Current Status Introducing Body:
SenateBill Number: 468Primary Sponsor: SaleebyCommittee Number: 02Type of Legislation: GBSubject: Insurance Holding Comapny Regulatory Act, provisionsResiding Body: SenateCurrent Committee: Banking and InsuranceCompanion Bill Number: 3234 590Computer Document Number: 468Introduced Date: Jan 15, 1991Last History Body: SenateLast History Date: Jan 15, 1991Last History Type: Introduced, read first time, referred to CommitteeScope of Legislation: StatewideAll Sponsors: Saleeby Land McConnell Mullinax PopeType of Legislation: General Bill
Bill Body Date Action Description CMN ---- ------ ------------ ------------------------------ --- 468 Senate Jan 15, 1991 Introduced, read first time, 02 referred to CommitteeView additional legislative information at the LPITS web site.
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 38-21-125 SO AS TO PROVIDE FOR ACQUISITIONS OF INSURERS NOT COVERED BY THE INSURANCE HOLDING COMPANY REGULATORY ACT; TO AMEND SECTION 38-21-90, RELATING TO THE INSURANCE COMMISSIONER'S APPROVAL OF AN ACQUISITION OF CONTROL OF AN INSURER, SO AS TO PROVIDE FOR APPLICATION OF THE COMPETITIVE STANDARD; TO AMEND SECTION 38-21-140, RELATING TO THE CONTENT OF INSURANCE REGISTRATION STATEMENTS SO AS TO INCLUDE A PLEDGE OF THE INSURER'S STOCK FOR A LOAN MADE TO A MEMBER OF THE INSURANCE HOLDING COMPANY SYSTEM; AND TO AMEND SECTION 38-21-270, RELATING TO NOTICE AND APPROVAL OF EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS BY INSURERS, SO AS TO REVISE THE DETERMINATION OF AN EXTRAORDINARY DIVIDEND AND DISTRIBUTION.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. The 1976 Code is amended by adding:
"Section 38-21-125. (A) For purposes of this section:
(1) `Acquisition' means an agreement, arrangement, or activity the consummation of which results in a person directly or indirectly acquiring the control of another person and includes, but is not limited to, the acquisition of voting securities, the acquisition of assets, bulk reinsurance, and mergers.
(2) An `involved insurer' includes an insurer which acquires or is acquired, is affiliated with an acquirer or acquired, or is the result of a merger.
(B)(1) Except as exempted in item (2), this section applies to an acquisition in which there is a change in control of an insurer authorized to do business in this State.
(2) This section does not apply to:
(a) an acquisition subject to approval or disapproval by the commissioner pursuant to Section 38-21-60;
(b) a purchase of securities solely for investment purposes so long as the securities are not used by voting or otherwise to cause or attempt to cause the substantial lessening of competition in an insurance market in this State. If a purchase of securities results in a presumption of control under Section 38-21-10(2), it is not solely for investment purposes unless the commissioner of the insurer's state of domicile accepts a disclaimer of control or affirmatively finds that control does not exist, and the disclaimer action or affirmative finding is communicated by the domiciliary commissioner to the commissioner of this State;
(c) the acquisition of a person by another person when both persons are neither directly nor through affiliates primarily engaged in the business of insurance if preacquisition notification is filed with the commissioner in accordance with subsection (C)(1) thirty days before the proposed effective date of the acquisition. However, preacquisition notification is not required for exclusion from this section if the acquisition would be excluded by other provisions of this subsection.
(d) the acquisition of already affiliated persons;
(e) an acquisition if, as an immediate result of the acquisition:
(i) In any market the combined market share of the involved insurers does not exceed five percent of total market.
(ii) There is not an increase in a market share, or in any market the combined market share of the involved insurers does not exceed twelve percent of the total market, and the market share does not increase by more than two percent of the total market.
For the purpose of this subitem a market means direct written insurance premium in this State for a line of business as contained in the annual statement required to be filed by insurers licensed to do business in this State;
(f) an acquisition for which a preacquisition notification would be required pursuant to this section due solely to the resulting effect on the ocean marine insurance line of business;
(g) an acquisition of an insurer whose domiciliary commissioner affirmatively finds that:
(i) The insurer is in failing condition.
(ii) There is a lack of feasible alternatives to improving the condition.
(iii) The public benefits of improving the insurer's condition through the acquisition exceed the public benefits that would arise from not lessening competition.
(iv) The findings are communicated by the domiciliary commissioner to the commissioner of this State.
(C)(1) An acquisition covered by subsection (B) may be subject to an order pursuant to subsection (E) unless the acquiring person files a preacquisition notification and the waiting period has expired. The acquired person may file a preacquisition notification. The commissioner shall give confidential treatment to information submitted under subsection (C) in the same manner provided in Section 38-21-290.
(2) The preacquisition notification must be in a form and contain information prescribed by the National Association of Insurance Commissioners relating to those markets which, under subsection B(2)(e), cause the acquisition not to be exempted from the provisions of this section. The commissioner may require additional material and information necessary to determine whether the proposed acquisition, if consummated, violates the competitive standard of subsection (D). The required information may include an opinion of an economist as to the competitive impact of the acquisition in this State accompanied by a summary of the education and experience of the person indicating ability to render an informed opinion.
(3) The required waiting period begins on the date of receipt of the commissioner of a preacquisition notification and ends on the earlier of the thirtieth day after the date of receipt or termination of the waiting period by the commissioner. Before the end of the waiting period, the commissioner on a one-time basis may require the submission of additional needed information relevant to the proposed acquisition. If he does, the waiting period ends on the earlier of the thirtieth day after receipt of the additional information by the commissioner or termination of the waiting period by the commissioner.
(D)(1) The commissioner may enter an order under subsection (E) (1) with respect to an acquisition if there is substantial evidence that the effect of the acquisition may be to lessen competition substantially in a line of insurance in this State or tend to create a monopoly or if the insurer fails to file adequate information in compliance with subsection (C).
(2) In determining whether a proposed acquisition violates the competitive standard of item (1), the commissioner shall consider the following:
(a) An acquisition covered under subsection (B) involving two or more insurers competing in the same market is prima facie evidence of a violation of the competitive standards:
(i) if the market is highly concentrated and the involved insurers possess the following shares of the market:
Insurer A Insurer B
4%4% or more
10%2% or more
15%1% or more; or
(ii) if the market is not highly concentrated and the involved insurers possess the following shares of the market:
Insurer A Insurer B
5%5% or more
10%4% or more
15%3% or more
19%1% or more
A highly concentrated market is one of which the share of the four largest insurers is seventy-five percent or more of the market. Percentages not shown in the tables are interpolated proportionately to the percentages that are shown. If more than two insurers are involved, exceeding the total of the two columns in the table is prima facie evidence of violation of the competitive standard in item (1). For the purpose of this item, the insurer with the largest share of the market is Insurer A.
(b) It must be determined whether there is a significant trend toward increased concentration in the market. The trend exists when the aggregate market share of a grouping of the largest insurers in the market, from the two largest to the eight largest, has increased by seven percent or more of the market over time extending from a base year five to ten years before the acquisition up to the time of the acquisition. An acquisition or merger covered under subsection (B) involving two or more insurers competing in the same market is prima facie evidence of a violation of the competitive standard in item (1) if all of the following exist:
(i) There is a significant trend toward increased concentration in the market.
(ii) One of the insurers involved is one of the insurers in a grouping of the large insurers showing the requisite increase in the market share.
(iii) Another involved insurer's market is two percent or more.
(c) Even though an acquisition is not prima facie violative of the competitive standard under this item, the commissioner may establish the requisite anticompetitive effect based upon other substantial evidence. Even though an acquisition is prima facie violative of the competitive standard under this item, a party may establish the absence of the requisite anticompetitive effect based upon other substantial evidence. Relevant factors in making a determination include, but are not limited to: market shares, volatility of the ranking of market leaders, number of competitors, concentration, trend of concentration in the industry, and ease of entry and exit into the market.
(d) For the purpose of this item:
(i) `Insurer' includes a company or group of companies under common management, ownership, or control.
(ii) `Market' means the relevant product and geographical markets. In determining the relevant product and geographical markets the commissioner shall give due consideration to the definitions or guidelines, if any, promulgated by the National Association of Insurance Commissioners and to information, if any, submitted by parties to the acquisition. In the absence of sufficient information to the contrary, the relevant product market is assumed to be the direct written insurance premium for a line of business. The line is that used in the annual statement required to be filed by insurers doing business in this State, and the relevant geographical market is assumed to be this State.
(iii) The burden of showing prima facie evidence of a violation of the competitive standard rests upon the commissioner.
(3) An order must not be entered under subsection (E)(1) if the acquisition will:
(a) yield substantial economies of scale or economies in resource utilization that cannot be achieved feasibly in another way, and the public benefits which would arise from the economies exceed the public benefits which would arise from not lessening competition; or
(b) substantially increase the availability of insurance, and the public benefits of the increase exceed the public benefits which would arise from not lessening competition.
(E)(1)(a) If an acquisition violates the standards of this section, the commissioner may enter an order:
(i) requiring an involved insurer to stop doing business in this State with respect to the line or lines of insurance involved in the violation; or
(ii) denying the application of an acquired or acquiring insurer for a license to do business in this State.
(b) An order must not be entered unless all of the following exist:
(i) There is a hearing.
(ii) Notice of the hearing is issued before the end of the waiting period and not less than fifteen days before the hearing.
(iii) The hearing is concluded and the order is issued no later than sixty days after the end of the waiting period.
An order must be accompanied by a written decision of the commissioner setting forth his findings of fact and conclusions of law.
(c) An order does not become final earlier than thirty days after it is issued. Before it becomes final the involved insurer may submit a plan to remedy the anticompetitive impact of the acquisition within a reasonable time. Based upon the plan or other information, the commissioner shall specify the conditions, if any, under the time period during which the aspects of the acquisition causing a violation of the standards of this section would be remedied and the order vacated or modified.
(d) An order does not apply if the acquisition is not consummated.
(2) A person who violates an order under item (1), while the order is in effect, after notice and hearing, and upon order of the commissioner, is subject at his discretion to one or more of the following:
(a) monetary penalty of not more than ten thousand dollars for each day of violation;
(b) suspension or revocation of license.
(3) An insurer or other person who fails to make a filing required by this section and who fails to demonstrate a good faith effort to comply with a filing requirement is subject to a fine of not more than fifty thousand dollars.
(F) Sections 38-21-320, 38-21-330, and 38-21-350 do not apply to acquisitions under subsection (B)."
SECTION 2. Section 38-21-90 of the 1976 Code is amended to read:
"Section 38-21-90. (1)(A) The commissioner shall approve any a merger or other acquisition of control referred to in Section 38-21-60 unless, after a public hearing, he finds that:
(a)(1) After the change of control the domestic insurer referred to in Section 38-21-60 is not able to satisfy the requirements for the issuance of a license to write the line or lines of insurance for which it is presently licensed;.
(b)(2) The effect of the merger or other acquisition of control would substantially lessen competition in insurance in this State or tend to create a monopoly therein;. In applying the competitive standard in this item:
(a) The information requirements and standards of Section 38-21-125(C) and 38-21-125 (D) apply.
(b) The merger or other acquisition must not be approved if the commissioner finds that at least one of the situations in Section 38-21-125(D) exist.
(c) The commissioner may condition the approval of the merger or other acquisition on the removal of the basis of disapproval within a specified period of time.
(c)(3) The financial condition of the acquiring party might jeopardize the financial stability of the insurer or prejudice the interest of its policyholders;
(d)(4) The plans or proposals which the acquiring party has to liquidate the insurer, sell its assets, or consolidate or merge it with any a person, or to make any other another material change in its business or corporate structure or management, are unfair and unreasonable to policyholders of the insurer and not in the public interest;.
(e)(5) The competence, experience, and integrity of those persons who would control the operation of the insurer are such that it is not in the interest of policyholders of the insurer and of the public to permit the merger or other acquisition of control;.
(f)(6) The acquisition is likely to be hazardous or prejudicial to the insurance-buying public.
(2)(B) The public hearing referred to in subsection (1)(A) must be held within thirty days after the statement required by Section 38-21-60 is filed, and at least twenty days' notice must be given by the commissioner to the person filing the statement, to the insurer, and to other persons designated by the commissioner. The commissioner shall make a determination within thirty days after the conclusion of the hearing. At the hearing, the person filing the statement, the insurer, any a person to whom notice of hearing was sent, and any other person persons whose interest is interests are affected has the right to may present evidence, examine and cross-examine witnesses, and offer oral and written arguments and is are entitled to conduct discovery proceedings in the same manner as is allowed in the circuit courts of this State. All discovery Discovery proceedings must be concluded not later than three days before the commencement of the public hearing.
(3)(C) The commissioner may retain at the acquiring person's expense any attorneys, actuaries, accountants, and other experts not otherwise a part of the commissioner's staff as may be reasonably necessary to assist the commissioner in reviewing the proposed acquisition of control."
SECTION 3. Section 38-21-140 of the 1976 Code is amended to read:
"Section 38-21-140. Every insurer subject to registration shall file the registration statement on a form prescribed by the commissioner which must contain the following current information:
(1) the capital structure, general financial condition, ownership, and management of the insurer and any a person controlling the insurer;
(2) the identity and relationship of every member of the insurance holding company system;
(3) the following agreements in force, and transactions currently outstanding or which have occurred during the last calendar year between such the insurer and its affiliates:
(i)(a) loans, other investments, or purchases, sales, or exchanges of securities of the affiliates by the insurer or of the insurer by its affiliates;
(ii)(b) purchases, sales, or exchanges of assets;
(iii)(c) transactions not in the ordinary course of business;
(iv)(d) guarantees or undertakings for the benefit of an affiliate which result in an actual contingent exposure of the insurer's assets to liability, other than insurance contracts entered into in the ordinary course of the insurer's business;
(v)(e) all management agreements, service contracts, and all cost-sharing arrangements;
(vi)(f) reinsurance agreements;
(vii)(g) dividends and other distributions to shareholders;
(viii)(h) consolidated tax allocation agreements.
(4) pledge of the insurer's stock, including stock of a subsidiary or controlling affiliate, for a loan made to a member of the insurance holding company system;
(5) other matters concerning transactions between registered insurers and any affiliates as may be included in any registration forms adopted or approved by the commissioner."
SECTION 4. Section 38-21-270 of the 1976 Code is amended to read:
"Section 38-21-270. (A) No domestic insurer shall may pay any an extraordinary dividend or make any other another extraordinary distribution to its shareholders until (i) the commissioner:
(1) has approved the payment; or
(ii) the Commissioner (2) has not disapproved the payment within thirty days after receiving notice of the declaration.
(B)(1) For purposes of this section, an extraordinary dividend or distribution includes any a dividend or distribution of cash or other property, whose fair market value together with that of other dividends or distributions made within the preceding twelve months exceeds the greater of:
(a) ten percent of the insurer's surplus as regards policyholders as of the previous December thirty-first, reflected in the insurers most recent annual statement;
(b) the net gain from operations of the insurer, if the insurer is a life insurer, or the net investment income, if the insurer is not a life insurer not including realized capital gains, for the year ending the previous December thirty-first but as reflected in the insurers most recent annual statement.
(2) It does not include pro rata distributions of any a class of the insurer's own securities.
(C) An insurer may declare an extraordinary dividend or distribution which is conditional upon the commissioner's approval. The declaration confers no rights upon shareholders until (1) the commissioner:
(1) has approved the payment of the dividend or distribution; or
(2) the Commissioner has not disapproved the payment within thirty days after receiving notice of the declaration."
SECTION 5. This act takes effect upon approval by the Governor.