§ 27-35-4. Standards and management of an insurer within a holding company system.
(a) Transactions within an insurance holding company system.
(1) Transactions within an insurance holding company system to which an insurer subject
to registration is a party shall be subject to the following standards:
(i) The terms shall be fair and reasonable;
(ii) Agreements for cost sharing and management services shall include such provisions
as required by rule and regulation issued by the commissioner;
(iii) Charges or fees for services performed shall be reasonable;
(iv) Expenses incurred and payment received shall be allocated to the insurer in conformity
with customary insurance accounting practices consistently applied;
(v) The books, accounts, and records of each party to all such transactions shall be so
maintained as to clearly and accurately disclose the nature and details of the transactions
including such accounting information as is necessary to support the reasonableness
of the charges or fees to the respective parties; and
(vi) The insurer's surplus as regards policyholders following any dividends or distributions
to shareholder affiliates shall be reasonable in relation to the insurer's outstanding
liabilities and adequate to its financial needs.
(2) The following transactions involving a domestic insurer and any person in its insurance
holding company system, including amendments or modifications of affiliate agreements
previously filed pursuant to this section, which are subject to any materiality standards
contained in subsections (a)(2)(i) through (a)(2)(vii) of this section, may not be
entered into unless the insurer has notified the commissioner in writing of its intention
to enter into the transaction at least thirty (30) days prior, or such shorter period
as the commissioner may permit, and the commissioner has not disapproved it within
that period. The notice for amendments or modifications shall include the reasons
for the change and the financial impact on the domestic insurer. Informal notice shall
be reported, within thirty (30) days after a termination of a previously filed agreement,
to the commissioner for determination of the type of filing required, if any.
(i) Sales, purchases, exchanges, loans, extensions of credit, or investments, provided
the 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 as
of the 31st day of December next preceding; or
(B) With respect to life insurers, three percent (3%) of the insurer's admitted assets;
as of the 31st day of December next preceding;
(ii) Loans or extensions of credit to any person who is not an affiliate, where the insurer
makes the loans or extensions of credit with the agreement or understanding that the
proceeds of the 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 the loans or extensions of credit, provided the
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 as
of the 31st day of December next preceding;
(B) With respect to life insurers, three percent (3%) of the insurer's admitted assets;
as of the 31st day of December next preceding;
(iii) Reinsurance agreements or modifications thereto, including:
(A) All reinsurance pooling agreements;
(B) Agreements in which the reinsurance premium or a change in the insurer's liabilities,
or the projected reinsurance premiums or a change in the insurer's liabilities in
any of the next three (3) years, equals or exceeds five percent (5%) of the insurer's
surplus as regards policyholders as of the 31st day of December next preceding, including
those agreements which 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 those assets will be transferred to one or more
affiliates of the insurer;
(iv) All management agreements, service contracts, tax allocation agreements, guarantees
and all cost-sharing arrangements;
(v) Guarantees when made by a domestic insurer; provided, however, that a guarantee which
is quantifiable as to amount is not subject to the notice requirements of this subsection
(a)(2) unless it exceeds the lesser of one-half of one percent (.5%) of the insurer's
admitted assets or ten percent (10%) of surplus as regards policyholders as of the
31st day of December next preceding. Further, all guarantees which are not quantifiable
as to amount are subject to the notice requirements of this subsection (a)(2);
(vi) Direct or indirect acquisitions or investments in a person that controls the insurer
or in an affiliate of the insurer in an amount which, together with its present holdings
in such investments, exceeds two and one-half percent (2.5%) of the insurer's surplus
to policyholders. Direct or indirect acquisitions or investments in subsidiaries acquired
pursuant to §â€‚27-35-1.5 (or authorized under any other section of this chapter), or in non-subsidiary insurance
affiliates that are subject to the provisions of this chapter, are exempt from this
requirement; and
(vii) Any material transactions, specified by regulation, the commissioner determines may
adversely affect the interests of the insurer's policyholders.
Nothing contained in this subsection (a)(2) shall be deemed to authorize or permit
any transactions which, in the case of an insurer not a member of the same insurance
holding company system, would be otherwise contrary to law.
(3) A domestic insurer may not enter into transactions which 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. If the commissioner determines
that the separate transactions were entered into over any twelve-month (12) period
for that purpose, he or she may exercise his or her authority under §â€‚27-35-9.
(4) The commissioner, in reviewing transactions pursuant to subsection (a)(2) of this
section shall consider whether the transactions comply with the standards set forth
in subsection (a)(1) of this section and whether they may adversely affect the interests
of policyholders.
(5) The commissioner shall be notified within thirty (30) days of any investment of the
domestic insurer in any one corporation if the total investment in the corporation
by the insurance holding company system exceeds ten percent (10%) of the corporation's
voting securities.
(b) Adequacy of surplus. For the purposes of this chapter, in determining whether an insurer's surplus as regards
policyholders 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 investment
portfolio;
(8) The surplus as regards policyholders maintained by other comparable insurers;
(9) The adequacy of the insurer's reserves; and
(10) The quality and liquidity of investment in affiliates. The commissioner may treat
this investment as a disallowed asset for the purposes of determining the adequacy
of surplus as regards policyholders whenever in his or her judgment the investment
warrants.
(c) Dividends and other distributions.(1) No domestic insurer shall pay any extraordinary dividend or make any other extraordinary
distribution to its shareholders until thirty (30) days after the commissioner has
received notice of the declaration thereof and has not within that period disapproved
the payment, or until the commissioner has approved the payment within the thirty-day
(30) period.
(2) For purposes of this section, an "extraordinary dividend or distribution� includes
any dividend or distribution of cash or other property, whose fair market value together
with that of other dividends or distributions made within the preceding twelve (12)
months exceeds the lesser of:
(i) Ten percent (10%) of the insurer's surplus as regards policyholders as of the 31st
day of December next preceding; or
(ii) The net gain from operations of the insurer, if the insurer is a life insurer, or
the net income, if the insurer is not a life insurer, not including realized capital
gains, for the twelve-month (12) period ending the 31st day of December next preceding,
but shall not include pro rata distributions of any class of the insurer's own securities.
In determining whether a dividend or distribution is extraordinary, an insurer other
than a life insurer may carry forward net income from the previous two (2) calendar
years that has not already been paid out as dividends. This carry forward shall be
computed by taking the net income from the second and third preceding calendar years,
not including realized capital gains, less dividends paid in the second and immediate
preceding calendar years.
(3) Notwithstanding any other provision of law, an insurer may declare an extraordinary
dividend or distribution which is conditional upon the commissioner's approval, and
the declaration shall confer no rights upon shareholders until: (i) The commissioner
has approved the payment of the dividend or distribution; or (ii) The commissioner
has not disapproved the payment within the thirty-day (30) period referred to in subsection
(c)(1) of this section.
(d) Management of domestic insurers subject to registration. All domestic insurers shall become in compliance and maintain compliance with the
provisions of this title addressing good corporate governance standards §â€‚27-1-2.1, unless otherwise exempted in §â€‚27-1-2.1.