A. For the purposes of Sections 59A-41-25 and 59A-41-26 NMSA 1978, an insurer may be deemed to be in a hazardous financial condition when the superintendent has determined, after notice and hearing, that the loss experience of the insurer, when reviewed in conjunction with the kinds and characteristics of risks insured, or the insurer's financial condition, or its ownership, or the ratio of its annual premium volume in relation to its policyholders' surplus, would make further assumption of risks by the insurer hazardous to those persons doing business with the insurer or to the general public.
B. The following items may be considered by the superintendent to determine whether the continued operation of an insurer transacting an insurance business in New Mexico is hazardous to the policyholders, the creditors or the general public:
(1) adverse findings reported in financial condition and market conduct examination reports, audit reports and actuarial opinions, reports or summaries;
(2) the national association of insurance commissioners insurance regulatory information system and its other financial analysis solvency tools and reports;
(3) ratios of commission expense, general insurance expense, policy benefits and reserve increases to annual premium and net investment income;
(4) whether, according to currently accepted actuarial standards of practice, the insurer has made adequate provision for the anticipated cash flows required by the insurer's contractual obligations and related expenses, when considered in light of the insurer's assets and investment earnings on assets held for reserves and related actuarial items and the considerations anticipated to be received and retained through the insurer's policies and contracts;
(5) the ability of an assuming reinsurer to perform and whether the insurer's reinsurance program provides sufficient protection for the insurer's remaining surplus after taking into account the insurer's cash flow and the classes of business written as well as the financial condition of the assuming reinsurer;
(6) whether the insurer's operating loss in the last twelve-month period or any shorter period of time, including net capital gain or loss, change in non-admitted assets and cash dividends paid to shareholders is greater than fifty percent of the insurer's remaining surplus as regards policyholders in excess of the minimum required;
(7) whether the insurer's operating loss, excluding net capital gains, in the last twelve months or a shorter period of time is greater than twenty percent of the insurer's remaining surplus as regards policyholders in excess of the minimum required;
(8) whether a reinsurer, an obligor or an entity within the insurer's insurance holding company system is insolvent, threatened with insolvency or delinquent in payment of its monetary or other obligations and that, in the superintendent's opinion, might affect the solvency of the insurer;
(9) contingent liabilities, pledges or guaranties that individually or collectively involve a total amount that, in the superintendent's opinion, may affect the solvency of the insurer;
(10) whether any person having control of an insurer is delinquent in transmitting or paying net premiums to the insurer;
(11) the age and collectibility of receivables;
(12) whether the management of an insurer, including officers, directors or any other person who directly or indirectly controls the operation of the insurer, fails to possess and demonstrate the competence, fitness and reputation deemed necessary to serve the insurer in such position;
(13) whether management of an insurer has failed to respond to inquiries relative to the condition of the insurer or has furnished false or misleading information concerning an inquiry;
(14) whether the insurer, for a reason not satisfactory to the superintendent, has failed to meet financial and holding company filing requirements;
(15) whether management of an insurer has filed with any regulatory authority or released to lending institutions or to the general public any false or misleading financial statements or has made a false or misleading entry or has omitted an entry of material amount in the books of the insurer;
(16) whether the insurer has grown so rapidly and to such an extent that it lacks adequate financial and administrative capacity to meet its obligations in a timely manner;
(17) whether the insurer has experienced or will experience in the foreseeable future cash flow or liquidity problems;
(18) whether management of the insurer has established reserves that do not meet the minimum standards established by New Mexico's insurance laws and rules and by statutory accounting standards, sound actuarial principles and standards of practice;
(19) whether management of the insurer persistently engages in material under-reserving that results in adverse development;
(20) whether transactions among affiliates, subsidiaries or controlling persons for which the insurer receives assets or capital gains, or both, do not provide sufficient value, liquidity or diversity to ensure that the insurer can meet its outstanding obligations as they mature;
(21) risk-based capital reports and other information obtained pursuant to the Risk-Based Capital Act [Chapter 59A, Article 5A NMSA 1978]; or
(22) such other material information and data as the superintendent may deem relevant.
C. For the purposes of making a determination of an insurer's financial condition under this section, the superintendent may:
(1) disregard any credit or amount receivable resulting from transactions with a reinsurer that is insolvent, impaired or otherwise subject to a delinquency proceeding;
(2) make appropriate adjustments, including disallowance, to asset values attributable to investments in or transactions with parents, subsidiaries or affiliates that are consistent with the national association of insurance commissioners' accounting practices and procedures manual and with state laws and rules;
(3) refuse to recognize the stated value of accounts receivable if the ability to collect receivables is highly speculative in view of the age of the account or the financial condition of the debtor; or
(4) increase the insurer's liability in an amount equal to any contingent liability, pledge or guarantee not otherwise included if there is a substantial risk that the insurer will be called upon to meet the obligation undertaken within the next twelve-month period.
History: Laws 1984, ch. 127, § 716; 1993, ch. 320, § 90; 1995, ch. 149, § 15; 2014, ch. 59, § 47.
ANNOTATIONSThe 2014 amendment, effective July 1, 2014, expanded the factors the superintendent may consider in determining a hazardous financial condition; in Subsection B, Paragraph (1), at the beginning of the sentence, added "adverse", and after "examination reports", added "audit reports and actuarial opinions, reports or summaries"; in Subsection B, Paragraph (2), after "information system and its", deleted "related" and added "other financial analysis solvency tools and"; in Subsection B, Paragraph (4), deleted the former language which permitted the superintendent to consider the value, liquidity or diversity of the insurer's asset portfolio in light of the current economic conditions with regard to the insurer's ability to meet outstanding obligations, and added the current language of the paragraph; in Subsection B, Paragraph (5), at the beginning of the sentence, after "the", deleted "adequacy, reliability and soundness of" and added "ability of an assuming reinsurer to perform and whether", after "reinsurance program", added "provides sufficient protection for the insurer's remaining surplus after taking into account the insurer's cash flow and the classes of business written", and after "assuming reinsurer", deleted "and the ability of the assuming reinsurer to perform under its reinsurance agreements"; in Subsection B, Paragraph (6), at the beginning of the sentence, added "whether", and after "paid to shareholders", deleted "in comparison to such" and added "is greater than fifty percent of the"; in Subsection B, added Paragraph (7); in Subsection B, Paragraph (8), after "whether", deleted "any affiliate, subsidiary or" and added "a", after "reinsurer", added "an obligor or an entity within the insurer's insurance holding company system", and after "monetary or other", deleted "obligation" and added "obligations and that, in the superintendent's opinion, might affect the solvency of the insurer"; in Subsection B, Paragraph (9), after "pledges or guaranties", deleted "which" and added "that individually or collectively involve a total amount that, in the superintendent's opinion"; in Subsection B, added Paragraphs (14), (18), (19) and (20); and in Subsection C, Paragraph (2), after "appropriate adjustments", added "including disallowance", and after "subsidiaries and affiliates", added the remainder of the sentence.
Severability. — Laws 2014, ch. 59, § 54 provided that if any part or application of the provisions of Laws 2014, ch. 59 is held invalid, the remainder or its application to other situations or persons shall not be affected.
The 1995 amendment, effective June 16, 1995, in Subsection B, added Paragraph (16) and redesignated former Paragraph (16) as Paragraph (17).
The 1993 amendment, effective June 18, 1993, added the subsection "A" designation; in Subsection A, substituted "Sections 59A-41-25 and 59A-41-26 NMSA 1978" for "Sections 717 and 718 of this article" and substituted "business with the insurer or to the general public" for "business with its insurer"; and added Subsections B and C.
Am. Jur. 2d, A.L.R. and C.J.S. references. — 43 Am. Jur. 2d Insurance §§ 124 to 126.