beneficiary; and

(f)

Allow no substitutions or withdrawals of assets from the trust account, except on written

instructions from the beneficiary, except that the trustee may, without the consent of but with notice

to the beneficiary, upon call or maturity of any trust asset, withdraw such asset upon condition that

the proceeds are paid into the trust account.

(7)

The trust agreement shall provide that at least thirty (30) days, but not more than forty-five

(45) days, prior to termination of the trust account, written notification of termination shall be

delivered by the trustee to the beneficiary.

(8)

The trust agreement shall be made subject to and governed by the laws of the state in which

the trust is domiciled.

d into the trust account.

(7)

The trust agreement shall provide that at least thirty (30) days, but not more than forty-five

(45) days, prior to termination of the trust account, written notification of termination shall be

delivered by the trustee to the beneficiary.

(8)

The trust agreement shall be made subject to and governed by the laws of the state in which

the trust is domiciled.

(9)

The trust agreement shall prohibit invasion of the trust corpus for the purpose of paying

compensation to, or reimbursing the expenses of, the trustee.

(10)

The trust agreement shall provide that the trustee shall be liable for its negligence, willful

misconduct or lack of good faith.

(11)

Notwithstanding other provisions of this bulletin, when a trust agreement is established in

conjunction with a reinsurance agreement covering risks other than life, annuities and accident and

health, where it is customary practice to provide a trust agreement for a specific purpose, the trust

agreement may provide that the ceding insurer shall undertake to use and apply amounts drawn

upon the trust account, without diminution because of the insolvency of the ceding insurer or the

assuming insurer, only for the following purposes:

(a)

To pay or reimburse the ceding insurer for the assuming insurer's share under the specific

reinsurance agreement regarding any losses and allocated loss expenses paid by the ceding insurer,

but not recovered from the assuming insurer, or for unearned premiums due to the ceding insurer if

not otherwise paid by the assuming insurer;

(b)

To make payment to the assuming insurer of any amounts held in the trust account that

exceed 102 percent of the actual amount required to fund the assuming insurer's obligations under

the specific reinsurance agreement; or

y the ceding insurer,

but not recovered from the assuming insurer, or for unearned premiums due to the ceding insurer if

not otherwise paid by the assuming insurer;

(b)

To make payment to the assuming insurer of any amounts held in the trust account that

exceed 102 percent of the actual amount required to fund the assuming insurer's obligations under

the specific reinsurance agreement; or

(c)

Where the ceding insurer has received notification of termination of the trust account and

where the assuming insurer's entire obligations under the specific reinsurance agreement remain

unliquidated and undischarged ten (10) days prior to the termination date, to withdraw amounts

equal to the obligations and deposit those amounts in a separate account, in the name of the ceding

insurer in any qualified U. S. financial institution as defined in K.S.A. 40-221a apart from its

general assets, in trust for such uses and purposes specified in Subparagraphs (a) and (b) above as

may remain executory after such withdrawal and for any period after the termination date.

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(12)

Notwithstanding other provisions of this bulletin, when a trust agreement is established to

meet the requirements of Section 9 in conjunction with a reinsurance agreement covering life,

annuities or accident and health risks, where it is customary to provide a trust agreement for a

specific purpose, the trust agreement may provide that the ceding insurer shall undertake to use and

apply amounts drawn upon the trust account, without diminution because of the insolvency of the

ceding insurer or the assuming insurer, only for the following purposes:

(a)

To pay or reimburse the ceding insurer for:

and health risks, where it is customary to provide a trust agreement for a

specific purpose, the trust agreement may provide that the ceding insurer shall undertake to use and

apply amounts drawn upon the trust account, without diminution because of the insolvency of the

ceding insurer or the assuming insurer, only for the following purposes:

(a)

To pay or reimburse the ceding insurer for:

(i)

The assuming insurer's share under the specific reinsurance agreement of premiums

returned, but not yet recovered from the assuming insurer, to the owners of policies reinsured under

the reinsurance agreement on account of cancellations of the policies; and

(ii)

The assuming insurer's share under the specific reinsurance agreement of surrenders and

benefits or losses paid by the ceding insurer, but not yet recovered from the assuming insurer, under

the terms and provisions of the policies reinsured under the reinsurance agreement;

(b)

To pay to the assuming insurer amounts held in the trust account in excess of the amount

necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer;

or

(c)

Where the ceding insurer has received notification of termination of the trust and where the

assuming insurer's entire obligations under the specific reinsurance agreement remain unliquidated

and undischarged ten (10) days prior to the termination date, to withdraw amounts equal to the

assuming insurer's share of liabilities, to the extent that the liabilities have not yet been funded by

the assuming insurer, and deposit those amounts in a separate account, in the name of the ceding

insurer in any qualified U. S. financial institution apart from its general assets, in trust for the uses

and purposes specified in Subparagraphs (a) and (b) of this paragraph as may remain executory after

withdrawal and for any period after the termination date.

lities have not yet been funded by

the assuming insurer, and deposit those amounts in a separate account, in the name of the ceding

insurer in any qualified U. S. financial institution apart from its general assets, in trust for the uses

and purposes specified in Subparagraphs (a) and (b) of this paragraph as may remain executory after

withdrawal and for any period after the termination date.

(13)

The reinsurance agreement may, but need not, contain the provisions required in Subsection

D(1)(b) of this section, so long as these required conditions are included in the trust agreement.

(14)

Notwithstanding any other provisions in the trust instrument, if the grantor of the trust has

been declared insolvent or placed into receivership, rehabilitation, liquidation or similar proceedings

under the laws of its state or country of domicile, the trustee shall comply with an order of the

commissioner with regulatory oversight over the trust or court of competent jurisdiction directing

the trustee to transfer to the commissioner with regulatory oversight or other designated receiver all

of the assets of the trust fund. The assets shall be applied in accordance with the priority statutes and

laws of the state in which the trust is domiciled applicable to the assets of insurance companies in

liquidation. If the commissioner with regulatory oversight determines that the assets of the trust

fund or any part thereof are not necessary to satisfy claims of the U. S. beneficiaries of the trust, the

assets or any part of them shall be returned to the trustee for distribution in accordance with the trust

agreement.

C.

Permitted conditions.

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to the assets of insurance companies in

liquidation. If the commissioner with regulatory oversight determines that the assets of the trust

fund or any part thereof are not necessary to satisfy claims of the U. S. beneficiaries of the trust, the

assets or any part of them shall be returned to the trustee for distribution in accordance with the trust

agreement.

C.

Permitted conditions.

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(1)

The trust agreement may provide that the trustee may resign upon delivery of a written

notice of resignation, effective not less than ninety (90) days after the beneficiary and grantor

receive the notice and that the trustee may be removed by the grantor by delivery to the trustee and

the beneficiary of a written notice of removal, effective not less than ninety (90) days after the

trustee and the beneficiary receive the notice, provided that no such resignation or removal shall be

effective until a successor trustee has been duly appointed and approved by the beneficiary and the

grantor and all assets in the trust have been duly transferred to the new trustee.

(2)

The grantor may have the full and unqualified right to vote any shares of stock in the trust

account and to receive from time to time payments of any dividends or interest upon any shares of

stock or obligations included in the trust account. Any interest or dividends shall be either

forwarded promptly upon receipt to the grantor or deposited in a separate account established in the

grantor's name.

antor may have the full and unqualified right to vote any shares of stock in the trust

account and to receive from time to time payments of any dividends or interest upon any shares of

stock or obligations included in the trust account. Any interest or dividends shall be either

forwarded promptly upon receipt to the grantor or deposited in a separate account established in the

grantor's name.

(3)

The trustee may be given authority to invest, and accept substitutions of, any funds in the

account, provided that no investment or substitution shall be made without prior approval of the

beneficiary, unless the trust agreement specifies categories of investments acceptable to the

beneficiary and authorizes the trustee to invest funds and to accept substitutions that the trustee

determines are at least equal in market value to the assets withdrawn and that are consistent with the

restrictions in Subsection D(1)(b) of this section.

(4)

The trust agreement may provide that the beneficiary may at any time designate a party to

which all or part of the trust assets are to be transferred. Transfer may be conditioned upon the

trustee receiving, prior to or simultaneously, other specified assets.

(5)

The trust agreement may provide that, upon termination of the trust account, all assets not

previously withdrawn by the beneficiary shall, with written approval by the beneficiary, be

delivered over to the grantor.

D.

Additional conditions applicable to reinsurance agreements:

(1)

A reinsurance agreement may contain provisions that:

(a)

Require the assuming insurer to enter into a trust agreement and to establish a trust account

for the benefit of the ceding insurer, and specifying what the agreement is to cover;

hall, with written approval by the beneficiary, be

delivered over to the grantor.

D.

Additional conditions applicable to reinsurance agreements:

(1)

A reinsurance agreement may contain provisions that:

(a)

Require the assuming insurer to enter into a trust agreement and to establish a trust account

for the benefit of the ceding insurer, and specifying what the agreement is to cover;

(b)

Stipulate that assets deposited in the trust account shall be valued according to their current

fair market value and shall consist only of cash in United States dollars, certificates of deposit

issued by a United States bank and payable in United States dollars, and investments permitted by

the Insurance Code or any combination of the above, provided investments in or issued by an entity

controlling, controlled by or under common control with either the grantor or the beneficiary of the

trust shall not exceed five percent (5%) of total investments. The reinsurance agreement may further

specify the types of investments to be deposited. Where a trust agreement is entered into in

conjunction with a reinsurance agreement covering risks other than life, annuities and accident and

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health, then the trust agreement may contain the provisions required by this paragraph in lieu of

including such provisions in the reinsurance agreement;

(c)

Require the assuming insurer, prior to depositing assets with the trustee, to execute

assignments or endorsements in blank, or to transfer legal title to the trustee of all shares,

obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee

upon the direction of the ceding insurer, may whenever necessary negotiate these assets without

consent or signature from the assuming insurer or any other entity;

(d)

Require that all settlements of account between the ceding insurer and the assuming insurer

be made in cash or its equivalent; and

s or any other assets requiring assignments, in order that the ceding insurer, or the trustee

upon the direction of the ceding insurer, may whenever necessary negotiate these assets without

consent or signature from the assuming insurer or any other entity;

(d)

Require that all settlements of account between the ceding insurer and the assuming insurer

be made in cash or its equivalent; and

(e)

Stipulate that the assuming insurer and the ceding insurer agree that the assets in the trust

account, established pursuant to the provisions of the reinsurance agreement, may be withdrawn by

the ceding insurer at any time, notwithstanding any other provisions in the reinsurance agreement,

and shall be utilized and applied by the ceding insurer or its successors in interest by operation of

law, including without limitation any liquidator, rehabilitator, receiver or conservator of such

company, without diminution because of insolvency on the part of the ceding insurer or the

assuming insurer, only for the following purposes:

(i)

To pay or reimburse the ceding insurer for:

(I)

The assuming insurer's share under the specific reinsurance agreement of premiums

returned, but not yet recovered from the assuming insurer, to the owners of policies reinsured under

the reinsurance agreement because of cancellations of such policies;

(II)

The assuming insurer's share of surrenders and benefits or losses paid by the ceding

insurer pursuant to the provisions of the policies reinsured under the reinsurance agreement; and

(III)

Any other amounts necessary to secure the credit or reduction from liability for

reinsurance taken by the ceding insurer;

(ii)

To make payment to the assuming insurer of amounts held in the trust account in excess of

the amount necessary to secure the credit or reduction from liability for reinsurance taken by the

ceding insurer.

(2)

The reinsurance agreement also may contain provisions that:

er amounts necessary to secure the credit or reduction from liability for

reinsurance taken by the ceding insurer;

(ii)

To make payment to the assuming insurer of amounts held in the trust account in excess of

the amount necessary to secure the credit or reduction from liability for reinsurance taken by the

ceding insurer.

(2)

The reinsurance agreement also may contain provisions that:

(a)

Give the assuming insurer the right to seek approval from the ceding insurer, which shall not

be unreasonably or arbitrarily withheld, to withdraw from the trust account all or any part of the

trust assets and transfer those assets to the assuming insurer, provided:

(i)

The assuming insurer shall, at the time of withdrawal, replace the withdrawn assets with

other qualified assets having a market value equal to the market value of the assets withdrawn so as

to maintain at all times the deposit in the required amount; or

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(ii)

After withdrawal and transfer, the market value of the trust account is no less than 102

percent of the required amount.

(b)

Provide for the return of any amount withdrawn in excess of the actual amounts required for

Paragraph (1)(e) of this subsection, and for interest payments at a rate not in excess of the prime rate

of interest on the amounts held pursuant to Paragraph (1)(e) of this subsection;

(c)

Permit the award by any arbitration panel or court of competent jurisdiction of:

f the required amount.

(b)

Provide for the return of any amount withdrawn in excess of the actual amounts required for

Paragraph (1)(e) of this subsection, and for interest payments at a rate not in excess of the prime rate

of interest on the amounts held pursuant to Paragraph (1)(e) of this subsection;

(c)

Permit the award by any arbitration panel or court of competent jurisdiction of:

(i)

Interest at a rate different from that provided in Subparagraph (b) of this paragraph;

(ii)

Court or arbitration costs;

(iii)

Attorney's fees; and

(iv)

Any other reasonable expenses.

(3)

Financial reporting. A trust agreement may be used to reduce any liability for reinsurance

ceded to an unauthorized assuming insurer in financial statements required to be filed with this

department in compliance with the provisions of this bulletin when established on or before the date

of filing of the financial statement of the ceding insurer. Further, the reduction for the existence of

an acceptable trust account may be up to the current fair market value of acceptable assets available

to be withdrawn from the trust account at that time, but such reduction shall be no greater than the

specific obligations under the reinsurance agreement that the trust account was established to

secure.

(4)

Existing agreements. Notwithstanding the effective date of this bulletin, any trust agreement

or underlying reinsurance agreement in existence prior to October 18, 2001 will continue to be

acceptable until March 31, 2002, at which time the agreements will have to fully comply with this

bulletin for the trust agreement to be acceptable.

that the trust account was established to

secure.

(4)

Existing agreements. Notwithstanding the effective date of this bulletin, any trust agreement

or underlying reinsurance agreement in existence prior to October 18, 2001 will continue to be

acceptable until March 31, 2002, at which time the agreements will have to fully comply with this

bulletin for the trust agreement to be acceptable.

(5)

The failure of any trust agreement to specifically identify the beneficiary as defined in

Subsection A of this section shall not be construed to affect any actions or rights that the

commissioner may take or possess pursuant to the provisions of the laws of this state.

Letters of Credit

A.

The letter of credit must be clean, irrevocable, unconditional and issued or confirmed by a

qualified United States financial institution as defined in K.S.A. 40-221a. The letter of credit shall

contain an issue date and expiration date and shall stipulate that the beneficiary need only draw a

sight draft under the letter of credit and present it to obtain funds and that no other document need

be presented. The letter of credit also shall indicate that it is not subject to any condition or

qualifications outside of the letter of credit. In addition, the letter of credit itself shall not contain

reference to any other agreements, documents or entities, except as provided in Subsection I(1) of

this section. As used in this section, "beneficiary" means the domestic insurer for whose benefit the

letter of credit has been established and any successor of the beneficiary by operation of law. If a

ns outside of the letter of credit. In addition, the letter of credit itself shall not contain

reference to any other agreements, documents or entities, except as provided in Subsection I(1) of

this section. As used in this section, "beneficiary" means the domestic insurer for whose benefit the

letter of credit has been established and any successor of the beneficiary by operation of law. If a

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court of law appoints a successor in interest to the named beneficiary, then the named beneficiary

includes and is limited to the court appointed domiciliary receiver (including conservator,

rehabilitator or liquidator).

B.

The heading of the letter of credit may include a boxed section containing the name of the

applicant and other appropriate notations to provide a reference for the letter of credit. The boxed

section shall be clearly marked to indicate that such information is for internal identification

purposes only.

C.

The letter of credit shall contain a statement to the effect that the obligation of the qualified

United States financial institution under the letter of credit is in no way contingent upon

reimbursement with respect thereto.

D.

The term of the letter of credit shall be for at least one year and shall contain an "evergreen

clause" that prevents the expiration of the letter of credit without due notice from the issuer. The

"evergreen clause" shall provide for a period of no less than thirty (30) days notice prior to

expiration date or nonrenewal.

E.

The letter of credit shall state whether it is subject to and governed by the laws of this state

or the Uniform Customs and Practice for Documentary Credits of the International Chamber of

Commerce (Publication 500), or any successor publication, and all drafts drawn thereunder shall be

presentable at an office in the United States of a qualified United States financial institution.

F

E.

The letter of credit shall state whether it is subject to and governed by the laws of this state

or the Uniform Customs and Practice for Documentary Credits of the International Chamber of

Commerce (Publication 500), or any successor publication, and all drafts drawn thereunder shall be

presentable at an office in the United States of a qualified United States financial institution.

F.

If the letter of credit is made subject to the Uniform Customs and Practice for Documentary

Credits of the International Chamber of Commerce (Publication 500), or any successor publication,

then the letter of credit shall specifically address and provide for an extension of time to draw

against the letter of credit in the event that one or more of the occurrences specified in Article 17 of

Publication 500 or any other successor publication, occur.

G.

The letter of credit shall be issued or confirmed by a qualified United States financial

institution authorized to issue letters of credit, pursuant to K.S.A. 40-221a.

H.

If the letter of credit is issued by a qualified United States financial institution authorized to

issue letters of credit, other than a qualified United States financial institution as described in

Subsection G of this section, then the following additional requirements shall be met:

(1)

The issuing qualified United States financial institution shall formally designate the

confirming qualified United States financial institution as its agent for the receipt and payment of

the drafts; and

(2)

The "evergreen clause" shall provide for thirty (30) days notice prior to expiration date for

nonrenewal.

I.

Reinsurance agreement provisions.

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(1)

The reinsurance agreement in conjunction with which the letter of credit is obtained may

contain provisions that:

(a)

Require the assuming insurer to provide letters of credit to the ceding insurer and specify

what they are to cover;

he "evergreen clause" shall provide for thirty (30) days notice prior to expiration date for

nonrenewal.

I.

Reinsurance agreement provisions.

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(1)

The reinsurance agreement in conjunction with which the letter of credit is obtained may

contain provisions that:

(a)

Require the assuming insurer to provide letters of credit to the ceding insurer and specify

what they are to cover;

(b)

Stipulate that the assuming insurer and ceding insurer agree that the letter of credit provided

by the assuming insurer pursuant to the provisions of the reinsurance agreement may be drawn upon

at any time, notwithstanding any other provisions in the agreement, and shall be utilized by the

ceding insurer or its successors in interest only for one or more of the following reasons:

(i)

To pay or reimburse the ceding insurer for:

(I)

The assuming insurer's share under the specific reinsurance agreement of premiums

returned, but not yet recovered from the assuming insurers, to the owners of policies reinsured

under the reinsurance agreement on account of cancellations of such policies;

(II)

The assuming insurer's share, under the specific reinsurance agreement, of surrenders

and benefits or losses paid by the ceding insurer, but not yet recovered from the assuming insurers,

under the terms and provisions of the policies reinsured under the reinsurance agreement; and

(III)

Any other amounts necessary to secure the credit or reduction from liability for

reinsurance taken by the ceding insurer;

er's share, under the specific reinsurance agreement, of surrenders

and benefits or losses paid by the ceding insurer, but not yet recovered from the assuming insurers,

under the terms and provisions of the policies reinsured under the reinsurance agreement; and

(III)

Any other amounts necessary to secure the credit or reduction from liability for

reinsurance taken by the ceding insurer;

(ii)

Where the letter of credit will expire without renewal or be reduced or replaced by a letter of

credit for a reduced amount and where the assuming insurer's entire obligations under the specific

reinsurance remain unliquidated and undischarged ten (10) days prior to the termination date, to

withdraw amounts equal to the assuming insurer's share of the liabilities, to the extent that the

liabilities have not yet been funded by the assuming insurer and exceed the amount of any reduced

or replacement letter of credit, and deposit those amounts in a separate account in the name of the

ceding insurer in a qualified U. S. financial institution apart from its general assets, in trust for such

uses and purposes specified in Subsection I(1)(b)(i) of this section as may remain after withdrawal

and for any period after the termination date.

(c)

All of the provisions of Paragraph (1) of this subsection shall be applied without diminution

because of insolvency on the part of the ceding insurer or assuming insurer.

(2)

Nothing contained Paragraph (1) of this subsection shall preclude the ceding insurer and

assuming insurer from providing for:

(a)

An interest payment, at a rate not in excess of the prime rate of interest, on the amounts held

pursuant to Paragraph (1)(b) of this bulletin; or

l be applied without diminution

because of insolvency on the part of the ceding insurer or assuming insurer.

(2)

Nothing contained Paragraph (1) of this subsection shall preclude the ceding insurer and

assuming insurer from providing for:

(a)

An interest payment, at a rate not in excess of the prime rate of interest, on the amounts held

pursuant to Paragraph (1)(b) of this bulletin; or

(b)

The return of any amounts drawn down on the letters of credit in excess of the actual

amounts required for the above or any amounts that are subsequently determined not to be due.

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In the near future, the Kansas Insurance Department will be promulgating a regulation

reiterating the above requirements for trust agreements and letters of credit.

Kathleen Sebelius

Commissioner of Insurance

/s/ Kathleen Sebelius