(a) Definitions for this section. The following words and terms, when used in this section, have the following meanings, unless the context clearly indicates otherwise.
  (1) Beneficiary--The entity for whose benefit the trust has been established; the ceding insurer and any successor by operation of law of the ceding insurer including, without limitation, any liquidator, receiver, conservator, or supervisor.
  (2) Grantor--The entity that has established a trust for the sole benefit of the beneficiary; the assuming insurer.
  (3) Obligations--The sum total of trust property as set forth in subsection (b)(11) of this section which, unless specifically excluded under the reinsurance agreement is:
    (A) reinsured losses and allocated loss expenses paid by the ceding insurer, but not recovered from the assuming insurer;
    (B) reserves for reinsured losses reported and outstanding;
    (C) reserves for reinsured losses incurred but not reported and corresponding allocated loss expenses;
    (D) reserves for unearned premiums; and
    (E) reserves for mortality and morbidity.
  (4) Trustee--A qualified United States financial institution.
(b) Required conditions in trust agreements.
  (1) The agreement must be in the form of a written trust agreement made and entered into among the beneficiary, the grantor, and a trustee, which must be a qualified United States financial institution.
  (2) The trust agreement must create a trust account into which assets must be deposited.
  (3) All assets in the trust account must be held by the trustee at the trustee's office in the United States. The written notice described in paragraph (4) of this subsection must be presentable at the trustee's office in the United States.
  (4) The trust agreement must comply with subparagraphs (A)-(C) of this paragraph.
    (A) The trust agreement must stipulate that the beneficiary will 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 and the terms of the trust agreement.
    (B) No statement or document, other than the written notice from the beneficiary to the trustee, will be accepted to withdraw assets; the beneficiary may be required to acknowledge receipt of withdrawn assets.
    (C) The trust agreement must indicate that it is not subject to any conditions or qualifications outside of the trust agreement and must not be conditioned on any other agreements or documents except as provided in paragraph (11) of this subsection.
  (5) The trust agreement must be established for the sole benefit of the beneficiary.
  (6) The trust agreement must provide for the trustee to:
    (A) receive assets and hold all assets in safekeeping;
    (B) determine that all assets are in such form that the beneficiary, or the trustee on direction by the beneficiary, may, whenever necessary, negotiate any such assets, without consent or signature from the grantor or any other person;
    (C) furnish to the grantor and the beneficiary a statement of all assets in the trust account on its inception and at intervals no less frequent than the end of each calendar year quarter;
    (D) notify the grantor and the beneficiary, within 10 days, of any deposits to or withdrawals from the trust account;
    (E) on 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 such assets to the beneficiary; and
    (F) allow no substitutions or withdrawals of assets from the trust account, except on written instructions from the beneficiary; or the trustee may, without the consent of but with written notice to the beneficiary, on call or maturity of any trust asset, withdraw such asset on condition that the proceeds are paid or deposited into the trust account.
  (7) The trust agreement must provide that at least 30 days prior to termination of the trust account, written notification of termination must be delivered by the trustee via certified mail to the beneficiary and TDI.
  (8) The trust agreement must specify whether it is subject to and governed by the laws of either the state in which the trust is established or the state in which the ceding insurer is domiciled as specified in the trust agreement.
  (9) The trust agreement must prohibit invasion of the trust corpus in excess of one percent of the corpus per annum for the purpose of paying compensation to, or reimbursing the expenses of, the trustee.
  (10) The trust agreement must provide that the trustee will be liable for its own negligence, willful misconduct, lack of good faith, or breach of fiduciary duty.
  (11) When a trust agreement is established in conjunction with a reinsurance agreement and where it is customary practice to provide a trust agreement for a specific purpose, such trust agreement must, notwithstanding any other conditions in this section, provide that the ceding insurer must undertake to use and apply amounts drawn on the trust account, without diminution because of the insolvency of the ceding insurer or the assuming insurer, for the following purposes:
    (A) to pay or reimburse such 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
    (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 10 days prior to such termination date, the ceding insurer withdraws amounts equal to such obligations and deposits such amounts in a separate account, in the name of the ceding insurer in any qualified United States financial institution apart from its general assets, in trust for such uses and purposes specified in subparagraphs (A) and (B) of this paragraph as may remain executory after such withdrawal and for any period after such termination date.
  (12) The reinsurance agreement entered into in conjunction with such a trust agreement may, but need not, contain the provisions required by subsection (d)(1)(B) of this section, provided that these provisions are included in the trust agreement.
  (13) The assuming insurer agrees in the trust agreement to comply with the requirements of Insurance Code §493.1561.
(c) Permitted conditions in trust agreements.
  (1) The trust agreement must provide that the trustee may resign on delivery of a written notice of resignation, effective not less than 90 days after receipt by the beneficiary and grantor of 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 90 days after receipt by the trustee and the beneficiary of the notice, provided that no such resignation or removal will 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 trustee must be given authority to invest any of the funds in the account, provided that no investment may be made without prior approval of the beneficiary, unless the trust agreement specifies categories of investments acceptable to the beneficiary that are consistent with the restrictions in subsection (d)(1)(B) of this section.
  (3) The trust agreement must provide that, on termination of the trust account, all assets not previously withdrawn by the beneficiary must, with written approval by the beneficiary, be delivered over to the grantor.
  (4) The trust agreement must require the assuming insurer, prior to depositing assets with the trustee, to execute assignments, endorsements in blank, or transfer legal title to the trustee of all shares, obligations, or any other assets requiring assignments, in order that the beneficiary, or the trustee on the direction of the beneficiary may, whenever necessary, negotiate any such assets without consent or signature from the assuming insurer or any other entity.
(d) Additional conditions applicable to reinsurance agreements.
Cont'd...