Introduced By: Senator Blais
Date Introduced : February 4, 1999
It is enacted by the General Assembly as follows:
SECTION 1. Section 27-1-44 of the General Laws in Chapter 27-1 entitled "Domestic Insurance Companies" is hereby amended to read as follows:
27-1-44. Prohibition on the pledging of stock. --
No domestic insurance company, and no holding company as defined
in section 27-35-1(d), shall pledge its own stock, or any stock
of any domestic insurance company subsidiary, {DEL for the
benefit of the domestic insurance company. DEL} {ADD without
the prior written consent of the Director of Business Regulation. ADD}
The provisions of this section shall not apply to any of these
pledges in effect prior to August 5, 1996.
SECTION 2. Sections 27-35-3 and 27-35-4 of the General Laws in Chapter 27-35 entitled "Insurance Holding Company Systems" are hereby amended to read as follows:
27-35-3. Registration of insurers. -- (a) Registration..
- Every insurer that is authorized to do business in this state
and that is a member of an insurance holding company system shall
annually register with the commissioner, except a foreign insurer
subject to disclosure requirements and standards adopted by statute
or regulation in the jurisdiction of its domicile which are substantially
similar to those contained in {DEL this chapter. DEL} {ADD sections
27-35-3, 27-35-4(a), 27-35-4(b), 27-35-4(f) and 27-35-4(g). ADD}
Any insurer that is subject to registration under this section
shall register within sixty (60) days after July 16, 1971 or fifteen
(15) days after it becomes subject to registration, whichever
is later, unless the commissioner for good cause shown extends
the time for registration, and then within that extended time.
The commissioner may require any authorized insurer which is a
member of a holding company system which is not subject to registration
under this section to furnish a copy of the registration statement
or other information filed by the insurance company with the insurance
regulatory authority of domiciliary jurisdiction.
(b) Information and form required.. - Every insurer subject to registration shall file a registration statement on a form provided by the commissioner, which shall contain current information about:
(1) The capital structure, general financial condition, ownership, and management of the insurer and any person controlling the insurer;
(2) The identity of every member of the insurance holding company system;
(3) The following agreements in force, relationships subsisting, and transactions currently outstanding between the insurer and its affiliates:
(i) Loans, other investments or purchases, and sales and exchanges of securities of the affiliates by the insurer or of the insurer by its affiliates;
(ii) Purchases, sales, or exchanges of assets;
(iii) Transactions not in the ordinary course of business;
(iv) Guarantees or undertakings for the benefit of an affiliate which result in an actual contingent exposure of the insurer's assets to liability, other than insurance contracts entered into in the ordinary course of the insurer's business;
(v) All management {DEL and DEL} service contracts and
all cost sharing arrangements {DEL , other than cost allocation
arrangements based upon generally accepted accounting principles DEL};
and
(vi) Reinsurance agreements {DEL covering all or substantially
all of one or more lines of insurance of the ceding company; and DEL}
{ADD ; ADD}
{ADD (vii) Dividends and other distributions to shareholder; ADD}
{ADD (viii) Consolidated tax allocation agreements; and ADD}
{ADD (3.1) Any pledge of the insurer's stock, including stock of any subsidiary or controlling affiliate, for a loan made to any member of the insurance holding company system; and ADD}
(4) Other matters concerning transactions between registered insurers and any affiliates as may be included from time to time in any registration forms adopted or approved by the commissioner.
(c) Materiality.. - No information need be disclosed on the registration statement filed pursuant to subsection (b) if that information is not material for the purposes of this section. Unless the commissioner by rule, regulation, or order provides otherwise, sales, purchases, exchanges, loans, or extensions of credit or investments involving one-half of one percent (.5%) or less of an insurer's admitted assets as of the thirty-first day of December next preceding shall not be deemed material for purposes of this section.
(d) Amendments to registration statements.. - Each registered insurer shall keep current the information required to be disclosed in its registration statement by reporting all material changes or additions on amendment forms provided by the commissioner within fifteen (15) days after the end of the month in which it learns of each change or addition; provided, however, that subject to section 27-35-4(c), each registered insurer shall so report all dividends and other distributions to shareholders within two (2) business days following the declaration thereof.
(e) Termination of registration.. - The commissioner shall terminate the registration of any insurer that demonstrates that it no longer is a member of an insurance holding company system.
(f) Consolidated filing.. - The commissioner may require or allow two (2) or more affiliated insurers subject to registration hereunder to file a consolidated registration statement or consolidated reports amending their consolidated registration statement or their individual registration statements.
(g) Alternative registration.. - The commissioner may allow an insurer that is authorized to do business in this state and which is part of an insurance holding company system to register on behalf of any affiliated insurer which is required to register under subsection (a) and to file all information and material required to be filed under this section.
(h) Exemptions.. - The provisions of this section shall not apply to any insurer, information, or transaction if and to the extent that the commissioner by rule, regulation, or order shall exempt from the provisions of this section.
(i) Disclaimer.. - Any person may file with commissioner a disclaimer of affiliation with any authorized insurer or the disclaimer may be filed by the insurer or any member of an insurance holding company system. The disclaimer shall fully disclose all material relationships and basis for affiliation between the person and the insurer as well as the basis for disclaiming the affiliation. After a disclaimer has been filed, the insurer shall be relieved of any duty to register or report under this section which may arise out of the insurer's relationship with the person unless and until the commissioner disallows the disclaimer. The commissioner shall disallow the disclaimer only after furnishing all parties in interest with notice and opportunity to be heard and after making specific findings of fact to support the disallowance.
(j) Violations.. - The failure to file a registration statement or any amendment thereto required by this section within the time specified for the filing shall be a violation of this section.
(k) Summary of registration statement.. - All registration statements shall contain a summary outlining all items in the current registration statement representing changes from the prior registration statement.
(l) Information of insurers.. - Any person within an insurance holding company system subject to registration shall be required to provide complete and accurate information to an insurer, where the information is reasonably necessary to enable the insurer to comply with the provisions of this chapter.
27-35-4. Standards -- Reasonableness of surplus -- Extraordinary distributions. -- (a) Transaction with affiliates.. - Transactions within a holding company system to which an insurer subject to registration is a party shall be subject to the following standards:
(1) The terms shall be fair and reasonable;
(2) The books, accounts, and records of each party shall be so maintained as to clearly and accurately disclose the precise nature and details of the transactions including such accounting information as is necessary to support the reasonableness of the charges or fees to the respective parties;
(3) 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;
(4) The charges or fees for services performed shall be reasonable; and
(5) The expenses incurred and payment received shall be allocated to the insurer in conformity with consistently applied customary insurance accounting practices.
(b) (1) Prior notification to commissioner.. - The following transactions involving a domestic insurer and any person in its holding company system may not be entered into unless the insurer has notified the commissioner in writing of its intention to enter into the transaction at least thirty (30) days prior thereto, or such shorter period as the commissioner may permit, and the commissioner has not disapproved it within that period:
(i) Sales, purchases, exchanges, loans, or extensions of credit,
{DEL guarantees, DEL} or investments, provided the transactions
are equal to or exceed: (A) with respect to nonlife insurers,
the lesser of three percent (3%) of the insurer's admitted assets
or twenty-five percent (25%) of surplus as regards policyholders;
or (B) with respect to life insurers, three percent (3%) of the
insurer's admitted assets; each as of the 31st day of December
next preceding;
(ii) 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 of extensions of credit, provided the transactions are equal to or exceed: (A) with respect to nonlife insurers, the lesser of three percent (3%) of the insurer's admitted assets or twenty-five percent (25%) of surplus as regards policyholders; or (B) with respect to life insurers, three percent (3%) of the insurer's admitted assets; each as of the 31st day of December next preceding;
(iii) Reinsurance agreements or modifications thereto in which the reinsurance premium or a change in the insurer's liabilities equals or exceeds five percent (5%) of the insurer's surplus as regards policyholders as of the 31st day of December next preceding, including those agreements which 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 those assets will be transferred to one or more affiliate of the insurer;
(iv) All management agreements, service contracts, {ADD guarantees ADD} and all cost sharing arrangements; and
(v) Any material transactions, specified by regulation, which the commissioner determines may adversely affect the interests of the insurer's policyholders;
(2) Nothing herein contained 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.
(c) Prohibited transactions.. - A domestic insurer may not enter into transactions which 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 occur otherwise. If the commissioner determines that the separate transactions were entered into over any twelve (12) month period for that purpose, he or she may exercise his or her authority under section 27-35-9.
(d) Standard.. - The commissioner, in reviewing transactions pursuant to subsection (b) shall consider whether the transactions comply with the standards set forth in subsection (a) and whether they may adversely affect the interests of policyholders.
(e) The commissioner shall be notified within thirty (30) 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 percent (10%) of the corporation's voting securities.
(f) Adequacy of surplus.. - For the purposes of this chapter, 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 investment in affiliates. The commissioner may treat any such investment as a disallowed asset for the purposes of determining the adequacy of surplus as regards policyholders whenever in his or her judgment the investment so warrants.
(g) (1) Dividends and other distributions.. - No domestic insurer subject to registration under section 27-35-3 shall pay any extraordinary dividend or make any other extraordinary distribution to its shareholders until (A) thirty (30) days after the commissioner has received notice of the declaration thereof and has not within that period disapproved the payment, or (B) the commissioner shall have approved the payment within the thirty (30) day period;
(2) For the 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 (12) months exceeds the lesser of (A) ten percent (10%) 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 the insurer, if the insurer is a life insurer, or the net income, if the insurer is not a life insurer, not including realized capital gains, for the twelve (12) month period ending the 31st day of December next preceding, but 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 net income from the previous two (2) 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;
(3) Notwithstanding any other provision of law, an insurer may declare an extraordinary dividend or distribution which is conditional upon the commissioner's approval thereof, and the declaration shall confer no rights upon shareholders until (A) the commissioner has approved the payment of the dividend or distribution or (B) the commissioner has not disapproved the payment within the thirty (30) day period referred to in subsection (g)(1).
SECTION 3. This act shall take effect upon passage.
