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A07310
THE GENERAL ASSEMBLY OF PENNSYLVANIA
SENATE BILL
No.
1195
Session of
2020
INTRODUCED BY SCAVELLO AND STREET, JUNE 9, 2020
SENATOR BROWNE, APPROPRIATIONS, RE-REPORTED AS AMENDED,
JUNE 29, 2020
AN ACT
Amending the act of May 17, 1921 (P.L.682, No.284), entitled "An
act relating to insurance; amending, revising, and
consolidating the law providing for the incorporation of
insurance companies, and the regulation, supervision, and
protection of home and foreign insurance companies, Lloyds
associations, reciprocal and inter-insurance exchanges, and
fire insurance rating bureaus, and the regulation and
supervision of insurance carried by such companies,
associations, and exchanges, including insurance carried by
the State Workmen's Insurance Fund; providing penalties; and
repealing existing laws," in general provisions relating to
insurance companies, associations and exchanges, further
providing for Reinsurance Credits and providing for credit
for reinsurance and reciprocal jurisdictions; in Life and
Health Insurance Guaranty Association, further providing for
purpose, for definitions, for coverage and limitations, for
creation of association, for board of directors, for powers
and duties of association, for assessments, for plan of
operation, for powers and duties of the commissioner, for
prevention of insolvencies, for credits for assessments paid,
for miscellaneous provisions, for examination of the
association and annual report, for immunity, for stay of
proceedings and reopening default judgments, for prohibited
advertisement or Insurance Guaranty Association Act in
insurance sales and for prospective application.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 319.1(a), (b) and (f) of the act of May
17, 1921 (P.L.682, No.284), known as The Insurance Company Law
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of 1921, are amended and the section is amended by adding
subsections to read:
Section 319.1. Reinsurance Credits.--[(a) Unless an
unlicensed reinsurer is qualified or certified to accept
reinsurance from insurers licensed in this Commonwealth, no
credit shall be allowed as an admitted asset or as a reduction
of liability relative to risks ceded by such licensed insurers.
Qualified or certified reinsurers are those meeting the
conditions for reinsurers specified by the commissioner, in his
discretion, and included on a list of qualified or certified
reinsurers published and periodically reviewed by said
commissioner.]
(a.1) A domestic ceding insurer may take a credit for
reinsurance as either an asset or reduction from liability on
account of the reinsurance ceded if it meets the requirements
specified in this section.
(a.2) The following types of reinsurance arrangements are
permissible:
(1) Reinsurance ceded to an assuming insurer that is
licensed to transact insurance or reinsurance in this
Commonwealth in accordance with section 319(b).
(2) Reinsurance ceded to an insurer meeting the conditions
specified by the commissioner, in the commissioner's discretion,
and included on a list of qualified or certified reinsurers
published and periodically reviewed by the commissioner
including when the reinsurance is ceded to the following:
(i) An assuming foreign or alien insurer or group of
incorporated alien insurers under common administration that has
BEEN deemed to be a qualified reinsurer by the commissioner in
accordance with the requirements of 31 Pa. Code Ch. 161
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(relating to requirements for qualified and certified
reinsurers).
(ii) An assuming insurer that has been certified by the
commissioner as a reinsurer in this Commonwealth in accordance
with the requirements of 31 Pa. Code Ch. 161, except that as of
the effective date of this subsection, the following shall
apply:
(A) Certified reinsurers not domiciled in the United States
must submit the most recent audited financial statements,
regulatory filings and actuarial opinions, as filed with the
certified reinsurer's supervisor, with a translation into
English, but shall not need to submit audited financial
statements on a United States generally accepted accounting
principles or international financial reporting standards
basis.
(B) Upon the initial application for certification pursuant
to 31 Pa. Code . Ch. 161, the commissioner shall consider audited
financial statements for the last two years filed with the
certified reinsurer's supervisor.
(3) Reinsurance ceded to an assuming insurer meeting the
requirements of section 319.3.
(4) Reinsurance ceded to an assuming insurer that is
domiciled in, or for a United States branch of an alien assuming
insurer , is entered through , a state that employs standards
regarding credit for reinsurance substantially similar to those
applicable under the law of this Commonwealth and the assuming
insurer or United States branch of an alien assuming insurer
meets both of the following:
(i) Maintains a surplus as regards policyholders in an
amount not less than $20,000,000, except with regard to
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reinsurance ceded and assumed pursuant to pooling arrangements
among insurers in the same holding company system.
(ii) Submits to the authority of the commissioner to examine
its books and records.
(b) A reduction from liability for the reinsurance ceded by
a domestic insurer to an assuming insurer [which is not a
qualified or certified reinsurer in accordance with this
section] not falling within one of the categories specified
under subsection (a.2) shall be allowed in an amount not
exceeding the liabilities carried by the ceding insurer and such
reduction shall be in the amount of funds held by or on behalf
of the ceding insurer, including funds held in trust for the
ceding insurer, under a reinsurance contract with such assuming
insurer as security for the payment of obligations thereunder,
if such security is held in the United States subject to
withdrawal solely by and under the exclusive control of the
ceding insurer or, in the case of a trust, held in a qualified
United States financial institution, as defined in subsection
(g)(2). This security may be in the form of:
(1) Cash.
(2) Securities listed by a securities valuation office of a
national association of insurance commissioners or any successor
thereto, including those exempted from filing under the Purposes
and Procedures Manual of the Securities Valuation Office of the
National Association of Insurance Commissioners, and
[qualifying] determined by the commissioner to qualify as
admitted assets.
(3) (i) Clean, irrevocable, unconditional and evergreen
letters of credit issued or confirmed by a qualified United
States financial institution, as defined in subsection (g)(1),
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effective no later than the thirty-first day of December in
respect of the year for which filing is being made and in the
possession of the ceding insurer on or before the filing date of
its annual statement.
(ii) Letters of credit meeting applicable standards of
issuer acceptability as of the dates of their issuance or
confirmation shall, notwithstanding the issuing or confirming
institution's subsequent failure to meet applicable standards of
issuer acceptability, continue to be acceptable as security
until their expiration, extension, renewal, modification or
amendment, whichever first occurs.
(4) Funds or letters of credit provided by a noninsurer
parent corporation of the ceding insurer, in lieu of the funds
to be withheld by the ceding insurer under a reinsurance
contract with such assuming insurer as security for payment of
obligations thereunder, if the following requirements are met:
(i) The funds or letters of credit are held subject to
withdrawal by and under the control of the ceding insurer.
(ii) The type, amount and form of the funds or letters of
credit receive the prior approval of the Insurance Commissioner.
(5) Any other form of security acceptable to the Insurance
Commissioner.
* * *
(f) The following shall apply:
(1) Notwithstanding the provisions of this section, the
Insurance Department may promulgate one or more regulations to
limit, prohibit or authorize the credit which a domestic insurer
may take as an admitted asset or as a reduction in liability
with respect to reinsurance ceded on any financial statements
filed with the Insurance Department.
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(2) In addition to and notwithstanding the commissioner's
regulatory authority under paragraph (1), the commissioner may
promulgate regulations as provided under this paragraph.
(i) A regulation promulgated under this paragraph shall
only apply to reinsurance relating to the following:
(A) Life insurance policies with guaranteed nonlevel gross
premiums or guaranteed nonlevel benefits.
(B) Universal life insurance policies with provisions
resulting in the ability of a policyholder to keep a policy in
force over a secondary guarantee period.
(C) Variable annuities with guaranteed death or living
benefits.
(D) Long-term care insurance policies.
(E) Other life and health insurance and annuity products
related to credit for reinsurance.
(ii) A regulation promulgated under this paragraph may apply
to treaties entered into after the effective date of this
paragraph containing:
(A) policies issued after December 31, 2014;
(B) policies issued prior to January 1, 2015, if risk
pertaining to the policies is ceded in connection with the
treaty, in whole or in part, after December 31, 2014 ; or
(C) policies that meet the requirements of both clauses (A)
and (B).
(iii) A regulation promulgated under this paragraph may not
apply to cessions to an assuming insurer if the assuming insurer
meets one of the following:
(A) Meets the requirements under section 319.3.
(B) Is certified in this Commonwealth.
(C) The commissioner has determined that the assuming
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insurer maintains at least $250,000,000 (two hundred and fifty
million dollars) in capital and surplus and is either of the
following:
(I) licensed in at least 26 states; or
(II) licensed in at least ten states and licensed or
accredited in a total of at least 35 states.
* * *
Section 1.1. The act is amended by adding a section to read:
Section 319.3. Credit For Reinsurance And Reciprocal
Jurisdictions.--(a) The commissioner shall allow credit for
reinsurance ceded by a domestic insurer to an assuming insurer
that is licensed to write reinsurance by, and has its head
office or is domiciled in, a reciprocal jurisdiction that meets
the requirements of this section.
(b) (Reserved).
(c) Credit shall be allowed if reinsurance is ceded from an
insurer domiciled in this Commonwealth to an assuming insurer
meeting each of the following conditions:
(1) The assuming insurer must be licensed to transact
reinsurance by and have its head office or be domiciled in a
reciprocal jurisdiction.
(2) The assuming insurer must have and maintain on an
ongoing basis minimum capital and surplus, or its equivalent,
calculated on at least an annual basis as of the preceding
December 31 or at the annual date otherwise statutorily reported
to the reciprocal jurisdiction, and confirmed as provided under
paragraph (7) according to the methodology of its domiciliary
jurisdiction in the following amounts, which may be modified by
the commissioner by regulation:
(i) at least $250,000,000; or
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(ii) if the assuming insurer is an association, including
incorporated and individual unincorporated underwriters:
(A) minimum capital and surplus equivalents, net of
liabilities, or own funds of the equivalent of at least
$250,000,000; and
(B) a central fund containing a balance of the equivalent of
at least $250,000,000.
(3) The assuming insurer must have and maintain, on an
ongoing basis, a minimum solvency or capital ratio, as follows:
(i) if the assuming insurer has its head office or is
domiciled in a reciprocal jurisdiction as provided under
paragraph (1) of the definition of "reciprocal jurisdiction,"
the ratio specified in the applicable covered agreement;
(ii) if the assuming insurer is domiciled in a reciprocal
jurisdiction under paragraph (2) of the definition of
"reciprocal jurisdiction", a risk-based capital ratio of 300% of
the authorized control level calculated in accordance with the
formula developed by the National Association of Insurance
Commissioners; or
(iii) if the assuming insurer is domiciled in a reciprocal
jurisdiction under paragraph (3) of the definition of
"reciprocal jurisdiction", after consultation with the
reciprocal jurisdiction and considering any recommendations
published through the National Association of Insurance
Commissioners committee process, the solvency or capital ratio
as the commissioner determines to be an effective measure of
solvency.
(4) The assuming insurer must agree to and provide adequate
assurance, by executing a form as prescribed by the
commissioner, of its agreement to the following:
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(i) The assuming insurer must agree to provide prompt
written notice and explanation to the commissioner if it falls
below the minimum requirements under paragraphs (2) and (3) , or
if any regulatory action is taken against it for serious
noncompliance with law.
(ii) The assuming insurer must consent in writing to the
jurisdiction of the courts of this Commonwealth and to the
appointment of the commissioner as agent for service of process.
(A) The commissioner may require that the consent be
provided and included in each reinsurance agreement under the
commissioner's jurisdiction.
(B) Nothing under this paragraph shall limit or alter the
capacity of a party to a reinsurance agreement to agree to
alternative dispute resolution mechanisms, except to the extent
the agreements are unenforceable under applicable insolvency or
delinquency laws.
(iii) The assuming insurer must consent in writing to pay
each final judgment, wherever enforcement is sought, obtained by
a ceding insurer, that have been declared unenforceable
enforceable in the territory where the judgment was obtained.
(iv) Each reinsurance agreement must include a provision
requiring the assuming insurer to provide security in an amount
equal to one hundred percent (100%) of the assuming insurer's
liabilities attributable to reinsurance ceded pursuant to the
agreement if the assuming insurer resists enforcement of a final
judgment that is enforceable under the law of the jurisdiction
in which it was obtained or a properly enforceable arbitration
award, whether obtained by the ceding insurer or by its legal
successor on behalf of this estate, if applicable.
(v) The assuming insurer must:
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(A) Confirm that it is not presently participating in a
solvent scheme of arrangement, which involves this
Commonwealth's ceding insurers.
(B) Agree to notify the ceding insurer and the commissioner
if it enters into a solvent scheme of arrangement.
(C) Agree to provide security to the ceding insurer in an
amount equal to 100% of the assuming insurer's liabilities to
the ceding insurer if the assuming insurer enters into a solvent
scheme of arrangement.
(D) Agree to provide security in a form consistent with all
of the following:
(I) The provisions of section 319.1(a.2)(2) applicable to
certified reinsurers.
(II) Section 319.1(b).
(III) 31 Pa.Code Ch. 163 (relating to requirements for funds
held as security for the payment of obligations of unlicensed,
unqualified reinsurers).
(E) For purposes of this subparagraph, the term "solvent
scheme of arrangement" means a foreign or alien statutory or
regulatory compromise procedure subject to requisite majority
creditor approval and judicial sanction in the assuming
insurer's home jurisdiction either to finally commute
liabilities of duly noticed class members or creditors of a
solvent debtor on a final basis, and which may be subject to
jurisdictional recognition and enforcement of the arrangement by
a governing authority outside the ceding insurer's home
jurisdiction.
(vi) An assuming insurer shall agree in writing to meet the
applicable information filing requirements of paragraph (5) of
this subsection.
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(5) An assuming insurer or its legal successor shall
provide, if requested by the commissioner, on behalf of itself
and any legal predecessors, the following documentation to the
commissioner:
(i) for the two years preceding entry into the reinsurance
agreement and on an annual basis thereafter, the assuming
insurer's annual audited financial statements, in accordance
with the law of the jurisdiction of its head office or
domiciliary jurisdiction, as applicable, including the external
audit report;
(ii) for the two years preceding entry into the reinsurance
agreement, the solvency and financial condition report or
actuarial opinion, if filed with the assuming insurer's
supervisor;
(iii) prior to entry into the reinsurance agreement and not
more often than semi-annually thereafter, an updated list of
each disputed and overdue reinsurance claims outstanding for at
least 90 days, regarding reinsurance assumed from ceding
insurers domiciled in the United States; and
(iv) prior to entry into the reinsurance agreement and not
more often than semi-annually thereafter, information regarding
the assuming insurer's assumed reinsurance by ceding insurer,
ceded reinsurance by the assuming insurer and reinsurance
recoverable on paid and unpaid losses by the assuming insurer to
allow for the evaluation of the criteria under paragraph (6).
(6) The assuming insurer must maintain a practice of prompt
payment of claims under reinsurance agreements. The lack of
prompt payment shall be evidenced by any of the following
criteria:
(i) More than 15% of the reinsurance recoverables from the
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assuming insurer are overdue and in dispute as reported to the
commissioner.
(ii) More than 15% of the assuming insurer's reinsurance
recoverables on paid losses are at least 90 days overdue, are
not in dispute and exceed $100,000 for each ceding insurer or as
otherwise specified in a covered agreement.
(iii) The aggregate amount of reinsurance recoverable on
paid losses which are not in dispute, but are overdue by at
least 90 days, exceeds $50,000,000 or as otherwise specified in
a covered agreement.
(7) The assuming insurer's supervisor shall confirm, in
writing, to the commissioner on an annual basis, as of the
preceding December 31 or at the annual date otherwise
statutorily reported to the reciprocal jurisdiction that the
assuming insurer complies with the requirements under paragraphs
(2) and (3).
(8) Nothing under this subsection shall preclude an assuming
insurer from providing the commissioner with information on a
voluntary basis.
(c.1) The department shall publish the prescribed form under
subsection (c)(4) on the department's Internet website and
shall submit the form to the Legislative Reference Bureau for
publication in the Pennsylvania Bulletin.
(d) The commissioner shall timely create and publish a list
of reciprocal jurisdictions on the department's Internet website
and shall submit the list to the Legislative Reference Bureau
for publication in the Pennsylvania Bulletin. The following
shall apply:
(1) A list of reciprocal jurisdictions is published through
the National Association of Insurance Commissioners committee
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process. The commissioner shall include on the list any
reciprocal jurisdiction the meets the requirements of subsection
(k)(1) and (2).
(2) The commissioner shall consider any other reciprocal
jurisdiction that is included on the list of reciprocal
jurisdictions published through the National Association of
Insurance Commissioners committee process.
(3) The commissioner may approve a jurisdiction that does
not meet the requirements of subsection (k)(1) or (2) as
provided by law, regulation or in accordance with criteria
published through the National Association of Insurance
Commissioners committee process.
(4) The commissioner may remove a jurisdiction from the list
of reciprocal jurisdictions upon a determination that the
jurisdiction no longer meets the requirements of this section or
other law or regulation, or in accordance with a process
published through the National Association of Insurance
Commissioners committee process, except that the commissioner
may not remove a reciprocal jurisdiction that meets the
requirements of subsection (k)(1) or (2). Upon removal of a
reciprocal jurisdiction from the list, credit for reinsurance
ceded to an assuming insurer which has its home office or is
domiciled in a jurisdiction shall be allowed only if allowed
under section 319.1.
(e) The commissioner shall timely create and publish a list
of assuming insurers that have satisfied the conditions under
this section and to which cessions shall be granted credit. The
following shall apply:
(1) The commissioner shall create the list in accordance
with the following requirements:
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(i) The commissioner may add an assuming insurer to the list
if an National Association of Insurance Commissioners-accredited
jurisdiction has added the assuming insurer to a list of the
assuming insurers.
(ii) The commissioner may add an assuming insurer to the
list if, upon initial eligibility, the assuming insurer submits
the information to the commissioner as required under subsection
(c)(4) and complies with any additional requirements the
commissioner may impose by regulation, except to the extent that
the the additional requirements conflict with an applicable
covered agreement.
(iii) If a National Association of Insurance Commissioners-
accredited jurisdiction has determined that the conditions under
subsection (c) have been met, the commissioner may defer to the
jurisdiction's determination and add the assuming insurer to the
list of assuming insurers to which cessions shall be granted
credit in accordance with this subsection. The commissioner may
accept financial documentation filed with another National
Association of Insurance Commissioners-accredited jurisdiction
or with the National Association of Insurance Commissioners in
satisfaction of the requirements of subsection (c).
(iv) If requesting that the commissioner defer to another
National Association of Insurance Commissioners-accredited
jurisdiction's determination, the assuming insurer shall execute
the form under subsection (c)(4) and provide additional
information required by the commissioner. A state that has
received such a request must notify other state insurance
regulators through the National Association of Insurance
Commissioners committee process and provide the relevant
information with respect to the determination of eligibility.
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(2) If the commissioner determines that an assuming insurer
no longer meets one or more of the requirements under this
section, the commissioner may revoke or suspend the eligibility
of the assuming insurer for recognition under this section.
(i) While an assuming insurer's eligibility is suspended, a
reinsurance agreement issued, amended or renewed after the
effective date of the suspension may not qualify for credit
except to the extent that the assuming insurer's obligations
under the contract are secured in accordance with section
319.1(b).
(ii) If an assuming insurer's eligibility is revoked, a
credit for reinsurance may not be granted after the effective
date of the revocation with respect to any reinsurance
agreements entered into by the assuming insurer, including
reinsurance agreements entered into prior to the date of
revocation, except to the extent that the assuming insurer's
obligations under the contract are secured in a form acceptable
to the commissioner in accordance with section 319.1(b).
(f) Before denying statement credit or imposing a
requirement to post security under section 319.1(b)(2) or
adopting an similar requirement that will have substantially the
same regulatory impact on security, the commissioner shall:
(1) Communicate with the ceding insurer, the assuming
insurer and the assuming insurer's supervisor that the assuming
insurer no longer satisfies one of the conditions listed in
subsection (c).
(2) Provide the assuming insurer with 30 days from the
initial communication to submit a plan to remedy the defect and
90 days from the initial communication to remedy the defect
except in exceptional circumstances in which a shorter period is
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necessary for policyholder and consumer protection.
(3) After the expiration of the period under paragraph (2),
if the commissioner determines that no or insufficient action
was taken by the assuming insurer, the commissioner may take any
of the actions provided under this subsection.
(4) Provide a written explanation to the assuming insurer of
any of the requirements under this subsection.
(g) If subject to a legal process of rehabilitation,
liquidation or conservation, as applicable, the ceding insurer
or its representative may seek and, if determined appropriate by
the court in which the proceedings are pending, may obtain an
order requiring that the assuming insurer post security for all
outstanding ceded liabilities.
(h) Nothing under this subsection shall limit or alter the
capacity of a party to a reinsurance agreement to agree on
requirements for security or other terms in the reinsurance
agreement, except as expressly prohibited under section 319 or
other law or regulation.
(i) Credit may be taken under this section only for
reinsurance agreements entered into, amended or renewed on or
after the effective date of this section and only with respect
to losses incurred and reserves reported on or after the later
of the date on which the assuming insurer has met all
eligibility requirements under subsection (a), and the effective
date of the new reinsurance agreement, amendment or renewal. The
following shall apply:
(1) This subsection shall not alter or impair a ceding
insurer's right to take credit for reinsurance, to the extent
that credit is not available under this subsection, as long as
the reinsurance qualifies for credit under any other provision
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of section 319.1.
(2) Nothing under this subsection shall authorize an
assuming insurer to withdraw or reduce the security provided
under any reinsurance agreement except as permitted by the terms
of the agreement.
(3) Nothing under this subsection shall limit or alter the
capacity of a party to any reinsurance agreement to renegotiate
the agreement.
(j) The commissioner may promulgate regulations to carry out
the provisions of this section.
(k) For the purposes of this section, a "reciprocal
jurisdiction" means a jurisdiction, as designated by the
commissioner under subsection (d) that meets one of the
following requirements:
(1) A non-United States jurisdiction that is subject to an
in-force covered agreement with the United States, each within
its legal authority or, for a covered agreement between the
United States and European Union, is a member state of the
European Union. For purposes of this paragraph, a "covered
agreement" is an agreement entered into under 31 U.S.C. §§ 313
(relating to Federal Insurance Office) and 314 (relating to
covered agreements) that is currently in effect or in a period
of provisional application and addresses the elimination, under
specified conditions, of collateral requirements as a condition
for entering into any reinsurance agreement with a ceding
insurer domiciled in this Commonwealth or for allowing the
ceding insurer to recognize credit for reinsurance.
(2) A United States jurisdiction that meets the requirements
for accreditation under the commissioner verifies has been
accredited pursuant to the National Association of Insurance
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Commissioners financial standards and accreditation program.
(3) A qualified jurisdiction, as determined by the
commissioner under section 319.1(a.2)(2) which is not otherwise
described under paragraph (1) or (2) and which the commissioner
determines meets all of the following additional requirements:
(i) Provides that an insurer that has its head office or is
domiciled in the qualified jurisdiction shall receive credit for
reinsurance ceded to a United States-domiciled assuming insurer
in the same manner as credit for reinsurance is received for
reinsurance assumed by insurers domiciled in such qualified
jurisdictions.
(ii) Does not require a United States-domiciled assuming
insurer to establish or maintain a local presence as a condition
for entering into a reinsurance agreement with any ceding
insurer subject to regulation by the non-United States
jurisdiction or as a condition to allow the ceding insurer to
recognize credit for such reinsurance.
(iii) Recognizes the United States state regulatory approach
to group supervision and group capital by providing written
confirmation by a competent regulatory authority, in the
qualified jurisdiction, that insurers and insurance groups that
are domiciled or maintain their headquarters in this
Commonwealth or another jurisdiction accredited by the National
Association of Insurance Commissioners shall be subject only to
worldwide prudential insurance group supervision including
worldwide group governance, solvency and capital and reporting,
as applicable, by the commissioner or the commissioner of the
domiciliary state and will not be subject to group supervision
at the level of worldwide parent undertaking of the insurance or
reinsurance group by the qualified jurisdiction.
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(iv) Provides written confirmation by a competent regulatory
authority in the qualified jurisdiction that information
regarding insurers and their parent, subsidiary or affiliated
entities, if applicable, shall be provided to the commissioner
in accordance with a memorandum of understanding or similar
document between the commissioner and such qualified
jurisdiction, including, but not limited to, the international
association of insurance supervisors multilateral memorandum of
understanding or multilateral memoranda of understanding
coordinated by the National Association of Insurance
Commissioners.
(l) For purposes of this section, a "qualified jurisdiction"
means a jurisdiction that meets the requirements of subsection
(k).
Section 1.2. Sections 1701, 1702, 1703, 1704(a), 1705(a),
1706 and 1707 of the act are amended to read:
Section 1701. Purpose.--The purpose of this article is to
protect, subject to certain limitations, the persons specified
in section 1703(a) against failure in the performance of
contractual obligations, under life [and], health [insurance
policies] and annuity policies, plans or contracts specified in
section 1703(b), because of the impairment or insolvency of the
member insurer that issued the policies, plans or contracts. To
provide this protection, an association of member insurers is
created to pay benefits and to continue coverages as limited
herein, and [members] member insurers of the association are
subject to assessment to provide funds to carry out the purpose
of this article.
Section 1702. Definitions.--As used in this article the
following words and phrases shall have the meanings given to
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them in this section:
"Account." [Any] Either of the two accounts created under
section 1704.
"Association." The Pennsylvania Life and Health Insurance
Guaranty Association created under section 1704.
"Authorized assessment" or "authorized." The term when used
in the context of assessments means a resolution by the board of
directors has been passed whereby an assessment will be called
immediately or in the future from member insurers for a
specified amount. An assessment is authorized when the
resolution is passed.
"Benefit plan." A specific employee, union or association of
natural persons benefit plan.
"Called assessment" or "called." The term when used in the
context of assessments means that a notice has been issued by
the association to member insurers requiring that an authorized
assessment be paid within the time frame specified in the
notice. An authorized assessment becomes a called assessment
when notice is mailed by the association to member insurers.
"Commissioner." The Insurance Commissioner of the
Commonwealth.
"Contractual obligation." Any obligation under a policy or
contract or certificate under a group policy or contract or
portion thereof for which coverage is provided under section
1703.
"Covered [policy."] policy" or "covered contract." Any
policy or contract within the scope of this article under
section 1703.
"Department." The Insurance Department of the Commonwealth.
"Employee Retirement Income Security Act of 1974" or "ERISA."
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The Employee Retirement Income Security Act of 1974 (Public Law
93-406, 29 U.S.C. § 1001 et seq.).
"Extra contractual claims." The term shall include claims
relating to bad faith in the payment of claims, punitive or
exemplary damages or attorney costs and fees.
"Health benefit plan." Any hospital or medical expense
policy or certificate, RANLI PPO policy or subscriber contract,
hospital plan corporation, professional health services plan
corporation or health maintenance organization subscriber
contract or any other similar health contract. The term does not
include:
(1) Accident only insurance.
(2) Credit insurance.
(3) Dental only insurance.
(4) Vision only insurance.
(5) Medicare supplement insurance.
(6) Benefits for long-term care, home health care,
community-based care or any combination thereof.
(7) Disability income insurance.
(8) Coverage for on-site medical clinics.
(9) Specified disease, hospital confinement indemnity or
limited benefit health insurance if the types of coverage do not
provide coordination of benefits and are provided under separate
policies or certificates.
"Health maintenance organization." An organized system which
combines the delivery and financing of health care and which
provides basic health services to voluntarily enrolled
subscribers for a fixed prepaid fee as defined in the act of
December 29, 1972 (P.L.1701, No.364), known as the Health
Maintenance Organization Act.
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"Hospital plan corporation." A not-for-profit corporation
engaged in the business of maintaining and operating a nonprofit
hospital plan as defined in 40 Pa.C.S. Ch. 61 (relating to
hospital plan corporations).
"Impaired insurer." A member insurer which, after the
effective date of this article, is not an insolvent insurer and:
(1) is deemed by the Insurance Commissioner to be
potentially unable to fulfill its contractual obligations; or
(2) is placed under an order of rehabilitation or
conservation by a court of competent jurisdiction.
"Insolvent insurer." A member insurer which, after the
effective date of this article, is placed under an order of
liquidation by a court of competent jurisdiction with a finding
of insolvency.
"Internal Revenue Code of 1986." The Internal Revenue Code
of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.).
"Member insurer." Any insurer, RANLI PPO, hospital plan
corporation, professional health services plan corporation or
health maintenance organization licensed or which holds a
certificate of authority to transact in this Commonwealth any
kind of insurance, RANLI PPO business, hospital plan corporation
business, professional health services plan corporation business
or health maintenance organization business for which coverage
is provided under section 1703 and includes any insurer, RANLI
PPO, hospital plan corporation, professional health services
plan corporation or health maintenance organization whose
license or certificate of authority in this Commonwealth may
have been suspended, revoked, not renewed or voluntarily
withdrawn. The term does not include any of the following:
[(1) A nonprofit hospital or medical service organization.
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(2) A health maintenance organization.
(3)] (1) A fraternal benefit society.
[(4)] (2) A mandatory State pooling plan.
[(5)] (3) A mutual assessment company or any entity that
operates on an assessment basis.
[(6)] (4) An insurance exchange.
(5) An organization that is a qualified charity issuing only
qualified charitable gift annuities exempt from regulation under
the act of October 16, 1996 (P.L.712, No.127), known as the
Charitable Gift Annuity Exemption Act.
[(7)] (6) Any entity similar to any of the above.
"Moody's Corporate Bond Yield Average." The Monthly Average
Corporates as published by Moody's Investors Service, Inc., or
any successor thereto.
"Owner." The owner of a policy or contract. The terms
"policyholder," "contract holder" "policy owner" and "contract
owner" mean the person who is identified as the legal owner
under the terms of the policy or contract or who is otherwise
vested with legal title to the policy or contract through a
valid assignment completed in accordance with the terms of the
policy or contract and properly recorded as the owner on the
books of the member insurer. The terms "owner," "contract
owner," "policy owner," "policyholder" and "contract holder" do
not include persons with a mere beneficial interest in a policy
or contract.
"Person." Any individual, corporation, limited liability
company, partnership, association, governmental body or entity
or voluntary organization.
"Plan sponsor." The term includes:
(1) the employer in the case of a benefit plan established
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or maintained by a single employer;
(2) the employee organization in the case of a benefit plan
established or maintained by an employee organization; or
(3) in a case of a benefit plan established or maintained by
two (2) or more employers or jointly by one or more employers
and one or more employee organizations, the association,
committee, joint board of trustees or other similar group of
representatives of the parties that establish or maintain the
benefit plan.
"Premium or income tax." The tax imposed under Article IV or
IX of the act of March 4, 1971 (P.L.6, No.2), known as the Tax
Reform Code of 1971 .
"Premiums." The amounts received on covered policies or
contracts less premiums, considerations and deposits returned
thereon and less dividends and experience credits thereon. The
term does not include any amounts received for any policies or
contracts or for the portions of any policies or contracts for
which coverage is not provided under section 1703(b) except that
assessable premium shall not be reduced on account of sections
1703(b)(2)(iii) relating to interest limitations and 1703(c)(1)
(ii) relating to limitations with respect to any one individual,
any one participant and any one policy or contract holder. The
term does not include any premiums in excess of five million
($5,000,000) dollars on any unallocated annuity contract not
issued under a governmental retirement plan established under
section 401, 403(b) or 457 of the Internal Revenue Code of 1986
(Public Law 99-514, 26 U.S.C. § 1 et seq.). The term does not
include, with respect to multiple nongroup policies of life
insurance owned by one owner, whether the policy or contract
owner is an individual, firm, corporation or other person, and
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whether the persons insured are officers, managers, employees or
other persons, premiums in excess of five million ($5,000,000)
dollars with respect to these policies or contracts, regardless
of the number of policies or contracts held by the owner.
"Principal place of business." The following apply:
(1) The principal place of business of a plan sponsor or a
person other than a natural person means the single state in
which the natural persons who establish policy for the
direction, control and coordination of the operations of the
entity as a whole primarily exercise that function, determined
by the association in its reasonable judgment by considering all
the following factors:
(i) The state in which the primary executive and
administrative headquarters of the entity is located.
(ii) The state in which the principal office of the chief
executive officer of the entity is located.
(iii) The state in which the board of directors or similar
governing person or persons of the entity conducts the majority
of its meetings.
(iv) The state in which the executive or management
committee of the board of directors, or similar governing person
or persons, of the entity conducts the majority of its meetings.
(v) The state from which the management of the overall
operations of the entity is directed.
(vi) In the case of a benefit plan sponsored by affiliated
companies comprising a consolidated corporation, the state in
which the holding company or controlling affiliate has its
principal place of business as determined using the factors
under subparagraphs (i), (ii), (iii), (iv), (v) and (vi).
(2) If, in the case of a plan sponsor, more than fifty
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percent (50%) of the participants in the benefit plan are
employed in a single state, that state shall be deemed to be the
principal place of business of the plan sponsor.
(3) The principal place of business of a plan sponsor of a
benefit plan described in paragraph (3) under the definition of
plan sponsor in this section shall be deemed to be the principal
place of business of the association, committee, joint board of
trustees or other similar group of representatives of the
parties who establish or maintain the benefit plan that, in lieu
of a specific or clear designation of a principal place of
business, shall be deemed to be the principal place of business
of the employer or employee organization that has the largest
investment in the benefit plan in question.
"Professional health services plan corporation." A person
engaged in the business of maintaining and operating a nonprofit
health service plan as defined in 40 Pa.C.S. Ch. 63 (relating to
professional health services plan corporations).
"RANLI PPO." An entity not licensed as an insurance company
but assuming risk as defined in section 630.
"Receivership court." The court in the insolvent insurer's
or impaired insurer's state having jurisdiction over the
conservation, rehabilitation or liquidation of the member
insurer.
"Resident." Any person who resides in this Commonwealth at
the time a member insurer is determined to be an impaired or
insolvent insurer and to whom a contractual obligation is owed.
A person may be a resident of only one state, which, in the case
of a person other than a natural person, shall be its principal
place of business. Citizens of the United States who are
residents of foreign countries or residents of United States
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possessions, territories or protectorates that do not have an
association similar to the association created by this article
shall be deemed residents of the state of domicile of the member
insurer that issued the policies or contracts.
"Structured settlement annuity." An annuity purchased in
order to fund periodic payments for a plaintiff or other
claimant in payment for or with respect to personal injury
suffered by the plaintiff or other claimant.
"State." A state, the District of Columbia, Puerto Rico,
and a United States possession, territory or protectorate.
"Supplemental contract." Any agreement entered into for the
distribution of policy or contract proceeds.
"Unallocated annuity contract." Any annuity contract or
group annuity certificate which is not issued to and owned by an
individual, except to the extent of any annuity benefits
guaranteed to an individual by an insurer under such contract or
certificate.
Section 1703. Coverage and Limitations.--(a) This article
shall provide coverage to the following persons for the policies
and contracts specified in subsection (b):
(1) To persons who, regardless of where they reside, except
for nonresident certificate holders or enrollees under group
policies or contracts, are the beneficiaries, assignees or
payees, including health care providers rendering services
covered under health insurance policies or certificates of the
persons covered under paragraph (2).
(2) To persons who are owners of or certificate holders or
enrollees under these policies or contracts [or, in the case
of], other than unallocated annuity contracts[, to the persons
who are the contract holders] and structured settlement
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annuities, and who:
(i) are residents; or
(ii) are not residents, but only under all of the following
conditions:
(A) the [insurers which] member insurer that issued such
policies or contracts [are] is domiciled in this Commonwealth;
(B) [such insurers never held a license or certificate of
authority in the states in which such persons reside;] the
states in which the persons reside have associations similar to
the association created by this article; and
[(C) these states have associations similar to the
association created by this article; and
(D) these] (C) the persons are not eligible for coverage by
[those associations.] associations in any other state due to the
fact that such insurers, RANLI PPOs, hospital plan corporations,
professional health services plan corporations, or health
maintenance organizations were not licensed or did not hold a
certificate of authority in the states in which the persons
reside at the time specified in the state's guaranty association
law.
(3) For unallocated annuity contracts specified in
subsection (b), paragraphs (1) and (2) shall not apply, and this
article shall, except as provided in paragraphs (5) and (6),
provide coverage to:
(i) Persons who are the owners of the unallocated annuity
contracts if the contracts are issued to or in connection with a
specific benefit plan whose plan sponsor has its principal place
of business in this Commonwealth.
(ii) Persons who are owners of unallocated annuity contracts
issued to or in connection with government lotteries if the
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owners are residents.
(4) For structured settlement annuities specified in
subsection (b), paragraphs (1) and (2) shall not apply, and this
article shall, except as provided in paragraphs (5) and (6),
provide coverage to a person who is a payee under a structured
settlement annuity or beneficiary of a payee if the payee is
deceased, if the payee:
(i) is a resident, regardless of where the contract owner
resides; or
(ii) is not a resident, but only under both of the following
conditions:
(A) (I) the contract owner of the structured settlement
annuity is a resident; or
(II) the contract owner of the structured settlement annuity
is not a resident; but
(a) the member insurer that issued the structured settlement
annuity is domiciled in this Commonwealth; and
(b) the state in which the contract owner resides has an
association similar to the association created by this article;
and
(B) neither the payee or beneficiary nor the contract owner
is eligible for coverage by the association of the state in
which the payee or contract owner resides.
(5) This article shall not provide coverage to:
(i) a person who is a payee or beneficiary of a contract
owner resident of this Commonwealth, if the payee or beneficiary
is afforded any coverage by the association of another state;
(ii) a person covered under paragraph (3), if any coverage
is provided by the association of another state to the person;
or
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(iii) a person who acquires rights to receive payments
through a structured settlement factoring transaction as defined
in 26 U.S.C. 5891(c)(3)(A) (relating to the taxation of
structured settlement factoring transactions), regardless of
whether the transaction occurred before or after the section
became effective.
(6) This article is intended to provide coverage to a person
who is a resident of this Commonwealth and, in special
circumstances, to a nonresident. In order to avoid duplicate
coverage, if a person who would otherwise receive coverage under
this article is provided coverage under the laws of any other
state, the person shall not be provided coverage under this
article. In determining the application of the provisions of
this paragraph in situations where a person could be covered by
the association of more than one state, whether as an owner,
payee, enrollee, beneficiary or assignee, this article shall be
construed in conjunction with other state laws to result in
coverage by only one association.
(b) (1) This article shall provide coverage to the persons
specified in subsection (a) for policies or contracts of direct,
nongroup life insurance, health[, annuity] insurance, which for
the purposes of this article includes, RANLI PPO, hospital plan
corporation, professional health services plan corporation and
health maintenance organization subscriber policies, contracts,
and certificates, or annuities and supplemental [policies or]
contracts to any of these, for certificates under direct group
policies and contracts and for unallocated annuity contracts
issued by member insurers, except as limited by this article.
Annuity contracts and certificates under group annuity contracts
include, but are not limited to, guaranteed investment
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contracts, deposit administration contracts, unallocated funding
agreements, allocated funding agreements, structured settlement
[agreements, lottery contracts] annuities, annuities issued to
or in connection with government lotteries and any immediate or
deferred annuity contracts.
(2) [This] Except as otherwise provided in paragraph (3),
this article shall not provide coverage for any of the
following:
(i) Any portion of a policy or contract not guaranteed by
the member insurer or under which the risk is borne by the
policy or contract holder.
(ii) Any policy or contract of reinsurance, unless
assumption certificates have been issued.
(iii) Any portion of a policy or contract to the extent that
the rate of interest on which it is based[:], or the interest
rate, crediting rate or similar factor determined by use of an
index or other external reference stated in the policy or
contract employed in calculating returns or changes in value:
(A) averaged over the period of four (4) years prior to the
date on which the [association] member insurer becomes
[obligated with respect to such policy or contract] an impaired
or insolvent insurer under this article, whichever is earlier,
exceeds a rate of interest determined by subtracting two (2)
percentage points from Moody's Corporate Bond Yield Average
averaged for the same four-year period or for such lesser period
if the policy or contract was issued less than four (4) years
before the [association became obligated] member insurer becomes
an impaired or insolvent insurer under this article, whichever
is earlier; and
(B) on and after the date on which the [association] member
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insurer becomes [obligated with respect to such policy or
contract] an impaired or insolvent insurer under this article,
whichever is earlier, exceeds the rate of interest determined by
subtracting three (3) percentage points from Moody's Corporate
Bond Yield Average as most recently available.
(iv) Any portion of a policy or contract issued to a plan or
program of an employer, association or similar entity to provide
life, health or annuity benefits to its [employes or] employees,
members or others to the extent that such plan or program is
self-funded or uninsured, including, but not limited to,
benefits payable by an employer, association or similar entity
under:
(A) a Multiple Employer Welfare Arrangement as defined in
section [514] 3(40) of the Employee Retirement Income Security
Act of 1974 (Public Law 93-406, 29 U.S.C. § 1002(40));
(B) a minimum premium group insurance plan;
(C) a stop-loss group insurance plan; or
(D) an administrative services only contract.
(v) Any portion of a policy or contract to the extent that
it provides dividends or experience rating credits [or provides
that], voting rights or for the payment of any fees or
allowances [to be paid] to any person, including the
policyholder or contract holder, in connection with the service
to or administration of such policy or contract.
(vi) Any policy or contract issued in this Commonwealth by a
member insurer at a time when it was not licensed or did not
have a certificate of authority to issue such policy or contract
in this Commonwealth.
(vii) Any unallocated annuity contract issued to an
[employe] employee benefit plan protected under the Federal
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Pension Benefit Guaranty Corporation[.], regardless of whether
the Federal Pension Benefit Guaranty Corporation has yet become
liable to make any payments with respect to the benefit plan.
(viii) Any portion of any unallocated annuity contract which
is not issued to or in connection with a specific [employe]
employee, union or association of natural persons benefit plan
or a government lottery.
(ix) A portion of a policy or contract to the extent that
the assessments required by section 1707 with respect to the
policy or contract are preempted by Federal or State law.
(x) An obligation that does not arise under the express
written terms of the policy or contract issued by the member
insurer to the enrollee, certificate holder, contract owner or
policy owner, including, without limitation:
(A) claims based on marketing materials;
(B) claims based on side letters, riders or other documents
that were issued by the member insurer without meeting
applicable policy or contract form filing or approval
requirements;
(C) misrepresentations of or regarding policy or contract
benefits;
(D) extracontractual claims; or
(E) a claim for penalties or consequential or incidental
damages.
(xi) A contractual agreement that establishes the member
insurer's obligations to provide a book value accounting
guaranty for defined contribution benefit plan participants by
reference to a portfolio of assets that is owned by the benefit
plan or its trustee, which in each case is not an affiliate of
the member insurer.
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(xii) A portion of a policy or contract to the extent it
provides for interest or other changes in value to be determined
by the use of an index or other external reference stated in the
policy or contract, but which have not been credited to the
policy or contract, or as to which the policy or contract
owner's rights are subject to forfeiture, as of the date the
member insurer becomes an impaired or insolvent insurer under
this article, whichever is earlier. If a policy's or contract's
interest or changes in value are credited less frequently than
annually, then for purposes of determining the values that have
been credited and are not subject to forfeiture under this
subparagraph, the interest or change in value determined by
using the procedures defined in the policy or contract will be
credited as if the contractual date of crediting interest or
changing values was the date of impairment or insolvency,
whichever is earlier, and will not be subject to forfeiture.
(xiii) A policy or contract providing any hospital, medical,
prescription drug or other health care benefits under Part C or
Part D of Title XVIII of the Social Security Act (Public Law 74-
271, 42 U.S.C. § 1395 et seq.), Title XIX of the Social Security
Act (Public Law 74-271, 42 U.S.C. § 1396 et seq.), Article
XXIII-A or any regulations issued pursuant thereto.
(xiv) Structured settlement annuity benefits to which a
payee or beneficiary has transferred the payee's or
beneficiary's rights in a structured settlement factoring
transaction as defined in 26 U.S.C. § 5891(c)(3)(A) (relating to
the taxation of structured settlement factoring transactions),
regardless of whether the transaction occurred before or after
the section became effective.
(3) The exclusion from coverage referenced in paragraph (2)
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(iii) shall not apply to any portion of a policy or contract,
including a rider, that provides long-term care or any other
health insurance benefits.
(c) (1) The benefits for which the association may become
liable shall in no event exceed the lesser of:
(i) the contractual obligations for which the member insurer
is liable or would have been liable if it were not an impaired
or insolvent insurer; or
(ii) (A) With respect to any one life, regardless of the
number of policies or contracts, the following shall apply:
(I) Three hundred thousand ($300,000) dollars [in] for life
insurance death benefits, but not more than one hundred thousand
($100,000) dollars in net cash surrender and net cash withdrawal
values for life insurance.
[(II) Three hundred thousand ($300,000) dollars in health
insurance benefits, including any net cash surrender and net
cash withdrawal values.
(III) Three hundred thousand ($300,000) dollars in annuity
benefits, including one hundred thousand ($100,000) dollars in
net cash surrender and net cash withdrawal values.
(IV) Three hundred thousand ($300,000) dollars in long-term
care insurance benefits, as defined under section 1103,
including any cash surrender and net cash withdrawal values.]
(II) For health insurance benefits:
(1) One hundred thousand ($100,000) dollars for coverages or
benefits not defined as disability income insurance as defined
by 31 Pa. Code § 88.167 (relating to disability income
protection coverage) , health benefit plans as defined by section
1702 of this article or long-term care insurance as defined in
section 1103, including any net cash surrender and net cash
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withdrawal values.
(2) Three hundred thousand ($300,000) dollars for disability
income insurance, as defined by 31 Pa. Code § 88.167, and long-
term care insurance benefits as defined under section 1103,
including any cash surrender and net cash withdrawal values.
(3) Five hundred thousand ($500,000) dollars for health
benefit plans.
(III) Two hundred fifty thousand ($250,000) dollars in the
present value of annuity benefits, including net cash surrender
and net cash withdrawal values.
(B) With respect to each individual participating in a
governmental retirement plan established under section 401,
403(b) or 457 of the Internal Revenue Code of 1986 covered by an
unallocated annuity contract or the beneficiaries of each such
individual if deceased, in the aggregate, [three hundred
thousand ($300,000)] two hundred fifty thousand ($250,000)
dollars in [annuity benefits, including one hundred thousand
($100,000) dollars in] present value annuity benefits, including
net cash surrender and net cash withdrawal values.
(C) With respect to each payee of a structured settlement
annuity, or beneficiary or beneficiaries of the payee if
deceased, two hundred fifty thousand ($250,000) dollars in
present value annuity benefits, in the aggregate, including net
cash surrender and net cash withdrawal values, if any.
[(C)] (D) With respect to [any] either one contract [holder
covered by any] owner provided coverage under subsection (a)(3)
(ii) or one plan sponsor whose plans own directly or in trust
one or more unallocated annuity [contract] contracts not
included in clause (B), five million ($5,000,000) dollars in
benefits, irrespective of the number of such contracts held by
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