1. (a) Credit on financial statements of a domestic insurer shall be allowed for reinsurance ceded to an unauthorized reinsurer, in an amount not exceeding the liabilities carried by the ceding insurer, to the extent of unencumbered funds withheld by the ceding insurer as security for payment of the reinsurer's obligations under the reinsurance agreement, unless the cession is not in compliance with applicable requirements of Sections 2303.11 through 2303.13 of this article.
2. (b) As used in subdivision (a) of this section, “unencumbered funds withheld” means funds that are held in the United States solely in the name of and under the exclusive control of the ceding insurer. For purposes of this section, “exclusive control of the ceding insurer” includes (1) funds held in an escrow or trust account where the ceding insurer has the sole right to withdraw assets from the account at any time and without prior notice to the reinsurer, and (2) funds held in an escrow or trust account to secure a cession to an affiliate. The agreement establishing the escrow or trust account shall be in a form satisfactory to the Commissioner.
3. (c) A denial of statement credit under this section shall be made in the manner prescribed in Section 2303.18(c) of this article.

Note: Authority cited: Sections 922.8, 922.85 and 923, Insurance Code; CalFarm Insurance Company v. Deukmejian, 48 Cal. 3d 805 (1989); and 20th Century Insurance Company v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 922.2, 922.3, 922.5 and 923, Insurance Code.

History

1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).

2. Change without regulatory effect amending Note filed 3-25-2015 pursuant to section 100, title 1, California Code of Regulations (Register 2015, No. 13).

3. Amendment of subsection (c) filed 11-27-2017; operative 1-1-2018 (Register 2017, No. 48).