PURPOSE: This rule effectuates and aids in the interpretation of section 380.271, RSMo (1986) relating to the financial reinsurance requirements applicable to extended Missouri mutual companies organized under the provisions of sections 380.201–380.591, RSMo.

1. (1) The director deems any one (1) of the following minimum levels of reinsurance to be necessary to protect the policyholders of extended Missouri mutual companies:

   1. (A) Reinsurance sufficient to maintain the company’s net retention on any one (1) risk at a level equal to or less than ten percent (10%) of surplus; or
   2. (B) Reinsurance sufficient to prevent a greater than twenty percent (20%) decrease in a company’s surplus, based on a probable maximum loss (PML) calculated by the company on a reasonable basis, assuming a ninety percent (90%) loss ratio. Ninety percent (90%) shall be calculated by multiplying the earned or written premium by ninety percent (90%); or
   3. (C) Reinsurance sufficient to prevent a greater than fifteen percent (15%) decrease in surplus due to any one (1) occurrence.

2. (2) Definitions.

   1. (A) Risk, as used in subsection (1)(A) of this rule, shall mean the definition of risk contained in the terms of the reinsurance treaty entered into in compliance with this rule. In no case shall risk be defined more broadly than all insured values on one (1) insured.

   2. (B) Loss ratio, as used in subsection (1)(B) of this rule, shall mean either—

      1. 1. Net losses incurred (paid and unpaid)

after deducting reinsurance, divided by net premium earned after reinsurance premium, if the company maintains a pro rata unearned premium reserve; or

1. 2. Net losses incurred (paid and unpaid)

after deducting reinsurance, divided by net written premium after deducting reinsurance premium.

1. (C) Occurrence, as used in subsection (1)(C) of this rule, shall mean the definition of occurrence contained in the terms of the reinsurance treaty entered into in compliance with this rule.
2. (D) Surplus, as used in subsections (1)(A)–(C) of this rule, shall mean admitted assets minus liabilities in the amounts reported in the company’s annual statement filed with the director each year.

1. (3) Reference to an unearned premium reserve in this rule is in no way intended to require that an extended Missouri mutual company maintain an unearned premium reserve.

AUTHORITY: sections 374.045, 380.271 and 380.561, RSMo 1986.* Original rule filed Oct. 24, 1991, effective March 9, 1992. *Original authority: 374.045, RSMo 1967, amended 1993, 1995; 380.271, RSMo 1984, amended 1991; and 380.561, RSMo 1984, amended 1993, 1995.