Current Status Introducing Body:
HouseBill Number: 3508Ratification Number: 37Act Number: 13Primary Sponsor: Committee (26)Type of Legislation: GBSubject: Insurance, provisionsDate Bill Passed both Bodies: Mar 06, 1991Computer Document Number: NO5/7226.BDGovernor's Action: SDate of Governor's Action: Mar 22, 1991Introduced Date: Feb 13, 1991Date of Last Amendment: Feb 28, 1991Last History Body: ------Last History Date: Mar 22, 1991Last History Type: Act No. 13Scope of Legislation: StatewideSponsor Committee: Labor, Commerce and IndustrySponsor Committee Number: 26Type of Legislation: General Bill
Bill Body Date Action Description CMN ---- ------ ------------ ------------------------------ --- 3508 ------ Mar 22, 1991 Act No. 13 3508 ------ Mar 22, 1991 Signed by Governor 3508 ------ Mar 19, 1991 Ratified R 37 3508 House Mar 06, 1991 Concurred in Senate amendment, enrolled for ratification 3508 Senate Mar 01, 1991 Read third time, returned with amendment 3508 Senate Feb 28, 1991 Amended, read second time, unanimous consent for third reading on Friday, March 1 3508 Senate Feb 20, 1991 Introduced, read first time, placed on Calendar without reference 3508 House Feb 19, 1991 Read third time, sent to Senate 3508 House Feb 14, 1991 Read second time 3508 House Feb 13, 1991 Introduced, read first timeView additional legislative information at the LPITS web site.
(A13, R37, H3508)
AN ACT TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTIONS 38-9-200, 38-9-210, AND 38-9-220 SO AS TO PROVIDE REINSURANCE CREDITS AND LIABILITY REDUCTIONS ALLOWED FOR DOMESTIC CEDED INSURERS AND DEFINE TERMS; TO AMEND THE 1976 CODE 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 THE 1976 CODE BY ADDING CHAPTER 26 TO TITLE 38 SO AS TO PROVIDE FOR THE ADMINISTRATIVE SUPERVISION OF INSURERS ACT; TO AMEND THE 1976 CODE BY ADDING SECTION 38-27-100 SO AS TO PROVIDE FOR THE CONDUCT OF INSURANCE PROCEEDINGS BEGUN BEFORE THE EFFECTIVE DATE OF THE INSURERS SUPERVISION, REHABILITATION, AND LIQUIDATION ACT; TO AMEND THE 1976 CODE BY ADDING SECTION 38-27-110 SO AS TO PROVIDE FOR PAYMENTS TO A GUARANTY ASSOCIATION WHEN AN INSURER IS SUBJECT TO A DELINQUENCY PROCEEDING; TO AMEND SECTION 38-5-120, RELATING TO THE REVOCATION AND SUSPENSION OF INSURANCE CERTIFICATES OF AUTHORITY, SO AS TO PROVIDE STANDARDS FOR DETERMINING HAZARDOUS INSURANCE PROCEEDINGS AND AUTHORIZE THE CHIEF INSURANCE COMMISSIONER TO TAKE ACTION WHEN AN INSURER IS IN AN UNSOUND OR A HAZARDOUS CONDITION; TO AMEND SECTION 38-9-10, RELATING TO CAPITAL AND SURPLUS OF STOCK INSURERS, SO AS TO INCREASE THE REQUIRED AMOUNTS, AUTHORIZE THE CHIEF INSURANCE COMMISSIONER TO REQUIRE ADDITIONAL INITIAL CAPITAL AND SURPLUS, AND PROVIDE FOR THE INITIAL CAPITAL AND SURPLUS; TO AMEND SECTION 38-9-20, RELATING TO SURPLUS OF MUTUAL INSURERS, SO AS TO INCREASE THE REQUIRED AMOUNTS, AUTHORIZE THE COMMISSIONER TO REQUIRE ADDITIONAL INITIAL SURPLUS, AND PROVIDE FOR INITIAL SURPLUS; TO AMEND SECTION 38-9-30, RELATING TO CAPITAL AND SURPLUS OF INSURERS LICENSED ON JULY 1, 1988, SO AS TO CHANGE THE DATE TO JULY 1, 1991, CHANGE RELATED DATES DETERMINING APPLICATION OF THE SECTION, AND PROVIDE REQUIREMENTS FOR AN INSURER WHICH IS THE SUBJECT OF A CHANGE OF CONTROL; TO AMEND SECTION 38-9-170, RELATING TO UNEARNED PREMIUM RESERVES OF INSURERS, SO AS TO REVISE THE CIRCUMSTANCES UNDER WHICH DEDUCTIONS MAY BE MADE FROM RESERVES; TO AMEND SECTION 38-9-190, RELATING TO LOSS AND CLAIM RESERVES OF INSURERS, SO AS TO REVISE THE CIRCUMSTANCES UNDER WHICH CREDIT FOR REINSURANCE IS ALLOWED AS AN ASSET OR A DEDUCTION FROM RESERVES; TO AMEND SECTION 38-11-10, RELATING TO LEGISLATIVE INTENT PERTAINING TO INVESTMENTS BY INSURERS, SO AS TO ESTABLISH STANDARDS FOR THE DEVELOPMENT AND ADMINISTRATION OF INVESTMENTS; TO AMEND SECTION 38-11-50, RELATING TO LIMITATIONS ON THE INVESTMENTS, SO AS TO PROVIDE FOR THE VALUATION OF INVESTMENTS AND PROMULGATION OF RELATED REGULATIONS; 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; 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; TO AMEND SECTION 38-27-10, RELATING TO THE CITE FOR THE "INSURERS SUPERVISION, REHABILITATION, AND LIQUIDATION ACT", SO AS TO DELETE "SUPERVISION"; TO AMEND SECTION 38-27-40, RELATING TO APPLICATION OF THE ACT, SO AS TO ADD PREPAID HEALTH CARE DELIVERY PLANS; TO AMEND SECTIONS 38-27-50, 38-27-230, AND 38-27-310, RELATING TO DEFINITIONS, HEARINGS, AND REHABILITATION UNDER THE ACT, SO AS TO DELETE THE REFERENCES TO "VALID" AS IT APPLIES TO "ORDER" AND SECTION 38-27-210, INSURANCE COMMISSIONER'S ORDERS AND SUPERVISION; TO AMEND SECTION 38-27-370, RELATING TO ORDERS TO LIQUIDATE AN INSURER, SO AS TO PROVIDE FOR A PLAN FOR THE CONTINUED PERFORMANCE OF A DEFENDANT COMPANY'S POLICY CLAIMS OBLIGATIONS DURING THE PENDENCY OF AN APPEAL; TO AMEND SECTION 38-27-400, RELATING TO THE POWERS OF A LIQUIDATOR, SO AS TO AUTHORIZE THE AUDIT OF THE BOOKS AND RECORDS OF AGENTS OF THE INSURER AND PROVIDE THAT A LIQUIDATOR IS NOT OBLIGATED TO DEFEND OR CONTINUE TO DEFEND CLAIMS AFTER THE ENTRY OF A LIQUIDATION ORDER; TO AMEND SECTION 38-27-610, RELATING TO THE PRIORITY OF DISTRIBUTION OF CLAIMS FROM AN INSURER'S ESTATE, SO AS TO INCLUDE IN CLASS 3 CLAIMS OF FEDERAL, STATE, AND LOCAL GOVERNMENTS FOR LOSSES INCURRED, "LOSS CLAIMS", AND EXCLUDE THOSE CLAIMS FROM CLASS 5; TO AMEND SECTION 38-27-950, RELATING TO PROCEEDINGS INSTITUTED BY THE INSURANCE COMMISSIONER, SO AS TO DELETE THE REFERENCE TO SECTION 38-27-210, ORDERS AND SUPERVISION; TO AMEND SECTION 38-33-100, RELATING TO CERTIFICATES OF AUTHORITY FOR HEALTH MAINTENANCE ORGANIZATIONS, SO AS TO PROVIDE THE CAPITAL NET WORTH REQUIREMENTS FOR A STOCK HEALTH MAINTENANCE ORGANIZATION, DELETE THE REFERENCE TO NET WORTH REQUIREMENTS FOR HEALTH MAINTENANCE ORGANIZATIONS AFTER THE TRANSITION PERIOD, AND AUTHORIZE THE COMMISSIONER TO REQUIRE GREATER INITIAL NET WORTH REQUIREMENTS FOR HEALTH MAINTENANCE ORGANIZATIONS; TO AMEND SECTION 38-55-30, RELATING TO LIMITATION OF RISK BY INSURERS, SO AS TO APPLY THE LIMITATION TO CAPTIVES AND DEFINE THE TERM; TO AMEND SECTION 38-87-40, RELATING TO OUT-OF-STATE CHARTERED RISK RETENTION GROUPS, SO AS TO PROVIDE FOR THE EXAMINATION REGARDING FINANCIAL CONDITION TO BE CONDUCTED IN ACCORDANCE WITH THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' EXAMINER'S HANDBOOK INSTEAD OF THE STANDARDS AND PROCEDURES APPLICABLE TO EXAMINATIONS OF ADMITTED INSURERS; TO AMEND SECTION 38-87-90, RELATING TO THE PURCHASE OF LIABILITY INSURANCE FROM A NONSTATE APPROVED SURPLUS LINES INSURER, SO AS TO PROVIDE THE CONDITIONS UNDER WHICH INSURANCE MAY BE PURCHASED FROM A RISK RETENTION GROUP NOT CHARTERED OR AN INSURER NOT ADMITTED IN THE STATE; AND TO REPEAL SECTION 38-27-210 RELATING TO THE INSURANCE COMMISSIONER'S ORDERS AND SUPERVISION.
Be it enacted by the General Assembly of the State of South Carolina:
Reinsurance credits; liability reductions
SECTION 1. The 1976 Code is amended by adding:
"Section 38-9-200. (A) Credit for reinsurance must be allowed a domestic ceding insurer as an asset or a deduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of subsection (B), (C), (D), (E), or (F). If meeting the requirements of subsection (D) or (E), the requirements of subsection (G) must be met also.
(B) Credit must be allowed when the reinsurance is ceded to an assuming insurer which is licensed to transact insurance or reinsurance in this State or approved as a reinsurer by the Chief Insurance Commissioner provided by Section 38-5-60.
(C) Credit must be allowed when the reinsurance is ceded to an assuming insurer which is accredited as a reinsurer in this State. An accredited reinsurer is one which:
(1) files with the commissioner evidence of its submission to this state's jurisdiction;
(2) submits to this state's authority to examine its books and records;
(3) is licensed to transact insurance or reinsurance in at least one state, or for a United States branch of an alien assuming insurer is entered through and licensed to transact insurance or reinsurance, in at least one state;
(4) pays an initial submission fee of four hundred dollars and annually pays a four hundred dollar fee by March first;
(5) files annually with the commissioner a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement and:
(a) maintains a surplus as regards policyholders of not less than twenty million dollars and whose accreditation has not been denied by the commissioner within ninety days of its submission; or
(b) maintains a surplus as regards policyholders of less than twenty million dollars and whose accreditation has been approved by the commissioner.
No credit is allowed a domestic ceding insurer if the assuming insurer's accreditation has been revoked by the commissioner after notice and hearing.
(D) Credit must be allowed when the reinsurance is ceded to an assuming insurer which is domiciled and licensed in, or for a United States branch of an alien assuming insurer is entered through, a state which employs standards regarding credit for reinsurance substantially similar to those applicable under this statute, and the assuming insurer or United States branch of an alien assuming insurer:
(1) maintains a surplus as regards policyholders of not less than twenty million dollars;
(2) submits to the authority of this State to examine its books and records.
However, the requirement of item (1) does not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system.
(E)(1) Credit must be allowed when the reinsurance is ceded to an assuming insurer which maintains a trust fund in a qualified United States financial institution, defined in Section 38-9-220(B), for the payment of the valid claims of its United States policyholders and ceding insurers and their assigns and successors in interest. The assuming insurer shall report annually to the commissioner information substantially the same as that required to be reported on the National Association of Insurance Commissioners annual statement form by licensed insurers to enable the commissioner to determine the sufficiency of the trust fund. For a single assuming insurer, the trust must consist of a trusteed account representing the assuming insurer's liabilities attributable to business written in the United States and, in addition, the assuming insurer shall maintain a trusteed surplus of not less than twenty million dollars. For a group of individual unincorporated underwriters, the trust must consist of a trusteed account representing the group's liabilities attributable to business written in the United States and, in addition, the group shall maintain a trusteed surplus of which one hundred million dollars must be held jointly for the benefit of United States ceding insurers of a member of the group. The group shall make available to the commissioner an annual certification of the solvency of each underwriter by the group's domiciliary regulator and its independent public accountants.
(2) For a group of incorporated insurers under common administration which complies with the filing requirements contained in item (1), has transacted continuously an insurance business outside the United States for at least three years immediately before making application for accreditation, submits to this state's authority to examine its books and records and bears the expense of the examination, and has aggregate policyholders' surplus of ten billion dollars, the trust must be in an amount equal to the group's several liabilities attributable to business ceded by United States ceding insurers to a member of the group pursuant to reinsurance contracts issued in the name of the group. The group also shall maintain a joint trusteed surplus of which one hundred million dollars must be held jointly for the benefit of United States ceding insurers of a member of the group as additional security for liabilities. Each member of the group shall make available to the commissioner an annual certification of the member's solvency by the member's domiciliary regulator and its independent public accountant.
(3) The trust must be established in a form approved by the commissioner. The trust instrument must provide that contested claims must be valid and enforceable upon the final order of a court of competent jurisdiction in the United States. The trust must vest legal title to its assets in the trustees of the trust for its United States policyholders and ceding insurers and their assigns and successors in interest. The trust and the assuming insurer are subject to examination determined by the commissioner. The trust must remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust.
(4) No later than February twenty-eighth each year the trustees of the trust shall report to the commissioner in writing setting forth the balance of the trust and listing the trust's investments at the preceding year end and shall certify the date of termination of the trust, if so planned, or certify that the trust may not expire before the next following December thirty-first.
(F) Credit must be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of subsection (B), (C), (D), or (E) but only with respect to the insurance of risks located in jurisdictions where the reinsurance is required by applicable law or regulation of that jurisdiction.
(G) If the assuming insurer is not licensed or accredited to transact insurance or reinsurance in this State, the credit permitted by subsections (D) and (E) must not be allowed unless the assuming insurer agrees in the reinsurance agreements:
(1) that when the assuming insurer fails to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, shall submit to the jurisdiction of a court of competent jurisdiction in a state of the United States, comply with all requirements necessary to give the court jurisdiction, and abide by the final decision of the court or of an appellate court in an appeal;
(2) to designate the commissioner or a designated attorney as its true and lawful attorney upon whom may be served lawful process in an action, a suit, or a proceeding instituted by or on behalf of the ceding company.
This subsection does not conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes if an obligation is created in the agreement.
(H) The commissioner may promulgate regulations to implement the provisions of this section and Section 38-9-210.
Section 38-9-210. A reduction from liability for the reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of Section 38-9-200 must be allowed in an amount not exceeding the liabilities carried by the ceding insurer. The reduction must be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with the assuming insurer as security for the payment of obligations, if the security is held in the United States subject to withdrawal solely by and under the exclusive control of the ceding insurer or, for a trust, held in a qualified United States financial institution, defined in Section 38-9-220(B). This security may be in the form of:
(2) securities listed by the Securities Valuation Office of the National Association of Insurance Commissioners and qualifying as admitted assets under Section 38-11-100;
(3) clean, irrevocable, unconditional letters of credit issued or confirmed by a qualified United States financial institution defined in Section 38-9-220(A) no later than December thirty-first of the year for which filing is being made and in the possession of the ceding company on or before the filing date of its annual statement. Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance or confirmation, notwithstanding the issuing or confirming institution's subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification, or amendment, whichever first occurs;
(4) other form of security acceptable to the commissioner.
Section 38-9-220. (A) For purposes of Section 38-9-210, a `qualified United States financial institution' means an institution that:
(1) is organized or, for a United States office of a foreign banking organization, licensed under the laws of the United States or its state;
(2) is regulated, supervised, and examined by federal or state authorities having regulatory authority over banks and trust companies;
(3) has been determined by the commissioner or the Securities Valuation Office of the National Association of Insurance Commissioners to meet standards of financial condition and standing necessary and appropriate to regulate the quality of financial institutions whose letters of credit are acceptable to the commissioner.
(B) For purposes of those provisions of this law specifying those institutions that are eligible to act as a fiduciary of a trust, a `qualified United States financial institution' means an institution that is:
(1) organized or, for a United States branch or agency office of a foreign banking organization, licensed under the laws of the United States or its state and has been granted authority to operate with fiduciary powers;
(2) regulated, supervised, and examined by federal or state authorities having regulatory authority over banks and trust companies."
SECTION 2. 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
(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)."
Administration Supervision of Insurers Act
SECTION 3. The 1976 Code is amended by adding:
Section 38-26-10. This chapter may be cited as the `Administrative Supervision of Insurers Act'.
Section 38-26-20. As used in this chapter:
(1) `Insurer' means a person who has done, purports to do, is going to do, or is licensed to do an insurance business and is or has been subject to the authority of, or to liquidation, rehabilitation, reorganization, supervision, or conservation by the commissioner of insurance, or similar entity, of a state. For purposes of this chapter, other persons included under Section 38-27-40 are considered insurers.
(2) `Exceed its powers' means the following conditions:
(a) The insurer has refused to permit examination of its books, papers, accounts, records, or affairs by the commissioner or his deputies, employees, or commissioned examiners.
(b) A domestic insurer unlawfully has removed from this State books, papers, accounts, or records necessary for an examination of the insurer.
(c) The insurer has failed to comply promptly with the applicable financial reporting statutes or regulations and related departmental requests.
(d) The insurer has neglected or refused to observe an order of the commissioner to make good, within the time prescribed by law, prohibited deficiency in its capital, capital stock, or surplus.
(e) The insurer is continuing to transact insurance or write business after its license has been revoked or suspended by the commissioner.
(f) The insurer, by contract or otherwise, unlawfully, in violation of an order of the commissioner, or without first having obtained written approval of the commissioner if approval is required by law has:
(i) totally reinsured its entire outstanding business; or
(ii) merged or consolidated substantially its entire property or business with another insurer.
(g) The insurer engaged in a transaction in which it is not authorized to engage under the laws of this State.
(h) The insurer refused to comply with a lawful order of the commissioner.
(3) `Consent' means agreement to administrative supervision by the insurer.
Section 38-26-30. The provisions of this chapter apply to:
(1) domestic insurers;
(2) an insurer doing business in this State whose state of domicile has asked the commissioner to apply the provisions of this chapter as regards the insurer.
Section 38-26-40. (A) An insurer may be subject to administrative supervision by the commissioner if upon examination or at another time it appears in the commissioner's discretion that one or more of the following circumstances exist:
(1) The insurer's condition renders the continuance of its business hazardous to the public or to its insureds.
(2) The insurer has exceeded its powers granted under its certificate of authority and applicable law.
(3) The insurer has failed to comply with a provision of the insurance laws of this State.
(4) The business of the insurer is being conducted fraudulently.
(5) The insurer gives its consent.
(B) If the commissioner determines that one or more of the conditions set forth in subsection (A) exist, he shall:
(1) notify the insurer of his determination;
(2) furnish to the insurer a written list of the requirements to abate this determination;
(3) notify the insurer that it is under the supervision of the commissioner and that the commissioner is applying the provisions of the chapter. Action by the commissioner is subject to review pursuant to related regulations and the Administrative Procedures Act.
(C) If placed under administrative supervision, the insurer has sixty days or another period of time designated by the commissioner to comply with the requirements of the commissioner subject to the provisions of this chapter.
(D) If it is determined after notice and hearing that the conditions giving rise to the supervision still exist at the end of the supervision period, the commissioner may extend the period or may initiate proceedings under Chapter 27 of this title.
(E) If it is determined that none of the conditions giving rise to the supervision exist, the commissioner shall release the insurer from supervision.
Section 38-26-50. (A) Proceedings, hearings, notices, correspondence, reports, records, and other information in the possession of the commissioner or the Department of Insurance relating to the supervision of an insurer are confidential except as provided by this section.
(B) Department personnel have access to the proceedings, hearings, notices, correspondence, reports, records, and other information permitted by the commissioner.
(C) The commissioner may open the proceedings or hearings or disclose notices, correspondence, reports, records, or other information to a department, agency, or instrumentality of this or another state or of the United States if the commissioner determines that the disclosure is necessary or proper for the enforcement of the laws of this or another state or the United States.
(D) The commissioner may open the proceedings or hearings or make public notices, correspondence, reports, records, or other information if the commissioner determines that it is in the best interest of the public or in the best interest of the insurer, its insureds, its creditors, or the general public.
(E) This section does not apply to hearings, notices, correspondence, reports, records, or other information obtained after the appointment of a receiver for the insurer by a court of competent jurisdiction.
Section 38-26-60. During the period of supervision, the commissioner or his designated appointee shall serve as the administrative supervisor. The commissioner may provide, after notice to the insurer, that the insurer may not do any of the following things during supervision without the prior approval of the commissioner or his appointed supervisor:
(1) dispose of, convey, or encumber its assets or its business in force;
(2) withdraw its bank accounts;
(3) lend its funds;
(4) invest its funds;
(5) transfer its property;
(6) incur debt, obligation, or liability;
(7) merge or consolidate with another company;
(8) approve new premiums or renew policies;
(9) enter into a new reinsurance contract or treaty;
(10) terminate, surrender, forfeit, convert, or lapse an insurance policy, a certificate, or a contract, except for nonpayment of premiums due;
(11) release, pay, or refund premium deposits, accrued cash or loan values, unearned premiums, or other reserves on an insurance policy, certificate, or contract;
(12) make a material change in management;
(13) increase salaries and benefits of officers or directors or the preferential payment of bonuses, dividends, or other preferential payments.
Section 38-26-70. During supervision the insurer may contest an action taken or proposed to be taken by the supervisor specifying the manner in which the action being complained of would not result in improving the condition of the insurer. Denial of the insurer's request upon reconsideration entitles the insurer to review under related regulations and the Administrative Procedures Act.
Section 38-26-80. Nothing in this chapter precludes the commissioner from initiating judicial proceedings to place an insurer in conservation, rehabilitation, or liquidation or other delinquency proceedings, however designated under the laws of this State, regardless of whether the commissioner previously has initiated administrative supervision proceedings under this chapter against the insurer.
Section 38-26-90. The commissioner may meet with a supervisor appointed under this chapter and with his attorney or other representative without the presence of another person at the time of or during a proceeding held under authority of this chapter to carry out the commissioner's duties or for the supervisor to carry out his duties under this chapter.
Section 38-26-100. There is no liability on the part of, and no cause of action may arise against, the commissioner or the Department of Insurance or its employees or agents for action taken by them in the performance of their powers and duties under this chapter.
Section 38-26-110. The commissioner may promulgate regulations necessary for the implementation of this chapter."
Conduct of insurance proceedings
SECTION 4. The 1976 Code is amended by adding:
"Section 38-27-100. An insurance proceeding under this chapter begun before the effective date of the `Insurers Supervision, Rehabilitation, and Liquidation Act' is deemed to have begun after that date for the purpose of conducting the proceeding. However, in the discretion of the commissioner, the proceeding may be continued, in whole or in part, as it would have been if this act was not in effect.
Section 38-27-110. Until payments of or on account of an insurer's contractual obligations by a guaranty association, including expenses and interest, are repaid to the guaranty association or a plan of repayment by the insurer is approved by the guaranty association, no insurer that is subject to a delinquency proceeding, whether formal or informal, administrative or judicial, may:
(1) be released from the proceeding unless it is converted into a judicial rehabilitation or liquidation proceeding;
(2) be permitted to solicit or accept new business or request or accept the restoration of a suspended or revoked license or certificate of authority;
(3) be returned to the control of its shareholders or private management; or
(4) have its assets returned to the control of its shareholders or private management."
Hazardous insurance proceedings
SECTION 5. Section 38-5-120 of the 1976 Code is amended to read:
"Section 38-5-120. (A) The commissioner shall revoke or suspend certificates of authority granted to an insurer and its officers and agents if he is of the opinion upon examination or other evidence that one or more of the following exist:
(1) The insurer is in an unsound condition.
(2) The insurer has not complied with the law or with the provisions of its charter.
(3) The insurer's condition renders its proceedings hazardous to the public or its policyholders. For the purpose of the application of this item, one or more of the following standards may be considered by the commissioner in determining whether the continued operation of an insurer transacting insurance business in this State is hazardous to the public or its policyholders:
(a) adverse findings reported in financial condition and market conduct examination reports;
(b) the National Association of Insurance Commissioners Insurance Regulatory Information System and its related reports;
(c) 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;
(d) whether 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;
(e) whether the ability of an assuming reinsurer to perform and the insurer's reinsurance program provides sufficient protection for the company's remaining surplus after taking into account the insurer's cash flow and the classes of business written as well as the financial condition of the assuming reinsurer;
(f) whether the insurer's operating loss in the last twelve months or a shorter 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 of the insurer's remaining surplus as regards policyholders in excess of the minimum required;
(g) whether an affiliate, a subsidiary, or a reinsurer is insolvent, threatened with insolvency, or delinquent in payment of its monetary or other obligations;
(h) contingent liabilities, pledges, or guaranties which individually or collectively involve a total amount which in the opinion of the commissioner may affect the solvency of the insurer;
(i) whether a `controlling person' of an insurer is delinquent in the transmitting to or payment of net premiums to the insurer;
(j) the age and collectibility of receivables;
(k) whether the management of an insurer, including officers, directors, or other persons who directly or indirectly control the operation of the insurer, fails to possess and demonstrate the competence, fitness, and reputation necessary to serve the insurer in that position;
(l) whether 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;
(m) whether management of an insurer has filed a false or misleading sworn financial statement, released a false or misleading financial statement to lending institutions or to the general public, made a false or misleading entry, or omitted an entry of a material amount in the books of the insurer;
(n) whether the insurer has grown so rapidly and to an extent that it lacks adequate financial and administrative capacity to meet its obligations in a timely manner;
(o) whether the company has experienced or will experience in the foreseeable future cash flow or liquidity problems.
(4) The true value of the insurer's assets, if it is a life insurer, is less than its liabilities, exclusive of its capital.
(5) The officers or agents of an insurer refuse to submit to examination or to perform a legal obligation relative to an examination.
(6) The insurer has not complied with a lawful order of the commissioner.
(B) Notice of revocation and suspension must be published in a newspaper of general circulation in this State. No new business may be done by the insurer or its agents in this State while the default or disability continues nor until its authority to transact business is restored by the commissioner.
(C) Notwithstanding the provisions of subsection (A)(6), if the commissioner determines that an insurer is in an unsound condition or in a hazardous condition provided in subsection (A)(1) and (3), he may 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 dividends by an insurer to its stockholders or to its policyholders;
(6) file reports in a form acceptable to the commissioner 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 considers necessary;
(8) document the adequacy of premium rates in relation to the risks insured;
(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 approved by the commissioner;
(10) disregard credit or an amount receivable resulting from transactions with a reinsurer which is insolvent, impaired, or otherwise subject to a delinquency proceeding;
(11) make appropriate adjustments to asset values attributable to investments in or transactions with parents, subsidiaries, or affiliates;
(12) 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;
(13) increase the insurer's liability in an amount equal to a 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 months; or
(14) take other action he considers appropriate."
Required capital and surplus of stock insurers
SECTION 6. Section 38-9-10 of the 1976 Code is amended to read:
"Section 38-9-10. (A)(1) Before licensing a stock insurer, the commissioner shall require the insurer to be possessed of capital which must be maintained at all times and surplus, twenty-five percent of which must be maintained at all times, in amounts not less than:
If licensed to write Capital Surplus
(a) life: $600,000 $600,000
(b) accident and
health: 600,000 600,000
(c) life, accident,
and health: 1,200,000 1,200,000
(d) property: 1,200,000 1,200,000
(e) casualty: 1,200,000 1,200,000
(f) surety: 1,200,000 1,200,000
(g) marine: 1,200,000 1,200,000
(h) title: 600,000 600,000
(i) multiple lines:1,500,000 1,500,000
(2) The commissioner may require additional initial capital and surplus based on the type or nature of business transacted, and the initial capital and surplus of the insurer must consist of cash or marketable securities which are eligible investments under Section 38-11-40.
(B) If the surplus of a stock insurer is less than twenty-five percent of the surplus initially required, as set forth in subsection (A), the insurer is considered delinquent, and the commissioner may begin delinquency proceedings as provided by Chapter 27 of this title.
(C) If the capital of a stock insurer is impaired, the insurer is delinquent, and the commissioner shall begin delinquency proceedings."
Required surplus of mutual insurers
SECTION 7. Section 38-9-20 of the 1976 Code is amended to read:
"Section 38-9-20. (A)(1) Before licensing a mutual insurer, the commissioner shall require the insurer to be possessed of surplus of not less than:
Surplus which must be
possessed at time
If licensed to write: of licensing
(a) life: $1,200,000
(b) accident and
(c) life, accident,
and health: 2,400,000
(d) property: 2,400,000
(e) casualty: 2,400,000
(f) surety: 2,400,000
(g) marine: 2,400,000
(h) title: 1,200,000
(i) multiple lines: 3,000,000
(2) The commissioner may require additional initial surplus based on the type or nature of business transacted, and the initial surplus of the insurer must consist of cash or marketable securities which are eligible investments under Section 38-11-40.
(B) If the surplus of a licensed mutual insurer is less than the sum of the capital and minimum surplus required to be maintained by a stock insurer licensed to write the same kind or kinds of business, the mutual insurer is considered delinquent, and the commissioner may begin delinquency proceedings as provided by Chapter 27 of this title. (C) If the surplus of a licensed mutual insurer is less than the minimum capital required to be possessed by a stock insurer licensed to write the same kind or kinds of business, the mutual insurer is delinquent, and the commissioner shall begin delinquency proceedings."
Requirements for capital and surplus; date changes; change of control
SECTION 8. Section 38-9-30 of the 1976 Code is amended to read:
"Section 38-9-30. Sections 38-9-10 and 38-9-20 do not apply to an insurer that is licensed to do business in this State on July 1, 1991, if the insurer continues to remain licensed in this State and continues to maintain at least the following minimum capital and surplus amounts if a stock insurer or minimum surplus if a mutual insurer:
(1) An insurer, if possessed of capital and surplus amounts on December 31, 1990, that were in compliance with the law at that time, but which are less than the minimums required to be maintained by Section 38-9-10, shall maintain not less than the amount of capital stated in its 1990 annual statement and maintain surplus of not less than twenty-five percent of that amount of capital. If the surplus of the insurer is reduced to less than twenty-five percent of this minimum amount of required capital, the insurer is considered delinquent, and the commissioner may begin delinquency proceedings as provided by Chapter 27 of this title. If the minimum capital required to be maintained by this section by the insurer becomes impaired, the insurer is delinquent, and the commissioner shall begin delinquency proceedings. If the capital is increased to an amount greater than the amount possessed on December 31, 1990, the amount of surplus that must be maintained after the increase is twenty-five percent of that greater amount of capital, and if this amount is not maintained, the commissioner may begin delinquency proceedings as provided by Chapter 27 of this title. This increased amount of capital must not be reduced to an amount less than the amount required by Section 38-9-10, and if it becomes reduced or impaired, the insurer is delinquent, and the commissioner shall begin delinquency proceedings.
(2) A mutual insurer, if possessed of surplus on December 31, 1990, that was in compliance with the law at that time but is less than the minimum required to be maintained by Section 38-9-20, shall maintain not less than the amount of surplus stated in its 1990 annual statement. If the surplus of the insurer is reduced to less than eighty percent of the amount shown in its 1990 annual statement, the insurer is considered delinquent, and the commissioner may begin delinquency proceedings as provided by Chapter 27 of this title. If the surplus of the insurer is increased to an amount greater than the amount possessed on December 31, 1990, eighty percent of that greater amount of surplus, or the minimum amount required to be maintained by Section 38-9-20, whichever amount is the lesser, must be maintained after the increase, and if it is not maintained, the insurer is considered delinquent, and the commissioner may begin delinquency proceedings as provided by Chapter 27 of this title.
(3) A domestic stock insurer possessed of the minimum capital and surplus required by item (1) or a domestic mutual insurer possessed of the minimum surplus required by item (2), which is the subject of a change of control defined in Chapter 21 of this title, the Insurance Holding Company Regulatory Act, immediately shall increase its minimum capital and surplus if a stock insurer, or its minimum surplus if a mutual insurer, to comply with the minimums in Section 38-9-10 or 38-9-20, whichever is applicable."
Deductions from unearned premium reserves
SECTION 9. Section 38-9-170 of the 1976 Code is amended to read:
"Section 38-9-170. (A) An insurer authorized to transact business in this State, except as to risks or policies for which reserves are required under subsections (B) and (C) and Section 38-9-180 except for real estate title insurance policies, and subject to specific provisions of this title, shall maintain reserves equal to the unearned portions of the gross premiums charged on unexpired or unterminated risks and policies.
Credit for reinsurance is allowed a ceding insurer as a deduction from reserves required by this section only as provided in Section 38-9-200 or 38-9-210.
(B)(1) With reference to insurance against loss or damage to property except as provided in item (5) and with reference to all general casualty insurance and surety insurance every insurer shall maintain an unearned premium reserve on all policies in force.
(2) The commissioner may require that these reserves are equal to the unearned portions of the gross premiums in force as computed on each respective risk from the policy's date of issue. If the commissioner does not so require, the portions of the gross premium in force to be held as premium reserve must be computed according to the following table:
Term for Which Reserved for
Policy was Written Unearned Premium
1 year or less 1/2
2 years 1st year 3/4
2nd year 1/4
3 years 1st year 5/6
2nd year 1/2
3rd year 1/6
4 years 1st year 7/8
2nd year 5/8
3rd year 3/8
4th year 1/8
5 years 1st year 9/10
2nd year 7/10
3rd year 1/2
4th year 3/10
5th year 1/10
Over 5 years pro rata.
(3) All of these reserves may be computed, at the option of the insurer, on a yearly or more frequent pro rata basis.
(4) After adopting a method for computing the reserve, an insurer may not change methods without the commissioner's approval.
(5) With reference to marine insurance, premiums on trip risks not terminated are considered unearned, and the commissioner may require the insurer to carry a reserve equal to one hundred percent on trip risks written during the month ended as of the date of statement. For all accident and health policies the insurer shall maintain an active life reserve which places a sound value on its liabilities under these policies and which is not less than the reserve according to standards set forth in regulations issued by the commissioner and not less, in the aggregate, than the pro rata gross unearned premium reserves for these policies."
Credit for reinsurance
SECTION 10. Section 38-9-190 of the 1976 Code is amended to read:
"Section 38-9-190. A company authorized to transact insurance in this State shall maintain reserves in an amount estimated in the aggregate as being sufficient to provide for the payment of all losses or claims arising by the date of an annual or other statement, whether reported or unreported, which are unpaid as of that date and for which the insurer may be liable and also reserves in an amount estimated to provide for the expenses of adjustment or settlement of these claims.
The reserves for unpaid losses and loss expenses under policies of personal injury liability insurance, employer's liability insurance, and workers' compensation insurance must be calculated in accordance with regulations the commissioner prescribes. A company authorized to write these kinds of insurance shall file with its annual statement schedules of its experience in the form the commissioner requires.
Credit for reinsurance is allowed a ceding insurer as an asset or a deduction from reserves required by this section only as provided in Section 38-9-200 or 38-9-210."
Development and administration of investments
SECTION 11. Section 38-11-10 of the 1976 Code is amended to read:
"Section 38-11-10. The legislative intent is that policyholder obligations and the minimum capital or guaranty fund and surplus required by law must be covered only by assets of unquestioned integrity and stability and that assets in excess of those required to cover policyholder obligations, minimum capital or guaranty funds, and surplus may be invested by insurers at the discretion of the insurers. However, the assets must not be invested in assets prohibited under Section 38-11-90. The purpose of this section is to protect and further the interests of policyholders, claimants, creditors, and the public by providing standards for the development and administration of programs for the investment of the assets of companies organized under this chapter. These standards and the investment programs developed by companies must take into account the safety of the company's principal, investment yield, and growth, stability in the value of the investment, and liquidity necessary to meet the company's expected business needs, and investment diversification."
Valuation of investments; regulations
SECTION 12. Section 38-11-50 of the 1976 Code is amended to read:
"Section 38-11-50. (A) Investments made by insurers to cover policyholder obligations and their minimum capital or guaranty fund and surplus required by law, provided in Section 38-11-40, are subject to:
(1) None of the securities in Section 38-11-40 are eligible for the purposes of that section if, within five years immediately preceding, the obligor has defaulted in the payment of principal or interest on its bonds, warrants, or other securities.
(2) With respect to investments under Section 38-11-40(g), not more than twenty percent of the insurer's policyholder obligations may be invested in the securities of a county, city, town, village, municipality, or district of a state or territory of the United States or its political subdivisions or a civil division or public instrumentality of the United States. However, this limitation does not apply to an investment which qualifies for sinking fund purposes under the laws of this State.
(3) Investments in Section 38-11-40(h) may not exceed ten percent of the insurer's policyholder obligations.
(4) Investments in Section 38-11-40(i) may not exceed sixty-six and two-thirds percent of the insurer's policyholder obligations, nor may more than ten percent of the insurer's policyholder obligations be invested in one investment.
(5) Investments in Section 38-11-40(j) may not exceed fifteen percent of the insurer's policyholder obligations.
(6) Investments in Section 38-11-40(l), (m), and (n) may not exceed in the aggregate sixty-six and two-thirds percent of the insurer's policyholder obligations, nor, with respect to investments under these items, may more than ten percent of the insurer's policyholder obligations be invested in one investment or in one project, subdivision, or transaction or series of related transactions.
(7) Investments in Section 38-11-40(o) may not exceed ten percent of the insurer's policyholder obligations.
(8) Investments in Section 38-11-40(p) may not exceed ten percent of the insurer's policyholder obligations. Where a life insurer does not, wholly or in part, avail itself of Section 38-11-40(o), as limited by Section 38-11-40(f), the investments under Section 38-11-40(p) may be increased to the extent of the unused portion, but the life insurer's investments under Section 38-11-40(p) may not exceed fifteen percent of the insurer's policyholder obligations. However, this limitation does not apply to real estate acquired by bona fide mortgage foreclosure if the insurer has had title to the real estate for less than five years.
(9) Investments in Section 38-11-40(q) may not exceed ten percent of the insurer's policyholder obligations.
(10) Investments in Section 38-11-40(r) may not exceed ten percent of the insurer's policyholder obligations.
(11) Investments authorized under Section 38-11-40(s) may not exceed ten percent of the insurer's policyholder obligations.
(B) For purposes of the limitations contained in this section:
(1) Except as otherwise provided in item (2), investments in Section 38-11-40 must be valued in accordance with stated values or standards published by the Securities Valuation Office of the National Association of Insurance Commissioners in its Valuations of Securities Manual. Investments for which the National Association of Insurance Commissioners has not published valuations or standards must be valued as follows:
(a) Obligations having a fixed term and rate, if not in default as to principal or interest, must be valued, if purchased at par, at the par value and, if purchased above or below par, on the basis of the purchase price adjusted so as to bring the value to par at maturity and so as to yield in the meantime the effective rate of interest at which the purchase was made.
(b) Common, preferred, or guaranteed stocks must be valued at their market value or, at the option of the company, may be valued at the purchase price if it is less than market value.
(c) Other securities investments must be valued in accordance with regulations promulgated pursuant to subsection (D).
(2) Investments not provided for in item (1), including real property, must be valued in accordance with regulations promulgated pursuant to subsection (D), but they must not be valued at more than their purchase price. Purchase price for real property includes capitalized permanent improvements less depreciation spread evenly over the life of the property or, at the option of the company, less depreciation computed on a basis permitted under the Internal Revenue Code and its regulations. Investments affected by permanent declines in value must be valued at not more than their market value. However, mortgage loans may be valued at amortized value.
(C) An investment, including real property, not purchased by a company but acquired in satisfaction of a debt or otherwise must be valued in accordance with the applicable procedures for that type of investment contained in this section. For purposes of applying the valuation procedures, the purchase price is the market value at the time the investment is acquired or, for an investment acquired in satisfaction of debt, the amount of the debt including interest, taxes, and expenses, whichever is less.
(D) The commissioner shall promulgate regulations for determining and calculating values to be used in financial statements submitted to the Department of Insurance for investments not subject to published National Association of Insurance Commissioner's valuation standards."
SECTION 13. Section 38-21-90 of the 1976 Code is amended to read:
"Section 38-21-90. (A) The commissioner shall approve a merger or other acquisition of control in Section 38-21-60 unless, after a public hearing, he finds that:
(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.
(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. In applying the competitive standard in this item:
(a) The information requirements and standards of Section 38-21-125(C) and (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) exists.
(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.
(3) The financial condition of the acquiring party might jeopardize the financial stability of the insurer or prejudice the interest of its policyholders.
(4) The plans or proposals which the acquiring party has to liquidate the insurer, sell its assets, or consolidate or merge it with a person or to make 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.
(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.
(6) The acquisition is likely to be hazardous or prejudicial to the insurance-buying public.
(B) The public hearing referred to in subsection (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, a person to whom notice of hearing was sent, and other persons whose interests are affected may present evidence, examine and cross-examine witnesses, and offer oral and written arguments and are entitled to conduct discovery proceedings in the same manner allowed in the circuit courts of this State. Discovery proceedings must be concluded not later than three days before the public hearing.
(C) The commissioner may retain at the acquiring person's expense attorneys, actuaries, accountants, and other experts not otherwise a part of the commissioner's staff reasonably necessary to assist the commissioner in reviewing the proposed acquisition of control."
Pledge of insurer's stock for loan
SECTION 14. 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) capital structure, general financial condition, ownership, and management of the insurer and a person controlling the insurer;
(2) 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 the insurer and its affiliates:
(a) loans, other investments, or purchases, sales, or exchanges of securities of the affiliates by the insurer or of the insurer by its affiliates;
(b) purchases, sales, or exchanges of assets;
(c) transactions not in the ordinary course of business;
(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;
(e) management agreements, service contracts, and cost-sharing arrangements;
(f) reinsurance agreements;
(g) dividends and other distributions to shareholders;
(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 affiliates included in registration forms adopted or approved by the commissioner."
Determination of extraordinary dividend and distribution
SECTION 15. Section 38-21-270 of the 1976 Code is amended to read:
"Section 38-21-270. (A) No domestic insurer may pay an extraordinary dividend or make another extraordinary distribution to its shareholders until the commissioner:
(1) has approved the payment; or
(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 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 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 as reflected in the insurers most recent annual statement.
(2) It does not include pro rata distributions of 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 the commissioner:
(1) has approved the payment of the dividend or distribution; or
(2) has not disapproved the payment within thirty days after receiving notice of the declaration."
Supervision" cite deleted
SECTION 16. Section 38-27-10 of the 1976 Code is amended to read:
"Section 38-27-10. This chapter may be cited as the `Insurers Rehabilitation and Liquidation Act'."
Prepaid health care delivery plans
SECTION 17. Section 38-27-40 of the 1976 Code is amended to read:
"Section 38-27-40. The proceedings authorized by this chapter may be applied to:
(1) insurers who are doing, or have done, an insurance business in this State and against whom claims arising from that business may exist now or in the future;
(2) insurers who purport to do an insurance business in this State;
(3) insurers who have insureds resident in this State;
(4) other persons organized or in the process of organizing with the intent to do an insurance business in this State;
(5) nonprofit service plans, fraternal benefit societies, and beneficial societies;
(6) title insurance companies;
(7) surety companies subject to Chapter 15 of Title 38;
(8) multiple employer self-insured health plans defined in Chapter 41 of Title 38;
(9) prepaid health care delivery plans."
Delete references to "valid" as it applies to order
SECTION 18. Section 38-27-50(3) of the 1976 Code is amended to read:
"(3) `Delinquency proceeding' means a proceeding instituted against an insurer to liquidate, rehabilitate, reorganize, or conserve the insurer and a summary proceeding under Section 38-27-220. `Formal delinquency proceeding' means a liquidation or rehabilitation proceeding."
Delete references to "valid" as it applies to order
SECTION 19. Section 38-27-230 of the 1976 Code is amended to read:
"Section 38-27-230. In proceedings and judicial reviews under Section 38-27-220, records of the insurer, other documents, insurance department files, and court records and papers, so far as they pertain to or are a part of the record of the proceedings, are and must remain confidential except as is necessary to obtain compliance, unless the circuit court, after hearing arguments from the parties in chambers, orders otherwise, or unless the insurer requests that the matter be made public. Until a court order, papers filed with the clerk of the circuit court must be held by him in a confidential file."
Delete references to "valid" as it applies to order
SECTION 20. Section 38-27-310(9) of the 1976 Code is amended to read:
"(9) Within the previous three years the insurer wilfully has violated its charter, articles of incorporation, or bylaws, an insurance law of this State, or an order of the commissioner."
Continued performance during appeal
SECTION 21. Section 38-27-370 of the 1976 Code is amended to read:
"Section 38-27-370. (A) An order to liquidate the business of a domestic insurer must appoint the commissioner and his successors in office as liquidator and direct the liquidator immediately to take possession of the assets of the insurer and to administer them under the general supervision of the court. The liquidator is vested by operation of law with the title to the property, contracts, and rights of action and the books and records of the insurer ordered liquidated, wherever located, as of the entry of the final order of liquidation. The filing or recording of the order with the clerk of court or the register of mesne conveyances of the county in which its principal office or place of business is located or, for real estate, with the clerk of court and the register of mesne conveyances of the county where the property is located imparts the same notice which a deed, bill of sale, or other evidence of title filed or recorded with that office would have imparted.
(B) Upon issuance of the order, the rights and liabilities of the insurer and its creditors, policyholders, shareholders, members, and other persons interested in its estate become fixed as of the date of entry of the order of liquidation, except as provided in Sections 38-27-380 and 38-27-560.
(C) An order to liquidate the business of an alien insurer domiciled in this State must be in the same terms and has the same legal effect as an order to liquidate a domestic insurer, except that the assets and the business in the United States are the only assets and business included.
(D) At the time of petitioning for an order of liquidation, or after that time, the commissioner, after making appropriate findings of an insurer's insolvency, may petition the court for a judicial declaration of insolvency. After providing notice and hearing it considers proper the court may make the declaration.
(E) An order issued under this section must require accounting to the court by the liquidator. Accountings must be at intervals the court specifies in its order.
(F)(1) Within five days of the effective date of this subsection or within five days after the initiation of an appeal of an order of liquidation, which order has not been stayed, the commissioner shall present for the court's approval a plan for the continued performance of the defendant company's policy claims obligations, including the duty to defend insureds under liability insurance policies during the pendency of an appeal. The plan must provide for the continued performance and payment of policy claims obligations in the normal course of events notwithstanding the grounds alleged in support of the order of liquidation including the ground of insolvency. If the defendant company's financial condition, in the judgment of the commissioner, does not support the full performance of policy claims obligations during the appeal pendency period, the plan may prefer the claims of certain policyholders and claimants over creditors and interested parties as well as other policyholders and claimants as the commissioner finds to be fair and equitable considering the relative circumstances of the policyholders and claimants. The court shall examine the plan submitted by the commissioner and if it finds the plan to be in the best interests of the parties, the court shall approve the plan. No action may lie against the commissioner or his deputies, agents, clerks, assistants, or attorneys based on preference in an appeal pendency plan approved by the court.
(2) The appeal pendency plan may not supersede or affect the obligations of an insurance guaranty association. An appeal pendency plan must provide for equitable adjustments to be made by the liquidator to distributions of assets to guaranty associations, if the liquidator pays claims from assets of the estate, which otherwise would be the obligations of a guaranty association but for the appeal of the order of liquidation, so that guaranty associations equally benefit on a pro rata basis from the assets of the estate. If an order of liquidation is set aside upon appeal, the company must not be released from delinquency proceedings unless funds advanced by a guaranty association, including reasonable administrative expenses relating to obligations of the company, are repaid in full, together with interest at the judgment rate of interest or unless an arrangement for repayment has been made with the consent of applicable guaranty associations."
Audit of books and records
SECTION 22. Section 38-27-400(a) of the 1976 Code is amended by adding an appropriately numbered item to read:
"( ) To audit the books and records of agents of the insurer insofar as those records relate to the business activities of the insurer."
Entry of liquidation order; no obligation to defend
SECTION 23. Section 38-27-400 of the 1976 Code is amended by adding an appropriately lettered subsection to read:
"( ) Notwithstanding the powers of the liquidator in subsections (a) and (b), the liquidator is not obligated to defend claims or to continue to defend claims after the entry of a liquidation order."
SECTION 24. Section 38-27-610(3) and (5) of the 1976 Code are amended to read:
"(3) Class 3. Claims under policies, including claims of federal, state, and local governments, for losses incurred, loss claims, including third party claims, claims against the insurer for liability for bodily injury or for injury to or destruction of tangible property which are not under policies, and claims of a guaranty association or foreign guaranty association. Claims under life insurance and annuity policies, whether for death proceeds, annuity proceeds, or investment values, must be treated as loss claims. That portion of a loss, indemnification for which is provided by other benefits or advantages recovered by the claimant, must not be included in this class, other than benefits or advantages recovered or recoverable in discharge of familial obligations of support or by way of succession at death, or as proceeds of life insurance or as gratuities. No payment by an employer to his employee may be treated as a gratuity."
"(5) Class 5. Claims of federal, state, and local governments, except those under item (3). Claims, including those of a governmental body for a penalty or forfeiture, are allowed in this class only to the extent of the pecuniary loss sustained from the act, transaction, or proceeding out of which the penalty or forfeiture arose, with reasonable and actual costs. The remainder of the claims are postponed to the class of claims under item (9)."
Reference to orders and supervision deleted
SECTION 25. Section 38-27-950 of the 1976 Code is amended to read:
"Section 38-27-950. The commissioner in his sole discretion may institute proceedings under Sections 38-27-220 and 38-27-230 at the request of the commissioner or other appropriate insurance official of the domiciliary state of a foreign or an alien insurer having property located in this State."
Required capital of stock health maintenance organization; greater initial net worth requirements
SECTION 26. Section 38-33-100 of the 1976 Code is amended to read:
"Section 38-33-100. (A) No health maintenance organization may be issued a certificate of authority unless it is possessed of net worth of at least one million, two hundred thousand dollars, six hundred thousand dollars of which must be capital if it is a stock health maintenance organization. After the issuance, the health maintenance organization shall maintain a net worth of not less than six hundred thousand dollars. Net worth means total assets less total liabilities. Instruments acceptable to the commissioner may be utilized in determining net worth. If the commissioner determines that the number of enrollees in the health maintenance organization is excessive or may become excessive in relation to the organization's net worth, the commissioner may require that future enrollment be limited until it is no longer necessary.
(B) The commissioner may require a health maintenance organization to meet greater initial net worth requirements based on the health maintenance organization's plan of operation. In making a determination to require greater initial net worth, the commissioner may consider, among other factors, the health maintenance organization's projected enrollment, rates, and expenses."
Captives; limitation of risk
SECTION 27. Section 38-55-30 of the 1976 Code is amended to read:
"Section 38-55-30. Except as otherwise provided in this title, no insurer or captive doing business in this State may expose itself to a loss on one risk in an amount exceeding ten percent of its surplus to policyholders. A risk or portion of it which has been reinsured must be deducted in determining the limitation of risk prescribed in this section. As used in this section, `captive' means an insurance company owned by another organization whose exclusive purpose is to insure risks of the parent organization and affiliated companies, or for groups and associations, an insurance organization owned by the insureds whose exclusive purpose is to insure risks of member organizations or group members and their affiliates, or both."
Financial condition examination
SECTION 28. Section 38-87-40(6) of the 1976 Code is amended to read:
"(6) Examination Regarding Financial Condition. A risk retention group shall submit to an examination by the Chief Insurance Commissioner to determine its financial condition if the commissioner of the jurisdiction in which the group is chartered and licensed has not initiated an examination or does not initiate an examination within sixty days after a request by the Chief Insurance Commissioner of this State. The examination must be coordinated to avoid unjustified repetition and must be conducted in an expeditious manner and in accordance with the National Association of Insurance Commissioners' Examiner's Handbook."
Purchase of insurance; risk retention group not chartered; insurer not admitted in South Carolina
SECTION 29. Section 38-87-90 of the 1976 Code is amended to read:
"Section 38-87-90. (A) A purchasing group may not purchase insurance from a risk retention group that is not chartered in a state or from an insurer not admitted in the state in which the purchasing group is located unless the purchase is effected through a licensed agent or broker acting pursuant to the surplus lines laws and regulations of that state.
(B) A purchasing group which obtains liability insurance from an approved surplus lines insurer not admitted in this State or a risk retention group shall inform each of the members of the group which has a risk resident or located in this State that the risk is not protected by an insurance insolvency guaranty fund in this State and that the risk retention group or the insurer may not be subject to all insurance laws and regulations of this State.
(C) No purchasing group may purchase insurance providing for a deductible or self-insured retention applicable to the group as a whole. However, coverage may provide for a deductible or self-insured retention applicable to individual members.
(D) Purchases of insurance by purchasing groups are subject to the same standards regarding aggregate limits which are applicable to all purchases of group insurance."
Application of act to reinsurance agreements with certain inception anniversary or renewal date
SECTION 30. Sections 38-9-200 through 38-9-220 of the 1976 Code, added in Section 1 of this act, apply to insurance cessions after the effective date of this act under reinsurance agreements which have an inception anniversary or renewal date not less than six months after the effective date of this act.
SECTION 31. Section 38-27-210 of the 1976 Code is repealed.
SECTION 32. This act takes effect upon approval by the Governor.
Approved the 22nd day of March, 1991.