1. (a) An asset or a reduction from liability for the reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of section 8, 9, 10, 11, 11.5, 12, 13, 13.3, 13.6, or 13.8 of this chapter shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer.

2. (b) The reduction permitted under subsection (a) shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with the assuming insurer as security for the payment of obligations under the reinsurance contract. The security must be held:

   1. (1) in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer; or
   2. (2) in the case of a trust, in a qualified United States financial institution (as defined in section 6 of this chapter).

3. (c) The security described under subsection (b) may be in the following forms:

   1. (1) Cash.
   2. (2) Securities listed by the Securities Valuation Office, including securities that are considered exempt from filing (as defined by the Purposes and Procedures Manual of the NAIC Investment Analysis Office) and qualifying as admitted assets.

   3. (3) Clean, irrevocable, unconditional letters of credit:

      1. (A) issued or confirmed by a qualified United States financial institution (as defined in section 5 of this chapter);
      2. (B) effective not later than December 31 in the year for which the filing is being made; and

      3. (C) in the possession of or in trust for the ceding insurer on or before the filing date of the ceding insurer's annual statement.

         Letters of credit that meet applicable standards of issuer acceptability as of the dates of their issuance (or confirmation) shall, notwithstanding the issuing (or confirming) institution's subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until the earlier of their expiration, extension, renewal, modification, or amendment.

   4. (4) Any other form of security acceptable to the commissioner.

As added by P.L.116-1994, SEC.54. Amended by P.L.2-1995, SEC.105; P.L.81-2012, SEC.35; P.L.124-2018, SEC.71; P.L.136-2018, SEC.183.