SCS/SB 978 - This act amends the "Insurers Supervision, Rehabilitation and Liquidation Act" (Sections 375.1150 to 375.1246), to provide for the treatment of qualified financial contracts in insurance insolvency proceedings. The central purpose of the act is to increase certainty of insurers and their creditors with respect to the enforceability of certain financial market transactions and related netting agreements in the event of an insurer insolvency. To accomplish this, this act adopts certain termination, netting, and liquidation provisions applicable to derivative transactions that are contained in the latest version of the NAIC Insurance Receivership Model Act (IRMA).
The act provides definitions for specific types of financial contracts commonly used in the financial markets, including commodity contracts, forward contracts, qualified financial contracts, and the related netting agreements. As defined in this act, "qualified financial contracts" encompass a range of commonly traded financial market contracts, including over-the counter and exchange traded derivatives, such as swap agreements, forward contracts, securities contracts, repurchase (repo) agreements, and commodity contracts. The act also provides a definition for the term "netting agreement". A "netting agreement" is defined, based upon IRMA, as a contract or agreement that documents one or more transactions between the parties for or involving one or more qualified financial contracts and that provides for the netting or liquidation of qualified financial contracts or present or future payment obligations or payment entitlements thereunder (Section 375.1152).
The act provides for the enforcement and recognition of the contractual rights of the insurer's counterparties under qualified financial contracts, netting agreements, and related security agreements to terminate, accelerate, and close out such contracts, to offset and net off obligations owing under such contracts, and to enforce any security rights under such agreements, fee of any stay or prohibition that might otherwise apply under a delinquency proceeding (subsection 3 of Section 375.1155 and subsection 1 of Section 375.1191).
This act provides for the transfer of any net or settlement amount owing under a qualified financial contract by the nondefaulting party to the insurer to the receiver. If netting results in an amount owing to the insurer, this provision confirms that the receiver steps into the "insurer's shoes" as to that net amount (subsection 2 of Section 375.1191).
The act provides for the transfer of all netting agreements and qualified financial contracts between an insurer and a single counterparty and its affiliates together if a bulk transfer of insurer liabilities or contracts is made by the receiver (subsections 3 and 4 of Section 375.1191).
This act provides for validation of payments and transfers of money and property under netting agreements and qualified financial contracts made prior to the commencement of a formal delinquency proceeding, unless such transfers were made with actual intent to hinder, delay or defraud the insurer, the receiver appointed for the insurer, or other creditors (subsection 5 of Section 375.1191).
This act provides that if the receiver disaffirms or repudiates any qualified financial contracts or netting agreements with a counterparty, the receiver must disaffirm or repudiate all such contacts (subsection 6 of Section 375.1191). The act also establishes the amount of the counterparty's claim in the event of disaffirmance or repudiations. The amount of a claim for damages shall be actual direct compensatory damages as of the date of the date of the disaffirmance or repudiation of the netting agreement or qualified financial contract.
These provisions are contained in the truly agreed to version of SB 583 (2010).