§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]