(a) Definitions. The following words and terms have the following meanings when used in this section unless the context clearly indicates otherwise.
  (1) Actuarial method--the methodology used to determine the required level of primary security under subsection (d) of this section.
  (2) Covered policy--subject to the exemptions described in subsection (c) of this section, a covered policy, other than a grandfathered policy, that is one of the following policy types:
    (A) a life insurance policy with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits, or both, but not a flexible premium universal life insurance policy except as provided by subparagraph (B) of this paragraph; or
    (B) a flexible premium universal life insurance policy with provisions allowing a policyholder to keep the policy in force over a secondary guarantee period.
  (3) Grandfathered policy--a policy described by paragraph (2)(A) and (B) of this subsection that is:
    (A) issued before January 1, 2015; and
    (B) ceded, as of December 31, 2014, as part of a reinsurance agreement that would not have been exempt under subsection (c) of this section had that subsection been in effect for the reinsurance agreement.
  (4) Non-covered policy--a policy that does not meet the definition of covered policy, including grandfathered policy.
  (5) Other security--any security, other than primary security, acceptable to the Commissioner.
  (6) Primary security--
    (A) cash as described by Insurance Code §493.104;
    (B) securities listed by the Securities Valuation Office as described by Insurance Code §493.104, excluding:
      (i) any synthetic letters of credit, contingent notes, credit-linked notes, or other similar securities that operate in a manner similar to a letter of credit; and
      (ii) any securities issued by the ceding insurer or any of its affiliates; and
    (C) for security held in connection with funds-withheld and modified coinsurance reinsurance agreements:
      (i) commercial loans in good standing with a risk-based capital risk category of CM3 or higher category;
      (ii) policy loans; and
      (iii) derivatives acquired in the normal course and used to support and hedge liabilities related to the actual risks in the policies ceded under the reinsurance agreement.
  (7) Required level of primary security--the dollar amount determined by applying the actuarial method to the risks ceded with respect to covered policies, but not more than the total reserve ceded.
  (8) Valuation manual--the valuation manual defined by Insurance Code §425.052 and described by §3.9901 of this title (relating to Valuation Manual) in effect for the financial statement date on which credit for reinsurance is claimed.
  (9) VM-20--"Requirements for Principle-Based Reserves for Life Products," including all relevant definitions, from the valuation manual.
(b) Applicability. This section applies only to reinsurance agreements that cede liabilities related to covered policies issued by a life insurance company domiciled in this state. In the event of a direct conflict between this section and another provision in Chapter 7, Subchapter F, of this title, this section applies to the extent of the conflict.
(c) Exemptions and public disclosure. This section does not apply to:
  (1) reinsurance of:
    (A) policies that satisfy the criteria for exemption in §3.4506 of this title (relating to Calculation of Minimum Valuation Standard for Policies with Guaranteed Nonlevel Gross Premiums or Guaranteed Nonlevel Benefits (Other than Universal Life Policies)), subsections (f) or (g) of this section; and that are issued before the later of:
      (i) the effective date of this section; or
      (ii) the date on which the ceding insurer begins to apply VM-20 to establish the ceded policies' statutory reserves, but not later than January 1, 2020;
    (B) portions of policies that satisfy the criteria for exemption in §3.4506(e) of this title and that are issued before the later of:
      (i) the effective date of this section; and
      (ii) the date on which the ceding insurer begins to apply VM-20 to establish the ceded policies' statutory reserves, but not later than January 1, 2020;
    (C) any universal life policy that meets all of the following requirements:
      (i) secondary guarantee period, if any, is five years or less;
      (ii) specified premium for the secondary guarantee period is not less than the net level reserve premium for the secondary guarantee period based on the Commissioners' Standard Ordinary valuation tables and valuation interest rate applicable to the issue year of the policy; and
      (iii) the initial surrender charge is not less than 100% of the first-year annualized specified premium for the secondary guarantee period;
    (D) credit life insurance;
    (E) any variable life insurance policy that provides for life insurance, the amount or duration of which varies according to the investment experience of any separate account or accounts; or
    (F) any group life insurance certificate unless the certificate provides for a stated or implied schedule of maximum gross premiums required to continue coverage in force for more than one year;
  (2) reinsurance ceded to an assuming insurer that meets the applicable requirements of Insurance Code Chapter 493, Subchapter D;
  (3) reinsurance ceded to an assuming insurer that meets the applicable requirements of Insurance Code §493.102, concerning Credit for Reinsurance Generally, and §493.103, concerning Accredited Reinsurer, and that:
    (A) prepares statutory financial statements that comply with the NAIC Accounting Practices and Procedures Manual, without any departures from NAIC statutory accounting practices and procedures related to the admissibility or valuation of assets or liabilities that:
      (i) increase the assuming insurer's reported surplus; and
      (ii) are material enough that they must be disclosed in the financial statement of the assuming insurer under Statement of Statutory Accounting Principles No. 1; and
    (B) is not in a company action level event, regulatory action level event, authorized control level event, or mandatory control level event as described in §7.402 of this title (relating to Risk-Based Capital and Surplus Requirements for Insurers and HMOs) when the assuming insurer's Risk-Based Capital is calculated in accordance with the life risk-based capital report including overview and instructions for companies, under §7.402 of this title;
  (4) reinsurance ceded to an assuming insurer that meets the applicable requirements of Insurance Code §493.102 and §493.103, and that:
    (A) is not an affiliate, as defined in Insurance Code §823.003, concerning Classification as Affiliate or Subsidiary, of:
      (i) the insurer ceding the business to the assuming insurer; or
      (ii) any insurer that directly or indirectly ceded the business to that ceding insurer;
    (B) prepares statutory financial statements in compliance with the NAIC Accounting Practices and Procedures Manual;
    (C) is both:
      (i) licensed or accredited in at least 10 states, including the assuming insurer's state of domicile; and
      (ii) not licensed in any state as a captive, special purpose vehicle, special purpose financial captive, special purpose life reinsurance company, limited purpose subsidiary, or any other similar licensing regime; and
    (D) is not or would not be below 500% of the authorized control level risk-based capital as that term is described in §7.402 of this title when its risk-based capital is calculated in accordance with the life risk-based capital report, including overview and instructions for companies under §7.402 of this title, and without recognition of any departures from NAIC statutory accounting practices and procedures related to the admission or valuation of assets or liabilities that increase the assuming insurer's reported surplus;
  (5) reinsurance ceded to an assuming insurer that:
    (A) meets the conditions of Insurance Code §493.108;
    (B) is certified under Insurance Code Chapter 493, Subchapter C; or
    (C) maintains at least $250 million in capital and surplus when determined in accordance with the NAIC Accounting Practices and Procedures Manual, including all amendments adopted by the NAIC, excluding the impact of any permitted or prescribed practices; and is
      (i) licensed in at least 26 states; or
Cont'd...