District of Columbia Code
Subchapter II - Special Purpose Financial Captive Insurance Companies
§ 31–3932.08. Trust arrangements

(a) Assets of the SPFC that are pledged to secure obligations of the SPFC to a counterparty under an SPFC contract shall be held in trust that is administered by a qualified United States financial institution. The qualified United States financial institution shall not control, be controlled by, or be under common control with, the SPFC or the counterparty.
(b) Assets of the SPFC held in trust to secure obligations under the SPFC contract shall at all times be held in:
(1) Cash and cash equivalents;
(2) Securities listed by the Securities Valuation Office of the National Association of Insurance Commissioners and qualifying as admitted assets under statutory accounting convention in its state of domicile; or
(3) Another form of security acceptable to the Commissioner.
(c) Assets of an SPFC held in trust to secure obligations under an SPFC contract shall be held by the trustee at one of the trustee’s offices or branch offices in the United States and may be held in certificated or electronic form.
(d) The provisions for withdrawal by the counterparty of assets from the trust shall be clean and unconditional, subject only to the following requirements:
(1) The counterparty may withdraw assets from the trust account at any time, without notice to the SPFC, subject only to written notice to the trustee from the counterparty that funds in the amount requested are due and payable by the SPFC, pursuant to the terms of the SPFC contract.
(2) Presentment of a statement or document shall not be required to withdraw assets, except that the counterparty may be required to acknowledge receipt of withdrawn assets.
(3) The trust agreement shall indicate that it is not subject to any conditions or qualifications outside of the trust agreement.
(4) The trust agreement shall not contain references to any other agreements or documents.
(e) The trust agreement shall be established for the sole use and benefit of the counterparty at least to the full extent of the obligations of the SPFC to the counterparty under the SPFC contract. If there is more than one counterparty, a separate trust agreement shall be entered into with each counterparty and, if there more than one SPFC contract with the same counterparty, a separate trust account shall be maintained for each SPFC contract with the counterparty, in each case unless otherwise approved by the Commissioner.
(f) The trust agreement shall provide for the trustee to:
(1) Receive assets and hold all assets in a safe place;
(2) Determine that all assets are in a form that the counterparty or the trustee, upon direction by the counterparty, may transfer, whenever necessary, the assets, without consent or signature from the SPFC or another person or entity;
(3) Furnish to the SPFC, the Commissioner, and the counterparty a statement of all assets in the trust account reported at fair value upon its inception and at intervals no less frequent than the end of each calendar quarter;
(4) Notify the SPFC and the counterparty, within 10 days, of any deposits to or withdrawals from the trust account;
(5) Upon written demand of the counterparty, immediately take the necessary steps to transfer absolutely and unequivocally all right, title, and interest in the assets held in the trust account to the counterparty and deliver physical custody of the assets to the counterparty; and
(6) Allow no substitutions or withdrawals of assets from the trust account, except pursuant to the trust agreement or SPFC contract, or as otherwise permitted by the counterparty.
(g) The trust agreement:
(1) Shall create one or more trust accounts into which all pledged assets shall be deposited and held until distributed in accordance with the trust agreement;
(2) Shall provide that at least 30 days, but not more than 45 days, before termination of the trust account, written notification of termination shall be delivered by the trustee to the counterparty with a copy of the notice provided to the Commissioner;
(3) May be made subject to and governed by the laws of any state; provided, that the state shall be disclosed in the strategic business plan filed with and approved by the Commissioner;
(4) Shall prohibit invasion of the trust corpus for the purpose of paying compensation to, or reimbursing the expenses of, the trustee; and
(5) Shall provide that the trustee shall be liable for its own negligence, willful misconduct, or lack of good faith.
(h)(1) Notwithstanding the provisions of subsection (d)(3) and (4) of this section, when a trust agreement is established in conjunction with an SPFC contract, the trust agreement or SPFC contract, or both, may provide that the counterparty shall undertake to use and apply any amounts drawn upon the trust account, without diminution because of the insolvency of the counterparty or the SPFC, only for one or more of the following purposes:
(A) To pay or reimburse the counterparty for payment of the SPFC’s share of premiums to be returned to owners of the counterparty’s policies covered under the SPFC contract on account of cancellations of the policies under the counterparty’s policies;
(B) To pay or reimburse the counterparty for payment of the SPFC’s share of surrenders, benefits, losses, or other benefits covered and payable pursuant to the provisions of the SPFC contract;
(C) To fund an account with the counterparty in an amount to secure the credit or reduction from liability for reinsurance coverage provided under the SPFC contract; or
(D) To pay any other amounts the counterparty claims are due under the SPFC contract.
(2) Any assets deposited into an account of the counterparty pursuant to paragraph (1)(C) of this subsection, or withdrawn by the counterparty pursuant to subparagraph (1)(D) of this subsection, and any interest or other earnings on them, shall be held by the counterparty in trust and separate and apart from any general assets of the counterparty, for the sole purpose of funding the payments and reimbursements of the SPFC contract described in paragraph (1) of this subsection.
(3) The counterparty shall return to the SPFC:
(A) Amounts withdrawn under paragraph (1) of this subsection in excess of actual amounts required under paragraph (1)(A) through (C) of this subsection, and in excess of the amounts subsequently determined to be due under paragraph (1)(D) of this subsection;
(B) Interest at a rate not in excess of the prime rate for the amounts held pursuant to paragraph (1) of this subsection, unless a higher rate of interest has been awarded by a panel of arbitration; and
(C) Any net costs or expenses, including attorneys’ fees, awarded by a panel of arbitration.
(4) If the counterparty has received notification of termination of the trust account, and if the SPFC’s entire obligations secured under the specific SPFC contract remain unliquidated and undischarged 10 days before the termination date, the trust agreement shall permit the counterparty to withdraw amounts equal to the obligations and deposit the amounts in a separate account, in the name of the counterparty, in a qualified United States financial institution, separate and apart from the counterparty’s general assets, to the extent the obligations or liabilities have not been funded by the SPFC, in trust only for those uses and purposes specified in paragraph (1)(A) of this subsection as may remain executory after the withdrawal and for any period after the termination date until discharged.
(Mar. 17, 2005, D.C. Law 15-262, § 208; as added Mar. 14, 2007, D.C. Law 16-285, § 2(b), 54 DCR 944.)