A N
A C T
TO AMEND THE
INSURANCE LAW TO PROVIDE FOR THE VOLUNTARY RESTRUCTURING OF SOLVENT DOMESTIC
PROPERTY AND CASUALTY INSURERS AND REINSURERS
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Introduced By: Senators Irons, Badeau, Celona, Bates, and DaPonte |
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Date Introduced: February 07, 2002 |
It is enacted
by the General Assembly as follows:
SECTION 1. Title 27 of the General Laws entitled
"Insurance" is hereby amended by adding thereto the following chapter:
CHAPTER 14.5
VOLUNTARY RESTRUCTURING OF SOLVENT INSURERS
(a)
"Applicant" means a commercial run-off insurer applying under section
27-14.5-4.
(b)
"Assessment deficit" means the amount that the assessment for the
previous year under section 27-14.5-5 is less than, and "assessment
surplus" is the amount that the assessment for the previous year exceeds:
(1) the
run-off insurer's proportionate share of regulatory expenditure for the
previous year, if the run-off insurer was domiciled in Rhode Island on March 15
of the previous year; or
(2) the
redomestication expenditure for the previous year attributable to the run-off
insurer, if the run-off insurer was not domiciled in Rhode Island on March 15
of the previous year.
(c)
"Assumption policyholder" means a policyholder whose policy is
reinsured under an assumption reinsurance agreement between the applicant and a
reinsurer.
(d)
"Assumption reinsurance agreement" shall have the meaning given in
section 27-53.1-3(b), subject to the following:
(1) The
agreement may be conditioned upon the court's entry of an implementation order.
(2) If any
policy subject to the agreement is protected through a guarantee association,
then the assuming insurer must have been and be licensed, and must have been
and be a member of the guarantee association, in all states known to the
applicant in which either: (i) any property covered under the policy has a
permanent situs; or (ii) the policyholder resided while the policy was in force.
(e)
"Class of creditors" means:
(1) all
voting policyholders, including those without known claims;
(2) voting
creditors, other than policyholders; or
(3) any
separate class of creditors as the court may in its discretion determine should
approve the commutation plan.
(f)
"Commercial run-off insurer" means a run-off insurer domiciled in
Rhode Island whose business, excluding all business subject to an assumption
reinsurance agreement, includes only the reinsuring of any line(s) of business
other than life and/or the insuring of any line(s) of business other than life,
workers' compensation, and personal lines insurance.
(g)
"Commissioner" means the director of the department.
(h)
"Commutation plan" means a plan for extinguishing the outstanding
liabilities of a commercial run-off insurer.
(i)
"Creditor" means:
(1) any
person that has a claim against the applicant; or
(2) a
policyholder other than an assumption policyholder.
(j)
"Department" means the department of business regulation.
(k)
"Guarantee association" means a guarantee association or foreign
guarantee association, as those terms are defined in section 27-14.3-3(10),
that is potentially obligated with respect to the applicant's policies.
(1)
"Implementation order" means an order under section 27-14.5-4(c).
(m)
"Insurer" has the meaning given in section 27-14.3-3(12).
(n)
"Person" means an individual, corporation, partnership, association,
joint stock company, trust, unincorporated organization, or any similar entity
or any combination of the foregoing acting in concert.
(o)
"Personal lines insurance" means insurance issued for personal,
family, or household purposes.
(p)
"Policy" means a contract of insurance or a contract of reinsurance.
(q)
"Policyholder" means an insured or a reinsured of the insurer.
(r)
"Proportionate share" means, for a particular run-off insurer as of
December 31 of the previous year, the ratio of:
(1) the gross
assets of that run-off insurer; to
(2) the gross
assets of all run-off insurers, other than those that were not domiciled in
Rhode Island on March 15 of that calendar year.
(s)
"Redomestication expenditure" means, for any calendar year:
(1) the amount
that the department's expenditures attributable to the regulation of run-off
insurers increases as a result of any run-off insurer redomiciling to Rhode
Island on or after March 15 of that year; less
(2) filing
fees, examination costs, and any other fees in relation to insurance regulation
in this state paid to this state by run-off insurers that redomiciled to Rhode
Island on or after March 15 of that year, but excluding any premium taxes.
(t)
"Regulatory expenditure" means, for any calendar year:
(1) the
amount of the department's expenditures attributable to the regulation of
run-off insurers domiciled in Rhode Island on March 15 of that year; less
(2) filing
fees, examination costs, and any other fees in relation to insurance regulation
in this state paid to this state by run-off insurers domiciled in Rhode Island
on March 15 of that year, but excluding any premium taxes.
(u)
"Run-off insurer" means an insurer that:
(1) is
domiciled in Rhode Island;
(2) has
liabilities under policies for property and casualty lines of business;
(3) has
ceased underwriting new business; and
(4) is only
renewing ongoing business to the extent required by law or by contract.
27-14.5-2. Jurisdiction, venue, and court
orders. --
(a) The court considering applications brought under
this chapter shall have the same jurisdiction as a court under chapter 27-14.3.
(b) Venue for all court proceedings under this
chapter shall lie in the superior court for the county of Providence.
(c) The court may issue any order, process, or
judgment that is necessary or appropriate to carry out the provisions of this
chapter. No provision of this chapter providing for the raising of an issue by
a party in interest shall be construed to preclude the court from, on its own
motion, taking any action or making any determination necessary or appropriate
to enforce or implement court orders or rules, or to prevent an abuse of
process.
27-14.5-3. Notice. --
(a) Wherever in this chapter notice is required, the
applicant shall, within ten (10) days of the event triggering the requirement,
cause transmittal of the notice:
(1) by first class mail and facsimile to the
insurance regulator in each jurisdiction in which the applicant is doing
business;
(2) by first class mail to all guarantee
associations;
(3) pursuant to the notice provisions of reinsurance
agreements or, where an agreement has no provision for notice, by first class
mail to all reinsures of the applicant;
(4) by first class mail to all insurance agents or
insurance producers of the applicant;
(5) by first class mail to all persons known or
reasonably expected to have claims against the applicant including all
policyholders, at their last known address as indicated by the records of the
applicant;
(6) by first class mail to federal, state, and local
government agencies and instrumentalities as their interests may arise; and
(7) by publication in a newspaper of general
circulation in the state in which the applicant has its principal place of
business and in such other locations that the court overseeing the proceeding
deems appropriate.
(b) If notice is given in accordance with this
section, any orders under this chapter shall be conclusive with respect to all
claimants and policyholders, whether or not they received notice.
(c) Where this chapter requires that the applicant
provide notice but the commissioner has been named receiver of the applicant,
the commissioner shall provide the required notice.
27-14.5-4. Commutation plans. --
(a) Application. - Any commercial run-off insurer
may apply to the court for an order implementing a commutation plan.
(b) Procedure.
(1) The applicant shall give notice of the
application and proposed commutation plan.
(2) All creditors shall be given the opportunity to
vote on the plan.
(3) All creditors, assumption policyholders,
reinsurers, and guaranty associations shall be provided with access to the same
information relating to the proposed plan and shall be given the opportunity to
file comments or objections with the court.
(4) Approval of a commutation plan requires consent
of: (i) fifty percent (50%) of each class of creditors; and (ii) the holders of
seventy-five percent (75%) in value of the liabilities owed to each class of
creditors.
(c) Implementation order.
(1) The court shall enter an implementation order
if: (i) the plan is approved under subsection (b)(4); and (ii) the court
determines that implementation of the commutation plan would not materially
adversely affect either the interests of objecting creditors or the interests
of assumption policyholders.
(2) The implementation order shall:
(i) order implementation of the commutation plan;
(ii) subject to any limitations in the commutation
plan, enjoin all litigation in all jurisdictions between the applicant and
creditors other than with the leave of the court;
(iii) require all creditors to submit information
requested by the bar date specified in the plan;
(iv) require that upon a noticed application, the
applicant obtain court approval before making any payments to creditors other
than, to the extent permitted under the commutation plan, payments in the
ordinary course of business, such approval to be based upon a showing that the
applicant's assets exceed the payments required under the terms of the
commutation plan as determined based upon the information submitted by
creditors under subsection (c)(2)(iii);
(v) release the applicant of all obligations to its
creditors upon payment of the amounts specified in the commutation plan;
(vi) require quarterly reports from the applicant to
the court and commissioner regarding progress in implementing the plan; and
(vii) be binding upon the applicant and
upon all creditors and owners of the applicant, whether or not a particular
creditor or owner is affected by the commutation plan or has accepted it or has
filed any information on or before the bar date, and whether or not a creditor or owner
ultimately receives any payments under the plan.
(3) The applicant shall give notice of entry of the order.
(d) Order of dissolution or discharge.
(1) Upon completion of the commutation plan, the applicant shall
advise the court.
(2) The court shall then enter an order that:
(i) is effective upon filing with the court proof that the
applicant has provided notice of entry of the order;
(ii)
transfers those liabilities subject to an assumption reinsurance agreement to
the assumption reinsurer, thereby notating the original policy by substituting
the assumption reinsurer for the applicant and releasing the applicant of any
liability relating to the transferred liabilities;
(iii) assigns each
assumption reinsurer the benefit of reinsurance on transferred liabilities,
except that the assignment shall only be effective upon the consent of the
reinsurer if either:
(A) the reinsurance contract requires such consent, or
(B) such consent would otherwise be required under applicable law;
and
(iv) either:
(A) the applicant be discharged from the proceeding without any
liabilities; or
(B) the applicant be dissolved.
(3) The applicant shall provide notice of entry of the order.
(e) Reinsurance. -
Nothing in this chapter shall be construed as authorizing the applicant, or any
other entity, to compel payment from a reinsurer on the basis of estimated
incurred but not reported losses or loss expenses, or case reserves for unpaid
losses and loss expenses.
(f) Modifications to
plan. - After provision of notice and an opportunity to object, and upon a
showing that some material factor in approving the plan has changed, the court
may modify or change a commutation plan, except that upon entry of an order
under subsection (d)(2) of this section, there shall be no recourse against the
applicant's owners absent a showing of fraud.
(g) Role of commissioner and guaranty funds; relationship to
rehabilitation/liquidation statutes.
(1) The commissioner and guaranty funds shall have the right to
intervene in any and all proceedings under this section.
(2) If, at any time, the
conditions for placing an insurer in rehabilitation or liquidation specified in
chapter 27-14.3 exist, the commissioner may request and, upon a proper showing,
the court shall order that the commissioner be named statutory receiver of the
applicant.
(3) If no implementation
order has been entered, then upon being named receiver, the commissioner may
request, and if requested, the court shall order, that the proceeding under
this chapter be converted to a rehabilitation or liquidation pursuant to
chapter 27-14.3. If an implementation order has already been entered, then the
court may order a conversion upon a showing that some material factor in
approving the original order has changed.
(4) The commissioner, any
creditor, or the court on its own motion may move to have the commissioner
named as receiver. The court may enter such an order only upon finding either
that one (1) or more grounds for rehabilitation or liquidation specified in
chapter 27-14.3 exist or that the applicant has materially failed to follow the
commutation plan or any other court instructions.
(5)
Unless and until the commissioner is named receiver, the board of directors or
other controlling body of the applicant shall remain in control of the
applicant.
27-14.5-5. Taxes, fees, assessments, pools,
and regulatory and supervision fund. -- (a) Application fee. - Upon
application to a court pursuant to section 14.5-4 of this title, the applicant
shall pay a fee to the department in the amount of one hundred and twenty-five
thousand dollars ($125,000) or such lesser amount as the commissioner shall
deem adequate for appropriate and thorough review of the application.
(b)
Assessment.
(1) Every
March 15, the commissioner shall assess each run-off insurer an amount equal to
the greater of: (i) one thousand dollars ($1,000), or (ii) the sum of that
run-off insurer's proportionate share of estimated regulatory expenditure for
that calendar year and that run-off insurer's assessment deficit, less its
assessment surplus.
(2) The
calculation of the assessment surplus or deficit shall reflect the total cost
of any examinations, which shall be borne by the companies so examined, and
shall include the following expenses:
(i) One
hundred fifty percent (150%) of the total salaries and benefits paid to the
examining personnel of the department of business regulation engaged in those
examinations, including, but not limited to, examiners, actuaries, attorneys,
managers, and para-professionals, less any salary reimbursements;
(ii) All
reasonable technology costs related to the examination process. Technology
costs shall include the actual cost of software and hardware utilized in the
examination process and the cost of training examination personnel in the
proper use of the software or hardware;
(iii) All
necessary and reasonable education and training costs incurred by the state to
maintain the proficiency and competence of the examining personnel. All such
costs shall be incurred in accordance with appropriate state of Rhode Island
regulations, guidelines and procedures.
(3) Each run-off
insurer shall pay the assessment to the department on or before the following
fifteenth (15th) day of April.
(4) An
insurer that redomiciles to Rhode Island after March 15 of any year and that
qualifies as a run-off insurer upon redomestication shall pay an assessment
equal to the commissioner's estimate of redomestication expenditure
attributable to that run-off insurer.
(5) All
revenues collected pursuant to this section shall be deposited as general
revenues. That assessment shall be in addition to any taxes and fees otherwise
payable to the state.
(c) Pools. -
Except with respect to policy renewals required by law or contract, no run-off
insurer shall be subject to any assessment or assignment in connection with any
residual market, fair plan, or assigned-risk plan mechanisms in this state.
(d) Scope. -
This section shall only apply to run-off insurers that cease underwriting new
business after January 1, 2002 or that were not domiciled in Rhode Island on
January 1, 2002.
27-14.5-6. Rules. -- The commissioner shall promulgate
rules and regulations as may be necessary to effectuate the purposes of this
chapter no later than January 1, 2003. The department shall not accept
applications under section 27-14.5-4 until such time as these regulations have
been promulgated.
SECTION 2. Section 27-53.1-2 of the General Laws in Chapter 27-53.1
entitled "Assumption Reinsurance" is hereby amended to read as
follows:
27-53.1-2. Scope. -- (a) This chapter applies to any
insurer authorized in this state which either assumes or transfers the
obligations and/or risks on contracts of insurance pursuant to an assumption
reinsurance agreement.
(b) This chapter does not apply to:
(1) Any reinsurance agreement or transaction in which the ceding
insurer continues to remain directly liable for its insurance obligations
and/or risks under the contracts of insurance subject to the reinsurance
agreement;
(2) The substitution of one insurer for another upon the
expiration of insurance coverage pursuant to statutory or contractual
requirements and the issuance of a new contract of insurance by another insurer;
(3) The transfer of contracts of insurance pursuant to mergers or
consolidations of two (2) or more insurers to the extent that those transactions
are regulated by statute;
(4) Any insurer subject to a judicial order of liquidation or
rehabilitation;
(5) Any reinsurance agreement or transaction to which a state
insurance guaranty association is a party, provided that policyholders do not
lose any rights or claims afforded under their original policies pursuant to
chapters 34, 34.1 and 34.3 of title 27;
(6) The transfer of liabilities from one insurer to another under
a single group policy upon the request of the group policyholder;
(7) The transfer of liabilities from one (1) insurer to another
under chapter 27-14.5.
SECTION 3. Implementation of this act shall be subject to and
conditioned upon: (i) an appropriation to the department in FY 2003 in an amount
necessary to fund a deputy chief examiner position, two (2) junior examiner
positions and an actuary position; (ii) the increase of the department's FTE's
in FY 2003 by four (4) positions more than the department's FTE level for FY
2002; (iii) the hiring of staff by the department to fill said positions; and
(iv) certification by the commissioner that there is adequate and appropriate
departmental staff to carry out its regulatory obligations under the act. It is
the legislative intent to insure that the department continues to have adequate
staffing and resources necessary in the future to carry out its obligations
under the act as those evolve and/or increase. To that end, it is the further
legislative intent to increase the department's FTE's in FY 2004 to fund five
(5) additional positions and thereafter fund such additional positions in
subsequent fiscal years as necessary for the department to continue to carry
out the regulatory obligations under the act. To the extent that said FTE's are
not funded in any subsequent year and the commissioner determines that said
FTE's are necessary to carry out the department's obligations under the act,
the commissioner shall be authorized to refuse to accept applications sought to
be filed under Rhode Island general laws section 27-14.5-1 et seq.
SECTION 4. This act shall take effect upon passage.