Senate Bill 2522c1

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    Florida Senate - 1999                           CS for SB 2522

    By the Committee on Banking and Insurance; and Senator
    Holzendorf




    311-1940-99

  1                      A bill to be entitled

  2         An act relating to reinsurance; amending s.

  3         624.610, F.S.; setting the conditions for the

  4         allowance of credit for reinsurance; providing

  5         definitions; providing that the provisions of

  6         s. 120.60, F.S., do not apply to accreditation

  7         applications or procedures; providing for

  8         grounds for denial or revocation of an assuming

  9         insurer's accreditation; providing criteria for

10         the disallowance of credit for reinsurance for

11         a ceding insurer; providing for the payment of

12         costs and expenses; providing conditions for

13         the allowance or disallowance of credit for

14         reinsurance for assuming insurers maintaining

15         trust funds in qualified United States

16         financial institutions; providing intent that

17         there is no conflict with arbitration

18         agreements; providing for security; providing

19         for the inclusion of certain health maintenance

20         organizations within the term "ceding insurer";

21         providing conditions for the disallowance of

22         credit with respect to a ceding domestic

23         insurer; providing conditions for credit for

24         reinsurance in cases of insolvency; providing

25         for rights against a reinsurer; providing

26         prohibitions applying to authorized insurers,

27         other than certain surplus lines insurance;

28         providing procedures and information required

29         for a summary statement of each treaty;

30         providing for exemptions from requirement of

31         summary statements; providing for waiver;

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  1         providing for cancellation; providing that

  2         there is no credit when there is no transfer of

  3         risk; granting authority to the Department of

  4         Insurance for rulemaking; providing an

  5         effective date for the application of cessions;

  6         providing an effective date.

  7

  8  Be It Enacted by the Legislature of the State of Florida:

  9

10         Section 1.  Section 624.610, Florida Statutes, 1998

11  Supplement, is amended to read:

12         (Substantial rewording of section. See

13         s. 624.610, F.S., for present text.)

14         624.610  Reinsurance.--

15         (1)  The purpose of this section is to protect the

16  interests of insureds, claimants, ceding insurers, assuming

17  insurers, and the public.  It is the intent of the Legislature

18  to ensure adequate regulation of insurers and reinsurers and

19  adequate protection for those to whom they owe obligations.

20  In furtherance of that state interest, the Legislature

21  requires that upon the insolvency of a non-United States

22  insurer or reinsurer which provides security to fund its

23  United States obligations in accordance with this section,

24  such security shall be maintained in the United States and

25  claims shall be filed with and valued by the State Insurance

26  Commissioner with regulatory oversight, and the assets shall

27  be distributed in accordance with the insurance laws of the

28  state in which the trust is domiciled that are applicable to

29  the liquidation of domestic United States insurance companies.

30  The Legislature declares that the matters contained in this

31

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  1  section are fundamental to the business of insurance in

  2  accordance with 15 U.S.C. ss. 1011-1012.

  3         (2)  Credit for reinsurance must be allowed a ceding

  4  insurer as either an asset or a deduction from liability on

  5  account of reinsurance ceded only when the reinsurer meets the

  6  requirements of paragraph (3)(a), paragraph (3)(b), or

  7  paragraph (3)(c). Credit must be allowed under paragraph

  8  (3)(a) or paragraph (3)(b) only for cessions of those kinds or

  9  lines of business that the assuming insurer is licensed,

10  authorized, or otherwise permitted to write or assume in its

11  state of domicile or, in the case of a United States branch of

12  an alien assuming insurer, in the state through which it is

13  entered and licensed or authorized to transact insurance or

14  reinsurance.

15         (3)(a)  Credit must be allowed when the reinsurance is

16  ceded to an assuming insurer that is authorized to transact

17  insurance or reinsurance in this state.

18         (b)1.  Credit must be allowed when the reinsurance is

19  ceded to an assuming insurer that is accredited as a reinsurer

20  in this state. An accredited reinsurer is one that:

21         a.  Files with the department evidence of its

22  submission to this state's jurisdiction;

23         b.  Submits to this state's authority to examine its

24  books and records;

25         c.  Is licensed or authorized to transact insurance or

26  reinsurance in at least one state, or in the case of a United

27  States branch of an alien assuming insurer, is entered

28  through, licensed, or authorized to transact insurance or

29  reinsurance in at least one state;

30         d.  Files annually with the department a copy of its

31  annual statement filed with the insurance department of its

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  1  state of domicile any quarterly statements if required by its

  2  state of domicile or such quarterly statements if specifically

  3  requested by the department, and a copy of its most recent

  4  audited financial statement; and

  5         (I)  Maintains a surplus as regards policyholders in an

  6  amount not less than $20,000,000 and whose accreditation has

  7  not been denied by the department within 90 days of its

  8  submission; or

  9         (II)  Maintains a surplus as regards policyholders in

10  an amount not less than $20,000,000 and whose accreditation

11  has been approved by the department.

12

13  The provisions of s. 120.60 do not apply to the accreditation

14  applications or procedures for accreditation of assuming

15  insurers under this paragraph.

16         2.  The department may deny or revoke an assuming

17  insurer's accreditation if the assuming insurer does not

18  submit the required documentation pursuant to subparagraph

19  (b)1., if the assuming insurer fails to meet all of the

20  standards required of an accredited reinsurer, or if the

21  assuming insurer's accreditation would be hazardous to the

22  policyholders of this state. In determining whether to deny or

23  revoke accreditation, the department may consider the

24  qualifications of the assuming insurer with respect to all the

25  following subjects:

26         a.  Its financial stability;

27         b.  The lawfulness and quality of its investments;

28         c.  The competency, character, and integrity of its

29  management;

30

31

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  1         d.  The competency, character, and integrity of persons

  2  who own or have a controlling interest in the assuming

  3  insurer; and

  4         e.  Whether claims under its contracts are promptly and

  5  fairly adjusted and are promptly and fairly paid in accordance

  6  with the law and the terms of the contracts.

  7         3.  Credit must not be allowed a ceding insurer if the

  8  assuming insurer's accreditation has been revoked by the

  9  department after notice and the opportunity for a hearing.

10         4.  The actual costs and expenses incurred by the

11  department to review a reinsurer's request for accreditation

12  and subsequent reviews must be charged to and collected from

13  the requesting reinsurer. If the reinsurer fails to pay the

14  actual costs and expenses promptly when due, the department

15  may refuse to accredit the reinsurer or may revoke the

16  reinsurer's accreditation.

17         (c)1.  Credit must be allowed when the reinsurance is

18  ceded to an assuming insurer that maintains a trust fund in a

19  qualified United States financial institution, as defined in

20  paragraph (5)(b), for the payment of the valid claims of its

21  United States ceding insurers and their assigns and successors

22  in interest. To enable the department to determine the

23  sufficiency of the trust fund, the assuming insurer shall

24  report annually to the department information substantially

25  the same as that required to be reported on the NAIC Annual

26  Statement form by authorized insurers. The assuming insurer

27  shall submit to examination of its books and records by the

28  department and bear the expense of examination.

29         2.a.  Credit for reinsurance must not be granted under

30  this subsection unless the form of the trust and any

31  amendments to the trust have been approved by:

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  1         (I)  The commissioner of the state where the trust is

  2  domiciled; or

  3         (II)  The commissioner of another state who, pursuant

  4  to the terms of the trust instrument, has accepted principal

  5  regulatory oversight of the trust.

  6         b.  The form of the trust and any trust amendments must

  7  be filed with the commissioner of every state in which the

  8  ceding insurer beneficiaries of the trust are domiciled. The

  9  trust instrument must provide that contested claims are valid

10  and enforceable upon the final order of any court of competent

11  jurisdiction in the United States. The trust must vest legal

12  title to its assets in its trustees for the benefit of the

13  assuming insurer's United States ceding insurers and their

14  assigns and successors in interest. The trust and the assuming

15  insurer are subject to examination as determined by the

16  commissioner.

17         c.  The trust remains in effect for as long as the

18  assuming insurer has outstanding obligations due under the

19  reinsurance agreements subject to the trust. No later than

20  February 28 of each year, the trustee of the trust shall

21  report to the commissioner in writing the balance of the trust

22  and list the trust's investments at the preceding year-end,

23  and shall certify that the trust will not expire prior to the

24  following December 31.

25         3.  The following requirements apply to the following

26  categories of assuming insurer:

27         a.  The trust fund for a single assuming insurer

28  consists of funds in trust in an amount not less than the

29  assuming insurer's liabilities attributable to reinsurance

30  ceded by United States ceding insurers, and, in addition, the

31  assuming insurer shall maintain a trusteed surplus of not less

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  1  than $20 million. The funds in the trust and trusteed surplus

  2  consist of assets of a quality substantially similar to that

  3  required in part II of chapter 625.

  4         b.(I)  In the case of a group including incorporated

  5  and individual unincorporated underwriters:

  6         (A)  For reinsurance ceded under reinsurance agreements

  7  with an inception, amendment, or renewal date on or after

  8  August 1, 1995, the trust consists of a trusteed account in an

  9  amount not less than the group's several liabilities

10  attributable to business ceded by United States domiciled

11  ceding insurers to any member of the group;

12         (B)  For reinsurance ceded under reinsurance agreements

13  with an inception date on or before July 31, 1995, and not

14  amended or renewed after that date, notwithstanding the other

15  provisions of this section, the trust consists of a trusteed

16  account in an amount not less than the group's several

17  insurance and reinsurance liabilities attributable to business

18  written in the United States; and

19         (C)  In addition to these trusts, the group shall

20  maintain in trust a trusteed surplus of which $100 million

21  must be held jointly for the benefit of the United States

22  domiciled ceding insurers of any member of the group for all

23  years of account.

24         (II)  The incorporated members of the group must not be

25  engaged in any business other than underwriting of a member of

26  the group, and are subject to the same level of regulation and

27  solvency control by the group's domiciliary regulator as the

28  unincorporated members.

29         (III)  Within 90 days after its financial statements

30  are due to be filed with the group's domiciliary regulator,

31  the group shall provide to the commissioner an annual

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  1  certification by the group's domiciliary regulator of the

  2  solvency of each underwriter member; or if a certification is

  3  unavailable, financial statements, prepared by independent

  4  public accountants, of each underwriter member of the group.

  5         (d)  Credit must be allowed when the reinsurance is

  6  ceded to an assuming insurer not meeting the requirements of

  7  paragraph (a), paragraph (b), or paragraph (c), but only as to

  8  the insurance of risks located in jurisdictions where the

  9  reinsurance is required to be purchased by a particular entity

10  by applicable law or regulation of that jurisdiction.

11         (e)  If the assuming insurer is not authorized or

12  accredited to transact insurance or reinsurance in this state

13  pursuant to paragraph (a) or paragraph (b), the credit

14  permitted by paragraph (c) must not be allowed unless the

15  assuming insurer agrees in the reinsurance agreements:

16         1.a.  That in the event of the failure of the assuming

17  insurer to perform its obligations under the terms of the

18  reinsurance agreement, the assuming insurer, at the request of

19  the ceding insurer, shall submit to the jurisdiction of any

20  court of competent jurisdiction in any state of the United

21  States, will comply with all requirements necessary to give

22  the court jurisdiction, and will abide by the final decision

23  of the court or of any appellate court in the event of an

24  appeal; and

25         b.  To designate the commissioner, pursuant to s.

26  48.151, or a designated attorney as its true and lawful

27  attorney upon whom may be served any lawful process in any

28  action, suit, or proceeding instituted by or on behalf of the

29  ceding company.

30         2.  This paragraph is not intended to conflict with or

31  override the obligation of the parties to a reinsurance

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  1  agreement to arbitrate their disputes, if this obligation is

  2  created in the agreement.

  3         (f)  If the assuming insurer does not meet the

  4  requirements of paragraph (a) or paragraph (b), the credit

  5  permitted by paragraph (c) is not allowed unless the assuming

  6  insurer agrees in the trust agreements, in substance, to the

  7  following conditions:

  8         1.  Notwithstanding any other provisions in the trust

  9  instrument, if the trust fund is inadequate because it

10  contains an amount less than the amount required by paragraph

11  (c), or if the grantor of the trust has been declared

12  insolvent or placed into receivership, rehabilitation,

13  liquidation, or similar proceedings under the laws of its

14  state or country of domicile, the trustee shall comply with an

15  order of the commissioner with regulatory oversight over the

16  trust or with an order of a United States court of competent

17  jurisdiction directing the trustee to transfer to the

18  commissioner with regulatory oversight all of the assets of

19  the trust fund.

20         2.  The assets must be distributed by and claims must

21  be filed with and valued by the commissioner with regulatory

22  oversight in accordance with the laws of the state in which

23  the trust is domiciled which are applicable to the liquidation

24  of domestic insurance companies.

25         3.  If the commissioner with regulatory oversight

26  determines that the assets of the trust fund or any part

27  thereof are not necessary to satisfy the claims of the United

28  States ceding insurers of the grantor of the trust, the assets

29  or part thereof must be returned by the commissioner with

30  regulatory oversight to the trustee for distribution in

31  accordance with the trust agreement.

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  1         4.  The grantor shall waive any right otherwise

  2  available to it under United States law that is inconsistent

  3  with this provision.

  4         (4)  An asset allowed or a deduction from liability

  5  taken for the reinsurance ceded by an insurer to an assuming

  6  insurer not meeting the requirements of subsections (2) and

  7  (3) is allowed in an amount not exceeding the liabilities

  8  carried by the ceding insurer. The deduction must be in the

  9  amount of funds held by or on behalf of the ceding insurer,

10  including funds held in trust for the ceding insurer, under a

11  reinsurance contract with the assuming insurer as security for

12  the payment of obligations thereunder, if the security is held

13  in the United States subject to withdrawal solely by, and

14  under the exclusive control of, the ceding insurer, or, in the

15  case of a trust, held in a qualified United States financial

16  institution, as defined in paragraph (5)(b). This security may

17  be in the form of:

18         (a)  Cash in United States dollars;

19         (b)  Securities listed by the Securities Valuation

20  Office of the National Association of Insurance Commissioners

21  and qualifying as admitted assets pursuant to part II of

22  chapter 625;

23         (c)  Clean, irrevocable, unconditional letters of

24  credit, issued or confirmed by a qualified United States

25  financial institution, as defined in paragraph (5)(a),

26  effective no later than December 31 of the year for which the

27  filing is made, and in the possession of, or in trust for, the

28  ceding company on or before the filing date of its annual

29  statement; or

30         (d)  Any other form of security acceptable to the

31  department.

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  1         (5)(a)  For purposes of paragraph (4)(c) regarding

  2  letters of credit, a "qualified United States institution"

  3  means an institution that:

  4         1.  Is organized, or in the case of a United States

  5  office of a foreign banking organization, is licensed under

  6  the laws of the United States or any state thereof;

  7         2.  Is regulated, supervised, and examined by United

  8  States or state authorities having regulatory authority over

  9  banks and trust companies; and

10         3.  Has been determined by either the department or the

11  Securities Valuation Office of the National Association of

12  Insurance Commissioners to meet such standards of financial

13  condition and standing as are considered necessary and

14  appropriate to regulate the quality of financial institutions

15  whose letters of credit will be acceptable to the department.

16         (b)  For purposes of those provisions of this law which

17  specify institutions that are eligible to act as a fiduciary

18  of a trust, a "qualified United States financial institution"

19  means an institution that is a member of the Federal Reserve

20  System or that has been determined by the department to meet

21  the following criteria:

22         1.  Is organized, or, in the case of a United States

23  branch or agency office of a foreign banking organization, is

24  licensed, under the laws of the United States or any state

25  thereof and has been granted authority to operate with

26  fiduciary powers; and

27         2.  Is regulated, supervised, and examined by federal

28  or state authorities having regulatory authority over banks

29  and trust companies.

30         (6)  For the purposes of this section only, the term

31  "ceding insurer" includes any health maintenance organization

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  1  operating under a certificate of authority issued under part I

  2  of chapter 641.

  3         (7)  After notice and an opportunity for a hearing, the

  4  department may disallow any credit that it finds would be

  5  contrary to the proper interests of the policyholders or

  6  stockholders of a ceding domestic insurer.

  7         (8)  Credit must be allowed to any ceding insurer for

  8  reinsurance otherwise complying with this section only when

  9  the reinsurance is payable by the assuming insurer on the

10  basis of the liability of the ceding insurer under the

11  contract or contracts reinsured without diminution because of

12  the insolvency of the ceding insurer. Such credit must be

13  allowed to the ceding insurer for reinsurance otherwise

14  complying with this section only when the reinsurance

15  agreement provides that payments by the assuming insurer will

16  be made directly to the ceding insurer or its receiver, except

17  when:

18         (a)  The reinsurance contract specifically provides

19  payment to the named insured, assignee, or named beneficiary

20  of the policy issued by the ceding insurer in the event of the

21  insolvency of the ceding insurer; or

22         (b)  The assuming insurer, with the consent of the

23  named insured, has assumed the policy obligations of the

24  ceding insurer as direct obligations of the assuming insurer

25  in substitution for the obligations of the ceding insurer to

26  the named insured.

27         (9)  No person, other than the ceding insurer, has any

28  rights against the reinsurer which are not specifically set

29  forth in the contract of reinsurance or in a specific written,

30  signed agreement between the reinsurer and the person.

31

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  1         (10)  An authorized insurer may not knowingly accept as

  2  assuming reinsurer any risk covering subject of insurance

  3  which is resident, located, or to be performed in this state

  4  and which is written directly by any insurer not then

  5  authorized to transact such insurance in this state, other

  6  than as to surplus lines insurance lawfully written under part

  7  VIII of chapter 626.

  8         (11)(a)  Any domestic or commercially domiciled insurer

  9  ceding directly written risks of loss under this section shall

10  within 30 days of receipt of a cover note or similar

11  confirmation of coverage, or, without exception, no later than

12  6 months after the effective date of the reinsurance treaty,

13  file with the department one copy of a summary statement

14  containing the following information about each treaty:

15         1.  The contract period;

16         2.  The nature of the reinsured's business;

17         3.  An indication as to whether the treaty is

18  proportional, nonproportional, coinsurance, modified

19  coinsurance, or indemnity, as applicable;

20         4.  The ceding company's loss retention per risk;

21         5.  The reinsured limits;

22         6.  Any special contract restrictions;

23         7.  A schedule of reinsurers assuming the risks of

24  loss;

25         8.  An indication as to whether payments to the

26  assuming insurer are based on written premiums or earned

27  premiums;

28         9.  Identification of any intermediary or broker used

29  in obtaining the reinsurance and the commission paid them if

30  known; and

31         10.  Ceding commissions and allowances.

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  1         (b)  The summary statement must be signed and attested

  2  to by either the chief executive officer or the chief

  3  financial officer of the reporting insurer. In addition to the

  4  summary statement, the Insurance Commissioner may require the

  5  filing of any supporting information relating to the ceding of

  6  such risks as she or he deems necessary. If the summary

  7  statement prepared by the ceding insurer discloses that the

  8  net effect of a reinsurance treaty or treaties (or series of

  9  treaties with one or more affiliated reinsurers entered into

10  for the purpose of avoiding the following threshold amount) at

11  any time results in an increase of more than 25 percent to the

12  insurer's surplus as to policyholders, then the insurer shall

13  certify in writing to the department that the relevant

14  reinsurance treaty or treaties complies with the accounting

15  requirements contained in any rule adopted by the department

16  under subsection (10) or subsection (12). If such certificate

17  is filed after the summary statement of such reinsurance

18  treaty or treaties, the insurer shall refile the summary

19  statement with the certificate. In any event, the certificate

20  must state that a copy of the certificate was sent to the

21  reinsurer under the reinsurance treaty.

22         (c)  This subsection applies to cessions of directly

23  written risk or loss. This subsection does not apply to

24  contracts of facultative reinsurance or to any ceding insurer

25  with surplus as to policyholders that exceeds $100 million as

26  of the immediately preceding December 31. Additionally, any

27  ceding insurer otherwise subject to this section with less

28  than $500,000 in direct premiums written in this state during

29  the preceding calendar year or with less than 1,000

30  policyholders at the end of the preceding calendar year is

31  exempt from the requirements of this subsection. However, any

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  1  ceding insurer otherwise subject to this section with more

  2  than $250,000 in direct premiums written in this state during

  3  the preceding calendar quarter is not exempt from the

  4  requirements of this subsection.

  5         (d)  An authorized insurer not otherwise exempt from

  6  the provisions of this subsection shall provide the

  7  information required by this subsection with underlying and

  8  supporting documentation upon written request of the

  9  department.

10         (e)  The department may, upon a showing of good cause,

11  waive the requirements of this subsection.

12         (12)  If the department finds that a reinsurance

13  agreement creates a substantial risk of insolvency to either

14  insurer entering into the reinsurance agreement, the

15  department may by order require a cancellation of the

16  reinsurance agreement.

17         (13)  No credit shall be allowed for reinsurance with

18  regard to which the reinsurance agreement does not create a

19  meaningful transfer of risk of loss to the reinsurer.

20         (14)  The department may adopt rules and regulations

21  implementing the provisions of this section. Rules are

22  authorized to protect the interests of insureds, claimants,

23  ceding insurers, assuming insurers and the public. These rules

24  shall be in substantial compliance with:

25         (a)  The National Association of Insurance

26  Commissioners model regulations relating to credit for

27  reinsurance;

28         (b)  The 1998 National Association of Insurance

29  Commissioners Accounting Practices and Procedures Manual for

30  Property and Casualty Insurers;

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  1         (c)  The 1998 National Association of Insurance

  2  Commissioners Accounting Practices and Procedures Manual for

  3  Life and Health Insurers; and

  4         (d)  The National Association of Insurance

  5  Commissioners model regulation for Credit for Reinsurance and

  6  Life and Health Reinsurance Agreements.

  7

  8  The department may further adopt rules to provide for

  9  transition from existing requirements for the approval of

10  reinsurers to the accreditation of reinsurers pursuant to this

11  section.

12         (15)  Any reinsurer approved pursuant to subparagraph

13  (3)(a)2. as of December 31, 1999, which fails to obtain

14  accreditation pursuant to this section prior to December 30,

15  2002, shall have its approval terminated by operation of law

16  on that date.

17         (16)  This act shall apply to all cessions on or after

18  January 1, 2000, under reinsurance agreements that have an

19  inception, anniversary, or renewal date on or after January 1,

20  2000.

21         Section 2.  This act shall take effect upon becoming a

22  law.

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  1          STATEMENT OF SUBSTANTIAL CHANGES CONTAINED IN
                       COMMITTEE SUBSTITUTE FOR
  2                         Senate Bill 2522

  3

  4  Applies the requirements for securitized, non-approved
    reinsurance pursuant to s. 624.610(4), F.S., to all authorized
  5  insurers, not just domestic insurers.

  6  Specifies that the Department of Insurance must provide notice
    and an opportunity for a hearing prior to disallowing any
  7  credit for reinsurance that would be contrary to the interest
    of policyholders and stockholders of a domestic insurer.
  8
    Provides standards for the rules that the department may adopt
  9  to implement s. 624.610, relating to credit for reinsurance.
    Such rules must be in substantial compliance with the National
10  Association of Insurance Commissioners model regulations
    relating to credit for reinsurance and the NAIC Accounting
11  Practices and Procedures Manuals.

12  Provides an effective date of January 1, 2000, and applies to
    all reinsurance agreements that have an inception,
13  anniversary, or renewal date on or after such date.

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