Standards

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20-481.12. Standards

A. Transactions within an insurance holding company system to which an insurer subject to registration is a party are subject to the following standards:

1. The terms are fair and reasonable.

2. Agreements for cost sharing or management services and management must include provisions that are required by rule.

3. Charges or fees for services performed are reasonable.

4. Expenses incurred and payment received are allocated to the insurer in conformity with customary insurance accounting practices consistently applied.

5. The books, accounts and records of each party to all transactions clearly and accurately disclose the nature and details of the transactions including any accounting information that is necessary to support the reasonableness of the charges or fees to the respective parties.

6. The insurer's surplus as regards policyholders following any dividends or distributions to shareholder affiliates is 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 and modifications of affiliate agreements previously filed pursuant to this section that are subject to any materiality standards contained in paragraphs 1, 2, 3, 4 and 5 of this subsection, may not be entered into unless the insurer notifies the director in writing not less than thirty days before entering the transaction, unless the director permits a shorter notification period, of its intention to enter into the transaction and the director does not disapprove the transaction within that period:

1. Sales, purchases, exchanges, loans or extensions of credit, guarantees or investments if the transactions equal or exceed, with respect to nonlife insurers, the lesser of three per cent of the insurer's admitted assets or twenty-five per cent of surplus as regards policyholders as of December 31 next preceding or, with respect to life insurers, three per cent of the insurer's admitted assets as of December 31 next preceding.

2. Loans or extensions of credit to any person who is not an affiliate if 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 such loans or extensions of credit if the transactions equal or exceed, with respect to nonlife insurers, the lesser of three per cent of the insurer's admitted assets or twenty-five per cent of surplus as regards policyholders as of December 31 next preceding or, with respect to life insurers, three per cent of the insurer's admitted assets as of December 31 next preceding.

3. Reinsurance agreements or modifications to reinsurance agreements, 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 premium or a change in the insurer's liabilities in any of the next three years, equals or exceeds five per cent 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 the nonaffiliate that any portion of the assets will be transferred to one or more affiliates of the insurer.

4. All management agreements, service contracts, tax allocation agreements, guarantees and cost-sharing arrangements.

5. Guarantees at the time executed by a domestic insurer, provided that a guarantee that is quantifiable as to amount is not subject to the notice requirements of this subsection unless the guarantee exceeds the lesser of one-half of one per cent of the insurer's admitted assets or ten per cent of the insurer's surplus as regards policyholders as of December 31 next preceding the execution of the guarantee. All guarantees that are not quantifiable as to amount are subject to the notice requirements of this subsection.

6. Direct or indirect acquisitions or investments in a person that controls the insurer or in an affiliate of the insurer in an amount that, together with its present holding in such investments, exceeds two and one-half per cent of the insurer's surplus to policyholders. Direct or indirect acquisitions or investments in subsidiaries acquired pursuant to section 20-481.01, or in nonsubsidiary insurance affiliates that are subject to this article, are exempt from this requirement.

7. Any material transaction that is specified by rule and that the director determines may adversely affect the interests of the insurer's policyholders.

C. The notice prescribed in subsection B of this section for amendments or modifications must include the reasons for the change and the financial impact on the domestic insurer. Informal notice shall be given within thirty days after a termination of a previously filed agreement to the director for determination of the type of filing required, if any.

D. Subsection B of this section does not authorize or permit any transactions that would be otherwise contrary to law.

E. A domestic insurer shall not enter into transactions that are part of a plan or series of like transactions with persons within the holding company system if the purpose of those separate transactions is to avoid the statutory threshold amount and thereby avoid the review that otherwise would occur. If the director determines that separate transactions were entered into during any twelve month period for that purpose, the director may order the insurer to cease and desist under section 20-481.26.

F. In reviewing transactions pursuant to subsection B of this section, the director shall consider if the transactions comply with the standards set forth in subsection A of this section and if they adversely affect the interests of policyholders.

G. Within thirty days of an investment of a domestic insurer in any one corporation the director shall be notified of the investment if the total investment in the corporation by the insurance holding company system exceeds ten per cent of the corporation's voting securities.

H. The director may adopt rules to exempt transactions involving nonmaterial amounts from the notice requirements of this section.


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