(b)

1. (1) However, it is improper for a licensed insurer, in the capacity of ceding insurer, to enter into reinsurance agreements for the principal purpose of producing significant surplus aid for the ceding insurer, typically on a temporary basis, while not transferring all of the significant risks inherent in the business being reinsured.
2. (2) In substance or effect, the expected potential liability to the ceding insurer remains basically unchanged by the reinsurance transaction, notwithstanding certain risk elements in the reinsurance agreement, such as catastrophic mortality or extraordinary survival.

3. (3) The terms of such agreements referred to herein and described in 23 CAR § 106-103 violate:

   1. (A) Arkansas Code §§ 23-60-109 and 23-66-206 relating to financial statements that do not properly reflect the financial conditions of the ceding insurer;
   2. (B) Arkansas Code § 23-62-305 relating to reinsurance reserve credits, thus resulting in a ceding insurer improperly reducing liabilities or establishing assets for reinsurance ceded; and
   3. (C) Arkansas Code § 23-63-213 relating to creating a situation that may be hazardous to policyholders and the people of this state.