Chapter 068

2010 -- H 7692 SUBSTITUTE A

Enacted 06/12/10

 

A N A C T

RELATING TO INSURANCE - STANDARDS AND DIRECTOR'S AUTHORITY FOR COMPANIES DEEMED TO BE IN HAZARDOUS FINANCIAL CONDITION

        

     Introduced By: Representative Michael J. Marcello

     Date Introduced: February 25, 2010   

 

It is enacted by the General Assembly as follows:

 

     SECTION 1. Sections 27-14.2-2 and 27-14.2-3 of the General Laws in Chapter 27-14.2

entitled "Standards and Director's Authority for Companies Deemed to be in Hazardous Financial

Condition" are hereby amended to read as follows:

 

     27-14.2-2. Standards. -- (a) The following standards, either singly or a combination of

two (2) or more, may be considered by the director to determine whether the continued operation

of any insurer transacting an insurance business in this state might be deemed to be hazardous to

the its policyholders, creditors, or the general public. The director may consider:

      (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 related other financial analysis solvency tools and reports;

      (3) The ratios of commission expense, general insurance expense, policy benefits and

reserve increases as to annual premium and net investment income, which could lead to an

impairment of capital and surplus;

      (4)The insurer's asset portfolio when viewed in light of current economic conditions is

not of sufficient value, liquidity, or diversity to assure the company's ability to meet its

outstanding obligations as they mature;

     (3) Whether the insurer has made adequate provisions, according to presently accepted

actuarial standards of practice, for the anticipated cash flows required by the contractual

obligations and related expenses of the insurer, when considered in light of the assets held by the

insurer with respect to such reserves and related actuarial items, including, but not limited to, the

investment earnings on such assets, and the considerations anticipated to be received and retained

under such policies and contracts;

      (5)(4) The ability of an assuming reinsurer to perform and whether the insurer's

reinsurance program provides sufficient protection for the company's insurer’s remaining surplus

after taking into account the insurer's cash flow and the classes of business written and the

financial condition of the assuming reinsurer;

      (6)(5) The Whether the insurer's operating loss in the last twelve (12) month period or

any shorter period of time, including but not limited to net capital gain or loss, change in

nonadmitted assets, and cash dividends paid to shareholders, is greater than fifty percent (50%) of

the insurer's remaining surplus as regards policyholders in excess of the minimum required;

     (6) Whether the insurer's operating loss in the last twelve (12) month period or any

shorter period of time, excluding net capital gains, is greater than twenty percent (20%) of the

insurer's remaining surplus as regards policyholders in excess of the minimum required;

     (7) Whether a reinsurer, obligor or any affiliate, subsidiary, or reinsurer entity within the

insurer's insurance holding company system, is insolvent, threatened with insolvency, or

delinquent in payment of its monetary or other obligation;, and which in the opinion of the

director may affect the solvency of the insurer;

      (8) Contingent liabilities, pledges, or guaranties that either individually or collectively

involve a total amount which in the opinion of the director may affect the solvency of the insurer;

      (9) Whether any "controlling person" of an insurer is delinquent in the transmitting to, or

payment of, net premiums to the insurer;

      (10) The age and collectibility of receivables;

      (11) 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 the

position;

      (12) Whether the management of an insurer has failed to respond to inquiries relative to

the condition of the insurer or has furnished false and misleading information concerning an

inquiry;

      (13) Whether the insurer has failed to meet financial and holding company filing

requirements in the absence of a reason satisfactory to the director;

      (13)(14) Whether the management of an insurer either has filed any false or misleading

sworn financial statement, or has released a false or misleading financial statement to lending

institutions or to the general public, or has made a false or misleading entry, or has omitted an

entry of material amount in the books of the insurer;

      (14)(15) 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; or

      (15)(16) Whether the company insurer has experienced or will experience in the

foreseeable future cash flow and/or liquidity problems.

     (17) Whether management has established reserves that do not comply with minimum

standards established by state insurance laws, regulations statutory accounting standards, sound

actuarial principles and standards of practice;

     (18) Whether management persistently engages in material under reserving that results in

adverse development;

     (19) 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 assure the insurer's ability to meet its outstanding obligations as they mature;

     (20) Any other finding determined by the director to be hazardous to the insurer's

policyholders, creditors or general public.

      (b) The standards enumerated in subsection (a) of this section shall not be construed as

limiting the director from making a finding that other conditions not specifically enumerated also

constitute hazardous conditions.

 

     27-14.2-3. Director's orders. -- Director's authority. -- (a) For the purposes of making

a determination of an insurer's financial condition under this chapter, the director may:

      (1) Disregard any credit or amount receivable resulting from transactions with a

reinsurer which is insolvent, impaired, or otherwise subject to a delinquency proceeding;

      (2) Make appropriate adjustments, including disallowances to asset values attributable to

investments in or transactions with parents, subsidiaries, or affiliates consistent with the NAIC

Accounting Practices and Procedures Manual, state laws and regulations;

      (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 (12) month period.

      (b) If the director determines that the continued operation of the insurer licensed to

transact business in this state may be hazardous to the its policyholders, creditors or the general

public, then the director may, upon his or her determination, issue an order requiring the insurer

to:

      (1) Reduce the total amount of present and potential liability for policy benefits by

reinsurance;

      (2) Reduce, suspend, or limit the volume of business being accepted or renewed;

      (3) Reduce general insurance and commission expenses by specified methods;

      (4) Increase the insurer's capital and surplus;

      (5) Suspend or limit the declaration and payment of a dividend by an insurer to its

stockholders or to its policyholders;

      (6) File reports in a form acceptable to the director concerning the market value of an

insurer's assets;

      (7) Limit or withdraw from certain investments or discontinue certain investment

practices to the extent the commissioner director deems necessary;

      (8) Document the adequacy of premium rates in relation to the risks insured; or

      (9) File, in addition to regular annual statements, interim financial reports on the form

adopted by the national association of insurance commissioners or on a format as promulgated by

the commissioner director.

     (10) Correct corporate governance practice deficiencies, and adopt and utilize governance

practices acceptable to the director.

     (11) Provide a business plan to the director in order to continue to transact business in the

state; or

     (12) Notwithstanding any other provision of law limiting the frequency or amount of

premium rate adjustments, adjust rates for any non-life insurance product written by the insurer

that the director considers necessary to improve the financial condition of the insurer.

      (c) If the insurer is a foreign insurer, the director's order under subsection (b) of this

section may be limited to the extent provided by statute.

      (d) Any insurer subject to an order under subsection (b) of this section may request a

hearing to review that order. The notice of hearing shall be served upon the insurer pursuant to

the Administrative Procedures Act, chapter 35 of title 42. The notice of hearing shall state the

time and place of the hearing, and the conduct, condition, or ground upon which the director

based the order. Unless mutually agreed between the director and the insurer, the hearing shall

occur not less than ten (10) days nor more than thirty (30) days after notice is served and shall be

either in Providence County or in some other place of convenience to the parties to be designated

by the director. The director shall hold all hearings under this subsection privately, unless the

insurer requests a public hearing, in which case the hearing shall be public.

 

     SECTION 2. This act shall take effect on July 1, 2010.

     

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LC01784/SUB A

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