§15-141.6. Unearned reserve account - Exceptions - Net asset
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ratios.
A. An association licensed pursuant to the Service Warranty Act shall maintain a funded, unearned reserve account, consisting of unencumbered assets, equal to a minimum of twenty-five percent (25%) of the gross written provider fees received on all warranty contracts in force, wherever written. In the case of multiyear contracts which are offered by associations having net assets of less than Five Hundred Thousand Dollars ($500,000.00) for which provider fees are collected in advance for coverage in a subsequent year, one hundred percent (100%) of the provider fees for such subsequent years shall be placed in the funded, unearned reserve account.
Additionally, an association establishing such reserve account shall also place in trust with the Insurance Commissioner a surety bond issued by an authorized surety having a value of not less than five percent (5%) of the gross provider fee received, less claims paid, on the sale of the service warranties for all service warranties issued and in force in this state, but in no event shall the bond be less than Twenty-five Thousand Dollars ($25,000.00).
B. An association shall not be required to establish an unearned reserve or demonstrate the minimum writing ratio required by subsection D of this section if it has purchased one or more insurance policies that collectively cover one hundred percent (100%) of its claim exposure is covered by such policy and that the policy satisfies the requirements of this section. The insurance shall be obtained from one or more insurers that are licensed, registered, or otherwise authorized to do business in this state, that is rated B++ or better by A.M. Best Company, Inc., and that meets the requirements of subsection C of this section. For the
purposes of this subsection, the insurance policy shall contain the following provisions:
1. In the event that the service warranty association is unable to fulfill its obligation under contracts issued in this state for any reason including insolvency, bankruptcy, or dissolution, the insurer will pay losses and unearned provider fees under such plans directly to the person making a claim under the contract;
2. The insurer issuing the insurance policy shall assume full responsibility for the administration of claims in the event of the inability of the association to do so; and
3. The policy may not be canceled or not renewed by either the insurer or the association unless sixty
(60)days' written notice thereof has been given to the Commissioner by the insurer before the date of such cancellation or nonrenewal.
C. Each insurer providing the insurance policy used to satisfy the financial responsibility requirements of subsection B of this section must meet one of the following standards:
1. The insurer shall, at the time the policy is filed with the Commissioner, and continuously thereafter:
a. maintain surplus as to policyholders and paid-in
capital of at least Fifteen Million Dollars
($15,000,000.00), and
b. annually file copies of the audited financial
statements of the insurer, its NAIC Annual Statement,
and the actuarial certification required by and filed
in the state of domicile of the insurer; or
2. The insurer shall, at the time the policy is filed with the Commissioner, and continuously thereafter:
a. maintain surplus as to policyholders and paid-in
capital of less than Fifteen Million Dollars
($15,000,000.00) but at least equal to Ten Million
Dollars ($10,000,000.00),
b. demonstrate to the satisfaction of the Commissioner
that the company maintains a ratio of net written
premiums, wherever written, to surplus as to
policyholders and paid-in capital of not greater than
three to one, and
c. annually file copies of the audited financial
statements of the insurer, its NAIC Annual Statement,
and the actuarial certification required by and filed
in the state of domicile of the insurer.
D. No warrantor or warranty seller shall allow its gross written provider fees to exceed seven to one ratio to net assets.
E. If the gross written provider fees of a warrantor or a warranty seller exceed the required net asset ratios, the Commissioner may require, in addition to other measures as the Commissioner deems necessary, any one or more of the following:
1. A complete review of financial condition;
2. An increase in deposit;
3. A suspension of any new writings; or
4. Capital infusion into the business. Added by Laws 2012, c. 150, § 6, eff. Nov. 1, 2012. Amended by Laws 2017, c. 10, § 3, eff. Nov. 1, 2017; Laws 2022, c. 248, § 2, eff. Nov. 1, 2022.