South Carolina General Assembly
111th Session, 1995-1996

Bill 4497


Indicates Matter Stricken
Indicates New Matter


                    Current Status

Bill Number:                       4497
Type of Legislation:               General Bill GB
Introducing Body:                  House
Introduced Date:                   19960125
Primary Sponsor:                   Cato 
All Sponsors:                      Cato 
Drafted Document Number:           bbm\10519jm.96
Companion Bill Number:             1044
Residing Body:                     House
Current Committee:                 Labor, Commerce and Industry
                                   Committee 26 HLCI
Subject:                           Insurer Risk Based Capital



History


Body    Date      Action Description                       Com     Leg Involved
______  ________  _______________________________________  _______ ____________

House   19960131  Referred to Committee                    26 HLCI
House   19960131  Recalled from Committee                  30 HWM
House   19960125  Introduced, read first time,             30 HWM
                  referred to Committee

View additional legislative information at the LPITS web site.


(Text matches printed bills. Document has been reformatted to meet World Wide Web specifications.)

A BILL

TO DESIGNATE SECTIONS 38-9-10 THROUGH 38-9-220, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO INSURANCE AND CAPITAL, SURPLUS, RESERVES, AND OTHER FINANCIAL MATTERS AS ARTICLE 1 OF CHAPTER 9, TITLE 38 AND ENTITLE THAT ARTICLE "GENERAL PROVISIONS"; TO AMEND CHAPTER 9, TITLE 38 BY ADDING ARTICLE 3 SO AS TO ENACT PROVISIONS REQUIRING INSURERS TRANSACTING BUSINESS IN THIS STATE TO MAINTAIN RISK BASED CAPITAL; AND TO PROVIDE FOR THE SEVERABILITY OF THE PROVISIONS OF THIS ACT.

Be it enacted by the General Assembly of the State of South Carolina:

SECTION 1. Sections 38-9-10 through 38-9-220 of the 1976 Code are designated as Article 1 of Chapter 9, Title 38, and the article is entitled "General Provisions".

SECTION 2. Chapter 9, Title 38 of the 1976 Code is amended by adding:

"Article 3

Risk Based Capital

Section 38-9-230. In this article, unless the context requires otherwise:

(1) `Adjusted RBC Report' means a risk based capital report which has been adjusted by the director in accordance with Section 38-9-320(E).

(2) `Corrective order' means an order issued by the director specifying corrective actions which the director has determined are required.

(3) `Domestic insurer' means any insurer domiciled in this State.

(4) `Foreign insurer' means any insurer which is licensed to transact business within this State, but which is not domiciled in this State.

(5) `NAIC' means the National Association of Insurance Commissioners.

(6) `Life and health insurer' means any insurer licensed to transact life and health insurance, or both, in this State and any licensed property and casualty insurer writing only accident and health insurance.

(7) `Property and casualty insurer' means any insurer licensed to transact property and casualty insurance in this State. A `property and casualty insurer' does not include monoline mortgage guaranty insurers, financial guaranty insurers, or title insurers.

(8) `Negative trend' means, with respect to a life and health insurer, negative trend over a period of time, as determined in accordance with the Trend Test Calculation included within the RBC Instructions.

(9) `RBC Instructions' means the risk based capital report including RBC Instructions adopted and amended by the NAIC.

(10 `RBC Level' means an insurer's Company Action Level RBC, Regulatory Action Level RBC, Authorized Control Level RBC, or Mandatory Control Level RBC:

(a) `Company Action Level RBC' means the product of 2.0 and its Authorized Control Level RBC;

(b) `Regulatory Action Level RBC' means the Product of 1.5 and its Authorized Control Level RBC;

(c) `Authorized Control Level RBC' means the number determined by the RBC formula in accordance with the RBC Instructions;

(d) `Mandatory Control Level RBC' means the product of .70 and the Authorized Control Level RBC.

(11) `RBC Plan' means a comprehensive financial plan filed by an insurer containing the elements specified within Section 38-9-330(B). If the director rejects the RBC Plan and it is revised by the insurer, with or without the director's recommendation, then that Plan must be called the `Revised RBC Plan'.

(12) `RBC Report' means the report required by Section 38-9-320.

(13) `Total Adjusted Capital' means the sum of an insurer's statutory capital and surplus and any other items provided in the RBC Instructions.

Section 38-9-320. (A) Every domestic insurer must, on or before each March 1 filing date, prepare and submit to the director an RBC Report of its RBC Levels as of the end of the preceding calendar year. That RBC Report must be filed in a form and must contain such information required by the RBC Instructions. In addition, every domestic insurer must file its RBC Report:

(1) with the NAIC in accordance with the RBC Instructions; and

(2) with the chief insurance regulatory officer in any state in which the insurer is authorized to transact business, if that chief insurance regulatory officer has notified the insurer in writing. The insurer must file its RBC Report with that chief insurance regulatory officer no later than fifteen days from its receipt of notice to file or the March 1 filing date.

(B) A life and health insurer's RBC must be determined in accordance with the formula detailed in the RBC Instructions. The formula must be determined in each case by applying the factors in the manner detailed in the RBC Instructions and must take into account, and may adjust for the covariance between:

(1) risk with respect to assets;

(2) risk of adverse insurance experience with respect to liabilities and obligations;

(3) interest rate risk with respect to the insurer's business; and

(4) all other business risks and other relevant risks in the RBC Instructions.

(C) A property and casualty insurer's RBC must be determined by applying the factors in the manner detailed in the RBC Instructions and must be determined in accordance with the formula detailed in the RBC Instructions. The formula must take into account, and may adjust for the covariance between:

(1) asset risk;

(2) credit risk;

(3) underwriting risk; and

(4) all other business risks and other relevant risks in the RBC Instructions.

(D) An excess of capital over the amount produced by the RBC requirements, formulas, schedules, and instructions contained in this article is desirable. Insurers should seek to maintain capital above the required RBC levels. Additional capital is used and is useful in securing an insurer against various risks inherent in or affecting the business of insurance and not accounted for, or which only may be partially measured, by the RBC requirements contained in this article.

(E) If a domestic insurer files an RBC Report which, in the judgment of the director, is inaccurate, then the director must adjust the RBC Report to correct the inaccuracy and must notify the domestic insurer in writing of the adjustment. The notice must include the reasons for the adjustment.

Section 38-9-330. (A) A `Company Action Level Event' includes any of the following events:

(1) filing of an RBC Report which indicates that Total Adjusted Capital is greater than, or equal to, Regulatory Action Level RBC, but is less than Company Action Level RBC;

(2) filing of an RBC Report which indicates that a life and health insurer has Total Adjusted Capital which is greater than, or equal to, its Company Action Level RBC, but is less than the product of its Authorized Control Level RBC and 2.5 and has a negative trend; or

(3) issuance of an Adjusted RBC Report that indicates the Event in Section 38-9-330(A)(1) or (A)(2), provided that the insurer does not challenge the Adjusted RBC Report pursuant to Section 38-9-370. If the insurer challenges an Adjusted RBC Report, then the Company Action Level Event occurs upon notification that an Administrative Law Judge has rejected the challenge.

(B) In the event of a Company Action Level Event, the insurer must prepare and submit to the director an RBC Plan which must:

(1) identify the conditions which contributed to the Company Action Level Event;

(2) include proposals for corrective actions which will result in the elimination of the Company Action Level Event;

(3) provide projections of the insurer's financial results for the current year and for at least the next four years. The projections must consider both the absence of proposed corrective actions and the proposed corrective actions. The projections must include projections of statutory operating income, net income, capital, and surplus. The projections both for new and for renewal business may include separate projections for each major line of business and may separately identify each income, expense, and benefit component;

(4) identify key assumptions impacting upon the projections and detail the sensitivity of the projections to the assumptions; and

(5) identify the quality of, and any problems associated with, the insurer's business including, but not limited to, assets, anticipated business growth and associated surplus strain, extraordinary exposure to risk, mix of business, and use of reinsurance, if any, in each case.

(C) The RBC Plan must be submitted within forty-five days of the Company Action Level Event. If the insurer challenges an Adjusted RBC Report pursuant to Section 38-9-370, then the RBC Plan must be submitted within forty-five days after notification that an Administrative Law Judge has rejected the challenge.

(D) Within sixty days after the submission of an RBC Plan, the director must notify the insurer stating whether the RBC Plan may be implemented or if the RBC Plan is unsatisfactory. If the director determines that the RBC Plan is unsatisfactory, then notification must set forth the reasons for that determination. The notification may set forth proposed revisions which will render the RBC Plan satisfactory. Upon receipt of notification, the insurer must prepare a Revised RBC Plan which may incorporate by reference any revisions proposed by the director. That Revised RBC Plan must be submitted to the director within forty-five days after the date of notification. If the insurer challenges the notification under Section 38-9-370, then the Revised RBC Plan must be submitted within forty-five days after notification that an Administrative Law Judge has rejected the challenge.

(E) If the director notifies an insurer that its RBC Plan or its Revised RBC Plan is unsatisfactory, then the director, subject to the insurer's right to a public hearing pursuant to Section 38-9-370, may specify within the notification that it constitutes a Regulatory Action Level Event.

(F) Every domestic insurer that files an RBC Plan or Revised RBC Plan with the director must also file a copy of the RBC Plan or Revised RBC Plan with the chief insurance regulatory officer in any state in which that insurer is licensed to transact business if that state has RBC provisions substantially similar to Section 38-9-380, Section 38-9-390, and Section 38-9-400, and if that chief insurance regulatory officer has requested the filing in writing. The insurer must file a copy of the RBC Plan or Revised RBC Plan in that state no later than fifteen days after its receipt of the request to file or the date on which the RBC Plan or Revised RBC Plan is filed under Section 38-9-330(C) and (D).

Section 38-9-340. (A) A `Regulatory Action Level Event' includes any one of the following events:

(1) filing of an RBC Report which indicates that Total Adjusted Capital is greater than, or equal to, Authorized Control Level RBC, but is less than Regulatory Action Level RBC;

(2) issuance of an Adjusted RBC Report that indicates the Event in Section 38-9-340(A)(1), provided that the insurer does not challenge that Adjusted RBC Report pursuant to Section 38-9-370. If the insurer challenges an Adjusted RBC Report, then the Regulatory Action Level Event occurs upon notification that an Administrative Law Judge has rejected the challenge;

(3) failure to file an RBC Report by the March 1 filing date, unless the insurer has filed an explanation for such failure which is satisfactory to the director and has cured the failure within ten days after the March 1 filing date;

(4) failure to timely submit an RBC Plan or Revised RBC Plan to the director;

(5) notification that the RBC Plan or Revised RBC Plan is, in the judgment of the director, unsatisfactory and that the notification constitutes a Regulatory Action Level Event, provided that the insurer does not challenge the determination under Section 38-9-370. If the insurer challenges a determination, then the Regulatory Action Level Event occurs upon notification that an Administrative Law Judge has rejected the challenge;

(6) notification by the director that the insurer has failed to adhere to its RBC Plan or its Revised RBC Plan. However, notification must conclude that the failure has had substantial adverse effect upon the ability of the insurer to eliminate the Company Action Level Event in accordance with its RBC Plan or Revised RBC Plan, provided that the insurer has not challenged the determination pursuant to Section 38-9-370. If the insurer challenges a determination, then the Regulatory Action Level Event occurs upon notification that an Administrative Law Judge has rejected the challenge.

(B) In the event of a Regulatory Action Level Event, the director must:

(1) require the insurer to prepare and submit an RBC Plan or a Revised RBC Plan;

(2) perform an examination or an analysis of the assets, liabilities, and operations of the insurer, including a review of the insurer's RBC Plan or its Revised RBC Plan; and

(3) issue a Corrective Order detailing corrective actions which the director determines are required.

(C) In determining corrective actions, the director may take into account factors which he considers relevant based upon his examination or analysis. Those factors may include, but must not be limited to, the results of any sensitivity tests undertaken pursuant to the RBC Instructions.

(D) The RBC Plan or Revised RBC Plan must be submitted within forty-five days after the occurrence of the Regulatory Action Level Event. If the insurer challenges an Adjusted RBC Report or a Revised RBC Plan pursuant to Section 38-9-370, then the RBC Plan or Revised RBC Plan must be submitted within forty-five days after notification that an Administrative Law Judge has rejected the challenge.

Section 38-9-350. (A) An `Authorized Control Level Event' includes any of the following events:

(1) filing of an RBC Report which indicates that an insurer's Total Adjusted Capital is greater than, or equal to, its Mandatory Control Level RBC, but is less than its Authorized Control Level RBC;

(2) issuance of an Adjusted RBC Report that indicates the Event in Section 38-9-350(A)(1), provided that the insurer does not challenge that Adjusted RBC Report pursuant to Section 38-9-370. If the insurer challenges that Adjusted RBC Report, then the Authorized Control Level Event occurs upon notification that an Administrative Law Judge has rejected the challenge; or

(3) the failure of an insurer to respond to a Corrective Order in a manner satisfactory to the director, provided the insurer has not challenged the Corrective Order pursuant to Section 38-9-370. If the insurer has challenged a Corrective Order and an Administrative Law Judge has rejected the challenge or has modified the Corrective Order, then the Authorized Control Level Event occurs upon the failure of the insurer to respond to that Corrective Order in a manner satisfactory to the director.

(B) In the event of an Authorized Control Level Event, the director may take action pursuant to Section 38-9-340 or, if the director considers it to be in the best interests of the policyholders and creditors of the insurer and of the public, he may take action necessary to place the insurer under regulatory control pursuant to Section 38-26-10, et seq., or to Section 38-27-10, et seq. The Authorized Control Level Event is sufficient grounds for the director to take that action, and the director has the rights, powers, and duties detailed within those provisions of law. If the director takes action, then the insurer is entitled to the protections which are afforded under those provisions pertaining to summary proceedings.

Section 38-9-360. (A) A `Mandatory Control Level Event' includes any one of the following events:

(1) filing of an RBC Report which indicates that the insurer's Total Adjusted Capital is less than its Mandatory Control Level RBC;

(2) notification of an Adjusted RBC Report pursuant to Section 38-9-360(A)(1), provided the insurer does not challenge that Adjusted RBC Report pursuant to Section 38-9-370. If the insurer challenges an Adjusted RBC Report notification, then the Mandatory Control Event occurs upon notification that an Administrative Law Judge has rejected the challenge.

(B) In the event of a Mandatory Control Level Event:

(1) For a life and health insurer, the director must take action necessary to place the insurer under regulatory control pursuant to Section 38-26-10, et seq., or Section 38-27-10, et seq. The Mandatory Control Level Event is sufficient grounds for the director to take that action, and the director has the rights, powers, and duties detailed within those provisions of law. If the director takes action, then the insurer is entitled to the protections afforded under those provisions pertaining to summary proceedings. The director, in his discretion, may forego action for up to ninety days after the Mandatory Control Level Event if the director finds that there is a reasonable expectation that the Mandatory Control Level Event will be eliminated within that period.

(2) For a property and casualty insurer, the director must take action necessary to place the insurer under regulatory control pursuant to Section 38-26-10, et seq., or Section 38-27-10, et seq. If the insurer is not writing business and is running-off its existing business, then the director may allow the insurer to continue its run-off under his supervision. The Mandatory Control Level Event is sufficient grounds for the director to take either action, and the director has the rights, powers, and duties detailed within those provisions. If the director takes action, then the insurer is entitled to the protections afforded under those provisions pertaining to summary proceedings. The director, in his discretion, may forego action for up to ninety days after the Mandatory Control Level Event if the director finds that there is a reasonable expectation that the Mandatory Control Level Event will be eliminated within that period.

Section 38-9-365. The director may retain actuaries, investment experts, attorneys, and any other consultants whom he considers necessary to enforce the provisions of this article. The fees, costs, and expenses of those actuaries, experts, attorneys, and other consultants must be borne by the affected insurer or other related or affiliated parties as required by the director.

Section 38-9-370. In all instances within this article in which an insurer has the right to challenge any determination or any action by a public hearing before an Administrative Law Judge, the insurer must notify the director of its request for a public hearing within ten days after notification. Upon receipt of the insurer's request for a public hearing, the director must transmit the notice to the Administrative Law Judge Division. The date of the public hearing scheduled by the Administrative Law Judge must be no less than ten nor more than thirty days after the date of the insurer's request.

Section 38-9-380. All RBC Reports and Adjusted RBC Reports, to the extent the information contained within them is not required to be set forth in a publicly available annual statement schedule; all RBC Plans, including the results or report of any examination or analysis performed pursuant to this article; and any Corrective Order issued by the director include information that will be damaging to an insurer if any of them are made available to the insurer's competitors. Therefore, such Reports, Plans, and Orders must be kept confidential. This information must not be made public and is not subject to subpoena. The director may use such Reports, Plans, and Orders for enforcement actions either pursuant to this article or pursuant to any other insurance law of this State.

Section 38-9-390. (A) The comparison of an insurer's Total Adjusted Capital to any of its RBC Levels is a regulatory tool for corrective action. It is not intended as a means to rank insurers. Therefore, except as otherwise specifically required under the provisions of this article, the making, publishing, disseminating, circulating, or placing before the public, or, causing to be directly or indirectly made, published, disseminated, circulated, or placed before the public, in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio or television station, or in any other way, an advertisement, announcement, or statement containing an assertion or representation with regard to the RBC Levels of any insurer or of any component derived in the calculations by any insurer or agent engaged in the business of insurance is considered misleading and is prohibited.

(B) If any materially false or inappropriate comparison of an insurer's Total Adjusted Capital to its RBC Levels or any RBC Level is published in any written publication and the insurer is able to demonstrate with substantial proof the falsity or the inappropriateness of such statement to the director, then the insurer may publish an announcement approved by the director in that written publication solely to rebut the materially false or inappropriate statement.

Section 38-9-400. RBC Instructions, RBC Reports, adjusted RBC Reports, RBC Plans, and Revised RBC Plans are intended only for use by the director in monitoring the solvency of insurers and in monitoring the need for corrective action. They must not be used for ratemaking, considered or introduced as evidence in any ratemaking proceeding, or used to calculate or to derive any elements of an appropriate premium level or rate of return for any line of insurance which an insurer, an affiliated insurer, or a subsidiary insurer underwrites.

Section 38-9-410. This article is supplemental to all other laws of this State. It does not preclude or limit any other powers or duties of the director or his designee.

Section 38-9-420. The director may promulgate regulations necessary for the implementation of this article.

Section 38-9-430. The director may exempt from the application of this article any domestic property and casualty insurer which:

(1) except for the reinsurance allowed by item (3) of this section, underwrites direct business only in this State;

(2) underwrites direct annual written premiums of $2,000,000.00 or less; and

(3) assumes no reinsurance in excess of five percent of its direct written premium.

Section 38-9-440. (A) A foreign insurer, upon written request by the director, must submit an RBC Report as of the end of the preceding calendar year not later than the date that an RBC Report would be required to be filed by a domestic insurer under this article or fifteen days after that request is received by the foreign insurer. In addition, any foreign insurer, upon written request by the director, must promptly submit a copy of any RBC document that has been filed with the chief insurance regulatory officer of any other state.

(B) In the event of a Company Action Level Event, Regulatory Action Level Event, or Authorized Control Level Event by a foreign insurer as determined under the RBC Laws in its state of domicile or, if no RBC Laws are in force in that state, as determined under the provisions of this article, if the chief insurance regulatory officer of the state of domicile of that foreign insurer fails to require the foreign insurer to file an RBC Plan in the manner specified under that state's RBC Laws or, if no RBC statute is in force in that state, under Section 38-9-330, then the director may require the foreign insurer to file an RBC Plan. The failure of the foreign insurer to file an RBC Plan with the director is grounds for the director to order the foreign insurer to cease and desist from writing new insurance business in this State.

(C) In the event of a Mandatory Control Level Event by a foreign insurer, if no domiciliary receiver has been appointed for the foreign insurer under the rehabilitation and liquidation laws of its state of domicile, then the director may petition the Circuit Court pursuant to Section 38-27-910, et seq., for the liquidation of its property in this State. The occurrence of the Mandatory Control Level Event must be considered grounds for the petition.

Section 38-9-450. There is no liability on the part of, and no cause of action, shall arise against the director, his designee, the Department of Insurance, or its employees or representatives and agents for any action of any nature taken in the performance of their powers and duties under this article.

Section 38-9-460. All notices by the director which may result in regulatory action under this article must be transmitted by registered or certified mail. Those notices are effective upon the insurer's receipt."

SECTION 3. If any provision of this act or the application of a provision thereof either to any person or under any circumstances, is held to be invalid, then that determination does not affect provisions or applications of this act which can be given effect without the invalid provision or application. To that end the provisions of this act are severable.

SECTION 4. This act takes effect upon approval by the Governor.

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