§ 27-1-23-4 — Material transactions; standards; prohibitions; review; notice; financial status; extraordinary dividends; civil penalty

(a) Material transactions within an insurance
holding company system to which an insurer subject to registration is
a party shall be subject to the following standards:
(1) The terms shall be fair and reasonable.
(2) Agreements concerning cost sharing services and management
must include provisions required by the commissioner in rules
adopted under IC 4-22-2.
(3) The charges or fees for services performed shall be
reasonable.
(4) The expenses incurred and payment received shall be
allocated to the insurer in conformity with customary insurance
accounting practices consistently applied.
(5) The books, accounts, and records of each party as to all
transactions described in this subsection shall be so maintained as
to clearly and accurately disclose the nature and details of the
transactions, including accounting information necessary to
support the reasonableness of the charges or fees to the respective
parties.
(6) The insurer's surplus as regards policyholders following any
transactions with affiliates or shareholder dividend shall be
reasonable in relation to the insurer's outstanding liabilities and
adequate to its financial needs.
(b) The following transactions involving a domestic insurer and any
person in its insurance holding company system (including
amendments or modifications to affiliate agreements previously filed
under this chapter) that are subject to any materiality standards
described in subdivisions (1) through (7) may not be entered into
unless the insurer has notified the commissioner in writing of its
intention to enter into such transaction at least thirty (30) days prior
thereto, or such shorter period as the commissioner may permit, and the
commissioner has not disapproved it within that period:
(1) Sales, purchases, exchanges, loans or extensions of credit,
guarantees, or investments, provided those transactions are equal
to or exceed:
(A) with respect to nonlife insurers, the lesser of three percent
(3%) of the insurer's admitted assets or twenty-five percent
(25%) of surplus as regards policyholders; and
(B) with respect to life insurers, three percent (3%) of the
insurer's admitted assets;
each as of December 31 next preceding.
(2) Loans or extensions of credit to any person who is not an
affiliate, where the insurer makes those loans or extensions of
credit with the agreement or understanding that the proceeds of
such transactions, in whole or in substantial part, are to be used
to make loans or extensions of credit to, to purchase assets of, or
to make investments in, any affiliate of the insurer making such
loans or extensions of credit, provided those transactions are
equal to or exceed:
(A) with respect to nonlife insurers, the lesser of three percent
(3%) of the insurer's admitted assets or twenty-five percent
(25%) of surplus as regards policyholders; and
(B) with respect to life insurers, three percent (3%) of the
insurer's admitted assets;
each as of December 31 next preceding.
(3) Reinsurance agreements or modifications thereto, including:
(A) reinsurance pooling agreements; and
(B) agreements under which:
(i) a reinsurance premium;
(ii) a change in the insurer's liabilities; or
(iii) the projected reinsurance premium;
in any of the immediately succeeding three (3) years equals or
exceeds five percent (5%) of the insurer's surplus as regards
policyholders, as of December 31 next preceding, including
those agreements that may require as consideration the transfer
of assets from an insurer to a nonaffiliate, if an agreement or
understanding exists between the insurer and nonaffiliate that
any portion of the assets will be transferred to one (1) or more
affiliates of the insurer.
(4) Management agreements, service contracts, cost-sharing
arrangements, lease agreements, guarantees, and tax allocation
agreements.
(5) Guarantees made by the insurer, only as follows:
(A) A guarantee, the amount of which is not quantifiable.
(B) A guarantee, the amount of which is quantifiable, if the
amount of the guarantee exceeds the lesser of:
(i) one-half of one percent (0.5%) of the insurer's admitted
assets; or
(ii) ten percent (10%) of surplus as regards policyholders;
on December 31 of the immediately preceding calendar year.
(6) Direct or indirect acquisitions or investments, as follows:
(A) In:
(i) a person that controls the insurer; or
(ii) an affiliate of the insurer in an amount that, together with
the insurer's present holdings in the investments, exceeds two
and one-half percent (2.5%) of the insurer's surplus to
policyholders.
(B) This subdivision does not apply to direct or indirect
acquisitions or investments in:
(i) subsidiaries acquired under section 2.6 of this chapter; or
(ii) nonsubsidiary insurance affiliates that are subject to this
chapter.
(7) Material transactions, specified by rule, that the commissioner
determines may adversely affect the interests of the insurer's
policyholders.
This subsection does not authorize or permit any transactions that, in
the case of an insurer not a member of the same insurance holding
company system, would be otherwise contrary to law. Notice
concerning amendments or modifications of a transaction must include
the reasons for the change and the financial impact on the domestic
insurer. Not more than thirty (30) days after an agreement that was
previously filed under this section is terminated, the domestic insurer
shall send written notice of the termination to the commissioner. The
commissioner shall determine whether a filing concerning the
termination is required and shall notify the domestic insurer of the
commissioner's determination.
(c) A domestic insurer may not enter into transactions that are part
of a plan or series of like transactions with persons within the insurance
holding company system if the purpose of those separate transactions
is to avoid the statutory threshold amount and thus avoid the review
that would occur otherwise.
(d) The commissioner, in reviewing transactions pursuant to
subsection (b), shall consider whether the transactions comply with the
standards set forth in subsection (a) and whether the transactions may
adversely affect the interests of policyholders.
(e) The commissioner shall be notified within thirty (30) days of any
investment of the domestic insurer in any one (1) corporation if the
total investment in that corporation by the insurance holding company
system exceeds ten percent (10%) of the corporation's voting securities.
(f) For purposes of this chapter, in determining whether an insurer's
surplus is reasonable in relation to the insurer's outstanding liabilities
and adequate to its financial needs, the following factors, among others,
shall be considered:
(1) The size of the insurer as measured by its assets, capital and
surplus, reserves, premium writings, insurance in force and other
appropriate criteria.
(2) The extent to which the insurer's business is diversified among
the several lines of insurance.
(3) The number and size of risks insured in each line of business.
(4) The extent of the geographical dispersion of the insurer's
insured risks.
(5) The nature and extent of the insurer's reinsurance program.
(6) The quality, diversification, and liquidity of the insurer's
investment portfolio.
(7) The recent past and projected future trend in the size of the
insurer's surplus as regards policyholders.
(8) The surplus as regards policyholders maintained by other
comparable insurers in respect of the factors described in
subdivisions (1) through (7).
(9) The adequacy of the insurer's reserves.
(10) The quality and liquidity of investments in subsidiaries,
except that the commissioner may discount or treat any such
investment in subsidiaries as a disallowed asset for purposes of
determining the adequacy of surplus whenever in the
commissioner's judgment such investment so warrants.
(11) The quality of the earnings of the insurer and the extent to
which the reported earnings of the insurer include extraordinary
items.
(g) No domestic insurer subject to registration under section 3 of
this chapter shall pay an extraordinary dividend or make any other
extraordinary distribution to its security holders until:
(1) thirty (30) days after the commissioner has received notice of
the declaration thereof and has not within such period
disapproved such payment; or
(2) the commissioner shall have approved such payment within
such thirty (30) day period.
(h) For purposes of subsection (g), an extraordinary dividend or
distribution is any dividend or distribution of cash or other property
whose fair market value, together with that of other dividends or
distributions made within the twelve (12) consecutive months ending
on the date on which the proposed dividend or distribution is scheduled
to be made, exceeds the greater of:
(1) ten percent (10%) of such insurer's surplus as regards
policyholders as of the most recently preceding December 31; or
(2) the:
(A) net gain from operations of such insurer, if such insurer is
a life insurer; or
(B) net income, if such insurer is not a life insurer;
for the twelve (12) month period ending on the most recently
preceding December 31.
(i) Notwithstanding any other provision of law, a domestic insurer
may declare an extraordinary dividend or distribution which is
conditional upon the commissioner's approval thereof, but such a
declaration shall confer no rights upon shareholders until:
(1) the commissioner has approved the payment of such dividend
or distribution; or
(2) the commissioner has not disapproved the payment within the
thirty (30) day period referred to in subsection (g).
(j) The commissioner may impose a civil penalty of five thousand
dollars ($5,000) on a person who fails to file a transaction as required
by this section. The commissioner shall deposit a civil penalty collected
under this subsection in the department of insurance fund established
by IC 27-1-3-28.
Formerly: Acts 1971, P.L.387, SEC.1. As amended by Acts
1981, P.L.244, SEC.4; P.L.26-1991, SEC.12; P.L.130-1994, SEC.31;
P.L.116-1994, SEC.41; P.L.11-2011, SEC.17; P.L.81-2012, SEC.15;
P.L.146-2015, SEC.24; P.L.72-2016, SEC.12; P.L.148-2017,
SEC.4.