§ 27-4.2-1. Preamble. (a) The Rhode Island department of business regulation, the insurance division, recognizes that licensed insurers routinely enter into reinsurance agreements that yield legitimate relief to the ceding insurer from strain to surplus.

(b) It is improper for a licensed insurer, in the capacity of ceding insurer, to enter into reinsurance agreements for the principal purpose of producing significant surplus aid for the ceding insurer, typically on a temporary basis, while not transferring all of the significant risks inherent in the business being reinsured. In substance or effect, the expected potential liability to the ceding insurer remains basically unchanged by the reinsurance transaction, notwithstanding certain risk elements in the reinsurance agreement, such as catastrophic mortality or extraordinary survival. The terms of agreements referred to in this section and described in § 27-4.2-3 would violate:

(1) Applicable sections of the general laws relating to financial statements of insurers, resulting in distorted financial statements which do not properly reflect the financial condition of the ceding insurer;

(2) Applicable sections of the general laws relating to reinsurance reserve credits, resulting in a ceding insurer improperly reducing liabilities or establishing assets for reinsurance ceded; and

(3) Applicable sections of the general laws relating to creating a situation that may be hazardous to policyholders and the people of this state.

History of Section. (P.L. 1995, ch. 111, § 2.)