Bill 3546

Name changed, etc.

SECTION 534. Chapter 7, Title 38 of the 1976 Code is amended to read:

"CHAPTER 7

Fees and Taxes

Section 38-7-10. (A) Every insurer, except mutual benevolent aid associations and fraternal benefit associations, before transacting business in this State shall pay a license fee of eight hundred dollars to the department and after that initial payment pay to the department a biennial license fee of eight hundred dollars by March first every other year. (B) In addition to the license fees required in subsection (A), the director or his designee shall collect from each insurer licensed by him to do business in this State a license fee of four hundred dollars for each kind of insurance for which the insurer is licensed as listed in Section 38-5-30(a) through (g). Each mutual insurer doing a property business only in no more than three counties shall pay a biennial fixed license fee of one hundred dollars and each mutual insurer doing a property business only in a single county shall pay a biennial fixed license fee of forty dollars. The license fees required in this subsection must be paid to the director or his designee before the insurer transacts business in this State and after that initial payment must be paid biennially to the director or his designee by March first every two years.

Section 38-7-20. In addition to all license fees and taxes otherwise provided by law, there is levied upon each insurance company licensed by the director or his designee an insurance premium tax based upon total premiums, other than workers' compensation insurance premiums, and annuity considerations, collected by the company in the State during each calendar year ending on the thirty-first day of December. For life insurance, the insurance premium tax levied herein is equal to three-fourths of one percent of the total premiums collected. For all other types of insurance, the insurance premium tax levied herein is equal to one and one-fourth percent of the total premiums collected. In computing total premiums, return premiums on risks and dividends paid or credited to policyholders are excluded. The insurance premium taxes collected by the director or his designee pursuant to this section must be deposited by him in the general fund of the State.

Section 38-7-30. Any expenses, including expenses of counsel, detectives, and officers, incurred by the discrimination in rates, must be defrayed by the fire insurance companies doing business in this State, and a tax of one percent on the gross premium receipts less premiums returned on canceled policy contracts and less dividends and returns of unabsorbed premium deposits of all fire insurance companies is levied for this purpose, to be collected by the director or his designee as other taxes on fire insurance companies are collected. The director or his designee shall keep a separate account of all monies received and disbursed under the provisions of this section and shall include the account in his annual report.

Section 38-7-40. Each fire insurer shall pay to the director or his designee an amount equal to one percent of all premiums written on fire insurance required to be reported under Section 38-7-70 during the preceding year ending December thirty-first or for such portion of that period as the insurer has done business in this State.

Section 38-7-50. Every insurer insuring employers in this State against liability for personal injuries to their employees or death caused by the injuries, under the provisions of Title 42, shall pay a tax upon the premiums received whether in cash or notes in this State, or on account of business done in this State, for such insurance in this State at the rate of four and one-half percent of the amount of the premiums. For fiscal year 1990-91, the tax is at the rate of three and one-half percent of the amount of the premiums. For fiscal year 1991-92 and thereafter, the tax is at the rate of two and one-half percent of the amount of the premiums. This tax is in lieu of all other taxes on these premiums and must be assessed and collected as provided in this chapter. However, the insurers must be credited with all canceled or returned premiums actually refunded during the year on workers' compensation insurance including any unused premiums refunded or credited to policyholders as dividends. If an insurer fails or refuses to make the return required by Section 38-7-60, the director or his designee shall assess the tax against the insurer at the rate provided for in this chapter on the amount of premiums he considers just and the proceedings thereon must be the same as if the return had been made.

Section 38-7-60. (1) Not later than March first of each year, every insurer licensed by the director or his designee shall file with him a return of premiums collected by the insurer in the State during the immediately preceding calendar year ending on December thirty-first. The return must be made on forms prescribed by the director or his designee and must be made under oath by the insurer's employee or representative responsible for the preparation of fee and tax returns, as well as the insurer's chief executive officer. (2) The license fees imposed in Section 38-7-20 must be fully reported on the return filed in accordance with subsection (1) of this section. (3) The premium and other taxes imposed on insurers pursuant to Sections 38-7-20, 38-7-30, 38-7-40, 38-7-50, and 38-7-90 must be paid to the director or his designee in quarterly installments on or before March first, June first, September first, and December first of each calendar year. The quarterly payments must be calculated and paid as follows: (a) The quarterly installments paid on or before June first, September first, and December first must each be computed based upon one-fourth of the total premiums collected by the insurer during the immediately preceding calendar year ending on December thirty-first. The quarterly installments for June first, September first, and December first must be reported on forms prescribed by the director or his designee. (b) The quarterly installment paid on or before March first must equal the difference between the total tax liability of the insurer for the immediately preceding calendar year ending on December thirty-first and the sum of the quarterly installments paid by the insurer on June first, September first, and December first of that immediately preceding calendar year. The quarterly installment for March first must be reported on the returns filed in accordance with subsection (1) of this section. An insurer whose quarterly tax installments are less than one thousand dollars per payment may elect not to pay its tax liability on a quarterly basis and, instead, may elect to report and pay its entire tax liability on the return filed in accordance with subsection (1) of this section. (4) The director or his designee may suspend or revoke the license of any insurer which fails to make returns and pay fees and taxes as required in this section. The Attorney General shall bring suit in the name of the State to collect any unpaid portion of the fees or taxes required by law.

Section 38-7-70. Each fire insurer carrying on business in this State shall annually return to the director or his designee by March first a just and true account, verified by oath, of all premiums received during the preceding year ending December thirty-first from all fire insurance on all property located or that may be located in this State and from all fire insurance business done in this State. In the report the insurer shall allocate the premiums on this business to the county in which the property is located, regardless of where the insurance is written or premiums collected.

Section 38-7-80. Every fire insurer shall keep accurate books of account of all business done by it on fire insurance required to be reported under the provisions of Section 38-7-70. If it is apparent the return is fraudulent or dishonest, the director or his designee shall investigate the return and collect the amount he finds due. Every fire insurer which neglects to keep books of account as required by this section, neglects or fails to report or pay any of the money due on premiums as required by Section 38-7-40 or 38-7-70, or is found upon examination to have made a false return of business done by it shall for each offense be subject to the penalty provisions of Section 38-2-10, to be applied to the purposes prescribed in Section 23-9-410.

Section 38-7-90. (A) When the laws of any other state or the regulations or actions of any public official of another state subject, or would subject, insurance companies chartered by this State, or their agents or representatives, to fees, taxes, obligations, conditions, restrictions, or penalties for the privilege of doing business in that state which are greater than those required by this State of similar insurers organized or domiciled in the other state by or in this State for the privilege of doing business herein, then all similar insurers organized or domiciled in that state are subjected to the greater requirements which are or would be imposed by or in that state upon similar insurers of this State. (B) This section must be applied, regardless of whether an insurer chartered by this State is doing business in the other state. The application of this section is based upon a comparison of the aggregate requirements imposed by this State with the aggregate requirements imposed by the other state. Taxes, fees, or other obligations imposed by municipalities are considered in the application of this section. (C) This section is effective for all insurance premiums collected after December 31, 1989, and to all insurance premium tax returns filed beginning with the quarterly return due September 1, 1990, and all quarterly and annual returns filed after that time.

Section 38-7-110. The State may bring suit in court for back fees, taxes, penalties, and interest imposed by this title at any time within ten years from the date on which they should have been paid. On collection of the fees and taxes, they must be distributed as provided by the statutes under which they were levied.

Section 38-7-120. (A) As soon as practicable after each tax return or other document is filed, the director or his designee, when fees and taxes are involved, shall examine the document and compute the fees and taxes due. If the fees and taxes found due are greater than the amount paid, the excess must be paid to the director or his designee within fifteen days after notice of the amount due is mailed by the director or his designee. If the amount due is not paid within the fifteen-day period, a penalty of five percent of the amount due may be assessed. (B) If the additional fees and taxes found to be due upon the examination of the document are not paid within fifteen days of notice by the director or his designee, interest must be added to the amount of the deficiency at the rate of five percent for each month or fraction of a month from the date the fees or taxes originally were due until the date the deficiency is paid. The total maximum interest to be charged may not exceed twenty-five percent. (C) Up to one year after the date upon which an original tax return or other document is required to be filed, an insurer or other person may file an amended return to correct errors of overpayment or other errors made by the insurer or person in the original return or document. No amended return or document may be filed by an insurer or a person or accepted by the director or his designee after one year. No tax adjustment, deduction, or credit may be made or taken by the insurer or person, or allowed by the director or his designee, on a return or document filed after one year for errors claimed to have been made by the insurer or other person in the original return or document. (D) If, upon examination of an original or amended return or document, it appears to the director or his designee that the amount of fees or taxes due is less than the amount paid, the excess must be ordered refunded by the or his designee. No refunds may be made with respect to monies distributable to a governmental unit after the distribution has been made. (E) This section does not apply to the continuation of biennial license fees for agencies, brokers, appraisers, or adjusters.

Section 38-7-130. (a) When the State charges or levies any fees, taxes, penalties, or interest against any insurer or other person, or any fees, taxes, penalties, or interest are assessed by the director or his designee and the State or director or his designee claims the payment of the fees, taxes, penalties, or interest so charged or assessed, or institutes a proceeding to collect them, the insurer or other person against whom the fees, taxes, penalties, or interest is charged or assessed or against whom the proceeding is instituted, if he conceives the fees or taxes to be unjust or illegal, may pay the fees or taxes and any penalties, or interest thereon, under protest in writing, with the type of funds the State Treasurer or director or his designee is authorized to receive. Upon this payment, the director or his designee shall pay the fees, taxes, penalties, or interest collected by him into the state treasury giving notice at the time to the State Treasurer that the payment was made under protest. (b) Any insurer or other person paying any fees, taxes, penalties, or interest under protest must within thirty days after making the payment bring an action against the director for the recovery thereof, in the Court of Common Pleas for Richland County. If it is determined in that action that the fees, taxes, penalties, or interest was unjustly or illegally collected, the court must so certify of record, and the State Treasurer shall refund the fees, taxes, penalties, or interest to the payor.

Section 38-7-140. If any person or any officer or employee of any insurer or other person, with intent to evade any requirement of this title or any lawful requirement of the director or his designee, fails to pay any fees, taxes, penalties, or interest, fails to make, sign, or verify any return, or fails to supply any information required by this title, or with like intent makes, renders, signs, or verifies any false or fraudulent information, that person is guilty of a misdemeanor and, upon conviction, must be fined an amount not to exceed five thousand dollars or imprisoned for a term not to exceed five years, or both.

Section 38-7-150. The director or his designee may, upon making a record of his reasons therefor, waive or reduce any of the penalties or interest imposed under the provisions of this title pertaining to fees and taxes.

Section 38-7-160. This title may not be construed as preventing any municipality from levying and collecting license fees or taxes in accordance with its ordinances. However, no municipality may charge a license fee to fire insurers or their agents licensed by the director or his designee in any other manner than on a percentage of the premiums collected in the municipality or realized from risks located within the limits of the municipality, or both, the license fee not to exceed two percent of the premiums collected in the municipality and realized from risks located in the municipality, except in cities of fifty thousand inhabitants or more, where not exceeding five percent may be charged. Preference must be given hereunder to the municipality wherein the insured property is located, and, if a license is levied against the insuring company on such basis, that company may not be subject to a similar license from a municipality wherein it may collect the premium for such transaction.

Section 38-7-170. All fees, taxes, penalties, and interest collected by the director or his designee under this title, unless specifically provided otherwise, must be deposited by the director or his designee in the general fund of the State.

Section 38-7-180. An insurance company exempt from federal income tax pursuant to Section 501(c)(3) or (4) of the Internal Revenue Code of 1986, and which insures only churches and their property, is exempt from taxes levied on insurance companies in Sections 38-7-20, 38-7-30, and 38-7-40. To provide exemption from federal income tax under Section 501(c)(3) or (4) of the Internal Revenue Code of 1986, the company shall provide to the director or his designee a certificate issued by the Internal Revenue Service demonstrating the company's tax-exempt status. The company shall further provide evidence satisfactory to the director or his designee that it only insures churches and their property."

Name changed, etc.

SECTION 535. Chapter 9, Title 38 of the 1976 Code is amended to read:

"CHAPTER 9

Capital, Surplus, Reserves, and Other Financial Matters

Section 38-9-10. (A)(1) Before licensing a stock insurer, the director or his designee 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 director or his designee 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 director or his designee 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 director or his designee shall begin delinquency proceedings.

Section 38-9-20. (A)(1) Before licensing a mutual insurer, the director or his designee shall require the insurer to be possessed of surplus of not less than: Surplus which must be possessed If licensed to write: at time of licensing (b) accident and health: 1,200,000 (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 director or his designee 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 director or his designee 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 director or his designee shall begin delinquency proceedings.

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 director or his designee 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 director or his designee 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 director or his designee 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 director or his designee 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 director or his designee 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 director or his designee 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.

Section 38-9-40. The director or his designee shall notify each licensed insurer that does not comply with Section 38-9-10 or 38-9-20 of the amounts of capital and surplus if a stock insurer, or the amount of surplus if a mutual insurer, the insurer shall maintain in order to continue to remain licensed in this State. A schedule of the amounts required to be maintained by each insurer so notified must be published in all succeeding annual reports of the Insurance department that are submitted to the General Assembly through the Governor, as required by Section 38-3-70. This schedule must be revised annually as to those insurers whose minimum capital and surplus requirements are increased periodically as required by Section 38-9-30.

Section 38-9-50. An insurer that fails to meet the minimum capital and surplus requirements of this chapter, but which continues to remain licensed by virtue of Section 38-9-30, shall confine its business to the kinds of insurance for which it was licensed on July 1, 1988. If the insurer desires to write additional kinds of insurance, it shall comply with the capital and surplus requirements of Section 38-9-10 or 38-9-20 as applicable.

Section 38-9-60. Sections 38-9-30 to 38-9-50 may not be construed as a limitation of any authority conferred elsewhere by this title upon the director or his designee to deny or revoke or suspend a license of an insurer.

Section 38-9-70. The director or his designee in his official capacity shall take and hold, in trust, deposits made by domestic insurers for the purpose of complying with the laws of any other state to enable the insurer to do business in that state. The insurer making the deposit is entitled to the income and may with the consent of the director or his designee and when not forbidden by the law under which the deposit is made, change, in whole or in part, the securities which compose the deposit for other solvent securities of equal par value approved by the director or his designee.

Section 38-9-80. (A) The director or his designee shall require every insurer, other than fraternal benefit societies, transacting, or desiring to transact, business in this State to deposit with him certificates of deposit of building and loan associations chartered by South Carolina or federal savings and loan associations located within the State in which deposits are guaranteed by the Federal Savings and Loan Insurance Corporation, not to exceed the amount covered by insurance, or of national banks located within the State or banks chartered by South Carolina in which deposits are guaranteed by the Federal Deposit Insurance Corporation, not to exceed the amount covered by insurance; or other securities which: (1) qualify as legal investments under the laws of this State for public sinking funds; (2) are not in default as to principal or interest; (3) have a current market value of not less than ten thousand nor more than two hundred thousand dollars, as determined by the director or his designee pursuant to the standards promulgated by the department. (B) The director or his designee shall prescribe the amount, within the limits of this section, of the securities required, and he subsequently may increase or decrease the amount required. (C) Notwithstanding the limitations in this section as to the amount of deposits required, the director or his designee may require an insurer to deposit an amount of securities in excess of the limits based on his consideration of the following: (1) adverse findings reported in financial condition and market conduct examination reports; (2) the National Association of Insurance Commissioners Insurance Regulatory Information System and its related reports; (3) 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 a significant adjustment to an insurer's capital and surplus; (4) 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 insurer's ability to meet its outstanding obligations as they mature; (5) whether an insurer had a significant operating loss in the last twelve months or a shorter time; (6) whether an affiliate, subsidiary, or a reinsurer is insolvent, threatened with insolvency, or delinquent in payment of its monetary or other obligations; (7) contingent liabilities, pledges, or guaranties which individually or collectively involve a total amount which in the opinion of the director or his designee may affect the solvency of the insurer; (8) whether the management of an insurer, including officers, directors, or other persons who directly or indirectly controls the operation of the insurer, fails to possess and demonstrate the competence, fitness, and reputation necessary to serve the insurer in that position; (9) whether management has failed to respond to inquiries relative to the condition of the insurer or has furnished false and misleading information concerning an inquiry; (10) 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; (11) whether the insurer has experienced or will experience in the foreseeable future cash flow or liquidity problems.

Section 38-9-90. The bonds or other securities required by Section 38-9-80 must be held as security for the payment of claims against the insurer arising out of its failure to meet obligations incurred in this State. Policyholders ratably and without preference and general creditors ratably, without preference, and subordinate to the claims of policyholders shall have a lien on the bonds or other securities for the amount of their claim.

Section 38-9-100. If a qualified insurer deposits with an officer or official body of another state for the protection of all its policyholders, or all its policyholders and creditors, acceptable securities not in default as to principal or interest and of a current market value of not less than one million dollars, and delivers to the director or his designee a certificate to that effect, authenticated by the appropriate state official holding the deposit, the insurer may be relieved of making the deposit required by Section 38-9-80. For the purpose of this section a `qualified insurer' is a licensed stock insurer possessed of at least ten million dollars of capital and surplus or a licensed mutual, fraternal, or reciprocal insurer possessed of at least ten million dollars of surplus, according to its most recent annual statement filed with the director or his designee and, in the discretion of the director or his designee, may include eligible surplus lines insurers which meet these capital and surplus requirements. For the purpose of this section, `acceptable securities' means bonds of the United States or of a state of the United States, or of a municipality or county, upon which is pledged the full faith and credit of the appropriate political division, or bonds or notes secured by mortgages or deeds of trust on otherwise unencumbered real estate of a market value of not less than double the amount loaned, or other securities approved by the director or his designee.

Section 38-9-110. A domestic company, in order to comply with the laws of any other state or territory of the United States, may make a voluntary deposit with the director or his designee in excess of the amount required by Section 38-9-80. This excess deposit is subject to all other applicable provisions of the laws of this State relating to the deposits of insurers, except that the excess deposit must be for the protection of all the company's policy obligations, ratably and without preference, notwithstanding the provisions of Section 38-9-90. However, a domestic company making this voluntary deposit is relieved of making the deposit required by Section 38-9-80 if the company meets the definition of a qualified insurer as defined in Section 38-9-100 and if the voluntary deposit meets the requirements of Section 38-9-100.

Section 38-9-120. A depositing insurer may exchange for the deposited securities, or any of them, other securities eligible for deposit under Sections 38-9-80 to 38-9-140 if, in the opinion of the director or his designee, the aggregate value of the deposit will not be reduced below the amount required by law.

Section 38-9-130. The director or his designee at the time of receiving any bonds or other securities deposited under Sections 38-9-80 to 38-9-140 shall give to the company authority to collect the interest thereon for its own use. This authority continues in force until the company fails to pay any of its liabilities for which the deposit is security. In case of that failure the party charged with payment of the interest must be notified that thereafter the interest is payable to the director or his designee to be applied, if necessary, to the payment of those liabilities.

Section 38-9-140. When the principal of any securities deposited under Sections 38-9-80 to 38-9-140 is paid to the director or his designee, he shall pay the money so received to the company. However, if the securities were required to be deposited under Section 38-9-80 the payment may not be made until the company deposits an equal amount of other securities of the character required for similar deposits. If the company fails to deliver to the director or his designee within thirty days after receiving notice of this requirement the securities necessary to maintain its required deposit, he may invest the money in other securities of the required character and hold the same as he held those which were paid.

Section 38-9-150. Upon request of a domestic insurer the director or his designee may return to the insurer the whole or any portion of the securities of the insurer held by him on deposit when he is satisfied that the securities asked to be returned are not subject to any liability and are not required to be held any longer by any provision of law or purpose of the original deposit. These deposits made by a foreign insurer must be returned by the director or his designee upon the filing with the director or his designee by the trustee or other authorized representative of the insurer a written request and sworn affidavit stating (a) that the insurer has no contracts of insurance in force and no unsatisfied claims outstanding within this State or (b) that reinsurance of all outstanding contracts and acceptance of all unsatisfied claims within this State have been provided by an insurer or insurers authorized to transact the same kinds of business in this State, filing with the affidavit a certified copy of the reinsurance agreement. Release must be made upon the written order of the director or his designee when he is satisfied that the above requirements have been met. The director or his designee is considered the agent of the foreign insurer for acceptance of service of any legal process in any action or proceeding against the insurer for any claim that might arise before or after the return of its deposits. Any person making a false affidavit as required in this section must, upon conviction, be imprisoned for a period not exceeding five years.

Section 38-9-160. An insurer which has made a deposit in this State, pursuant to this title, its trustees or resident managers in the United States, the director or his designee, or any creditor of the insurer may, at any time, bring an action in the Circuit Court for the County of Richland against the State and other parties properly joined to enforce, administer, or terminate the trust created by the deposit. The process in the action must be served on the officer of the State having the deposit, who must appear and answer in behalf of the State and perform any orders and judgments the court may make in the action.

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 director or his designee 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 director or his designee 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 director's or his designee's approval. (5) With reference to marine insurance, premiums on trip risks not terminated are considered unearned, and the director or his designee 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 director and not less, in the aggregate, than the pro rata gross unearned premium reserves for these policies.

Section 38-9-180. (A) The director or his designee annually shall value, or cause to be valued, the reserve liabilities, referred to as reserves, for all outstanding life insurance policies and annuity and pure endowment contracts of every life insurer doing business in this State. However, for an alien insurer the valuation is limited to the United States business and may certify the amount of the reserves, specifying the mortality table or tables, rate or rates of interest, and methods, net level premium method or other, used in the calculation of the reserves. In calculating the reserves he may use group methods and approximate averages for fractions of a year or otherwise. In lieu of the valuation of the reserves required in this section of a foreign or an alien insurer, he may accept any valuation made, or caused to be made, by the insurance supervisory official of a state or another jurisdiction when the valuation complies with the minimum standard provided in this section and if the official of the state or jurisdiction accepts as sufficient and valid for all legal purposes the certificate of valuation of the director or his designee when the certificate states the valuation to have been made in a specified manner according to which the aggregate reserves would be at least as large as if they had been computed in the manner prescribed by the law of that state or jurisdiction. (B) (1) Every life insurance company doing business in this State annually shall submit to the director or his designee the opinion of a qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified by the director by regulation are computed appropriately, are based on assumptions which satisfy contractual provisions, are consistent with prior reported amounts, and comply with applicable laws of this State. The director by regulation shall define the specifics of this opinion and add other items necessary to its scope. (2)(a) Every life insurance company, except as exempted by or pursuant to regulation, also annually must include in the opinion required in item (1) an opinion of the same qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified by the director by regulation, when considered in light of the assets held by the company with respect to the reserves and related actuarial items, including, but not limited to, the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision for the company's obligations under the policies and contracts, including, but not limited to, the benefits under and expenses associated with the policies and contracts. (b) The director may provide by regulation for a transition period for establishing higher reserves which the qualified actuary considers necessary in order to render the opinion required by this subsection. (3) Each opinion required by item (2) is governed by the following provisions: (a) A memorandum, in form and substance acceptable to the department as specified by regulation, must be prepared to support each actuarial opinion. (b) If the insurance company fails to provide a supporting memorandum at the request of the director or his designee within a period specified by regulation or the director or his designee determines that the supporting memorandum provided by the insurance company fails to meet the standards prescribed by the regulations or is otherwise unacceptable to the director or his designee, the director or designee may engage a qualified actuary at the expense of the company to review the opinion and the basis for the opinion and prepare supporting memorandum required by the director or designee. (4) Every opinion is governed by the following provisions: (a) The opinion must be submitted with the annual statement reflecting the valuation of reserve liabilities for each year ending after December 30, 1993. (b) The opinion must apply to all business in force including individual and group health insurance plans, in form and substance acceptable to the director or designee as specified by regulation. (c) The opinion must be based on standards adopted by the Actuarial Standards Board and on additional standards the director by regulation prescribes. (d) For an opinion required to be submitted by a foreign or alien company, the director or designee may accept the opinion filed by that company with the insurance supervisory official of another state if the director or designee determines that the opinion reasonably meets the requirements applicable to a company domiciled in this State. (e) For the purposes of this subsection, `qualified actuary' means a member in good standing of the American Academy of Actuaries who meets the requirements set forth in regulations. (f) Except in cases of fraud or wilful misconduct, the qualified actuary must not be liable for damages to a person, other than the insurance company and the director or designee, for an act, an error, an omission, a decision, or conduct with respect to the actuary's opinion. (g) Disciplinary action by the director or designee against the company or the qualified actuary must be defined in regulations by the director. (h) A memorandum in support of the opinion and related material provided by the company to the director or designee must be kept confidential by the director or designee and must not be made public or subject to subpoena, other than for the purpose of defending an action seeking damages from a person by reason of action required by this subsection or by regulations promulgated under it. However, the memorandum or other material may be released by the director or designee with the written consent of the company or to the American Academy of Actuaries upon request stating that the memorandum or other material is required for the purpose of professional disciplinary proceedings and setting forth procedures satisfactory to the director or designee for preserving the confidentiality of the memorandum or other material. Once a portion of the confidential memorandum is cited by the company in its marketing, is cited before a governmental agency other than a state insurance department, or is released by the company to the news media all portions of the confidential memorandum are no longer confidential. (C) (1) Except as otherwise provided in item (3) of this subsection and subsection (D), the minimum standard for the valuation of policies and contracts issued before March 24, 1960, is that provided by the laws in effect immediately before that date except the minimum standards for the valuation of annuities and pure endowments purchased under group annuity and pure endowment contracts issued before the effective date is that provided for by the laws in effect immediately before that date but replacing the interest rates as specified in the laws by an interest rate of five percent a year. (2) Except as otherwise provided in item (3) of this subsection and subsection (D), the minimum standard for the valuation of policies and contracts issued after March 23, 1960, is the director's or designee's reserve valuation methods defined in subsections (E), (F), and (I), five percent interest for group annuity and pure endowment contracts and three and one-half percent interest for all other policies and contracts, or for policies and contracts other than annuity and pure endowment contracts issued after May 25, 1975, four percent interest for policies issued before January 1, 1979, five and one-half percent interest for single premium life insurance policies, and four and one-half percent interest for all other policies issued after December 31, 1978, and the following tables: (a) for all ordinary policies of life insurance issued on the standard basis, excluding disability and accidental death benefits in the policies, the commissioner's 1941 Standard Ordinary Mortality Table for the policies issued before the operative date stated in Section 38-63-650, the commissioner's 1958 Standard Ordinary Mortality Table for the policies issued on or after the operative date of Section 38-63-590 of the Standard Nonforfeiture Law for Life Insurance, and before the operative date of Section 38-63-590 of the Standard Nonforfeiture Law for Life Insurance, if for any category of policies issued on female risks all modified net premiums and present values referred to in this section may be calculated according to an age not more than three years younger than the actual age of the insured; for policies issued before January 1, 1979, and not more than six years younger than the actual age of the insured for policies issued after December 31, 1978, and before the operative date of Section 38-63-600; and for policies issued on or after the operative date of Section 38-63-600 of the Standard Nonforfeiture Law for Life Insurance the commissioner's 1980 Standard Ordinary Mortality Table, at the election of the company for one or more specified plans of life insurance, the commissioner's 1980 Standard Ordinary Mortality Table with Ten-Year Select Mortality Factors, or any ordinary mortality table, adopted after 1980 by the National Association of Insurance Commissioners, that is approved by regulation promulgated by the director for use in determining the minimum standard of valuation for the policies; (b) for all industrial life insurance policies issued on the standard basis, excluding disability and accidental death benefits in the policies, the 1941 Standard Industrial Mortality Table for policies issued before the operative date stated in Section 38-63-650; for all policies issued on or after operative date, the 1941 Standard Industrial Mortality Table or the commissioner's 1961 Standard Industrial Mortality Table or any industrial mortality table, adopted after 1980 by the National Association of Insurance Commissioners, that is approved by regulation promulgated by the director for use in determining the minimum standard of valuation for policies, according to which of these tables is used to calculate adjusted premiums and present values as specified in Section 38-63-580; (c) for individual annuity and pure endowment contracts, excluding disability and accidental death benefits in the policies, the 1937 Standard Annuity Mortality Table or, at the option of the company, the Annuity Mortality Table for 1949, Ultimate, or a modification of either of these tables approved by the director or designee; (d) for group annuity and pure endowment contracts, excluding disability and accidental death benefits in the policies, the Group Annuity Mortality Table for 1951, a modification of the table approved by the director or designee or, at the option of the insurer, any of the tables or modifications of tables specified for individual annuity and pure endowment contracts; (e) for total and permanent disability benefits in or supplementary to ordinary policies or contracts, for policies or contracts issued after December 31, 1965, the tables of Period 2 disablement rates and the 1930 to 1950 termination rates of the 1952 Disability Study of the Society of Actuaries, with due regard to the type of benefit or tables of disablement rates and termination rates, adopted after 1980 by the National Association of Insurance Commissioners, approved by regulation promulgated by the director, for use in determining the minimum standard of valuation for the policies; for policies or contracts issued after December 31, 1960, and before January 1, 1966, either the tables or, at the option of the company, the Class (3) Disability Table (1926) and for policies issued before January 1, 1961, the Class (3) Disability Table (1926) or other table approved by the director or designee. The table, for active lives, must be combined with a mortality table permitted for calculating the reserves for life insurance policies; (f) for accidental death benefits in or supplementary to policies, for policies issued after December 31, 1965, the 1959 Accidental Death Benefits Table, or any accidental death benefits table, adopted after 1980 by the National Association of Insurance Commissioners, that is approved by regulation promulgated by the director for use in determining the minimum standard of valuation for the policies; for policies issued after December 31, 1960, and before January 1, 1966, either the table or, at the option of the company, the Inter-Company Double Indemnity Mortality Table; and for policies issued before January 1, 1961, the Inter-Company Double Indemnity Mortality Table, or other table approved by the director or designee. The table must be combined with a mortality table permitted for calculating the reserves for life insurance policies; (g) for extra benefits provided in life or endowment contracts or policies under which there is payable a series of coupons or guaranteed dividends or a series of constant or variable pure endowments maturing either during the term of the contract and the continuation of the life of the insured or maturing as a series after the death of the insured, the table or basis of reserves approved by the director or designee; (h) for group life insurance, life insurance issued on the substandard basis and other special benefits, the tables approved by the director or designee; (3) Except as provided in subsection (D), the minimum standard for the valuation of all individual annuity and pure endowment contracts issued on or after the operative date of this item, as defined in this section, and for all annuities and pure endowments purchased on or after the operative date under group annuity and pure endowment contracts, is the director's or designee's reserve valuation methods defined in subsections (E) and (F) and the following tables and interest rates: (a) for individual annuity and pure endowment contracts issued before January 1, 1979, excluding disability and accidental death benefits in the contracts, the 1971 Individual Annuity Mortality Table, or a modification of this table approved by the director or designee, and six percent interest for single premium immediate annuity contracts, and four percent interest for all other individual annuity and pure endowment contracts; (b) for individual single premium immediate annuity contracts issued after December 31, 1978, excluding disability and accidental death benefits in the contracts, the 1971 Individual Annuity Mortality Table or any individual annuity mortality table, adopted after 1980 by the National Association of Insurance Commissioners, that is approved by regulation promulgated by the director for use in determining the minimum standard of valuation for the contracts, or a modification of these tables approved by the director or designee, and seven and one-half percent interest; (c) for individual annuity and pure endowment contracts issued after December 31, 1978, other than single premium immediate annuity contracts, excluding disability and accidental death benefits in the contracts, the 1971 Individual Annuity Mortality Table or any individual annuity mortality table, adopted after 1980 by the National Association of Insurance Commissioners, that is approved by regulation promulgated by the director for use in determining the minimum standard of valuation for the contracts, or a modification of these tables approved by the director or designee, and five and one-half percent interest for single premium deferred annuity and pure endowment contracts and four and one-half percent interest for all other individual annuity and pure endowment contracts; (d) for all annuities and pure endowments purchased before January 1, 1979, under group annuity and pure endowment contracts, excluding disability and accidental death benefits purchased under the contracts, the 1971 Group Annuity Mortality Table, or a modification of this table approved by the director or designee, and six percent interest; (e) for all annuities and pure endowments purchased after December 31, 1978, under group annuity and pure endowment contracts, excluding disability and accidental death benefits purchased under the contracts, the 1971 Group Annuity Mortality Table or a group annuity mortality table, adopted after 1980 by the National Association of Insurance Commissioners, that is approved by regulation promulgated by the director for use in determining the minimum standard of valuation for the annuities and pure endowments, or a modification of these tables approved by the director or designee, and seven and one-half percent interest. After May 26, 1975, an insurer may file with the director or designee a written notice of its election to comply with this item after a specified date before January 1, 1979, which is the operative date of this item for the insurer. However, an insurer may elect a different effective date for individual annuity and pure endowment contracts from that elected for group annuity and pure endowment contracts. If an insurer makes no election, the effective date of this item for the insurer is January 1, 1979. (D) (1) The calendar year statutory valuation interest rates as defined in this subsection must be used in determining the minimum standard for the valuation of: (a) all life insurance policies issued in a particular calendar year, on or after the operative date of Section 38-63-600 of the Standard Nonforfeiture Law for Life Insurance; (b) all individual annuity and pure endowment contracts issued in a particular calendar year after December 31, 1982; (c) all annuities and pure endowments purchased in a particular calendar year after December 31, 1982, under group annuity and pure endowment contracts; (d) the net increase, if any, in a particular calendar year after January 1, 1983, in amounts held under guaranteed interest contracts. (2) The calendar year statutory valuation interest rates, I, must be determined as follows and the results rounded to the nearer one-quarter of one percent: (a) for life insurance, I= .03 + W (R(1) +21 .03) + 2W(R(2) +21 .09); (b) for single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and from guaranteed interest contracts with cash settlement options, I=. 03 + W (R - .03), where R(1) is the lesser of R and .09, R(2) is the greater of R and .09, R is the reference interest rate defined in this subsection, and W is the weighting factor defined in this subsection; (c) for other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on an issue year basis, except as stated in subitem (b) of this item, the formula for life insurance stated in subitem (a) of this item applies to annuities and guaranteed interest contracts with guarantee durations in excess of ten years and the formula for single premium immediate annuities stated in subitem (b) applies to annuities and guaranteed interest contracts with guarantee duration of ten years or less; (d) for other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the formula for single premium immediate annuities stated in subitem (b) applies; (e) for other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a change in fund basis, the formula for single premium immediate annuities stated in subitem (b) applies. However, if the calendar year statutory valuation interest rate for life insurance policies issued in a calendar year determined without reference to this sentence differs from the corresponding actual rate for similar policies issued in the immediately preceding calendar year by less than one-half of one percent, the calendar year statutory valuation interest rate for the life insurance policies must be equal to the corresponding actual rate for the immediately preceding calendar year. For purposes of applying the immediately preceding sentence, the calendar year statutory valuation interest rate for life insurance policies issued in a calendar year must be determined for 1980, using the reference interest rate defined for 1979, and must be determined for each subsequent calendar year regardless of when Section 38-63-600 of the Standard Nonforfeiture Law for Life Insurance becomes operative. (3) The weighting factors referred to in the formulas stated in this subsection are given in the following tables:

(a) weighting Factors for Life Insurance:

Guarantee Duration (Years) Weighting Factors 10 or less .50 More than 10, but not more than 20 .45 More than 20 .35

For life insurance, the guarantee duration is the maximum number of years the life insurance may remain in force on a basis guaranteed in the policy or under options to convert to plans of life insurance with premium rates or nonforfeiture values or both which are guaranteed in the original policy; (b) weighting factor for single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and guaranteed interest contracts with cash settlement options:

Weighting Factors .80

(c) weighting factors for other annuities and for guaranteed interest contracts, except as stated in subitem (b) of this item are as specified sub-subitem (i), (ii), and (iii) according to the rules and definitions in sub-subitems (iv), (v), and (vi): (i) for annuities and guaranteed interest contracts valued on an issue year basis: Guarantee Weighting Factor Duration for Plan Type (Years) A B C 5 or less: .80 .60 .50 More than five, but not more than 10: .75 .60 .50 More than 10, but not more than 20: .65 .50 .45 More than 20: .45 .35 .35;

(ii)For annuities and guaranteed interest contracts valued on a change in fund basis, the factors shown in sub-subitem (i) of this subitem increased by: Plan Type A B C .15 .25 .05;

(iii) for annuities and guaranteed interest contracts valued on an issue year basis other than those with no cash settlement options, which do not guarantee interest on considerations received more than one year after issue or purchase and for annuities and guaranteed interest contracts valued on a change in fund basis which do not guarantee interest rates on considerations received more than twelve months beyond the valuation date, the factors shown in sub-subitem (i) of this subitem or derived in sub-subitem (ii) increased by:

Plan Type A B C .05 .05 .05;

(iv) for other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, the guarantee duration is the number of years for which the contract guarantees interest rates in excess of the calendar year statutory valuation interest rate for life insurance policies with guarantee duration in excess of twenty years. For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the guarantee duration is the number of years from the date of issue or date of purchase to the date annuity benefits are scheduled to commence. (d) Plan type as used in the above tables is defined as: (i) Plan Type A: At any time policyholder may withdraw funds only: a. with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurer; b. without the adjustment but in installments over five years or more; c. as an immediate life annuity; or d. no withdrawal permitted; (ii) Plan Type B: Before expiration of the interest rate guarantee, policyholder may withdraw funds only: a. with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurer; b. without the adjustment but in installments over five years or more; or c. no withdrawal permitted. At the end of interest rate guarantee, funds may be withdrawn without the adjustment in a single sum or installments over less than five years; (iii) Plan Type C: Policyholder may withdraw funds before expiration of interest rate guarantee in a single sum or installments over less than five years either: a. without adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurer; or b. subject only to a fixed surrender charge stipulated in the contract as a percentage of the fund. An insurer may elect to value guaranteed interest contracts with cash settlement options and annuities with cash settlement options on either an issue year basis or on a change in fund basis. Guaranteed interest contracts with no cash settlement options and other annuities with no cash settlement options must be valued on an issue year basis. As used in this subsection an issue year basis of valuation refers to a valuation basis under which the interest rate used to determine the minimum valuation standard for the entire duration of the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of issue or year of purchase of the annuity or guaranteed interest contract, and the change in fund basis of valuation refers to a valuation basis under which the interest rate used to determine the minimum valuation standard applicable to each change in the fund held under the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of the change in the fund. (4) The Reference Interest Rate referred to in item (2) of this subsection is defined as: (a) for all life insurance, the lesser of the average over a period of thirty-six months and the average over a period of twelve months, ending on June thirtieth of the calendar year next preceding the year of issue, of Moody's Corporate Bond Yield Average--Monthly Average Corporates, as published by Moody's Investors Service, Inc.; (b) for single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, the average over twelve months, ending on June thirtieth of the calendar year of issue or year of purchase, of Moody's Corporate Bond Yield Average--Monthly Average Corporates, as published by Moody's Investors Service, Inc.; (c) for other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a year of issue basis, except as stated in subitem (b) with guarantee duration in excess of ten years, the lesser of the average over thirty-six months and the average over twelve months, ending on June thirtieth of the calendar year of issue or purchase, of Moody's Corporate Bond Yield Average--Monthly Average Corporates, as published by Moody's Investors Service, Inc.; (d) for other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a year of issue basis, except as stated in subitem (b), with guarantee duration of ten years or less, the average over twelve months, ending on June thirtieth of the calendar year of issue or purchase, of Moody's Corporate Bond Yield Average--Monthly Average Corporates, as published by Moody's Investors Service, Inc.; (e) for other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the average over twelve months, ending on June thirtieth of the calendar year of issue or purchase, of Moody's Corporate Bond Yield Average--Monthly Average Corporates, as published by Moody's Investors Service, Inc.; (f) for other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a change in fund basis, except as stated in subitem (b), the average over twelve months, ending on June thirtieth of the calendar year of the change in the fund, of Moody's Corporate Bond Yield Average--Monthly Average Corporates, as published by Moody's Investors Service, Inc.; (5) If Moody's Corporate Bond Yield Average--Monthly Average Corporates is no longer published by Moody's Investors Service, Inc., or if the National Association of Insurance Commissioners determines that Moody's Corporate Bond Yield Average--Monthly Average Corporates as published by Moody's Investors Service, Inc., is no longer appropriate for the determination of the reference interest rate, then an alternative method for determination of the reference interest rate, which is adopted by the National Association of Insurance Commissioners and approved by regulation promulgated by the director, may be substituted. (E) Except as otherwise provided in subsections (F) and (I), reserves according to the director's or designee's reserve valuation method, for the life insurance and endowment benefits of policies providing for a uniform amount of insurance and requiring the payment of uniform premiums, are the excess, if any, of the present value, at the date of valuation, of future guaranteed benefits provided for by the policies, over the then present value of future modified net premiums. The modified net premiums for the policy are the uniform percentage of the respective contract premiums for the benefits that the present value, at the date of issue of the policy, of the modified net premiums is equal to the sum of the then present value of the benefits provided for by the policy and the excess of item (1) over item (2), as follows: (1) A net level annual premium equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per annum payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium may not exceed the net level annual premium on the nineteen year premium whole life plan for insurance of the same amount at an age one year higher than the age of issue of the policy. (2) A net one year term premium for the benefits provided for in the first policy year. For a life insurance policy issued after December 31, 1985, for which the contract premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for the excess and which provides an endowment benefit or a cash surrender value or a combination of them in an amount greater than the excess premium, the reserve according to the director's or designee's reserve valuation method as of a policy anniversary occurring on or before the assumed ending date defined in this section as the first policy anniversary on which the sum of an endowment benefit and cash surrender value then available is greater than the excess premium, except as otherwise provided in subsection (I), is the greater of the reserve as of the policy anniversary calculated as described in the preceding paragraph and the reserve as of the policy anniversary calculated as described in that paragraph, but with the value defined in item (1) being reduced by fifteen percent of the amount of the excess first year premium, all present values of benefits and premiums being determined without reference to premiums or benefits provided for by the policy after the assumed ending date, the policy being assumed to mature on the date as an endowment, and the cash surrender value provided on the date being considered as an endowment benefit. In making the above comparison the mortality and interest bases stated in subsection (C)(1) and (D) shall be used. Reserves according to the director's or designee's reserve valuation method for: life insurance policies providing for a varying amount of insurance or requiring the payment of varying premiums, group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer including a partnership or sole proprietorship or by an employee organization, or both, other than a plan providing individual retirement accounts or individual retirement annuities under Section 408 of the Internal Revenue Code, as amended, disability and accidental death benefits in all policies and contracts, and all other benefits, except life insurance and endowment benefits in life insurance policies and benefits provided by all other annuity and pure endowment contracts, must be calculated by a method consistent with the principles of subsection (D), except extra premiums charged because of impairments or special hazards must be disregarded in the determination of modified net premiums. (F) This subsection applies to all annuity and pure endowment contracts other than group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer including a partnership or sole proprietorship, or by an employee organization, or both, other than a plan providing individual retirement accounts or individual retirement annuities under Section 408 of the Internal Revenue Code, as amended. Reserves according to the director's or designee's annuity reserve method for benefits under annuity or pure endowment contracts, excluding disability and accidental death benefits in the contracts, is the greatest of the respective excesses of the present values, at the date of valuation, of the future guaranteed benefits, including guaranteed nonforfeiture benefits, provided for by the contracts at the end of each respective contract year, over the present value, at the date of valuation, of future valuation considerations derived from future gross considerations, required by the terms of the contract, that become payable before the end of the respective contract year. The future guaranteed benefits must be determined by using the mortality table, if any, and the interest rate, or rates, specified in the contracts for determining guaranteed benefits. The valuation considerations are the portions of the respective gross considerations applied under the terms of the contracts to determine nonforfeiture values. (G) (1) An insurer's aggregate reserves for all life insurance policies, excluding disability and accidental death benefits, issued after March 23, 1960, must not be less than the aggregate reserves calculated in accordance with the methods set forth in subsections (E), (F), (I), and (J) and the mortality table or tables and rate or rates of interest used in calculating nonforfeiture benefits for the policies. (2) The aggregate reserves for all policies, contracts, and benefits must not be less than the aggregate reserves determined by the qualified actuary to be necessary to render the opinion required by subsection (B). (H) Reserves for all policies and contracts issued before March 24, 1960, may be calculated, at the option of the insurer, according to the standards which produce greater aggregate reserves for all the policies and contracts than the minimum reserves required by the laws in effect immediately before the date. Reserves for a category of policies, contracts, or benefits established by the director or designee, after March 23, 1960, may be calculated, at the option of the insurer, according to the standards which produce greater aggregate reserves for the category than those calculated according to the minimum standard provided in this section, but the rate or rates of interest used for policies and contracts, other than annuity and pure endowment contracts, must not be higher than the corresponding rate or rates of interest used in calculating nonforfeiture benefits. An insurer which adopts a standard of valuation producing greater aggregate reserves than those calculated according to the minimum standard provided in this section, with the approval of the director or designee, may adopt a lower standard of valuation, but not lower than the minimum provided in this section. However, for purposes of this subsection, the holding of additional reserves previously determined by a qualified actuary to be necessary to render the opinion required by subsection (B) must not be deemed to be the adoption of a higher standard of valuation. (I) If in a contract year the gross premium charged by a life insurer on a policy or contract is less than the valuation net premium for the policy or contract calculated by the method used in calculating the reserve but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for the policy or contract is the greater of either the reserve calculated according to the mortality table, rate of interest, and method actually used for the policy or contract, or the reserve calculated by the method actually used for the policy or contract but using the minimum valuation standards of mortality and rate of interest and replacing the valuation net premium by the actual gross premium in each contract year for which the valuation net premium exceeds the actual gross premium. The minimum valuation standards of mortality and rate of interest referred to in this subsection are those standards stated in subsections (C)(1) and (D). For a life insurance policy issued after December 31, 1985, for which the gross premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for the excess and which provides an endowment benefit or a cash surrender value or a combination of them in an amount greater than the excess premium, this subsection must be applied as if the method actually used in calculating the reserve for the policy were the method described in subsection (E), ignoring the second paragraph of subsection (E). The minimum reserve at each policy anniversary of the policy is the greater of the minimum reserve calculated in accordance with subsection (E), including the second paragraph of that subsection, and the minimum reserve calculated in accordance with this subsection. (J) For a plan of life insurance which provides for future premium determination, the amounts of which are to be determined by the insurer based on then estimates of future experience, or for a plan of life insurance or annuity which is of a nature so that the minimum reserves cannot be determined by the methods described in subsections (E), (F), and (I), the reserves which are held under the plan must be: (1) appropriate in relation to the benefits and the pattern of premiums for that plan; (2) computed by a method which is consistent with the principles of this Standard Valuation Law, as determined by regulations promulgated by the director. (K) This section is known as the `Standard Valuation Law'.

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 department prescribes. A company authorized to write these kinds of insurance shall file with its annual statement schedules of its experience in the form the director or designee 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.

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 director or designee 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 director or designee 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 director or designee 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 director or designee 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 director or designee. No credit is allowed a domestic ceding insurer if the assuming insurer's accreditation has been revoked by the director or designee 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 director or designee 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 director or designee 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 director or designee 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 director or designee 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 director or designee. 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 director or designee. 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 director or designee 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 director or designee 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 director 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: (1) cash; (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 director or designee.

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 director or designee 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 director or designee. (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."

Name changed, etc.

SECTION 536. Chapter 11, Title 38 of the 1976 Code is amended to read:

"CHAPTER 11

Investments

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.

Section 38-11-20. This chapter applies to all domestic insurers. Foreign insurers and United States branches of alien insurers transacting an insurance business in this State shall maintain investments of the same general type and character as specified for domestic insurers, except that investments of substantially the same quality as those specified herein, authorized by the law of the insurer's state of domicile, or state of entry if an alien insurer, may be recognized as eligible investments for purposes of this chapter by the director or his designee in the sound exercise of his discretion.

Section 38-11-30. As used in this chapter, unless the context requires otherwise, `policyholder obligations' means those liabilities of the insurer to, or for, its policyholders arising out of its policies and to its creditors and includes the liabilities required to be included in the insurer's annual statement, including, but not limited to (a) the unearned premium reserve, (b) reserves required by applicable mortality or morbidity tables, and (c) claim or loss reserves including incurred but not reported claims. `Policyholder obligations' does not include that portion of the insurer's capital or guaranty fund, nor that portion of its surplus, in excess of the minimum capital, or guaranty fund, and surplus required by law for such insurer, nor the Mandatory Securities Valuation Reserve.

Section 38-11-40. Every insurer shall have and maintain investments, of the classes described in this section, to the extent of policyholder obligations and minimum capital, or guaranty fund, and surplus less, with respect to insurers other than life insurers, an amount equal to thirty percent of its surplus as regards policyholders. In no event may insurers, other than life insurers, have and maintain investments of the character described below less than an amount equal to seventy percent of policyholder obligations and one hundred percent of the minimum required capital, or guaranty fund, and surplus: (a) Cash, cash funds, and interest accrued thereon on deposit or in savings accounts, under certificates of deposit, or in any other form, in solvent banks and trust companies which have qualified for the insurance protection afforded by the Federal Deposit Insurance Corporation, but the cash or cash funds are not limited to, or by, the amount of insurance protection. (b) Premiums in the course of collection, including due and deferred premiums of life insurers, other than from agencies or general agencies effectively owned or controlled by, or owning or controlling, the insurer, not more than three months past due, less commissions payable, and installment premiums to the extent of the unearned premium reserve carried on the policies to which the premiums apply, less commissions payable thereon. However, premium balances not more than ninety days past due from agencies or general agencies effectively owned or controlled by, or owning or controlling, the insurer are considered admitted assets of the insurer to the extent that balances due from the agency or general agency are represented by assets of the kinds described in this section as limited by Section 38-11-50. (c) Reinsurance recoverables, not more than three months past due from solvent, authorized reinsurers, including deposits made with assuming reinsurers, or held by ceding insurers, under reinsurance agreements, but only to the extent that the deposits are available as offsets against liabilities assumed under the reinsurance agreements. (d) Bonds, notes, warrants, and other securities which are the direct obligations of the United States or for which the faith and credit of the United States are pledged for the payment of principal and interest. (e) Obligations or stock, where stated, of the following agencies or instrumentalities of the United States, whether or not such obligations are guaranteed by the government: (1) Commodity Credit Corporation. (2) Federal intermediate credit banks. (3) Federal land banks. (4) Central Bank for Cooperatives. (5) Federal home loan banks and their stock. (6) Federal National Mortgage Association and its stock when acquired in connection with sale of mortgage loans to the Federal National Mortgage Association. (7) Government National Mortgage Association. (8) Other agencies or instrumentalities of the United States approved by the director or his designee. (f) Bonds, notes, warrants, and other securities which are the direct obligations of any state or territory of the United States or of the District of Columbia, or for which the full faith and credit of the state, territory, or District of Columbia have been pledged for the payment of principal and interest. (g) Bonds, notes, warrants, and other securities which are valid and legally authorized obligations, issued, assumed, or guaranteed by any county, city, town, village, municipality, or district of any state or territory of the United States, or by any political subdivision thereof, or by any civil division or public instrumentality of the United States, any state or territory of the United States, or any county, city, town, or district of any state or territory, if, by statutory or other legal requirements applicable thereto, such obligations are payable, both as to principal and interest, from taxes levied, or required by such law to be levied, upon all taxable property or taxable income within the jurisdiction of the governmental unit, or from special revenues pledged or otherwise appropriated or by law required to be appropriated for the purpose of the payment, but not including any obligations payable solely out of special assessments on properties benefitted by local improvements. However, obligations payable out of special revenues pledged or otherwise appropriated or required by law to be appropriated for the purpose of the payment, are eligible for purposes of this section only if the obligations are eligible for amortization in accordance with regulations promulgated by the director after notice and hearing. (h) Bonds, notes, warrants, or other securities of Canada, or of any of its provinces, or of any municipality in Canada, if the municipal obligations are required or permitted to be amortized in the annual statement prescribed by law, or any bonds fully guaranteed by Canada, or any of its provinces or municipalities, if the bonds are payable in lawful money of the United States or Canada. (i) Bonds, notes, or debentures of solvent corporations existing under the laws of the United States or any of its states or territories, the District of Columbia, Canada, or any of its provinces, if the obligations are qualified under any of the following: (1) Obligations which are secured by adequate collateral security and bear fixed interest if, during each of the last two, and one additional year, of the five fiscal years next preceding the date of acquisition by the insurer, the net earnings of the issuing, assuming, or guaranteeing corporation available for its fixed charges have not been less than one and one-fourth times the total of its fixed charges for that year. In determining the adequacy of collateral security not more than one-third of the total value of the required collateral may consist of stock other than preferred or guaranteed stocks. The director or his designee may approve the collateral as adequate notwithstanding that more than one third of the total value of the required collateral consists of stocks other than preferred or guaranteed stocks if he finds the collateral to be adequate otherwise and states, in writing, his reasons for so finding. (2) Fixed interest-bearing obligations other than those described in (1) above, if the net earnings of the issuing, assuming, or guaranteeing corporation available for its fixed charges for a period of five fiscal years next preceding the date of acquisition by the insurer have averaged per year not less than one and one-half times its annual fixed charges applicable to that period and during the last two years of the period the net earnings have been not less than one and one-half times its fixed charges for those years. Notwithstanding the failure of an issuing corporation to meet the test with respect to its fixed interest-bearing obligations as provided in this item, the obligations must be considered to be eligible hereunder if they are secured or guaranteed by leases or other contracts as long as the guaranteeing, leasing, or contracting corporation fulfills the requirements of this section with respect to its fixed interest obligations. (3) Adjustment income or other contingent interest obligations if the net earnings of the issuing, assuming, or guaranteeing corporation available for its fixed charges for a period of five fiscal years next preceding the date of acquisition by the insurer have averaged per year not less than one and one-half times the sum of its average annual fixed charges and its average annual maximum contingent interest applicable to that period and if during each of the last two years of the period the net earnings have been not less than one and one-half times the sum of its fixed charges and maximum contingent interest for those years. As used herein, `net earnings available for fixed charges' means net income after deducting operating and maintenance expenses, taxes other than federal and state income taxes, depreciation, and depletion, but excluding extraordinary nonrecurring items of income or expenses appearing in the regular financial statement of the corporation. `Fixed charges' includes interest on funded and unfunded debt and amortization of debt discount. (j) Preferred or guaranteed stocks or shares, other than common stocks, of solvent institutions existing under the laws of the United States or of any of its states, districts, or territories, if all of the prior obligations and prior preferred stocks, if any, of the institution at the date of acquisition by the insurer are eligible as investments under this chapter and if qualified under either of: (1) Preferred stocks or shares are considered qualified if both of these requirements are met: (i) The net earnings of the institution available for its fixed charges for a period of five fiscal years next preceding the date of acquisition by the insurer shall have averaged per year not less than one and one-half times the sum of its average annual fixed charges, if any, its average annual maximum contingent interest, if any, and its average annual preferred dividend requirements applicable to the period; and (ii) During each of the last two years of the period the net earnings must have been not less than one and one-half times the sum of its fixed charges, contingent interest, and preferred dividend requirements. `Preferred dividend requirements' means cumulative or noncumulative dividends whether paid or not. (2) Guaranteed stocks or shares are considered qualified if the assuming or guaranteeing institution meets the requirements of Section 38-11-40(i)(2) construed to include as a fixed charge the amount of guaranteed dividends of the issue or the rental covering the guarantee of the dividends. (k) If a life insurer, loans to policyholders upon pledge of the policy as collateral security, amounts not exceeding the cash surrender values of the policies, or loans against pledge or assignment of any of its supplementary contracts or other contracts or obligations, as long as the loan is adequately secured by pledges or assignments. (l) If a life insurer, bonds, or evidences of debts secured by first mortgages or deeds of trust on improved unencumbered real property or the equity of the seller of any of this property in the contract for a deed covering the entire balance due on a bona fide sale of property located in the United States or any of its states or territories or the District of Columbia; but no mortgage loan or investment in the equity of the seller in the contract for deed may exceed at the time of acquisition seventy-five percent of the fair market value of the property. Real estate is not considered to be encumbered within the meaning of this chapter by reason of the existence of taxes or assessments which are not delinquent, instruments creating or reserving mineral, oil, or timber rights, rights-of-way, joint driveways, sewer rights, rights in walls, nor by reason of building restrictions or other restrictive covenants, nor when the real estate is subject to lease in whole or in part whereby rents or profits are reserved to the owner if in any event the security for the loan or investment is a first lien upon the real estate. The value of any mineral, oil, timber, or similar right reserved may not be included in the fair market value of the property. (m) If a life insurer, evidences of debt secured by first mortgages or deeds of trust upon leasehold estates running for a term not less than ten years beyond the maturity of the loan as made or as extended, in improved real property, otherwise unencumbered, if the mortgagee is entitled to be subrogated to all rights under the leasehold. No investment under this item may exceed seventy-five percent of the fair market value of the leasehold estate. (n) If a life insurer, bonds or notes secured by mortgage or trust deed guaranteed or insured as to principal in whole or in part by the Administrator of Veterans' Affairs pursuant to the provisions of Title III of an Act of Congress of the United States of June 22, 1944, entitled the `Service Men's Readjustment Act of 1944', as amended, or bonds or notes secured by mortgage or trust deed guaranteed or insured by the Federal Housing Administration under the terms of an Act of Congress of the United States of June 27, 1936, entitled the `National Housing Act', as amended. (o) Land and buildings to the extent used and occupied for home office purposes together with other real estate as is required for the insurer's convenient transaction of its business at net value plus improvements less normal depreciation. (p) If a life insurer, improved unencumbered real estate for the production of income or property now under lease or being constructed under a definite agreement providing for lease to solvent institutions, individuals, or governmental agencies for governmental, professional, commercial, residential, or industrial purposes other than agricultural, horticultural, ranch, mining, mineral, or oil purposes at net value plus improvements less normal depreciation; however, upon approval by the director or his designee, the real estate investment may be encumbered or need not be under lease. (q) Loans secured by pledge of collateral determined by the director or his designee to be adequate and appropriate for investment of policyholder obligation funds of the insurer. (r) Common stocks of any solvent corporation incorporated under the laws of the United States or any state, or Canada, or any of its provinces, if the stocks of the corporation are listed or admitted to trading on a securities exchange located in the United States, which exchange is approved or recognized by the Securities and Exchange Commission of the United States or if the stocks are listed in the Manual on Valuation of Securities issued by the Committee on Valuation of Securities of the National Association of Insurance Commissioners. (s) Any investment not specifically included herein nor prohibited under Section 38-11-90, if and to the extent as, the director or his designee finds the investment appropriate for investment of policyholder obligations funds. This finding is to be based upon the standards prescribed by Section 38-11-10.

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 director 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 38-11-60. An insurer owning not less than eighty percent of all classes of the outstanding stock of one or more other insurers transacting an insurance business may, for the purposes of complying with Section 38-11-40, so comply on the basis of a consolidated statement. However, every subsidiary must fully comply with the requirements of Section 38-11-40.

Section 38-11-70. An insurer not in compliance with the requirements imposed by this chapter shall within thirty days notify the department. Upon being notified, or upon otherwise ascertaining noncompliance, the director or his designee shall order the insurer to make good the deficiency within thirty days, and he shall, upon failure of the insurer to do so, revoke or suspend the license of the insurer until the deficiency has been made good. However, if noncompliance results from the acquisition of the property or security through foreclosure or otherwise results from a default in a loan or other obligation and the acquisition has been rendered necessary in order to protect the investment or avoid greater loss, the director or his designee may further extend the period not to exceed one hundred eighty days if the insurer establishes that the extension is necessary, that it will not prejudice the policyholders and that the insurer has, in good faith, entered upon a course of action calculated to terminate the noncompliance on or before the expiration of the extended period. Further, investments in real estate and mortgage loans on real estate already made and recognized as admitted assets as of December 31, 1970, are not affected by the restrictions and limitations of this chapter, and are considered as assets covering policyholder obligations and minimum capital, or guaranty fund, and surplus required by law.

Section 38-11-80. No insurer may make any loan or investment, except the policy loans of a life insurer, or any sale or exchange unless authorized, approved, or ratified by its board of directors or other governing body or by a committee charged by the board of directors, other governing body, or the bylaws with the duty of making the investment, loan, sale, or exchange. The minutes of the committee must be submitted to the board of directors or other governing body at the next meeting of the board of directors or other governing body.

Section 38-11-90. No insurer may invest any of its funds in or lend any of its funds upon the security of: (a) Issued shares of its own capital stock except with the written permission of the director or his designee which may be granted, at his discretion, where the purpose of the acquisition is in connection with a lawful plan for mutualization of the insurer, or in furtherance of a retirement, pension, or incentive program for officers or employees of the insurer, which plan has been approved by the stockholders, or if otherwise the acquisition is shown to be for the benefit of all stockholders; but in no event may shares so acquired be admissible as an asset or shown as an asset in any financial statement of the insurer. (b) Securities issued by a corporation which is insolvent at the time of the proposed investment except upon the written approval of the director or his designee. (c) Securities which will subject the insurer to any assessment other than for taxes or wages. (d) Any investment or security which is found by the director or his designee to be designed to evade any prohibition of this chapter.

Section 38-11-100. The assets enumerated in Section 38-11-40 and other assets not prohibited under Section 38-11-90 nor required to be scheduled as nonadmitted assets in the annual statement, as prescribed by the director or his designee, are considered admitted assets and all these assets must be valued in accordance with the standards prescribed in item (l) of Section 38-11-50.

Section 38-11-110. All investments of insurers authorized to do business in this State, for which no rule or method of valuation has been otherwise provided, must be valued in the discretion of the director or his designee at their fair market value, appraised value, or at amounts determined by the director or his designee as their fair market value. If any valuation of an investment by an insurer appears to be an unreasonable estimate of its true value, the director or his designee has the authority to cause the investment to be appraised, and the appraised value must be substituted as the true value. The appraisal must be made by two disinterested and competent persons, one to be appointed by the director and one to be appointed by the insurer. In the event these two persons fail to agree, they shall appoint a third disinterested and competent person, and the estimate of the value of the investment, as arrived at by these three persons, must be substituted as the true value."

Name changed, etc.

SECTION 537. Chapter 13, Title 38 of the 1976 Code is amended to read:

"CHAPTER 13

Examinations, Investigations, Records, and Reports

Section 38-13-10. (A) The director or his examiners may conduct an examination under this chapter of an insurer as often as the director or his designee consider appropriate but, at a minimum, shall conduct an examination of every insurer licensed in this State not less frequently than once every five years. When the director or his designee considers it prudent for the protection of policyholders in this State, he may examine or have examined an insurer applying for admission in this State. In scheduling and determining the nature, scope, and frequency of the examinations, the director or his designee shall consider compliance with relevant South Carolina laws and regulations, the results of financial statement analyses and ratios, changes in management or ownership, actuarial opinions, reports of independent certified public accountants, and other criteria set forth in the Examiners' Handbook adopted by the National Association of Insurance Commissioners and in effect when the director or his designee exercises his authority under this subsection. (B) For purposes of completing an examination of an insurer under this chapter, the director or his designee may examine or investigate a person or his business in a manner considered necessary or material by the director or his designee. (C) In lieu of an examination under this section of a foreign or an alien insurer licensed in this State, the director or his designee may accept an examination report on the insurer prepared by the insurance department for the insurer's state of domicile or port-of-entry state until January 1, 1994. After that time, the reports may be accepted only if one or both of the following apply: (1) The insurance department at the time of the examination was accredited under the National Association of Insurance Commissioners' Financial Regulation Standards and Accreditation Program; (2) The examination is performed with the participation of one or more examiners who are employed by the accredited insurance department, and who, after a review of the examination work papers and report, state under oath that the examination was performed in a manner consistent with the standards and procedures required by their department.

Section 38-13-20. (A) Upon determining that an examination must be conducted, the director or his designee shall issue an examination warrant appointing one or more examiners to perform the examination and instructing them as to the scope of the examination. In conducting the examination, the examiner shall observe South Carolina laws and regulations and those guidelines and procedures set forth in the Examiners' Handbook adopted by the National Association of Insurance Commissioners. The director also may employ other guidelines or procedures he considers appropriate. (B) Every person or insurer and his or its officers, directors, and agents from whom information is sought shall provide to the examiners appointed under subsection (A) timely, convenient, and free access at all reasonable hours at his or its offices to all books, records, accounts, papers, documents, and all computer or other recordings relating to the property, assets, business, and affairs of the person or insurer being examined. If the director or his designee considers it necessary to the conduct of the examination, he may require that the person or insurer or his or its agents or affiliated or subsidiary corporations or partnerships furnish the original books and records. The officers, directors, employees, and agents of the insurer or person shall facilitate the examination and aid in the examination so far as it is in their power to do so. The refusal of a person or an insurer by his or its officers, directors, employees, or agents to submit to examination or to comply with a reasonable written request of the examiners is grounds for suspension or revocation of the person's or insurer's certificate of authority to engage in the business of insurance in this State. The director or his designee may make the suspension or revocation and the reasons for it public. Proceedings for revocation must be conducted pursuant to Section 38-5-140. (C) The director or his examiners may issue subpoenas, administer oaths, and examine under oath a person as to matters pertinent to the examination. Upon the failure or refusal of a person to obey a subpoena, the director or his designee may petition a court of competent jurisdiction, and upon proper showing the court may enter an order compelling the witness to appear and testify or produce documentary evidence. Failure to obey the court order is punishable as contempt of court. (D) When making an examination under Section 38-13-10, the director or his designee may retain attorneys, appraisers, independent actuaries, independent certified public accountants, or other professionals and specialists as examiners. The cost of the retainment must be borne by the insurer which is the subject of the examination. (E) Nothing contained in Section 38-13-10 limits the authority of the director or his designee to: (1) terminate or suspend an examination to pursue other legal or regulatory action pursuant to the insurance laws of this State. Findings of fact and conclusions made pursuant to an examination are prima facie evidence in a legal or regulatory action; (2) use and, if appropriate, make public a final or preliminary examination report, examiner or insurer work papers or other documents, or other information discovered or developed during the course of an examination in the furtherance of a legal or regulatory action which the director or his designee, in his sole discretion, considers appropriate.

Section 38-13-30. (A) Examination reports must be comprised of only facts appearing upon the books, records, or other documents of the insurer, its agents, or other persons examined or as ascertained from the testimony of its officers or agents or other persons examined concerning its affairs and the conclusions and recommendations the examiners find reasonably warranted from the facts. (B) No later than sixty days following completion of the examination, the examiner in charge shall file with the department a verified written report of examination under oath. Upon receipt of the verified report, the department shall transmit the report to the insurer examined with a notice which affords the insurer a reasonable opportunity of not more than thirty days to make a written submission or rebuttal with respect to matters contained in the examination report. (C) After the expiration of the thirty-day period allowed for the receipt of written submissions or rebuttals, the director or his designee shall consider and review the report fully with written submissions or rebuttals and relevant portions of the examiner's work papers and enter an order: (1) adopting the examination report as filed or with modification or corrections. If the examination report reveals that the insurer is operating in violation of law, regulation, or prior order of the director or his designee, he may order the insurer to take action the director or his designee considers necessary and appropriate to cure the violation; (2) rejecting the examination report with directions to the examiners to reopen the examination to obtain additional data, documentation, or information and refiling pursuant to subsection (A); or (3) calling for an investigatory hearing with no less than twenty days' notice to the insurer to obtain additional documentation, data, information, and testimony. (D) (1) Orders entered pursuant to subsection (C)(1) must be accompanied by findings and conclusions resulting from the director's or his designee's consideration and review of the examination report, relevant examiner work papers, and written submissions or rebuttals. The order must be considered a final administrative decision and may be appealed to the Administrative Law Judge Division as provided by law. The order must be served upon the insurer by certified mail, with a copy of the adopted examination report. Within thirty days of the issuance of the adopted report, the insurer shall file affidavits executed by each of its directors stating under oath that they have received a copy of the adopted report and related orders. (2) A hearing conducted under subsection (C)(3) by the director or his authorized representative must be conducted as a nonadversarial, confidential investigatory proceeding as necessary for the resolution of inconsistencies, discrepancies, or disputed issues apparent upon the face of the filed examination report or raised by or as a result of the director's or his designee's review of relevant work papers or by the written submission or rebuttal of the insurer. Within twenty days of the conclusion of the hearing, the director or his designee shall enter an order pursuant to subsection (C)(1). (a) The director may not appoint an examiner as an authorized representative to conduct the hearing. The hearing shall proceed expeditiously with discovery by the insurer limited to the examiner's work papers which tend to substantiate assertions set forth in a written submission or rebuttal. The director or his representative may issue subpoenas for the attendance of witnesses or the production of documents considered relevant to the investigation whether under the control of the department, the insurer, or other persons. The documents produced must be included in the record, and testimony taken by the director or his representative must be under oath and preserved for the record. Nothing contained in this section requires the department to disclose information or records which indicate or show the existence or content of an investigation or activity of a criminal justice agency. (b) The hearing shall proceed with the director or his representative posing questions to the person subpoenaed. After the questions the insurer and the department may present testimony relevant to the investigation. Cross examination may be conducted only by the director or his representative. The insurer and the department may make closing statements and be represented by counsel of their choice. (E) (1) Upon completion of the examination report under subsection (C)(1), the director or his designee shall hold the content of the examination report as private and confidential information for the thirty-day period provided for written submissions or rebuttals. Thirty days after the examination report has been submitted to it if the insurer examined has neither notified the director or his designee of its acceptance and approval of the report nor requested to be heard on it, the report must be filed as a public document and is open to public inspection, as long as no court of competent jurisdiction has stayed its publication. (2) This section does not prohibit the director or his designee from disclosing the content of an examination report, preliminary examination report, or results or related matters to the insurance department of this or another state or country, or law enforcement officials of this or another state or agency of the federal government so long as the agency or office receiving the reports, results, or related matters agrees in writing to hold them confidential and in a manner consistent with Sections 38-13-10 through 38-13-60. (3) If the director or his designee determines that regulatory action is appropriate as a result of an examination, he may initiate proceedings or actions provided by law. (F) All work papers, recorded information, documents, and their copies produced by, obtained by, or disclosed to the director, his designee, or other persons in the course of an examination made under this chapter must be given confidential treatment, are not subject to subpoena, and must not be made public by the director, or other persons, except to the extent provided in subsection (E). Access also may be granted to the National Association of Insurance Commissioners. The parties shall agree in writing before receiving the information to provide to it the same confidential treatment as required by this section, unless the prior written consent of the insurer to which it pertains has been obtained or unless ordered by a court of competent jurisdiction. The information may be provided to the consumer advocate as provided in Section 37-6-605 pursuant to an appropriate proprietary agreement to ensure confidentiality.

Section 38-13-40. (A) No examiner may be appointed by the director if the examiner, directly or indirectly, has a conflict of interest or is affiliated with the management of or owns a pecuniary interest in a person subject to examination under Section 38-13-10. This section does not preclude automatically an examiner from being: (1) a policyholder or claimant under an insurance policy; (2) a grantor of a mortgage or similar instrument on the examiner's residence to a regulated entity if done under customary terms and in the ordinary course of business; (3) an investment owner in shares of regulated diversified investment companies; or (4) a settlor or beneficiary or a `blind trust' into which otherwise impermissible holdings have been placed. (B) Notwithstanding the requirements of this section, the director may retain on an individual basis qualified actuaries, certified public accountants, or other similar individuals who are practicing their professions independently, even though the persons may be employed or retained similarly by persons subject to examination under Section 38-13-10.

Section 38-13-50. The insurer shall pay the charges incurred in the examination, including the expenses of the director or his designee and the expenses and compensation of his examiners and assistants. The director or his designee promptly shall institute a civil action to recover the expenses of examination against an insurer which refuses or fails to pay.

Section 38-13-60. (A) No cause of action may arise nor may liability be imposed against: (1) the director, the director's authorized representatives or his designees, or an examiner appointed by the director for statements made or conduct performed in good faith while carrying out Sections 38-13-10 through 38-13-40; (2) a person for communicating or delivering information or data to the director or the director's authorized representative or examiner pursuant to an examination made under Sections 38-13-10 through 38-13-40 if the communication or delivery was performed in good faith and without fraudulent intent or the intent to deceive. (B) This section does not abrogate or modify common law or statutory privilege or immunity enjoyed by a person identified in subsection (A). (C) A person identified in subsection (A) may receive attorney's fees and costs if he is the prevailing party in a civil cause of action for libel, slander, or another relevant tort arising out of his activities in carrying out Sections 38-13-10 through 38-13-40 and the party bringing the action was not justified substantially in doing so. For purposes of this section a proceeding is `substantially justified' if it had a reasonable basis in law or fact at the time that it was initiated.

Section 38-13-70. Upon his own motion or upon written complaint filed by a citizen of this State that an insurer has violated this title, the director or his designee shall investigate the matter and, if necessary, examine under oath the president and other officers or agents of the insurer and all books, records, and papers of the insurer. If the director or his designee finds upon substantial evidence that a complaint against an insurer is justified, the insurer, in addition to the penalties imposed for violation of this title, is liable for the expenses of the investigation, and the director or his designee shall promptly present the insurer with a statement of the expenses. If the insurer refuses or neglects to pay, the director or his designee is authorized to revoke its license and to bring civil action for the collection of the expenses.

Section 38-13-80. (A) Every insurer annually shall file with the department by March first, in the form and detail the director or his designee prescribes, a statement showing the business standing and financial condition of the insurer on December thirty-first of the preceding year, except that upon timely written request by the chief managing agent or officer setting forth reasons why the statement cannot be filed within the time provided, the director or his designee may grant in writing an extension of filing time for not more than thirty days. This statement must conform substantially to the form of statement adopted by the National Association of Insurance Commissioners. Unless the director or his designee provides otherwise, the annual statement is to be prepared in accordance with the annual statement instructions and the Accounting Practices and Procedures Manual adopted by the National Association of Insurance Commissioners. The annual statement must be verified by at least two of its principal officers, at least one of whom prepared or supervised the preparation of the annual statement. The director or his designee shall furnish each domestic insurer two blanks for its annual statement. (B) The director or his designee may require every insurer to file quarterly reports and additional information considered necessary to enable the director or his designee to carry out his duties under this chapter. The reports and information must be furnished in the time and manner prescribed by the director or his designee.

Section 38-13-85. (a) Every insurer who is authorized to write insurance in this State shall file annually with the National Association of Insurance Commissioners by March first a copy of its annual statement convention blank along with any additional filings prescribed by the director or his designee for the preceding year. The information filed with the National Association of Insurance Commissioners must be in the same format and scope as that required by the director or his designee and must include the signed jurat page and the actuarial certification. Any amendments and addenda to the annual statement filing subsequently filed with the director or his designee also must be filed with the National Association of Insurance Commissioners. Foreign insurers domiciled in a state which has a law substantially similar to this subsection are considered in compliance with this subsection. (b) In the absence of actual malice, members of the National Association of Insurance Commissioners, their authorized committees, subcommittees, and task forces, their delegates, National Association of Insurance Commissioners' employees, and all others charged with the responsibility of collecting, reviewing, analyzing, and disseminating the information developed from the filing of the annual statement convention blanks are acting as agents of the director or his designee under the authority of this section and are not subject to civil liability for libel, slander, or any other cause of action by virtue of their collection, review, and analysis or dissemination of the data and information collected from the filings required by this subsection. (c) All financial analysis ratios and examination synopses concerning insurers submitted to the department by the National Association of Insurance Commissioners' Insurance Regulatory Information System are confidential and may not be disclosed by the department.

Section 38-13-90. No insurer may publish a statement of its assets and liabilities unless it shows both its assets and liabilities with equal conspicuousness. The statement shall reflect the assets and liabilities as were shown on the last annual statement or subsequent report of examination accepted by the director or his designee unless the director or his designee has given prior written approval to the publishing of a statement as of another date. Any publication purporting to show the capital of the insurer shall exhibit only the amount of capital actually paid in. An insurer or agent violating this section is subject to the penalties provided in Section 38-2-10.

Section 38-13-100. In any determination of the financial condition of an insurer, capital stock and liabilities to be charged against its assets shall include: (1) The amount of its capital stock outstanding, if any; (2) The amount, estimated consistent with provisions of the law and rulings of the director or his designee, necessary to pay all its unpaid losses and claims incurred on or prior to the date of statement, whether reported or unreported, together with the expenses of adjustment or settlement; (3) With reference to life and accident and health insurance and annuity contracts: (a) the amount of reserves on life insurance policies and annuity contracts in force, valued according to the tables of mortality, rates of interest, and methods adopted pursuant to Section 38-9-180 which are applicable, (b) reserves for disability benefits, for both active and disabled lives, (c) reserves for accidental death benefits, and (d) any additional reserves which may be reasonably required by the director or his designee; (4) With reference to insurance other than specified in the law and rulings of the director or his designee, the amount of reserves equal to the unearned portions of the gross premiums charged on policies in force, computed in accordance with the law and rulings of the director or his designee; and (5) Taxes, expenses, and other obligations due or accrued at the date of the statement.

Section 38-13-110. Contingent debts or liabilities of domestic insurers must be set forth in financial statements in the following manner: (1) In the event a contingent liability or surplus certificate liability is in the form of certain borrowings provided for under Section 38-19-610 and the borrowings are made by a domestic mutual insurer insuring properties only, then the obligation of the corporation or association must be shown as a footnote on any published financial statement of the corporation or association; (2) In the event a contingent liability or surplus certificate liability of the corporation is in connection with a domestic mutual assessment association or other form of domestic mutual insurer having issued and in force policies containing an assessment provision for either life insurance or property insurance, then the liability must be set forth as a footnote on any published financial statement of the corporation or association; (3) In the event that a domestic mutual insurer has outstanding or is issuing a contract that does not contain an assessment provision, then the statement of assets and liabilities shall show as a part of the liabilities the face amount of the liability, with a footnote explaining that payment of the liability must be made out of the surplus earnings of the insurer and, in the event of dissolution of the corporation or association, is a junior liability to the claims of the policyholders but a senior liability to the distribution of any remaining assets to policyholders; and (4) In the event there is a contingent liability or a surplus certificate liability outstanding in connection with any domestic capital stock insurance corporation, the full face amount of the liability must be separately stated as a part of the surplus of the insurer and is considered to be a junior liability to policyholders' reserves and claimants' liabilities but is considered a senior liability, either in the event of dissolution or for statement purposes, to that which otherwise would be a liability to the stockholders.

Section 38-13-120. All companies doing any kind of insurance business in this State shall make and keep a full and correct record of the business done by them, showing the number, date, term, amount insured, premiums, and the person to whom issued of every policy or certificate of renewal. This information must be furnished to the director or his designee on demand, and the original books or record must be open to the inspection of the director or his designee on demand. These records must be kept for a minimum of five years.

Section 38-13-130. Every insurer doing business in this State shall maintain a record of losses paid under its policies and notices as provided in its policies which may normally result in claim or loss. The records must be maintained until the next regular examination by an insurance department or for a period of five years from the date of payment of the loss or receipt of the notice.

Section 38-13-140. Any person having in his possession or control any books, accounts, or papers of any company licensed under this title shall exhibit them to the director or to any deputy, actuary, accountant, or person acting with or for the director. Any person who refuses, on demand, to exhibit any books, accounts, or papers or knowingly or wilfully makes any false statement in regard to them is guilty of a misdemeanor and, upon conviction, must be fined or imprisoned, or both, at the discretion of the court. All replies are strictly confidential except for the purposes of prosecution for any false or fraudulent statement made to the director or his designee.

Section 38-13-150. Every insurer shall file a return, on a form and at times prescribed by the director or his designee, showing all reinsurance or cessions of risk or liability contracted for or effected by it, whether by issue of policy, entry, or bordereau, general participation agreement, excess loss reinsurance, or in any manner whatsoever, upon property located in this State or covering, whether specified or otherwise, any risk or liability upon property so located. The return must be certified by the oath of its president and secretary, if a company of the United States, and, if a company of a foreign country, by the oath of its managers in the United States as to reinsurance or cessions effected through its branch office in the United States and by the oath of its president and secretary or by officers corresponding thereto, at its home office, wherever located, as to reinsurance or cessions contracted for or effected through the foreign office. The refusal of an insurer to file the required return is presumptive evidence that it is guilty of violating the provisions of Section 38-9-190. Section 38-13-160. The director or his designee may require any authorized insurer or its officers to answer any inquiry in relation to its transactions, condition, or any connected matter necessary to the administration of the insurance laws of the State. Every corporation or person must reply in writing to the inquiry promptly and truthfully, and the reply must be verified, if required by the director or his designee, by the individual or by the officer or officers of a corporation as he designates. These replies are strictly confidential.

Section 38-13-170. If an insurer, in its annual or other statement required by law, wilfully misstates the facts, the insurer and the person signing the statement and any person aiding, abetting, or participating in the making of the statement must be severally punished by a fine of not more than two thousand dollars or imprisonment for not more than five years, or both, in the discretion of the court, and the insurer, upon conviction, forfeits its right to do business in this State.

Section 38-13-180. For purposes of Sections 38-13-190 and 38-13-200, `insurance reserve fund' or `funds' means the insurance reserve funds administered by the Division of General Services of the State Budget and Control Board to provide liability and property insurance, as authorized under Section 1-11-140, Chapter 7 of Title 10, and the regulations prescribed by the State Budget and Control Board.

Section 38-13-190. (1) At the end of each three years of operation, and at any other time considered prudent, the director or his designee shall examine the affairs of the insurance reserve funds and make findings and recommendations as provided by this section. For purposes of examination, the director or person making the examination has free access to all relevant records, books, and papers in the possession of any person or entity and may summon, administer oaths to, and examine as witnesses any persons in relation to matters relevant to the examination. (2) The director or his designee shall examine all methods of operation of the insurance reserve funds to determine whether the funds are being administered in accordance with sound insurance practices and in the best interest of the State. Following the examination, the director or his designee shall prepare a report for submission, through the department, to the State Budget and Control Board, the Speaker of the House of Representatives, and the President of the Senate containing his findings and conclusions and any recommendations to improve the efficiency, effectiveness, and overall operation of the funds.

Section 38-13-200. Any person or entity having possession or control of any records, books, or papers relevant to an insurance reserve fund examination who fails or refuses to be examined under oath is guilty of a misdemeanor and upon conviction must be punished by a fine of not more than ten thousand dollars or imprisonment for not more than one year and is subject to suspension or revocation of any insurance licenses issued by the director or his designee.

Section 38-13-300. The director shall promulgate regulations which shall require each insurer licensed to write property or casualty insurance in the State to record and report its loss and expense experience and other data as may be necessary to determine whether rates are not excessive, inadequate, or unfairly discriminating. The director or his designee may designate one or more rate service organizations or advisory organizations to gather and compile this experience and data. In addition, each insurer licensed to write property and casualty insurance in this State, as a supplement to its annual statement, must submit a report on a form furnished by the department showing the insurer's direct writings in this State and the United States and also the information required by Sections 38-13-310 and 38-13-320. The department may adopt data disclosure requirements developed by the National Association of Insurance Commissioners, and if adopted, shall be deemed to be in full compliance with Sections 38-13-300 through 38-13-360.

Section 38-13-310. The supplemental report required by Section 38-13-300 must include, but is not limited to, the following types of insurance written by the insurer: (a) political subdivision liability insurance reported separately in the following categories: (1) municipalities; (2) school districts; (3) other political subdivisions; (b) public official liability insurance; (c) dram shop liability insurance; (d) day care center liability insurance; (e) labor, fraternal, or religious organizations liability insurance; (f) errors and omissions liability insurance; (g) officers and directors liability insurance reported separately as follows: (1) nonprofit entities; (2) for-profit entities; (h) products liability insurance; (i) medical malpractice insurance; (j) attorney malpractice insurance; (k) architects and engineers malpractice insurance; and (l) motor vehicle insurance reported separately for commercial and private passenger vehicles as follows: (1) motor vehicle liability insurance first-party benefits; (2) motor vehicle bodily injury liability insurance; (3) motor vehicle property liability insurance; (4) uninsured motorist insurance; and (5) underinsured motorist insurance.

Section 38-13-320. The supplemental report must include the following data both as to this State and the United States for the previous year ending on December thirty-first: (a) direct premiums written, (b) direct premiums earned, (c) net investment income, including net realized capital gains and losses, using appropriate estimates where necessary, (d) incurred claims, developed as the sum of the following (the report shall include data for each of the following categories used to develop the sum of incurred claims): (1) dollar amount of claims closed with payment, plus (2) dollar amount of payments on claims still open, plus (3) reserves for reported claims at the end of the current year, minus (4) reserves for reported claims at the end of the previous year, plus (5) reserves for incurred but not reported claims at the end of the current year, minus (6) reserves for incurred but not reported claims at the end of the previous year, plus (7) loss adjustment expenses for claims closed, plus (8) reserves for loss adjustment expense at the end of the current year, minus (e) actual incurred expenses allocated separately to loss adjustment, commissions, other acquisition costs, advertising, general office expenses, taxes, licenses and fees, and all other expenses; (f) net underwriting gain or loss; (g) net operation gain or loss, including net investment income; (h) the number and dollar amount of claims closed with payment, by year incurred and the amount reserved for them; (i) the number of claims closed without payment and the dollar amount reserved for those claims; (j) federal income tax recoverable; and (k) any other information requested by the director or his designee.

Section 38-13-330. For the first year only in which the insurer is required to file this report, the data required by items (a) through (g) of Section 38-13-320 shall include the previous calendar year and each of the preceding two calendar years.

Section 38-13-340. It is the duty of the department to annually compile and review all such reports submitted by insurers pursuant to this article to determine the appropriateness of premium rates for property and casualty insurance in this State. The findings and filings of the department must be published, provided to the General Assembly, and made available to any interested insured or citizen. If the director or his designee finds at any time that any rate is excessive, inadequate, or unfairly discriminating, he shall issue an order withdrawing its approval. The order shall specify reasons for withdrawal of approval and must be furnished to each affected insurer and rating organization and is effective in not less than sixty days from its issuance unless an affected insurer meets the burden of showing that the rate is in fact fair and appropriate.

Section 38-13-350. Each insurance company shall file all of the information required under Sections 38-13-300 through 38-13-360 with the department as a prerequisite to obtaining permission to write coverage, to continue to do business, or to file for rate increases.

Section 38-13-360. Each insurer who fails to comply with the terms of Sections 38-13-300 through 38-13-350 shall pay a civil penalty of a fine of twenty thousand dollars and thereafter a fine of one thousand dollars daily until the named sections of the article are complied with.

Section 38-13-370. First reports required under Sections 38-13-300 through 38-13-360 of this chapter are to be filed on July 1, 1988, and on July first of each following year."

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SECTION 538. Section 38-15-10 of the 1976 Code is amended to read:

"Section 38-15-10. No surety insurer authorized to transact business in this State may execute a fidelity or surety bond for an officer or employee of this State or of a county, municipality, or other subdivision of this State or for an officer or employee of a bank, trust company, or other fiduciary corporation organized under the laws of this State except upon the assumption of risk and upon the forms prescribed by law or approved by the director or his designee and the Attorney General. The insurer also shall procure special authority from the director or his designee and the Attorney General for the writing of the fidelity or surety bonds."

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SECTION 539. Section 38-15-20 of the 1976 Code is amended to read:

"Section 38-15-20. The director or his designee and the Attorney General shall remove from the list of surety insurers whose bonds are acceptable under Section 38-15-10 the names of insurers who in their judgment fail or refuse to carry out promptly their obligations in good faith."

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SECTION 540. Section 38-15-30 of the 1976 Code is amended to read:

"Section 38-15-30. Insurers doing business in this State who offer or undertake to become surety upon any bond or other surety contract must in addition to any other deposit required by the laws of this State deposit with the director bonds of the United States or of any state of the United States in the market value of one hundred thousand dollars which are receipted for by the director or his designee and held by him. The securities must be held to pay any final judgment entered against the insurer in a court of competent jurisdiction in this State requiring it to pay any loss or liability arising during the term of the bond or while the securities are held. Any judgment obtained is a lien upon the securities. When the insurer ceases to do business in this State, has settled all claims against it, and has been released from all bonds upon which it has been taken as surety, the securities deposited are delivered to the proper party on presentation of the receipt of the director or his designee for the securities. While the securities are deposited with the director, the owner is entitled to collect the interest on them. The faith of the State is pledged for the return of the deposited securities to the person entitled to receive them. An insurer which has complied with the provisions required of qualified insurers in Section 38-9-100 is relieved of making the deposit required by this section and, subject to the provisions of Section 38-7-90, is entitled to the return of the deposit filed or deposited by it under this section. A domestic insurer making a voluntary deposit provided by Section 38-9-110 is relieved of making this deposit if the insurer meets the definition of a qualified insurer as defined in Section 38-9-100 and if the voluntary deposit meets the requirements of that section."

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SECTION 541. Section 38-15-50 of the 1976 Code is amended to read:

"Section 38-15-50. In lieu of depositing bonds with a market value of one hundred thousand dollars, an insurer may satisfy Section 38-15-30 by depositing one hundred thousand dollars in cash in the name of the director with the trust department of a national or state bank of this State approved by the director or his designee. The director or his designee shall give the insurer a receipt for the deposit. When the insurer ceases to do business in this State, has settled all claims against it, and has been released from all the bonds upon which it has been taken as surety, the cash deposit must be delivered to the proper party upon presentation of the receipt of the director or his designee. While the cash is deposited, its owner is entitled to collect the interest. The cash deposit is liable to the same extent as securities deposited with the director and subject to like procedure in case of default or insolvency."

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SECTION 542. Section 38-17-30 of the 1976 Code is amended to read:

"Section 38-17-30. The subscribers shall, through their attorney, file with the department a declaration verified by the oath of the attorney setting forth: (1) The name of the office at which the subscribers propose to exchange the indemnity contracts. This name may not be so similar to any name previously adopted by a similar organization or by any insurance corporation or association that in the opinion of the director or his designee is calculated to result in confusion or deception. (2) The kind of insurance to be effected or exchanged. (3) A copy of the form of policy contract or agreement under or by which the insurance is to be effected or exchanged. (4) A copy of the form of power of attorney or other authority of the attorney under which the insurance is to be effected or exchanged. (5) The location of the office or offices from which the contracts or agreements are to be issued. (6) That applications have been made for indemnity upon at least one hundred separate risks aggregating not less than one and one-half million dollars represented by executed contracts or bona fide applications to become concurrently effective. In the case of automobile insurance, applications must have been made for indemnity upon at least one thousand motor vehicles or for insurance aggregating not less than one and one-half million dollars represented by executed contracts or bona fide applications to become concurrently effective on any or all classes of automobile insurance effected by the subscribers through the attorney. (7) That there are assets conforming to the requirements of Section 38-17-100 in the possession of the attorney and available for the payment of losses."

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SECTION 543. Section 38-17-50 of the 1976 Code is amended to read:

"Section 38-17-50. The director or his designee shall require every reciprocal exchange to provide security deposits pursuant to Sections 38-9-80 to 38-9-140 as required for other insurers doing business in this State."

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SECTION 544. Section 38-17-60 of the 1976 Code is amended to read:

"Section 38-17-60. When filing the declaration provided for in Section 38-17-30, the attorney shall also file with the department a written instrument executed by him for the subscribers stipulating that upon the issuance of a certificate of authority provided for in Section 38-17-70 service of process may be had upon the director in all suits in this State arising out of the policies, contracts, or agreements and that this service is valid and binding upon all subscribers exchanging at any time reciprocal or interinsurance contracts through the attorney."

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SECTION 545. Section 38-17-70 of the 1976 Code is amended to read:

"Section 38-17-70. Each attorney by or through whom are issued any policies of or contracts for indemnity referred to in this chapter shall annually procure from the director or his designee a certificate of authority, stating that all of the requirements of this chapter have been complied with and, upon compliance and the payment of the fees required by this chapter, the director or his designee shall issue the certificate of authority. The director or his designee may revoke or suspend the certificate of authority upon breach of any condition imposed by this chapter after reasonable written notice has been given to the attorney so that he may appear and show cause why action should not be taken. Any attorney who may have procured a certificate of authority under this section may renew it annually."

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SECTION 546. Section 38-17-90 of the 1976 Code is amended to read:

"Section 38-17-90. The attorney shall file a sworn statement with the department showing the maximum amount of indemnity upon any single fire insurance risk. The attorney shall also file, whenever required, a sworn statement with the department that he has examined the commercial rating of the subscribers as shown by the reference book of a commercial agency having at least one hundred thousand subscribers and that from this examination or other information in his possession it appears that no subscriber has assumed more than ten percent of its net worth on any single fire insurance risk."

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SECTION 547. Section 38-17-120 of the 1976 Code is amended to read:

"Section 38-17-120. When funds other than those which have accrued from premiums or deposits of subscribers are supplied to make up a deficiency as provided in Section 38-17-100, they must be deposited and held for the benefit of subscribers under any terms and conditions the director or his designee may require as long as a deficiency exists and thereafter returned to the depositors."

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SECTION 548. Section 38-17-140 of the 1976 Code is amended to read:

"Section 38-17-140. The business affairs and assets of reciprocal or interinsurance exchanges, as shown at the office of its attorney, are subject to examination by the director or his designee as often as he sees fit. The cost of the examination must be paid by the exchange examined."

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SECTION 549. Section 38-17-150 of the 1976 Code is amended to read:

"Section 38-17-150. Each attorney shall annually make and file by March first with the department a sworn statement, upon a form to be prescribed and furnished by the director or his designee, showing that the financial condition of affairs at the office where the reciprocal or interinsurance contracts are issued is in accordance with the standard of solvency provided for in this chapter and stating: (1) the amount of all premiums or deposits collected from subscribers in this State during the previous calendar year; (2) the amounts actually paid subscribers on losses; (3) the total amounts returned to subscribers as savings and the amounts retained for expenses; (4) the amount of insurance reinsured in other insurers licensed in this State, naming them and the amount of premiums paid; (5) the amount of insurance reinsured in insurers not licensed in this State, naming them and the amount of premiums paid; and (6) the amount of reinsurance accepted from admitted companies and the premiums received for that reinsurance on risks located in this State, with the names of the insurers so reinsured. However, the attorney may not be required to furnish the names and addresses of any subscribers."

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SECTION 550. Section 38-17-170 of the 1976 Code is amended to read:

"Section 38-17-170. Any attorney who exchanges any contract for indemnity specified in this chapter or directly or indirectly solicits or negotiates any applications for this contract without first complying with this chapter is guilty of a misdemeanor. The director or his designee, in his discretion and on terms he may prescribe, may issue a permit for organization purposes which must continue in force or be canceled at his pleasure."

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SECTION 551. Section 38-19-40 of the 1976 Code is amended to read:

"Section 38-19-40. Notice of the time and place of the annual meeting of members of a domestic mutual insurer must be given by imprinting the notice plainly on the policies issued by the insurer. Any change of the time or place of the annual meeting may be made only at an annual meeting of members. Notice of a change must be given: (1) by imprinting the new time or place on all policies which are issued following the annual meeting at which a change was approved; and (2) by including a written notice of the change in a premium due notice to each member subsequent to the annual meeting at which the change was approved and before the first annual meeting affected by the change; or (3) by any other method ordered or approved by the director or his designee."

Name changed

SECTION 552. Section 38-19-50 of the 1976 Code is amended to read:

"Section 38-19-50. (A) A member of a domestic mutual insurer may vote in person or by proxy on any matter coming before a corporate meeting of members. An appointment of proxy is effective when received by the secretary or other officer or agent authorized to tabulate votes. Unless a time of expiration is otherwise specified, an appointment is valid for eleven months. (B) No member's vote upon any proposal (1) to divest the insurer of its business and assets, or the major part of it, or (2) to change the corporate structure of the insurer as provided in Article 9 of this chapter may be registered or taken except in person or by a proxy newly executed and specific as to the matter to be voted upon. (C) No proxy may be utilized by a domestic mutual insurer subject to the provisions of this chapter unless: (1) it is printed in ballot form; (2) it includes in the case of elections for members of boards of directors adequate provisions for the voting by write-in for persons other than those nominees appearing on the proxy for each office; (3) it includes adequate notice that votes for directors where more than one office of director is subject to election may be cast cumulatively; (4) it includes in the case of issues or matters for consideration adequate provisions for affirmative or negative votes individually on each issue or matter; (5) the director or his designee has given prior approval to it."

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SECTION 553. Section 38-19-440 of the 1976 Code is amended to read:

"Section 38-19-440. If at any time the surplus of a domestic mutual insurer is less than the amount required by this title and the deficiency is not cured from other sources, its directors may with the approval of the director or his designee make an assessment on its members who, at any time within the twelve months immediately preceding the date the assessment was authorized by the directors, held policies providing for contingent liability. The director or his designee may refuse to approve the assessment if in his judgment refusal will best promote the interests of the insurer's members and creditors and of the insuring public."

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SECTION 554. Section 38-19-470 of the 1976 Code is amended to read:

"Section 38-19-470. A domestic mutual insurer, after it has established a surplus not less than the minimum capital and surplus required of a stock insurer to transact like kinds of insurance and for so long as it maintains this surplus, may extinguish the contingent liability of its members to assessment and omit provisions imposing contingent liability in all policies currently issued. Any deposit made with the director or his designee as a prerequisite to the insurer's certificate of authority may be included as part of the surplus referred to in this section. When the surplus has been established and the director or his designee has so ascertained, he shall issue to the insurer, at its request, his certificate authorizing the extinguishment of the contingent liability of its members and the issuance of policies free from contingent liability."

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SECTION 555. Section 38-19-480 of the 1976 Code is amended to read:

"Section 38-19-480. The director or his designee may not authorize a domestic mutual insurer to extinguish the contingent liability of any of its members or in any of its policies to be issued unless it qualifies to and does extinguish the liability of all its members and in all policies for all kinds of insurance transacted by it."

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SECTION 556. Section 38-19-490 of the 1976 Code is amended to read:

"Section 38-19-490. The director or his designee shall revoke the authority of a domestic mutual insurer to extinguish the contingent liability of its members if: (1) at any time the insurer's surplus is less than the minimum capital and surplus required of a stock insurer to transact similar kinds of business;or (2) the insurer, by resolution of its directors approved by its members, requests that the authority be revoked. Upon revocation of this authority for any cause the insurer may not thereafter issue any policies without contingent liability nor renew any policies then in force without written endorsement thereon providing for contingent liability."

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SECTION 557. Section 38-19-610 of the 1976 Code is amended to read:

"Section 38-19-610. A domestic mutual insurer, with the advance approval of the director or his designee and without the pledge of any of its assets, may borrow money to defray the expenses of its organization or for any purpose required by its business upon an agreement that the money and the interest as agreed upon must be repaid only out of the insurer's earned surplus in excess of its required minimum surplus. If the money is to be borrowed upon multiple agreements, the agreements must be serially numbered. No loan agreement or series of agreements may have or be given any preferential rights over any other such loan agreement or series. No commission or promotional expense may be paid to a director, officer, or employee of the insurer on account of this loan. The director's or his designee's approval of the loan, if granted, shall specify the amount to be borrowed, the purpose for which the money is to be used, the terms and forms of the loan agreement, the date by which the loan must be completed, and other related matters the director or his designee considers proper. This article does not apply to loans obtained by the insurer in the ordinary course of business from banks and other financial institutions, nor to loans secured by pledge or mortgage of assets."

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SECTION 558. Section 38-19-640 of the 1976 Code is amended to read:

"Section 38-19-640. If there is more than one such loan or if any such loan is represented by multiple agreements, the loan agreement shall provide, in addition to any other time of repayment specified in it, that any part of the loan may be repaid at any time by selection by lot, under supervision of the director or his designee, of those loan agreements, out of all similar agreements then outstanding, to be then repaid in part or in whole."

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SECTION 559. Section 38-19-650 of the 1976 Code is amended to read:

"Section 38-19-650. No repayment of the loan may be made unless approved by the director or his designee. The insurer shall notify the director or his designee in writing not less than sixty days in advance of its intention to repay the loan or any part of it. The director or his designee shall immediately ascertain whether the insurer's financial condition is such that the repayment can properly be made."

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SECTION 560. Section 38-19-825 of the 1976 Code is amended to read:

"Section 38-19-825. (A) A mutual insurer may engage in any of the transactions specified in Section 38-19-815 under such reasonable plan and procedure as approved by the director or his designee after a public hearing on the matter. Notice must be given to those persons who were members, directors or trustees, officers, and employees of the mutual insurer on the date the plan was filed with the department. Notice may be given to any other person at the discretion of the director or his designee. All of these persons have the right to appear and be heard at the hearing. (B) The director or his designee may not approve any plan or procedure unless: (1) its terms and conditions are fair and equitable; (2) it is approved by a vote of not less than two-thirds of the insurer's members voting on it in person, or by proxy, at a meeting of members called for the purpose pursuant to reasonable notice and procedure as approved by the director or his designee. Only persons who are members on the date the plan was filed with the department are entitled to vote; (3) the equity of each member in the insurer is determinable under a fair and reasonable formula approved by the director or his designee, which must be based upon the insurer's entire surplus as shown in the insurer's financial statement filed with the department, including all voluntary reserves but excluding contingently repayable funds and outstanding guaranty capital shares at the redemption value of them, and without taking into account the value of nonadmitted assets or of insurance business in force; (4) the members entitled to participate in the distribution of assets, whether cash or property or a combination of them, shall include not less than all members of the insurer as of the date the plan was submitted to the department and each person who had been a member of the insurer within three years prior to that date; (5) the director or his designee finds that the insurer's management has not, through reduction and volume of new business written, or cancellation, or through any other means, sought to reduce, limit, or affect the number or identity of the insurer's members to be entitled to participate in the plan, or to secure for the individuals comprising management any unfair advantage through the plan. (C) If the plan provides for a conversion from a mutual insurer to a stock insurer, the director or his designee may not approve the plan or procedure unless: (1) the plan gives to each member of the insurer, as specified in subsection (B)(4), a preemptive right to acquire his proportionate part of all of a proposed capital stock of the insurer, or all of the stock of any corporation affiliated with the insurer, within a designated, reasonable period, as the part is determinable under the plan of conversion, and to apply upon the purchase of it the amount of his equity in the insurer as determined under subsection (B)(3). The plan must provide for an equitable distribution of fractional interests. The plan may provide, subject to the approval of the director or his designee, that the preemptive right will not extend to any member who resides in a jurisdiction in which the issuance of stock is impossible, or to any member if the extension would involve unreasonable delay or require the insurer to bear unreasonable costs, provided that any member shall receive one hundred percent of his equity share in the insurer in the form of a cash payment; (2) shares are to be offered to members at a price not greater than that offered after that time under the plan to others except as provided in subsection (D); (3) the plan provides for payment to each member of his entire equity share in the insurer, with that payment to be made in cash or to be applied for or upon the purchase of stock to which the member is preemptively entitled, or both, provided that with respect to each member who is not given the option of receiving his entire equity share in cash, the plan must provide that the member has the option to receive a reasonable portion of his equity share, as provided in the plan, but not in excess of fifty percent of his entire equity, in the form of a cash payment, which payment together with the amount applied to the purchase of stock constitutes full payment and discharge of the member's equity or property interest in the mutual insurer. The director or his designee may permit an insurer to forego the option of making a cash payment to members if he determines that it would be reasonable not to provide for the cash election, after taking into account all the facts and circumstances, including whether there is expected to be an active market for the stock to be received in the conversion; (4) the plan, when completed, provides that the insurer's surplus regarding policyholders is reasonable relating to the insurer's outstanding liabilities and adequate to meet its financial needs. In determining if the surplus as regarding policyholders is reasonable relating to the insurer's outstanding liabilities and adequate to meet its financial needs, the following factors, among others, are considered: (a) the size of the insurer as measured by its assets, capital and surplus, reserves, premium writing, insurance in force, and other appropriate criteria; (b) the extent to which the insurer's business is diversified among the several lines of insurance; (c) the number and size of risks insured in each line of business; (d) the extent of the geographical dispersion of the insurer's insured risks; (e) the nature and extent of the insurer's reinsurance program; (f) the quality, diversification, and liquidity of the insurer's investment portfolio; (g) the recent past and projected future trend in the size of the insurer's investment portfolio; (h) the surplus regarding policyholders maintained by other comparable insurers; (i) the adequacy of the insurer's reserves; and (j) the quality and liquidity of investments in affiliates. The director or his designee may treat any investment as a disallowed asset for purposes of determining the adequacy of surplus regarding policyholders whenever in his judgment the investment warrants it. (D) Nothing in this section prohibits the inclusion in the conversion plan of provisions under which the individuals comprising the insurer's management and employee group are entitled to purchase for cash, at a price not lower than the price at which it had been offered to the insurer's members, shares of stock not taken by members on the preemptive offering to members, in accordance with the reasonable classification of the individuals included in the plan approved by the director or his designee. This price limitation may not extend beyond a date set forth in the plan. After the expiration of such date, the governing body of the insurer, with the approval of the director or his designee, may dispose of any stock not taken before that time to any person and for such consideration as may be necessary or desirable in its discretion. (E) A director, officer, agent, or employee of the insurer may receive only his usual regular compensation, for aiding, promoting, or assisting in the conversion, except as set forth in the plan approved by the director or his designee. This provision does not prohibit the payment of reasonable fees and compensation to attorneys, accountants, and actuaries for services performed in the independent practice of their professions. (F) For the purpose of determining whether a conversion plan meets the requirements of this section and any other relevant provisions of this title, the director may employ staff personnel and outside consultants. All reasonable costs related to the review of a plan of conversion, including those costs attributable to the use of staff personnel, must be borne by the insurer making the filing."

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SECTION 561. Section 38-21-10(2) of the 1976 Code is amended to read:

"(2) The term `control' (including the terms `controlling', `controlled by', and `under common control with') means the possession, direct or indirect, of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing ten percent or more of the voting securities of any other person. This presumption may be rebutted by a showing made in the manner provided by Section 38-21-220 that control does not exist in fact. The director or his designee may determine, after furnishing all persons in interest notice and opportunity to be heard and making specific findings of fact to support his determination, that control exists in fact, notwithstanding the absence of a presumption to that effect."

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SECTION 562. Section 38-21-20(11) of the 1976 Code is amended to read:

"(11) Any other business activity determined by the director or his designee to be reasonably ancillary to an insurance business;"

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SECTION 563. Section 38-21-30(3) of the 1976 Code is amended to read:

"(3) With the approval of the director or his designee, invest any greater amount in common stock, preferred stock, debt obligations, or other securities of one or more subsidiaries if after such investment the insurer's surplus as regards policyholders will be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs."

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SECTION 564. Section 38-21-50 of the 1976 Code is amended to read:

"Section 38-21-50. Whether an investment meets the applicable requirements of Section 38-21-30 is to be determined before the investment is made by calculating the applicable investment limitations as though the investment had already been made, taking into account the then outstanding principal balance on all previous investments in debt obligations, and the value of all previous investments in equity securities as of the day they were made, net of any return of capital invested, not including dividends. If an insurer ceases to control a subsidiary, it must dispose of any investment made pursuant to Section 38-21-30 within three years from the time of the cessation of control or within such further time that the director or his designee may prescribe unless, at any time after the investment has been made, the investment has met the requirements for investment under any other section of this title and the insurer has notified the director or his designee."

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SECTION 565. Section 38-21-60 of the 1976 Code is amended to read:

"Section 38-21-60. No person other than the issuer may make a tender offer for or a request or invitation for tenders of, or enter into any agreement to exchange securities for, seek to acquire or acquire, in the open market or otherwise, any voting security of a domestic insurer if, after the consummation thereof, the person would, directly or indirectly, or by conversion or by exercise of any right to acquire, be in control of the insurer, and no person may enter into an agreement to merge with or otherwise to acquire control of a domestic insurer unless, at the time the offer, request, or invitation is made or the agreement is entered into, or prior to the acquisition of the securities if no offer or agreement is involved, the person has filed with the department a statement containing the information required by this section and the offer, request, invitation, agreement, or acquisition has been approved by the director or his designee in the manner hereinafter prescribed. For purposes of this section, a domestic insurer includes any other person controlling a domestic insurer unless the other person as determined by the director or his designee is either directly or through its affiliates primarily engaged in business other than the business of insurance. As used in this section, `person' does not include any securities broker holding, in the usual and customary brokers' function, less than twenty percent of the voting securities of an insurance company or of any person which controls an insurance company."

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SECTION 566. Section 38-21-70 of the 1976 Code is amended to read:

"Section 38-21-70. The statement to be filed with the department, as prescribed in Section 38-21-60, must be made under oath or affirmation and shall contain the following information: (1) The name and address of each person by whom or on whose behalf the merger or other acquisition of control referred to in Section 38-21-60 is to be effected, hereinafter called `acquiring party', and (a) If the acquiring party is an individual, his principal occupation and all offices and positions held during the past five years and any conviction of crimes other than minor traffic violations during the past ten years; (b) If the acquiring party is not an individual, a report of the nature of its business operations during the past five years or for any lesser period as the acquiring party and any predecessors have been in existence; an informative description of the business intended to be done by the acquiring party and its subsidiaries; and a list of all individuals who are or who have been selected to become directors or executive officers of the acquiring party or who perform or will perform functions appropriate to these positions. The list shall include for each of these individuals the information required by subitem (a) of this section. (2) The source, nature, and amount of the consideration used or to be used in effecting the merger or other acquisition of control, a description of any transaction in which funds were or are to be obtained for this purpose, and the identity of persons furnishing the consideration. Where a source of the consideration is a loan made in the lender's ordinary course of business, the identity of the lender must remain confidential, if the person filing the statement so requests. (3) Fully audited financial information as to the earnings and financial condition for the preceding five fiscal years of each acquiring party or for any lesser period as the acquiring party and any of its predecessors have been in existence. (4) Unaudited financial information of the earnings and financial condition of each acquiring party as of a date within ninety days prior to filing the statement. (5) Any plans or proposals which each acquiring party may have to liquidate the insurer, to sell its assets or merge or consolidate it with any person, or to make any other material change in its business or corporate structure or management. (6) The number of shares of any security referred to in Section 38-21-60 which each acquiring party proposes to acquire and the terms of the offer, request, invitation, agreement, or acquisition referred to in Section 38-21-60 and a statement as to the method by which the fairness of the proposal was arrived. (7) The amount of each class of any security referred to in Section 38-21-60 which is beneficially owned or concerning which there is a right to acquire beneficial ownership by each acquiring party. (8) A full description of any contracts, arrangements, or understandings with respect to any security referred to in Section 38-21-60 in which an acquiring party is involved, including, but not limited to, transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or guarantees of division of losses or profits, or the giving or withholding of proxies. The description shall identify the persons with whom the contracts, arrangements, or understandings have been entered into. (9) A description of the purchase of any security referred to in Section 38-21-60 during the twelve calendar months preceding the filing of the statement, by any acquiring party, including the dates of purchase, names of the purchasers, and consideration paid or agreed to be paid. (10) A description of any recommendations to purchase any security referred to in Section 38-21-60 made during the twelve calendar months preceding the filing of the statement by any acquiring party, or by anyone based upon interviews or at the suggestion of the acquiring party. (11) Copies of all tender offers for, requests or invitations for tenders of, exchange offers for, and agreements to acquire or exchange any securities referred to in Section 38-21-60, if distributed, of additional soliciting material relating thereto. (12) The terms of any agreement, contract, or understanding made with any broker-dealer as to solicitation of securities referred to in Section 38-21-60 for tender, and the amount of any fees, commissions, or other compensation to be paid the broker-dealers. (13) Any additional information the director may by regulation prescribe as necessary or appropriate for the protection of policyholders of the insurer or in the public interest. If the person required to file the statement referred to in Section 38-21-60 is a partnership, limited partnership, syndicate, or other group, the director or his designee may require that the information called for by this section be given with respect to each partner of the partnership or limited partnership, each member of the syndicate or group, and each person who controls the partner or member. If this partner, member, or person is a corporation or the person required to file the statement referred to in Section 38-21-60 is a corporation, the director or his designee may require that the information called for by this section be given with respect to the corporation, each officer and director of the corporation, and each person who is directly or indirectly the beneficial owner of more than ten percent of the outstanding voting securities of the corporation. If any material change occurs in the facts set forth in the statement filed with the department and sent to the insurer pursuant to this section, an amendment setting forth the change, together with copies of all documents and other material relevant to the change, must be filed with the department and sent to the insurer within two business days after the person learns of the change."

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SECTION 567. Section 38-21-90 of the 1976 Code is amended to read:

"Section 38-21-90. (A) The director or his designee 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 director or his designee finds that at least one of the situations in Section 38-21-125(D) exists. (c) The director or his designee 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 director or his designee to the person filing the statement, to the insurer, and to other persons designated by the director or his designee. The director or his designee 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 director may retain at the acquiring person's expense attorneys, actuaries, accountants, and other experts not otherwise a part of the department's staff reasonably necessary to assist the director or his designee in reviewing the proposed acquisition of control."

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SECTION 568. Section 38-21-100 of the 1976 Code is amended to read:

"Section 38-21-100. The provisions of Sections 38-21-60 to 38-21-120 do not apply to: (1) Any transaction which is subject to Article 9 of Chapter 19 dealing with the merger or consolidation of two or more insurers. (2) Any offer, request, invitation, agreement, or acquisition which the director or his designee by order exempts as (a) not having been made or entered into for the purpose and not having the effect of changing or influencing the control of a domestic insurer, or (b) as otherwise not comprehended within the purposes of Sections 38-21-60 through 38-21-120."

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SECTION 569. Section 38-21-110 of the 1976 Code is amended to read:

"Section 38-21-110. The following are violations of Sections 38-21-60 to 38-21-120: (1) The failure to file any statement, amendment, or other material required to be filed pursuant to Section 38-21-60 or 38-21-70; or (2) The effectuation or any attempt to effectuate an acquisition or control of, or merger with, a domestic insurer unless the director or his designee has given his approval."

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SECTION 570. Section 38-21-120 of the 1976 Code is amended to read:

"Section 38-21-120. The courts of this State, including Administrative Law Judge Division as provided by law, are vested with jurisdiction over each person not resident, domiciled, or authorized to do business in this State who files a statement with the department under this chapter and over all actions involving the person arising out of violations of Sections 38-21-60 through 38-21-120. This person must be considered to have performed acts equivalent to and constituting an appointment by him of the director to be his true and lawful attorney upon whom all lawful process may be served in any action, suit, or proceeding arising out of violations of Sections 38-21-60 through 38-21-120. Copies of all lawful process must be served on the director and transmitted by registered or certified mail by the director or his designee to the person at his last known address."

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SECTION 571. Section 38-21-125 of the 1976 Code is amended to read:

"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 director or his designee 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 director of or his designee; (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 department 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 director of or his designee. (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 director or his designee 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 director or his designee 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 department 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 Director or his designee. Before the end of the waiting period, the director or his designee 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 department or termination of the waiting period by the director or his designee. (D) (1) The director or his designee 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 director or his designee 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 director or his designee 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 director or his designee 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 director or his designee. (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 director or his designee 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 director or his designee 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 director or his designee 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 director or his designee, 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)."

Name changed

SECTION 572. Section 38-21-130 of the 1976 Code is amended to read:

"Section 38-21-130. Every insurer authorized to do business in this State which is a member of an insurance holding company system shall register with the department, except a foreign insurer subject to registration requirements and standards adopted by statute or regulation in the jurisdiction of its domicile which are substantially similar to those contained in this chapter. Any insurer which is subject to registration under this chapter shall register within fifteen days after it becomes subject to registration, and annually thereafter by March first of each year for the previous calendar year, unless the director or his designee for good cause shown extends the time for registration, and then within the extended time. The director or his designee may require any authorized insurer which is a member of a holding company system which is not subject to registration under this section to furnish a copy of the registration statement or other information filed by the insurance company with the insurance regulatory authority of its domiciliary jurisdiction."