Chapter 068
2010 -- H 7692 SUBSTITUTE A
Enacted 06/12/10
A N A C T
RELATING TO
INSURANCE - STANDARDS AND DIRECTOR'S AUTHORITY FOR COMPANIES DEEMED TO BE IN
HAZARDOUS FINANCIAL CONDITION
Introduced By: Representative Michael J. Marcello
Date
Introduced: February 25, 2010
It is enacted by the
General Assembly as follows:
SECTION 1. Sections 27-14.2-2 and 27-14.2-3 of the General
Laws in Chapter 27-14.2
entitled "Standards and Director's Authority for
Companies Deemed to be in Hazardous Financial
Condition" are hereby amended to read as follows:
27-14.2-2.
Standards. -- (a) The
following standards, either singly or a combination of
two (2) or more, may be considered by the director to
determine whether the continued operation
of any insurer transacting an insurance business in this
state might be deemed to be hazardous to
the its policyholders, creditors, or the general
public. The director may consider:
(1) Adverse findings
reported in financial condition and market conduct examination
reports, audit reports, and actuarial opinions, reports or
summaries;
(2) The National
Association of Insurance Commissioners insurance regulatory
information system and its related other financial
analysis solvency tools and reports;
(3) The ratios of
commission expense, general insurance expense, policy benefits and
reserve increases as to annual premium and net investment
income, which could lead to an
impairment of capital and surplus;
(4)The insurer's asset
portfolio when viewed in light of current economic conditions is
not of sufficient value, liquidity, or diversity to
assure the company's ability to meet its
outstanding obligations as they mature;
(3) Whether the
insurer has made adequate provisions, according to presently accepted
actuarial standards of practice, for the anticipated cash flows
required by the contractual
obligations and related expenses of the insurer, when considered
in light of the assets held by the
insurer with respect to such reserves and related actuarial
items, including, but not limited to, the
investment earnings on such assets, and the considerations
anticipated to be received and retained
under such policies and contracts;
(5)(4)
The ability of an assuming reinsurer to perform and whether the insurer's
reinsurance program provides sufficient protection for the company's
insurer’s remaining surplus
after taking into account the insurer's cash flow and the
classes of business written and the
financial condition of the assuming reinsurer;
(6)(5) The
Whether the insurer's operating loss in
the last twelve (12) month period or
any shorter period of time, including but not limited to
net capital gain or loss, change in
nonadmitted assets, and cash dividends paid to shareholders, is
greater than fifty percent (50%) of
the insurer's remaining surplus as regards policyholders
in excess of the minimum required;
(6) Whether the
insurer's operating loss in the last twelve (12) month period or any
shorter period of time, excluding net capital gains, is
greater than twenty percent (20%) of the
insurer's remaining surplus as regards policyholders in excess
of the minimum required;
(7) Whether a
reinsurer, obligor or any affiliate, subsidiary, or reinsurer entity
within the
insurer's insurance holding company system, is insolvent, threatened with insolvency, or
delinquent in payment of its monetary or other obligation;,
and which in the opinion of the
director may affect the solvency of the insurer;
(8) Contingent
liabilities, pledges, or guaranties that either individually or collectively
involve a total amount which in the opinion of the director
may affect the solvency of the insurer;
(9) Whether any
"controlling person" of an insurer is delinquent in the transmitting
to, or
payment of, net premiums to the insurer;
(10) The age and collectibility of receivables;
(11) Whether the
management of an insurer, including officers, directors, or any other
person who directly or indirectly controls the operation of
the insurer, fails to possess and
demonstrate the competence, fitness, and reputation deemed
necessary to serve the insurer in the
position;
(12) Whether the
management of an insurer has failed to respond to inquiries relative to
the condition of the insurer or has furnished false and
misleading information concerning an
inquiry;
(13) Whether the
insurer has failed to meet financial and holding company filing
requirements in the absence of a reason satisfactory to the
director;
(13)(14)
Whether the management of an insurer either has filed any false or misleading
sworn financial statement, or has released a false or
misleading financial statement to lending
institutions or to the general public, or has made a false or
misleading entry, or has omitted an
entry of material amount in the books of the insurer;
(14)(15)
Whether the insurer has grown so rapidly and to such an extent that it lacks
adequate financial and administrative capacity to meet its
obligations in a timely manner; or
(15)(16)
Whether the company insurer has experienced or will experience in
the
foreseeable future cash flow and/or liquidity problems.
(17) Whether
management has established reserves that do not comply with minimum
standards established by state insurance laws, regulations
statutory accounting standards, sound
actuarial principles and standards of practice;
(18) Whether
management persistently engages in material under reserving that
results in
adverse development;
(19) Whether
transactions among affiliates, subsidiaries or controlling persons for which
the insurer receives assets or capital gains, or both, do
not provide sufficient value, liquidity or
diversity to assure the insurer's ability to meet its
outstanding obligations as they mature;
(20) Any other
finding determined by the director to be hazardous to the insurer's
policyholders, creditors or general public.
(b) The standards enumerated
in subsection (a) of this section shall not be construed as
limiting the director from making a finding that other
conditions not specifically enumerated also
constitute hazardous conditions.
27-14.2-3.
Director's orders. -- Director's
authority. -- (a) For the purposes of making
a determination of an insurer's financial condition
under this chapter, the director may:
(1) Disregard any
credit or amount receivable resulting from transactions with a
reinsurer which is insolvent, impaired, or otherwise subject to
a delinquency proceeding;
(2) Make appropriate
adjustments, including disallowances to asset values attributable to
investments in or transactions with parents, subsidiaries, or
affiliates consistent with the NAIC
Accounting Practices and Procedures Manual, state laws
and regulations;
(3) Refuse to recognize
the stated value of accounts receivable if the ability to collect
receivables is highly speculative in view of the age of the
account or the financial condition of the
debtor; or
(4) Increase the
insurer's liability in an amount equal to any contingent liability, pledge,
or guarantee not otherwise included if there is a
substantial risk that the insurer will be called
upon to meet the obligation undertaken within the next
twelve (12) month period.
(b) If the director
determines that the continued operation of the insurer licensed to
transact business in this state may be hazardous to the
its policyholders, creditors or the general
public, then the director may, upon his or her
determination, issue an order requiring the insurer
to:
(1) Reduce the total
amount of present and potential liability for policy benefits by
reinsurance;
(2) Reduce, suspend, or
limit the volume of business being accepted or renewed;
(3) Reduce general
insurance and commission expenses by specified methods;
(4) Increase the
insurer's capital and surplus;
(5) Suspend or limit
the declaration and payment of a dividend by an insurer to its
stockholders or to its policyholders;
(6) File reports in a
form acceptable to the director concerning the market value of an
insurer's assets;
(7) Limit or withdraw
from certain investments or discontinue certain investment
practices to the extent the commissioner director
deems necessary;
(8) Document the
adequacy of premium rates in relation to the risks insured; or
(9) File, in addition
to regular annual statements, interim financial reports on the form
adopted by the national association of insurance
commissioners or on a format as promulgated by
the commissioner director.
(10) Correct
corporate governance practice deficiencies, and adopt and utilize governance
practices acceptable to the director.
(11) Provide a
business plan to the director in order to continue to transact business in the
state; or
(12) Notwithstanding
any other provision of law limiting the frequency or amount of
premium rate adjustments, adjust rates for any non-life
insurance product written by the insurer
that the director considers necessary to improve the
financial condition of the insurer.
(c) If the insurer is a
foreign insurer, the director's order under subsection (b) of this
section may be limited to the extent provided by statute.
(d) Any insurer subject
to an order under subsection (b) of this section may request a
hearing to review that order. The notice of hearing shall be
served upon the insurer pursuant to
the Administrative Procedures Act, chapter 35 of title
42. The notice of hearing shall state the
time and place of the hearing, and the conduct, condition,
or ground upon which the director
based the order. Unless mutually agreed between the
director and the insurer, the hearing shall
occur not less than ten (10) days nor more than thirty (30)
days after notice is served and shall be
either in
by the director. The director shall hold all hearings
under this subsection privately, unless the
insurer requests a public hearing, in which case the hearing
shall be public.
SECTION 2. This act shall take effect on July 1, 2010.
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LC01784/SUB A
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