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§431:11-106  Standards and management of an insurer within a holding company system


Published: 2015

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     §431:11-106  Standards and management of an

insurer within a holding company system.

  (a)(1)  [Subsection effective January 1, 2016.  For

subsection effective until December 31, 2015, see below.]  Transactions within an insurance holding company system to which an

insurer subject to registration is a party shall be subject to the following

standards:

         (A)  The terms shall be fair and reasonable;

         (B)  Agreements for cost sharing services and

management shall include provisions as required by rule adopted by the

commissioner;

         (C)  Charges or fees for services performed shall be reasonable;

         (D)  Expenses

incurred and payment received shall be allocated to the insurer in conformity

with customary insurance accounting practices consistently applied;

         (E)  The

books, accounts, and records of each party to all transactions shall be

maintained so as to clearly and accurately disclose the nature and details of

the transactions including the accounting information necessary to support the

reasonableness of the charges or fees to the respective parties; and

         (F)  The

insurer's surplus as regards policyholders following any dividends or

distributions to shareholder affiliates shall be reasonable in relation to the

insurer's outstanding liabilities and adequate to its financial needs;

     (2)  The following transactions involving a

domestic insurer and any person in its insurance holding company system,

including amendments or modifications of affiliate agreements previously filed

pursuant to this section, which are subject to any materiality standards found

in subparagraphs (A) through (G), shall not be entered into unless the insurer

has notified the commissioner in writing of its intention to enter into the

transaction at least thirty days prior to the transaction, or a shorter period

as the commissioner may permit, and the commissioner has not disapproved the

transaction within that period; provided that the notice for amendments or

modifications shall include the reasons for the change and the financial impact

on the domestic insurer; provided further that informal notice shall be

reported within thirty days after a termination of a previously filed agreement

to the commissioner for determination of the type of filing required, if any:

         (A)  Sales, purchases, exchanges, loans,

extensions of credit, or investments; provided that the transactions are equal

to or exceed:

              (i)  With respect to nonlife insurers, the

lesser of three per cent of the insurer's admitted assets or twenty-five per

cent of surplus as regards policyholders as of the December 31 next preceding;

or

             (ii)  With respect to life insurers, three per

cent of the insurer's admitted assets as of the December 31 next preceding;

         (B)  Loans or extensions of credit to any

person who is not an affiliate, where the insurer makes the loans or extensions

of credit with the agreement or understanding that the proceeds of the

transactions, in whole or in substantial part, are to be used to make loans or

extensions of credit to, to purchase assets of, or to make investments in, any

affiliate of the insurer making the loans or extensions of credit; provided

that the transactions are equal to or exceed:

              (i)  With respect to nonlife insurers, the

lesser of three per cent of the insurer's admitted assets or twenty-five per cent

of surplus as regards policyholders as of the December 31 next preceding; or

             (ii)  With respect to life insurers, three per

cent of the insurer's admitted assets as of the December 31 next preceding;

         (C)  Reinsurance agreements or modifications

to reinsurance agreements, including:

              (i)  All reinsurance pooling agreements;

             (ii)  Agreements in which the reinsurance premium

or a change in the insurer's liabilities, or the projected reinsurance premium

or a change in the insurer's liabilities in any of the next three years, equals

or exceeds five per cent of the insurer's surplus as regards policyholders, as

of the December 31 next preceding, including those agreements that may require

as consideration the transfer of assets from an insurer to a nonaffiliate, if

an agreement or understanding exists between the insurer and nonaffiliate that

any portion of the assets will be transferred to one or more affiliates of the

insurer;

         (D)  All management agreements, service

contracts, tax allocation agreements, guarantees, and all cost-sharing

arrangements;

         (E)  Guarantees when made by

a domestic insurer; provided that a guarantee that is quantifiable as to amount

shall not be subject to the notice requirements of this paragraph unless it

exceeds the lesser of one-half of one per cent of the insurer's admitted assets

or ten per cent of surplus as regards policyholders as of the December 31 next

preceding.  All guarantees that are not quantifiable as to amount are subject

to the notice requirements of this paragraph;

         (F)  Direct or indirect

acquisitions or investments in a person that controls the insurer or in an

affiliate of the insurer in an amount that, together with its present holdings

in such investments, exceeds two and one-half per cent of the insurer's surplus

to policyholders.  Direct or indirect acquisitions or investments in

subsidiaries acquired pursuant to section 431:11-103, or in nonsubsidiary

insurance affiliates that are subject to this article, are exempt from this

requirement; and

         (G)  Any material

transactions, specified by rule, that the commissioner determines may adversely

affect the interests of the insurer's policyholders.

          Nothing

in this paragraph shall be deemed to authorize or permit any transactions that,

in the case of an insurer not a member of the same insurance holding company

system, would be otherwise contrary to law;

     (3)  A domestic insurer may not enter into

transactions that are part of a plan or series of like transactions with

persons within the insurance holding company system if the purpose of those

separate transactions is to avoid the statutory threshold amount and thus avoid

the review that would otherwise occur; provided that the commissioner

determines that the separate transactions were entered into over any twelve-month

period for that purpose, the commissioner may exercise the commissioner's

authority under section 431:11-111;

     (4)  The commissioner, in reviewing

transactions pursuant to paragraph (2), shall consider whether the transactions

comply with the standards set forth in paragraph (1) and whether the

transactions may adversely affect the interests of policyholders; and

     (5)  The commissioner shall be

notified within thirty days of any investment of the domestic insurer in any

one corporation if the total investment in the corporation by the insurance

holding company system exceeds ten per cent of the corporation's voting

securities.

 

  (a)(1)  [Subsection effective

until December 31, 2015.  For subsection effective January 1, 2016, see above.] 

Transactions within a holding company system to which an

insurer subject to registration is a party shall be subject to the following

standards:

         (A)  The terms shall be fair and reasonable;

         (B)  Charges or fees for services performed

shall be reasonable;

         (C)  Expenses incurred and payment received

shall be allocated to the insurer in conformity with customary insurance

accounting practices consistently applied;

         (D)  The books, accounts, and records of each

party to all transactions shall be maintained so as to clearly and accurately

disclose the nature and details of the transactions including the accounting

information necessary to support the reasonableness of the charges or fees to

the respective parties; and

         (E)  The insurer's surplus as regards

policyholders following any dividends or distributions to shareholder

affiliates shall be reasonable in relation to the insurer's outstanding

liabilities and adequate to its financial needs;

     (2)  The following transactions involving a

domestic insurer and any person in its holding company system shall not be

entered into unless the insurer has notified the commissioner in writing of its

intention to enter into the transaction at least thirty days prior to

the transaction, or a shorter period as the commissioner may

permit, and the commissioner has not disapproved the

transaction within that period:

         (A)  Sales, purchases, exchanges, loans or

extensions of credit, guarantees, or investments; provided that the

transactions are equal to or exceed:

              (i)  With respect to nonlife insurers, the

lesser of three per cent of the insurer's admitted assets or twenty-five per

cent of surplus as regards policyholders each as of the thirty-first day of

December next preceding; or

             (ii)  With respect to life insurers, three per

cent of the insurer's admitted assets as of the thirty-first day of December

next preceding;

         (B)  Loans or extensions of credit to any

person who is not an affiliate, where the insurer makes the loans or extensions

of credit with the agreement or understanding that the proceeds of the

transactions, in whole or in substantial part, are to be used to make loans or

extensions of credit to, to purchase assets of, or to make investments in, any

affiliate of the insurer making the loans or extensions of credit; provided that

the transactions are equal to or exceed:

              (i)  With respect to nonlife insurers, the

lesser of three per cent of the insurer's admitted assets or twenty-five per

cent of surplus as regards policyholders each as of the thirty-first day of

December next preceding; or

             (ii)  With respect to life insurers, three per

cent of the insurer's admitted assets as of the thirty-first day of December

next preceding;

         (C)  Reinsurance agreements or modifications to

reinsurance agreements in which the reinsurance premium or a

change in the insurer's liabilities equals or exceeds five per cent of the

insurer's surplus as regards policyholders as of the thirty-first day of

December next preceding, including those agreements that may require as consideration the transfer of assets from an

insurer to a nonaffiliate if an agreement or understanding exists between the

insurer and nonaffiliate that any portion of the assets will be transferred to

one or more affiliates of the insurer;

         (D)  All management agreements, service contracts,

and cost-sharing arrangements; and

         (E)  Any material transactions, specified by

rule, which the commissioner determines may adversely affect the interests of

the insurer's policyholders.

          Nothing in this section shall be deemed to

authorize or permit any transactions which, in the case of an insurer not a

member of the same holding company system, would be otherwise contrary to law;

     (3)  A domestic insurer may not

enter into transactions that are part of a plan or

series of like transactions with persons within the holding company system if

the purpose of those separate transactions is to avoid the statutory threshold

amount and thus avoid the review that would otherwise occur; provided

that the commissioner determines that the separate transactions

were entered into over any twelve-month period for that purpose, the

commissioner may exercise the commissioner's authority under section

431:11-111;

     (4)  The

commissioner, in reviewing transactions pursuant to subsection (a)(2), shall

consider whether the transactions comply with the standards set forth in

subsection (a)(1) and whether the transactions may

adversely affect the interests of policyholders; and

     (5)  The commissioner shall be notified

within thirty days of any investment of the domestic insurer in any one person

if the total investment in the person by the insurance holding company system

exceeds ten per cent of the person's voting securities or

the domestic insurer possesses control of the person as the term "control" is defined in section 431:11-102.

  (b)(1)  No domestic insurer shall pay

any extraordinary dividend or make any other extraordinary distribution to its

shareholders until:

         (A)  Thirty days after the

commissioner has received notice of the declaration thereof and has not within

the period disapproved the payment; or

         (B)  The commissioner has

approved the payment within the thirty-day period.

     (2)  For purposes of this section,

an extraordinary dividend or distribution includes any dividend or distribution

of cash or other property, whose fair market value together with that of other

dividends or distributions made within the preceding twelve months exceeds the

lesser of:

         (A)  Ten per cent of the

insurer's surplus as regards policyholders as of the thirty-first day of

December next preceding; or

         (B)  The net gain from

operations of a life insurer, or the net income, if the insurer is not a life

insurer, not including realized capital gains, for the twelve-month period

ending the thirty-first day of December next preceding.

          Extraordinary dividend or distribution shall

not include pro rata distributions of any class of the insurer's own

securities.

              In determining whether a dividend or

distribution is extraordinary, an insurer other than a life insurer may carry

forward income from the previous two calendar years that has not already been

paid out as dividends.  This carry-forward shall be computed by taking the net

income from the second and third preceding calendar years, not including

realized capital gains, less dividends paid in the second and immediate

preceding calendar years.

              Notwithstanding any other provisions of

law, an insurer may declare an extraordinary dividend or distribution that is

conditional upon the commissioner's approval thereof, and the declaration shall

confer no rights upon shareholders until the commissioner has either approved

the payment of the dividend or distribution or has not disapproved the payment

within the thirty-day period referred to above.

 

  (c)(1)  [Subsection

effective January 1, 2016.  For subsection effective until December 31, 2015,

see below.]  Notwithstanding the control of a domestic

insurer by any person, the officers and directors of the insurer shall not

thereby be relieved of any obligation or liability to which they would otherwise

be subject to by law.  The insurer shall be managed so as to assure its

separate operating identity consistent with this article.

     (2)  Nothing in this section shall preclude a

domestic insurer from having or sharing a common management or cooperative or

joint use of personnel, property, or services with one or more other persons

under arrangements meeting the standards of subsection (a)(1).

     (3)  At least one-third of the

directors of a domestic insurer, and at least one-third of the members of each

committee of the board of directors of any domestic insurer, shall be persons

who are not officers or employees of the insurer or of any entity controlling,

controlled by, or under common control with the insurer and who are not

beneficial owners of a controlling interest in the voting stock of the insurer

or entity.  At least one such person shall be included in any quorum for the

transaction of business at any meeting of the board of directors or any

committee thereof.

     (4)  The board of directors of a

domestic insurer shall establish one or more committees composed solely of

directors who are not officers or employees of the insurer or of any entity

controlling, controlled by, or under common control with the insurer and who

are not beneficial owners of a controlling interest in the voting stock of the

insurer or any such entity.  The committee or committees shall have

responsibility for nominating candidates for director for election by

shareholders or policyholders, evaluating the performance of officers deemed to

be principal officers of the insurer, and recommending to the board of

directors the selection and compensation of the principal officers.

     (5)  Paragraphs (3) and (4) shall

not apply to:

         (A)  A domestic insurer if the person

controlling the insurer, such as an insurer, a mutual insurance holding

company, or a publicly held corporation, has a board of directors and

committees thereof that meet the requirements of paragraphs (3) and (4) with

respect to the controlling entity; or

         (B)  A domestic insurance holding company

system.

     (6)  An insurer may make application

to the commissioner for a waiver from the requirements of this subsection if

the insurer's annual direct written and assumed premium, excluding premiums

reinsured with the Federal Crop Insurance Corporation and National Flood

Insurance Program, is less than $300,000,000.  An insurer may also make

application to the commissioner for a waiver from the requirements of this

subsection based upon unique circumstances.  The commissioner may consider

various factors including but not limited to the type of business entity,

volume of business written, availability of qualified board members, or the

ownership or organizational structure of the entity.

 

  (c)(1)  [Subsection effective

until December 31, 2015.  For subsection effective January 1, 2016, see above.] 

Notwithstanding the control of a domestic insurer by any

person, the officers and directors of the insurer shall not thereby be relieved

of any obligation or liability which they would otherwise be subject to by

law.  The insurer shall be managed so as to assure its separate operating

identity consistent with this article.

     (2)  Nothing herein shall preclude a

domestic insurer from having or sharing a common management or cooperative or

joint use of personnel, property, or services with one or more other persons

under arrangements meeting the standards of subsection (a)(1).

     (d)  For purposes of this article, in

determining whether an insurer's surplus as regards policyholders is reasonable

in relation to the insurer's outstanding liabilities and adequate to its

financial needs, the following factors, among others, shall be considered:

     (1)  The size of the insurer as

measured by its assets, capital and surplus, reserves, premium writings,

insurance in force, and other appropriate criteria;

     (2)  The extent to which the

insurer's business is diversified among the several lines of insurance;

     (3)  The number and size of risks

insured in each line of business;

     (4)  The extent of the geographical

dispersion of the insurer's insured risks;

     (5)  The nature and extent of the

insurer's reinsurance program;

     (6)  The quality, diversification,

and liquidity of the insurer's investment portfolio;

     (7)  The recent past and projected

future trend in the size of the insurer's investment portfolio;

     (8)  The surplus as regards

policyholders maintained by other comparable insurers;

     (9)  The adequacy of the insurer's

reserves; and

    (10)  The quality and liquidity of

investments in affiliates.  The commissioner may treat any investment as a

disallowed asset for purposes of determining the adequacy of surplus as regards

policyholders whenever in the commissioner's judgment the investment so

warrants.

     (e)  In determining the adequacy and

reasonableness of an

insurer's surplus, no single factor is necessarily

controlling,

and the commissioner shall:

     (1)  Consider the net effect of all

of the factors, along with other factors bearing on the financial condition of

the insurer;

     (2)  In comparing the surplus

maintained by other insurers, consider the extent to which each of these

factors varies among insurers; and

     (3)  In determining the quality and

liquidity of investments in subsidiaries, consider the individual subsidiary

and discount or disallow its valuation to the extent warranted by individual

investments. [L 1987, c 349, pt of §8; am L 1990, c 75, §1; am L 1993, c 321,

§16; am L 2000, c 24, §10; am L 2010, c 116, §1(23); am L 2011, c 81, §8; am L 2014, c 234, §11]