S 590 Session 109 (1991-1992)
S 0590 General Bill, By Senate Banking and Insurance
A Bill to amend the Code of Laws of South Carolina, 1976, by adding Section
38-21-125 so as to provide for acquisitions of insurers not covered by the
Insurance Holding Company Regulatory Act; to amend Section 38-21-90, relating
to the Insurance Commissioner's approval of an acquisition of control of an
insurer, so as to provide for application of the competitive standard; to
amend Section 38-21-140, relating to the content of insurance registration
statements so as to include a pledge of the insurer's stock for a loan made to
a member of the Insurance Holding Company System; and to amend Section
38-21-270, relating to notice and approval of extraordinary dividends and
distributions by insurers, so as to revise the determination of an
extraordinary dividend and distribution.
02/05/91 Senate Introduced, read first time, placed on calendar
without reference SJ-12
02/07/91 Senate Read second time SJ-15
02/07/91 Senate Unanimous consent for third reading on next
legislative day SJ-15
02/08/91 Senate Read third time and sent to House SJ-2
02/12/91 House Introduced and read first time HJ-13
02/12/91 House Referred to Committee on Labor, Commerce and
Industry HJ-13
Indicates Matter Stricken
Indicates New Matter
INTRODUCED
February 5, 1991
S. 590
Introduced by Banking and Insurance Committee
S. Printed 2/5/91--S.
Read the first time February 5, 1991.
A BILL
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976,
BY ADDING SECTION 38-21-125 SO AS TO PROVIDE FOR
ACQUISITIONS OF INSURERS NOT COVERED BY THE
INSURANCE HOLDING COMPANY REGULATORY ACT; TO
AMEND SECTION 38-21-90, RELATING TO THE INSURANCE
COMMISSIONER'S APPROVAL OF AN ACQUISITION OF
CONTROL OF AN INSURER, SO AS TO PROVIDE FOR
APPLICATION OF THE COMPETITIVE STANDARD; TO AMEND
SECTION 38-21-140, RELATING TO THE CONTENT OF
INSURANCE REGISTRATION STATEMENTS SO AS TO INCLUDE
A PLEDGE OF THE INSURER'S STOCK FOR A LOAN MADE TO
A MEMBER OF THE INSURANCE HOLDING COMPANY
SYSTEM; AND TO AMEND SECTION 38-21-270, RELATING TO
NOTICE AND APPROVAL OF EXTRAORDINARY DIVIDENDS
AND DISTRIBUTIONS BY INSURERS, SO AS TO REVISE THE
DETERMINATION OF AN EXTRAORDINARY DIVIDEND AND
DISTRIBUTION.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. The 1976 Code is amended by adding:
"Section 38-21-125. (A) For purposes of this section:
(1) `Acquisition' means an agreement, arrangement, or activity
the consummation of which results in a person directly or indirectly
acquiring the control of another person and includes, but is not limited
to, the acquisition of voting securities, the acquisition of assets, bulk
reinsurance, and mergers.
(2) An `involved insurer' includes an insurer which acquires
or is acquired, is affiliated with an acquirer or acquired, or is the result
of a merger.
(B)(1) Except as exempted in item (2), this section applies to an
acquisition in which there is a change in control of an insurer authorized
to do business in this State.
(2) This section does not apply to:
(a) an acquisition subject to approval or disapproval by the
commissioner pursuant to Section 38-21-60;
(b) a purchase of securities solely for investment purposes
so long as the securities are not used by voting or otherwise to cause or
attempt to cause the substantial lessening of competition in an insurance
market in this State. If a purchase of securities results in a presumption
of control under Section 38-21-10(2), it is not solely for investment
purposes unless the commissioner of the insurer's state of domicile
accepts a disclaimer of control or affirmatively finds that control does
not exist, and the disclaimer action or affirmative finding is
communicated by the domiciliary commissioner to the commissioner of
this State;
(c) the acquisition of a person by another person when both
persons are neither directly nor through affiliates primarily engaged in
the business of insurance if preacquisition notification is filed with the
commissioner in accordance with subsection (C)(1) thirty days before
the proposed effective date of the acquisition. However, preacquisition
notification is not required for exclusion from this section if the
acquisition would be excluded by other provisions of this subsection.
(d) the acquisition of already affiliated persons;
(e) an acquisition if, as an immediate result of the acquisition:
(i) In any market the combined market share of the
involved insurers does not exceed five percent of total market.
(ii) There is not an increase in a market share, or in any
market the combined market share of the involved insurers does not
exceed twelve percent of the total market, and the market share does not
increase by more than two percent of the total market.
For the purpose of this subitem a market means direct written
insurance premium in this State for a line of business as contained in the
annual statement required to be filed by insurers licensed to do business
in this State;
(f) an acquisition for which a preacquisition notification
would be required pursuant to this section due solely to the resulting
effect on the ocean marine insurance line of business;
(g) an acquisition of an insurer whose domiciliary
commissioner affirmatively finds that:
(i) The insurer is in failing condition.
(ii) There is a lack of feasible alternatives to improving the
condition.
(iii) The public benefits of improving the insurer's condition
through the acquisition exceed the public benefits that would arise from
not lessening competition.
(iv) The findings are communicated by the domiciliary
commissioner to the commissioner of this State.
(C)(1) An acquisition covered by subsection (B) may be subject
to an order pursuant to subsection (E) unless the acquiring person files
a preacquisition notification and the waiting period has expired. The
acquired person may file a preacquisition notification. The
commissioner shall give confidential treatment to information submitted
under subsection (C) in the same manner provided in Section 38-21-290.
(2) The preacquisition notification must be in a form and
contain information prescribed by the National Association of Insurance
Commissioners relating to those markets which, under subsection
B(2)(e), cause the acquisition not to be exempted from the provisions of
this section. The commissioner may require additional material and
information necessary to determine whether the proposed acquisition, if
consummated, violates the competitive standard of subsection (D). The
required information may include an opinion of an economist as to the
competitive impact of the acquisition in this State accompanied by a
summary of the education and experience of the person indicating ability
to render an informed opinion.
(3) The required waiting period begins on the date of receipt
of the commissioner of a preacquisition notification and ends on the
earlier of the thirtieth day after the date of receipt or termination of the
waiting period by the commissioner. Before the end of the waiting
period, the commissioner on a one-time basis may require the
submission of additional needed information relevant to the proposed
acquisition. If he does, the waiting period ends on the earlier of the
thirtieth day after receipt of the additional information by the
commissioner or termination of the waiting period by the commissioner.
(D)(1) The commissioner may enter an order under subsection (E)
(1) with respect to an acquisition if there is substantial evidence that the
effect of the acquisition may be to lessen competition substantially in a
line of insurance in this State or tend to create a monopoly or if the
insurer fails to file adequate information in compliance with subsection
(C).
(2) In determining whether a proposed acquisition violates the
competitive standard of item (1), the commissioner shall consider the
following:
(a) An acquisition covered under subsection (B) involving two
or more insurers competing in the same market is prima facie evidence
of a violation of the competitive standards:
(i) if the market is highly concentrated and the involved
insurers possess the following shares of the market:
Insurer A Insurer B
4% 4% or more
10% 2% or more
15% 1% or more; or
(ii)if the market is not highly
concentrated and the involved insurers possess the
following shares of the market:
Insurer A Insurer B
5% 5% or more
10% 4% or more
15% 3% or more
19% 1% or more.
A highly concentrated market is one of which the share of the four
largest insurers is seventy-five percent or more of the market.
Percentages not shown in the tables are interpolated proportionately to
the percentages that are shown. If more than two insurers are involved,
exceeding the total of the two columns in the table is prima facie
evidence of violation of the competitive standard in item (1). For the
purpose of this item, the insurer with the largest share of the market is
Insurer A.
(b) It must be determined whether there is a significant
trend toward increased concentration in the market. The trend exists
when the aggregate market share of a grouping of the largest insurers in
the market, from the two largest to the eight largest, has increased by
seven percent or more of the market over time extending from a base
year five to ten years before the acquisition up to the time of the
acquisition. An acquisition or merger covered under subsection (B)
involving two or more insurers competing in the same market is prima
facie evidence of a violation of the competitive standard in item (1) if all
of the following exist:
(i) There is a significant trend toward increased
concentration in the market.
(ii) One of the insurers involved is one of the insurers in a
grouping of the large insurers showing the requisite increase in the
market share.
(iii) Another involved insurer's market is two percent or
more.
(c) Even though an acquisition is not prima facie violative of
the competitive standard under this item, the commissioner may
establish the requisite anticompetitive effect based upon other
substantial evidence. Even though an acquisition is prima facie violative
of the competitive standard under this item, a party may establish the
absence of the requisite anticompetitive effect based upon other
substantial evidence. Relevant factors in making a determination
include, but are not limited to: market shares, volatility of the ranking
of market leaders, number of competitors, concentration, trend of
concentration in the industry, and ease of entry and exit into the market.
(d) For the purpose of this item:
(i) `Insurer' includes a company or group of companies
under common management, ownership, or control.
(ii) `Market' means the relevant product and
geographical markets. In determining the relevant product and
geographical markets the commissioner shall give due consideration to
the definitions or guidelines, if any, promulgated by the National
Association of Insurance Commissioners and to information, if any,
submitted by parties to the acquisition. In the absence of sufficient
information to the contrary, the relevant product market is assumed to
be the direct written insurance premium for a line of business. The line
is that used in the annual statement required to be filed by insurers doing
business in this State, and the relevant geographical market is assumed
to be this State.
(iii) The burden of showing prima facie evidence of a
violation of the competitive standard rests upon the commissioner.
(3) An order must not be entered under subsection (E)(1) if the
acquisition will:
(a) yield substantial economies of scale or economies in
resource utilization that cannot be achieved feasibly in another way, and
the public benefits which would arise from the economies exceed the
public benefits which would arise from not lessening competition; or
(b) substantially increase the availability of insurance, and
the public benefits of the increase exceed the public benefits which
would arise from not lessening competition.
(E)(1)(a) If an acquisition violates the standards of this section, the
commissioner may enter an order:
(i) requiring an involved insurer to stop doing business
in this State with respect to the line or lines of insurance involved in the
violation; or
(ii) denying the application of an acquired or acquiring
insurer for a license to do business in this State.
(b) An order must not be entered unless all of the following
exist:
(i) There is a hearing.
(ii) Notice of the hearing is issued before the end of the
waiting period and not less than fifteen days before the hearing.
(iii) The hearing is concluded and the order is issued no
later than sixty days after the end of the waiting period.
An order must be accompanied by a written decision of the
commissioner setting forth his findings of fact and conclusions of law.
(c) An order does not become final earlier than thirty days
after it is issued. Before it becomes final the involved insurer may
submit a plan to remedy the anticompetitive impact of the acquisition
within a reasonable time. Based upon the plan or other information, the
commissioner shall specify the conditions, if any, under the time period
during which the aspects of the acquisition causing a violation of the
standards of this section would be remedied and the order vacated or
modified.
(d) An order does not apply if the acquisition is not
consummated.
(2) A person who violates an order under item (1), while the
order is in effect, after notice and hearing, and upon order of the
commissioner, is subject at his discretion to one or more of the
following:
(a) monetary penalty of not more than ten thousand dollars for
each day of violation;
(b) suspension or revocation of license.
(3) An insurer or other person who fails to make a filing
required by this section and who fails to demonstrate a good faith effort
to comply with a filing requirement is subject to a fine of not more than
fifty thousand dollars.
(F) Sections 38-21-320, 38-21-330, and 38-21-350 do not apply
to acquisitions under subsection (B)."
SECTION 2. Section 38-21-90 of the 1976 Code is amended to read:
"Section 38-21-90. (1)(A) The commissioner
shall approve any a merger or other acquisition of
control referred to in Section 38-21-60 unless, after a public
hearing, he finds that:
(a)(1) After the change of control the domestic
insurer referred to in Section 38-21-60 is not able to satisfy the
requirements for the issuance of a license to write the line or lines of
insurance for which it is presently licensed;.
(b)(2) The effect of the merger or other
acquisition of control would substantially lessen competition in
insurance in this State or tend to create a monopoly therein;.
In applying the competitive standard in this item:
(a) The information requirements and standards of Section
38-21-125(C) and 38-21-125 (D) apply.
(b) The merger or other acquisition must not be approved
if the commissioner finds that at least one of the situations in Section
38-21-125(D) exist.
(c) The commissioner may condition the approval of the
merger or other acquisition on the removal of the basis of disapproval
within a specified period of time.
(c)(3) The financial condition of the
acquiring party might jeopardize the financial stability of the insurer or
prejudice the interest of its policyholders;
(d)(4) The plans or proposals which the
acquiring party has to liquidate the insurer, sell its assets, or consolidate
or merge it with any a person, or to make
any other another material change in its business or
corporate structure or management, are unfair and unreasonable
to policyholders of the insurer and not in the public interest;.
(e)(5) The competence, experience, and
integrity of those persons who would control the operation of the insurer
are such that it is not in the interest of policyholders of the insurer and
of the public to permit the merger or other acquisition of
control;.
(f)(6) The acquisition is likely to be
hazardous or prejudicial to the insurance-buying public.
(2)(B) The public hearing referred to in subsection
(1)(A) must be held within thirty days after the
statement required by Section 38-21-60 is filed, and at least
twenty days' notice must be given by the commissioner to the person
filing the statement, to the insurer, and to other persons designated by
the commissioner. The commissioner shall make a determination within
thirty days after the conclusion of the hearing. At the hearing, the person
filing the statement, the insurer, any a person to whom
notice of hearing was sent, and any other person
persons whose interest is interests are affected
has the right to may present evidence, examine and
cross-examine witnesses, and offer oral and written arguments and
is are entitled to conduct discovery proceedings in the
same manner as is allowed in the circuit courts of this State.
All discovery Discovery proceedings must be concluded
not later than three days before the commencement of the public
hearing.
(3)(C) The commissioner may retain at the
acquiring person's expense any attorneys, actuaries, accountants,
and other experts not otherwise a part of the commissioner's staff as
may be reasonably necessary to assist the commissioner in
reviewing the proposed acquisition of control."
SECTION 3. Section 38-21-140 of the 1976 Code is amended to
read:
"Section 38-21-140. Every insurer subject to registration shall
file the registration statement on a form prescribed by the commissioner
which must contain the following current information:
(1) the capital structure, general financial condition,
ownership, and management of the insurer and any a
person controlling the insurer;
(2) the identity and relationship of every member of the
insurance holding company system;
(3) the following agreements in force, and transactions
currently outstanding or which have occurred during the last calendar
year between such the insurer and its affiliates:
(i)(a) loans, other investments, or purchases,
sales, or exchanges of securities of the affiliates by the insurer or of the
insurer by its affiliates;
(ii)(b) purchases, sales, or exchanges of assets;
(iii)(c) transactions not in the ordinary course of
business;
(iv)(d) 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)(e) all management agreements,
service contracts, and all cost-sharing arrangements;
(vi)(f) reinsurance agreements;
(vii)(g) dividends and other distributions to
shareholders;
(viii)(h) consolidated tax allocation agreements.
(4) pledge of the insurer's stock, including stock of a
subsidiary or controlling affiliate, for a loan made to a member of the
insurance holding company system;
(5) other matters concerning transactions between registered
insurers and any affiliates as may be included in
any registration forms adopted or approved by the
commissioner."
SECTION 4. Section 38-21-270 of the 1976 Code is amended to
read:
"Section 38-21-270. (A) No domestic insurer
shall may pay any an extraordinary
dividend or make any other another extraordinary
distribution to its shareholders until (i) the commissioner:
(1) has approved the payment; or
(ii) the Commissioner (2) has not disapproved
the payment within thirty days after receiving notice of the declaration.
(B)(1) For purposes of this section, an extraordinary
dividend or distribution includes any a 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 greater of:
(a) ten percent of the insurer's surplus as regards
policyholders as of the previous December thirty-first,
reflected in the insurers most recent annual statement;
(b) the net gain from operations of the insurer, if the
insurer is a life insurer, or the net investment income, if the insurer is not
a life insurer not including realized capital gains, for the year ending
the previous December thirty-first but as reflected in the insurers
most recent annual statement.
(2) It does not include pro rata distributions of
any a class of the insurer's own securities.
(C) An insurer may declare an extraordinary dividend or
distribution which is conditional upon the commissioner's approval. The
declaration confers no rights upon shareholders until (1) the
commissioner:
(1) has approved the payment of the dividend or
distribution; or
(2) the Commissioner has not disapproved the payment
within thirty days after receiving notice of the declaration."
SECTION 5. This act takes effect upon approval by the Governor.
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