Title 3 . Commerce, Community, and Economic Development

Chapter 21 . Miscellaneous

Section 320. Reserve requirements

3 AAC 21.320. Reserve requirements

(a) Subject to all other limitations and requirements of 3 AAC 21.201 - 3 AAC 21.399, a property and casualty insurer or an accident and health insurer shall maintain an amount at least equal to 100 percent of adjusted loss reserves and loss adjustment expense reserves, 100 percent of adjusted unearned premium reserves, and 100 percent of policy and contract reserves required by AS 21.18 in

(1) cash and cash equivalents;

(2) a bank certificate of deposit, subject to review by the director; if the director determines that the amount of the certificate of deposit purchased by an insurer in any one bank is excessive based on a finding that the diversification of the insurer's investment holdings is inadequate, the director will require the insurer to liquidate that portion found to be excessive;

(3) a share or savings account of a savings and loan or building and loan association, to the extent that the account is insured by the Federal Deposit Insurance Corporation;

(4) a high-grade investment or medium-grade investment that qualifies under 3 AAC 21.330 or 3 AAC 21.335;

(5) an equity interest that qualifies under 3 AAC 21.340 and that is traded on a qualified exchange;

(6) an investment of the type set out in 3 AAC 21.360 if the investment is rated in the highest rating category by a nationally recognized statistical rating organization recognized by the securities valuation office for rating foreign jurisdictions and if any foreign currency exposure is effectively hedged through the maturity date of the investment;

(7) a qualifying investment of the type set out in (4), (5), or (6) of this subsection that is acquired, held, or invested in under 3 AAC 21.375;

(8) interest and dividends receivable on a qualifying investment of the type set out in (1) - (7) of this subsection; or

(9) reinsurance recoverable on paid losses.

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

(1) the calculation of adjusted loss reserves and loss adjustment expense reserves, adjusted unearned premium reserves, and policy and contract reserves required by AS 21.18 must be based on the amounts reported as of the date of the most recently filed financial statement under AS 21.09.200 , AS 21.09.205 , and 3 AAC 21.400;

(2) with unpaid amounts determined net of anticipated salvage and subrogation and gross of any discount, adjusted loss reserves and loss adjustment expense reserves must be equal to the sum of the amounts derived by

(A) identifying each amount reported by the insurer as losses and loss adjustment expenses unpaid for each accident year for each individual line of business;

(B) multiplying each amount identified in (A) of this paragraph by the discount factor that is applicable to the line of business and accident year under 26 U.S.C. 846 (Internal Revenue Code) for the calendar year that corresponds to the insurer's most recently filed annual financial statement under AS 21.09.200 ; and

(C) from the product of the calculation in (B) of this paragraph, subtracting accrued retrospective premiums discounted by an average discount factor; the average discount factor is calculated by dividing the sum of the discounted losses and loss adjustment expenses unpaid, as calculated in (B) of this paragraph, by the sum of the insurer's loss and loss adjustment expense reserves determined before discounting, as identified in (A) of this paragraph;

(3) adjusted unearned premium reserves must be equal to the amount reported by the insurer, as of the date of the most recently filed financial statement under AS 21.09.200 , AS 21.09.205 , and 3 AAC 21.400, as unearned premium reserves minus the admitted asset amounts reported by the insurer as

(A) premiums 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

(4) policy and contract reserves required by AS 21.18 must also include the amounts required by National Association of Insurance Commissioners accounting practices and procedures manual for additional or contingency reserves and for reserves in addition to loss reserves, loss adjustment expense reserves, and unearned premium reserves.

(c) A property and casualty insurer or accident and health insurer shall supplement the annual financial statement required by AS 21.09.200 with a reconciliation and summary of the insurer's assets and reserve requirements as required in (a) and (b) of this section. A reconciliation and summary showing that an insurer's assets as required in (a) and (b) of this section are greater than or equal to its undiscounted reserves referred to in (a) and (b) of this section will be considered sufficient to satisfy this requirement. Upon prior notification, and as the director determines necessary to confirm continued compliance with this section, the director will require an insurer to submit a reconciliation and summary with a quarterly statement filed under AS 21.09.205 and 3 AAC 21.400 during the calendar year.

(d) If a property and casualty or accident and health insurer has assets and reserves that do not comply with (a) and (b) of this section, the insurer shall notify the director immediately of the amount by which the reserve requirements exceed the annual admitted asset value of the qualifying assets, explain why the deficiency exists, and, within 30 days after the date of the notice, propose a plan of action to remedy the deficiency.

(e) If the director determines that a property and casualty insurer or accident and health insurer is not in compliance with (a) and (b) of this section, the director will require the insurer to eliminate the condition causing the noncompliance within a specified time from the date the notice of the director's requirement is mailed or delivered to the insurer. If an insurer fails to comply with the director's requirement, the insurer will be considered to be in hazardous financial condition, and the director will take one or more of the actions authorized by AS 21 as to an insurer in a hazardous financial condition.

History: Eff. 12/28/2001, Register 160; am 11/21/2004, Register 172

Authority: AS 21.06.090

AS 21.18.010

AS 21.18.030

AS 21.18.040

AS 21.21.010

AS 21.21.020

AS 21.21.255

AS 21.21.420