KRS 304.7-453: Asset and reserve requirements -- Reconciliation and summary --

Commissioner's actions if insurer is not in compliance.

(1) Subject to all other limitations and requirements of this subtitle, a property and

casualty, financial guaranty, mortgage guaranty, or accident and health insurer shall

maintain an amount at least equal to one hundred percent (100%) of adjusted loss

reserves and loss adjustment expense reserves, one hundred percent (100%) of

adjusted unearned premium reserves, and one hundred percent (100%) of statutorily

required policy and contract reserves in:

(a) Cash and cash equivalents;

(b) High and medium grade investments that qualify under KRS 304.7 -457 or

304.7-459;

(c) Equity interests that qualify under KRS 304.7 -461 and that are tra ded on a

qualified exchange;

(d) Investments of the type set forth in KRS 304.7 -469, if the investments are

rated in the highest generic rating category by a nationally recognized

statistical rating organization recognized by the SVO for rating foreign

jurisdictions and if any foreign currency exposure is effectively hedged

through the maturity date of the investments;

(e) Qualifying investments of the type set forth in paragraph (b), (c), or (d) of this

subsection that are acquired under KRS 304.7-473;

(f) Interest and dividends receivable on qualifying investments of the type set

forth in paragraphs (a) to (e) of this subsection; or

(g) Reinsurance recoverable on paid losses.

(2) Determination of the reserve requirement amount shall be as follows:

(a) For purposes of determining the amount of assets to be maintained under this

subsection, the calculation of adjusted loss reserves and loss adjustment

expense reserves, adjusted unearned premium reserves, and statutorily

required policy and contract reserves s hall be based on the amounts reported

as of the most recent annual or quarterly statement date;

(b) Adjusted loss reserves and loss adjustment expense reserves shall be equal to

the sum of the amounts derived from the following calculations:

1. The result of each amount reported by the insurer as losses and loss

adjustment expenses unpaid for each accident year for each individual

line of business; multiplied by

2. The discount factor that is applicable to the line of business and accident

year published by the Internal Revenue Service under Internal Revenue

Code Section 846 (26 U.S.C. sec. 846), as amended, for the calendar

year that corresponds to the most recent annual statement of the insurer;

minus

3. Accrued retrospective premiums discounted by an aver age discount

factor. The discount factor shall be calculated by dividing the losses and

loss adjustment expenses unpaid after discounting (the product of

subparagraphs 1. and 2. of this paragraph) by loss and loss adjustment

expense reserves before discoun ting subparagraph 1. of this paragraph;

and

4. For purposes of these calculations, the losses and loss adjustment

expenses unpaid shall be determined net of anticipated salvage and

subrogation, and gross of any discount for the time value of money or

tabular discount;

(c) Adjusted unearned premium reserves shall be equal to the result of the

following calculation:

1. The amount reported by the insurer as unearned premium reserves;

minus

2. The admitted asset amounts reported by the insurer as:

a. Premiums i n and agents' balances in the course of collection,

accident and health premiums due and unpaid, and uncollected

premiums for accident and health premiums;

b. Premiums, agents' balances, and installments booked but deferred

and not yet due; and

c. Bills receivable, taken for premium; and

(d) Statutorily required policy and contract reserves also shall include, in the case

of a title insurer, the amounts required by KRS 304.6 -080 and, in the case of a

mortgage guaranty insurer, the amounts required by KRS 30 4.6-090 and, in

the case of an accident and health insurer, the amounts required by KRS

304.6-070.

(3) A property and casualty, financial guaranty, mortgage guaranty, or accident and

health insurer shall supplement its annual statement with a reconciliatio n and

summary of its assets and reserve requirements as required in subsection (1) of this

section. A reconciliation and summary showing that an insurer's assets as required

in subsection (1) of this section are greater than or equal to its undiscounted

reserves referred to in subsection (1) of this section shall be sufficient to satisfy this

requirement. Upon prior notification, the commissioner may require an insurer to

submit a reconciliation and summary with any quarterly statement filed during the

calendar year.

(4) If a property and casualty, financial guaranty, mortgage guaranty, or accident and

health insurer's assets and reserves do not comply with subsection (1) of this

section, the insurer shall notify the commissioner immediately of the amount by

which the reserve requirements exceed the annual statement value of the qualifying

assets, explain why the deficiency exists, and within thirty (30) days of the date of

the notice propose a plan of action to remedy the deficiency.

(5) If the commissioner determines that an insurer is not in compliance with subsection

(1) of this section, the commissioner shall require the insurer to eliminate the

condition causing the noncompliance within a specified time from the date the

notice of the commissioner's requirement is mailed or delivered to the insurer.

(6) If an insurer fails to comply with the commissioner's requirement under subsection

(5) of this section, the insurer is deemed to be in hazardous financial condition, and

the commissioner shall take one (1) or more of the actions authorized by Subtitle 33

of KRS Chapter 304, and KRS 304.3-200.