S*1044 Session 111 (1995-1996)
S*1044(Rat #0269, Act #0254 of 1996) General Bill, By McConnell
Similar(H 4497)
A Bill to designate Sections 38-9-10 through 38-9-220, Code of Laws of South
Carolina, 1976, relating to insurance and capital, surplus, reserves, and
other financial matters as Article 1 of Chapter 9, Title 38 and entitle that
Article "general provisions"; to amend Chapter 9, Title 38 by adding Article 3
so as to enact provisions requiring insurers transacting business in this
State to maintain risk based capital; and to provide for the severability of
the provisions of this Act.
01/23/96 Senate Introduced and read first time SJ-7
01/23/96 Senate Referred to Committee on Banking and Insurance SJ-7
02/08/96 Senate Committee report: Favorable Banking and Insurance SJ-10
02/13/96 Senate Read second time SJ-11
02/14/96 Senate Read third time and sent to House SJ-22
02/15/96 House Introduced and read first time HJ-10
02/15/96 House Referred to Committee on Labor, Commerce and
Industry HJ-10
02/21/96 House Committee report: Favorable Labor, Commerce and
Industry HJ-4
02/26/96 House Read second time HJ-11
03/06/96 House Read third time and enrolled HJ-10
03/26/96 Ratified R 269
04/01/96 Signed By Governor
04/01/96 Effective date 04/01/96
04/09/96 Copies available
04/09/96 Act No. 254
(A254, R269, S1044)
AN ACT TO DESIGNATE SECTIONS 38-9-10 THROUGH
38-9-220, CODE OF LAWS OF SOUTH CAROLINA, 1976,
RELATING TO INSURANCE AND CAPITAL, SURPLUS,
RESERVES, AND OTHER FINANCIAL MATTERS AS ARTICLE 1
OF CHAPTER 9, TITLE 38 AND ENTITLE THAT ARTICLE
"GENERAL PROVISIONS"; TO AMEND CHAPTER 9,
TITLE 38 BY ADDING ARTICLE 3 SO AS TO ENACT PROVISIONS
REQUIRING INSURERS TRANSACTING BUSINESS IN THIS
STATE TO MAINTAIN RISK BASED CAPITAL; AND TO PROVIDE
FOR THE SEVERABILITY OF THE PROVISIONS OF THIS
ACT.
Be it enacted by the General Assembly of the State of South
Carolina:
Provisions designated as new article
SECTION 1. Sections 38-9-10 through 38-9-220 of the 1976 Code are
designated as Article 1 of Chapter 9, Title 38, and the article is entitled
"General Provisions".
Article added to Chapter 9, Title 38; risk based capital
SECTION 2. Chapter 9, Title 38 of the 1976 Code is amended by
adding:
"Article 3
Risk Based Capital
Section 38-9-310. In this article, unless the context requires
otherwise:
(1) `Adjusted RBC Report' means a risk based capital report which
has been adjusted by the director in accordance with Section
38-9-320(E).
(2) `Corrective order' means an order issued by the director
specifying corrective actions which the director has determined are
required.
(3) `Domestic insurer' means any insurer domiciled in this State.
(4) `Foreign insurer' means any insurer which is licensed to transact
business within this State, but which is not domiciled in this State.
(5) `NAIC' means the National Association of Insurance
Commissioners.
(6) `Life and health insurer' means any insurer licensed to transact
life and health insurance, or both, in this State and any licensed property
and casualty insurer writing only accident and health insurance.
(7) `Property and casualty insurer' means any insurer licensed to
transact property and casualty insurance in this State. A `property and
casualty insurer' does not include monoline mortgage guaranty insurers,
financial guaranty insurers, or title insurers.
(8) `Negative trend' means, with respect to a life and health insurer,
negative trend over a period of time, as determined in accordance with
the Trend Test Calculation included within the RBC Instructions.
(9) `RBC Instructions' means the risk based capital report including
RBC Instructions adopted and amended by the NAIC.
(10) `RBC Level' means an insurer's Company Action Level RBC,
Regulatory Action Level RBC, Authorized Control Level RBC, or
Mandatory Control Level RBC:
(a) `Company Action Level RBC' means the product of 2.0 and its
Authorized Control Level RBC;
(b) `Regulatory Action Level RBC' means the Product of 1.5 and its
Authorized Control Level RBC;
(c) `Authorized Control Level RBC' means the number determined
by the RBC formula in accordance with the RBC Instructions;
(d) `Mandatory Control Level RBC' means the product of .70 and
the Authorized Control Level RBC.
(11) `RBC Plan' means a comprehensive financial plan filed by an
insurer containing the elements specified within Section 38-9-330(B). If
the director rejects the RBC Plan and it is revised by the insurer, with or
without the director's recommendation, then that plan must be called the
`Revised RBC Plan'.
(12) `RBC Report' means the report required by Section
38-9-320.
(13) `Total Adjusted Capital' means the sum of an insurer's statutory
capital and surplus and any other items provided in the RBC
Instructions.
Section 38-9-320. (A) Every domestic insurer must, on or before each
March 1 filing date, prepare and submit to the director an RBC Report of
its RBC Levels as of the end of the preceding calendar year. That RBC
Report must be filed in a form and must contain such information
required by the RBC Instructions. In addition, every domestic insurer
must file its RBC Report:
(1) with the NAIC in accordance with the RBC Instructions; and
(2) with the chief insurance regulatory officer in any state in which
the insurer is authorized to transact business, if that chief insurance
regulatory officer has notified the insurer in writing. The insurer must
file its RBC Report with that chief insurance regulatory officer no later
than fifteen days from its receipt of notice to file or the March 1 filing
date.
(B) A life and health insurer's RBC must be determined in accordance
with the formula detailed in the RBC Instructions. The formula must be
determined in each case by applying the factors in the manner detailed in
the RBC Instructions and must take into account, and may adjust for the
covariance between:
(1) risk with respect to assets;
(2) risk of adverse insurance experience with respect to liabilities
and obligations;
(3) interest rate risk with respect to the insurer's business; and
(4) all other business risks and other relevant risks in the RBC
Instructions.
(C) A property and casualty insurer's RBC must be determined by
applying the factors in the manner detailed in the RBC Instructions and
must be determined in accordance with the formula detailed in the RBC
Instructions. The formula must take into account, and may adjust for the
covariance between:
(1) asset risk;
(2) credit risk;
(3) underwriting risk; and
(4) all other business risks and other relevant risks in the RBC
Instructions.
(D) An excess of capital over the amount produced by the RBC
requirements, formulas, schedules, and instructions contained in this
article is desirable. Insurers should seek to maintain capital above the
required RBC levels. Additional capital is used and is useful in securing
an insurer against various risks inherent in or affecting the business of
insurance and not accounted for, or which only may be partially
measured, by the RBC requirements contained in this article.
(E) If a domestic insurer files an RBC Report which, in the judgment
of the director, is inaccurate, then the director must adjust the RBC
Report to correct the inaccuracy and must notify the domestic insurer in
writing of the adjustment. The notice must include the reasons for the
adjustment.
Section 38-9-330. (A) A `Company Action Level Event' includes any
of the following events:
(1) filing of an RBC Report which indicates that Total Adjusted
Capital is greater than, or equal to, Regulatory Action Level RBC, but is
less than Company Action Level RBC;
(2) filing of an RBC Report which indicates that a life and health
insurer has Total Adjusted Capital which is greater than, or equal to, its
Company Action Level RBC, but is less than the product of its
Authorized Control Level RBC and 2.5 and has a negative trend; or
(3) issuance of an Adjusted RBC Report that indicates the event in
Section 38-9-330(A)(1) or (A)(2), provided that the insurer does not
challenge the Adjusted RBC Report pursuant to Section 38-9-370. If the
insurer challenges an Adjusted RBC Report, then the Company Action
Level Event occurs upon notification that an administrative law judge has
rejected the challenge.
(B) In the event of a Company Action Level Event, the insurer must
prepare and submit to the director an RBC Plan which must:
(1) identify the conditions which contributed to the Company Action
Level Event;
(2) include proposals for corrective actions which will result in the
elimination of the Company Action Level Event;
(3) provide projections of the insurer's financial results for the
current year and for at least the next four years. The projections must
consider both the absence of proposed corrective actions and the
proposed corrective actions. The projections must include projections of
statutory operating income, net income, capital, and surplus. The
projections both for new and for renewal business may include separate
projections for each major line of business and may separately identify
each income, expense, and benefit component;
(4) identify key assumptions impacting upon the projections and
detail the sensitivity of the projections to the assumptions; and
(5) identify the quality of, and any problems associated with, the
insurer's business including, but not limited to, assets, anticipated
business growth and associated surplus strain, extraordinary exposure to
risk, mix of business, and use of reinsurance, if any, in each case.
(C) The RBC Plan must be submitted within forty-five days of the
Company Action Level Event. If the insurer challenges an Adjusted
RBC Report pursuant to Section 38-9-370, then the RBC Plan must be
submitted within forty-five days after notification that an administrative
law judge has rejected the challenge.
(D) Within sixty days after the submission of an RBC Plan, the
director must notify the insurer stating whether the RBC Plan may be
implemented or if the RBC Plan is unsatisfactory. If the director
determines that the RBC Plan is unsatisfactory, then notification must set
forth the reasons for that determination. The notification may set forth
proposed revisions which will render the RBC Plan satisfactory. Upon
receipt of notification, the insurer must prepare a Revised RBC Plan
which may incorporate by reference any revisions proposed by the
director. That Revised RBC Plan must be submitted to the director
within forty-five days after the date of notification. If the insurer
challenges the notification under Section 38-9-370, then the Revised RBC
Plan must be submitted within forty-five days after notification that an
administrative law judge has rejected the challenge.
(E) If the director notifies an insurer that its RBC Plan or its Revised
RBC Plan is unsatisfactory, then the director, subject to the insurer's
right to a public hearing pursuant to Section 38-9-370, may specify
within the notification that it constitutes a Regulatory Action Level
Event.
(F) Every domestic insurer that files an RBC Plan or Revised RBC
Plan with the director must also file a copy of the RBC Plan or Revised
RBC Plan with the chief insurance regulatory officer in any state in
which that insurer is licensed to transact business if that state has RBC
provisions substantially similar to Section 38-9-380, Section 38-9-390,
and Section 38-9-400, and if that chief insurance regulatory officer has
requested the filing in writing. The insurer must file a copy of the RBC
Plan or Revised RBC Plan in that state no later than fifteen days after its
receipt of the request to file or the date on which the RBC Plan or
Revised RBC Plan is filed under Section 38-9-330(C) and (D).
Section 38-9-340. (A) A `Regulatory Action Level Event' includes
any one of the following events:
(1) filing of an RBC Report which indicates that Total Adjusted
Capital is greater than, or equal to, Authorized Control Level RBC, but is
less than Regulatory Action Level RBC;
(2) issuance of an Adjusted RBC Report that indicates the event in
Section 38-9-340(A)(1), provided that the insurer does not challenge that
Adjusted RBC Report pursuant to Section 38-9-370. If the insurer
challenges an Adjusted RBC Report, then the Regulatory Action Level
Event occurs upon notification that an administrative law judge has
rejected the challenge;
(3) failure to file an RBC Report by the March 1 filing date, unless
the insurer has filed an explanation for such failure which is satisfactory
to the director and has cured the failure within ten days after the March 1
filing date;
(4) failure to timely submit an RBC Plan or Revised RBC Plan to
the director;
(5) notification that the RBC Plan or Revised RBC Plan is, in the
judgment of the director, unsatisfactory and that the notification
constitutes a Regulatory Action Level Event, provided that the insurer
does not challenge the determination under Section 38-9-370. If the
insurer challenges a determination, then the Regulatory Action Level
Event occurs upon notification that an administrative law judge has
rejected the challenge;
(6) notification by the director that the insurer has failed to adhere
to its RBC Plan or its Revised RBC Plan. However, notification must
conclude that the failure has had substantial adverse effect upon the
ability of the insurer to eliminate the Company Action Level Event in
accordance with its RBC Plan or Revised RBC Plan, provided that the
insurer has not challenged the determination pursuant to Section
38-9-370. If the insurer challenges a determination, then the Regulatory
Action Level Event occurs upon notification that an administrative law
judge has rejected the challenge.
(B) In the event of a Regulatory Action Level Event, the director
must:
(1) require the insurer to prepare and submit an RBC Plan or a
Revised RBC Plan;
(2) perform an examination or an analysis of the assets, liabilities,
and operations of the insurer, including a review of the insurer's RBC
Plan or its Revised RBC Plan; and
(3) issue a Corrective Order detailing corrective actions which the
director determines are required.
(C) In determining corrective actions, the director may take into
account factors which he considers relevant based upon his examination
or analysis. Those factors may include, but must not be limited to, the
results of any sensitivity tests undertaken pursuant to the RBC
Instructions.
(D) The RBC Plan or Revised RBC Plan must be submitted within
forty-five days after the occurrence of the Regulatory Action Level
Event. If the insurer challenges an Adjusted RBC Report or a Revised
RBC Plan pursuant to Section 38-9-370, then the RBC Plan or Revised
RBC Plan must be submitted within forty-five days after notification that
an administrative law judge has rejected the challenge.
Section 38-9-350. (A) An `Authorized Control Level Event' includes
any of the following events:
(1) filing of an RBC Report which indicates that an insurer's Total
Adjusted Capital is greater than, or equal to, its Mandatory Control Level
RBC, but is less than its Authorized Control Level RBC;
(2) issuance of an Adjusted RBC Report that indicates the event in
Section 38-9-350(A)(1), provided that the insurer does not challenge that
Adjusted RBC Report pursuant to Section 38-9-370. If the insurer
challenges that Adjusted RBC Report, then the Authorized Control Level
Event occurs upon notification that an administrative law judge has
rejected the challenge; or
(3) the failure of an insurer to respond to a Corrective Order in a
manner satisfactory to the director, provided the insurer has not
challenged the Corrective Order pursuant to Section 38-9-370. If the
insurer has challenged a Corrective Order and an administrative law
judge has rejected the challenge or has modified the Corrective Order,
then the Authorized Control Level Event occurs upon the failure of the
insurer to respond to that Corrective Order in a manner satisfactory to the
director.
(B) In the event of an Authorized Control Level Event, the director
may take action pursuant to Section 38-9-340 or, if the director considers
it to be in the best interests of the policyholders and creditors of the
insurer and of the public, he may take action necessary to place the
insurer under regulatory control pursuant to Section 38-26-10, et seq., or
to Section 38-27-10, et seq. The Authorized Control Level Event is
sufficient grounds for the director to take that action, and the director has
the rights, powers, and duties detailed within those provisions of law. If
the director takes action, then the insurer is entitled to the protections
which are afforded under those provisions pertaining to summary
proceedings.
Section 38-9-360. (A) A `Mandatory Control Level Event' includes
any one of the following events:
(1) filing of an RBC Report which indicates that the insurer's Total
Adjusted Capital is less than its Mandatory Control Level RBC;
(2) notification of an Adjusted RBC Report pursuant to Section
38-9-360(A)(1), provided the insurer does not challenge that Adjusted
RBC Report pursuant to Section 38-9-370. If the insurer challenges an
Adjusted RBC Report notification, then the Mandatory Control Event
occurs upon notification that an administrative law judge has rejected the
challenge.
(B) In the event of a Mandatory Control Level Event:
(1) For a life and health insurer, the director must take action
necessary to place the insurer under regulatory control pursuant to
Section 38-26-10, et seq., or Section 38-27-10, et seq. The Mandatory
Control Level Event is sufficient grounds for the director to take that
action, and the director has the rights, powers, and duties detailed within
those provisions of law. If the director takes action, then the insurer is
entitled to the protections afforded under those provisions pertaining to
summary proceedings. The director, in his discretion, may forego action
for up to ninety days after the Mandatory Control Level Event if the
director finds that there is a reasonable expectation that the Mandatory
Control Level Event will be eliminated within that period.
(2) For a property and casualty insurer, the director must take action
necessary to place the insurer under regulatory control pursuant to
Section 38-26-10, et seq., or Section 38-27-10, et seq. If the insurer is
not writing business and is running off its existing business, then the
director may allow the insurer to continue its run-off under his
supervision. The Mandatory Control Level Event is sufficient grounds
for the director to take either action, and the director has the rights,
powers, and duties detailed within those provisions. If the director takes
action, then the insurer is entitled to the protections afforded under those
provisions pertaining to summary proceedings. The director, in his
discretion, may forego action for up to ninety days after the Mandatory
Control Level Event if the director finds that there is a reasonable
expectation that the Mandatory Control Level Event will be eliminated
within that period.
Section 38-9-365. The director may retain actuaries, investment
experts, attorneys, and any other consultants whom he considers
necessary to enforce the provisions of this article. The fees, costs, and
expenses of those actuaries, experts, attorneys, and other consultants must
be borne by the affected insurer or other related or affiliated parties as
required by the director.
Section 38-9-370. In all instances within this article in which an
insurer has the right to challenge any determination or any action by a
public hearing before an administrative law judge, the insurer must notify
the director of its request for a public hearing within ten days after
notification. Upon receipt of the insurer's request for a public hearing,
the director must transmit the notice to the administrative law judge
division. The date of the public hearing scheduled by the administrative
law judge must be no less than ten nor more than thirty days after the
date of the insurer's request.
Section 38-9-380. All RBC Reports and Adjusted RBC Reports, to the
extent the information contained within them is not required to be set
forth in a publicly available annual statement schedule; all RBC Plans,
including the results or report of any examination or analysis performed
pursuant to this article; and any Corrective Order issued by the director
include information that will be damaging to an insurer if any of them
are made available to the insurer's competitors. Therefore, such reports,
plans, and orders must be kept confidential. This information must not
be made public and is not subject to subpoena. The director may use
such reports, plans, and orders for enforcement actions either pursuant to
this article or pursuant to any other insurance law of this State.
Section 38-9-390. (A) The comparison of an insurer's Total Adjusted
Capital to any of its RBC Levels is a regulatory tool for corrective
action. It is not intended as a means to rank insurers. Therefore, except
as otherwise specifically required under the provisions of this article, the
making, publishing, disseminating, circulating, or placing before the
public, or, causing to be directly or indirectly made, published,
disseminated, circulated, or placed before the public, in a newspaper,
magazine or other publication, or in the form of a notice, circular,
pamphlet, letter, or poster, or over any radio or television station, or in
any other way, an advertisement, announcement, or statement containing
an assertion or representation with regard to the RBC Levels of any
insurer or of any component derived in the calculations by any insurer or
agent engaged in the business of insurance is considered misleading and
is prohibited.
(B) If any materially false or inappropriate comparison of an insurer's
Total Adjusted Capital to its RBC Levels or any RBC Level is published
in any written publication and the insurer is able to demonstrate with
substantial proof the falsity or the inappropriateness of such statement to
the director, then the insurer may publish an announcement approved by
the director in that written publication solely to rebut the materially false
or inappropriate statement.
Section 38-9-400. RBC Instructions, RBC Reports, Adjusted RBC
Reports, RBC Plans, and Revised RBC Plans are intended only for use
by the director in monitoring the solvency of insurers and in monitoring
the need for corrective action. They must not be used for ratemaking,
considered or introduced as evidence in any ratemaking proceeding, or
used to calculate or to derive any elements of an appropriate premium
level or rate of return for any line of insurance which an insurer, an
affiliated insurer, or a subsidiary insurer underwrites.
Section 38-9-410. This article is supplemental to all other laws of this
State. It does not preclude or limit any other powers or duties of the
director or his designee.
Section 38-9-420. The director may promulgate regulations necessary
for the implementation of this article.
Section 38-9-430. The director may exempt from the application of
this article any domestic property and casualty insurer which:
(1) except for the reinsurance allowed by item (3) of this section,
underwrites direct business only in this State;
(2) underwrites direct annual written premiums of $2,000,000.00 or
less; and
(3) assumes no reinsurance in excess of five percent of its direct
written premium.
Section 38-9-440. (A) A foreign insurer, upon written request by the
director, must submit an RBC Report as of the end of the preceding
calendar year not later than the date that an RBC Report would be
required to be filed by a domestic insurer under this article or fifteen
days after that request is received by the foreign insurer. In addition, any
foreign insurer, upon written request by the director, must promptly
submit a copy of any RBC document that has been filed with the chief
insurance regulatory officer of any other state.
(B) In the event of a Company Action Level Event, Regulatory Action
Level Event, or Authorized Control Level Event by a foreign insurer as
determined under the RBC Laws in its state of domicile or, if no RBC
Laws are in force in that state, as determined under the provisions of this
article, if the chief insurance regulatory officer of the state of domicile of
that foreign insurer fails to require the foreign insurer to file an RBC
Plan in the manner specified under that state's RBC Laws or, if no RBC
statute is in force in that state, under Section 38-9-330, then the director
may require the foreign insurer to file an RBC Plan. The failure of the
foreign insurer to file an RBC Plan with the director is grounds for the
director to order the foreign insurer to cease and desist from writing new
insurance business in this State.
(C) In the event of a Mandatory Control Level Event by a foreign
insurer, if no domiciliary receiver has been appointed for the foreign
insurer under the rehabilitation and liquidation laws of its state of
domicile, then the director may petition the circuit court pursuant to
Section 38-27-910, et seq., for the liquidation of its property in this State.
The occurrence of the Mandatory Control Level Event must be
considered grounds for the petition.
Section 38-9-450. There is no liability on the part of, and no cause of
action, shall arise against the director, his designee, the Department of
Insurance, or its employees or representatives and agents for any action
of any nature taken in the performance of their powers and duties under
this article.
Section 38-9-460. All notices by the director which may result in
regulatory action under this article must be transmitted by registered or
certified mail. Those notices are effective upon the insurer's
receipt."
Severability clause
SECTION 3. If any provision of this act or the application of a
provision thereof either to any person or under any circumstances, is held
to be invalid, then that determination does not affect provisions or
applications of this act which can be given effect without the invalid
provision or application. To that end the provisions of this act are
severable.
Time effective
SECTION 4. This act takes effect upon approval by the Governor.
Approved the 1st day of April, 1996. |