§431:5-306 Reserve credit for reinsurance. (a) An insurer may take credit for reserves on risks ceded to a reinsurer to the extent reinsured, except that:

(1) No credit shall be taken on account of reinsurance in any reinsurer not qualified under article 4A or in any reinsurer that has been disapproved by the commissioner; and

(2) No credit shall be allowed, as an asset or as a deduction from liability, to any ceding insurer for reinsurance unless the reinsurance is payable by the assuming insurer on the basis of the liability of the ceding insurer under the contracts reinsured without diminution because of the insolvency of the ceding insurer.

(b) A reinsurance agreement may provide that:

(1) The liquidator, receiver or statutory successor of an insolvent ceding insurer shall be given written notice of the pendency of a claim against the insolvent ceding insurer on the policy or bond reinsured within a reasonable time after the claim is filed in the insolvency proceeding; and

(2) Any assuming insurer may investigate such claim and interpose any defense or defenses which it may deem available to the ceding insurer, its liquidator, receiver, or statutory successor, during the pendency of the claim, in the proceeding where the claim is to be adjudicated, at its own expense.

(c) Subject to court approval, the expense thus incurred by the assuming insurer shall be chargeable against the insolvent ceding insurer as a part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the ceding insurer solely as a result of the defense undertaken by the assuming insurer.

(d) Where two or more assuming insurers are involved in the same claim and a majority in interest elect to interpose defense to the claim, the expense shall be apportioned in accordance with the terms of the reinsurance agreement as though the expense had been incurred by the ceding insurer. [L 1987, c 347, pt of §2; am L 2004, c 122, §18]