2011 Kentucky Revised Statutes Subtitle 37. Insurance Holding Company Systems 304.37.030 Standards for insurance holding company system -- Prohibited transactions.
KY Rev Stat § 304.37.030 (1996 through Reg Sess) What's This?
304.37-030 Standards for insurance holding company system -- Prohibited
transactions.
(1)
(2)
Material transactions by registered insurers with their affiliates shall be subject to
the following standards:
(a) The terms shall be fair and reasonable;
(b) Charges or fees for services performed shall be reasonable;
(c) Expenses incurred and payment received shall be allocated to the insurer in
conformity with consistently applied accounting practices;
(d) The books, accounts, and records of each party shall be maintained to clearly
and accurately disclose the precise nature and details of the transactions; and
(e) 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.
(a) The following transactions involving a domestic insurer and any person in its
holding company system shall 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 to the transaction, or a shorter period
as the commissioner may permit, and the commissioner has not disapproved it
within that time:
1.
Sales, purchases, exchanges, loans, or extensions of credit, guarantees,
or investments, if the transactions are equal to or exceed, with respect to
non-life insurers, the lesser of three percent (3%) of the insurer's
admitted assets or twenty-five percent (25%) of surplus as regards
policyholders, or 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, 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 the loans or extensions of credit if the transactions are
equal to or exceed, with respect to non-life insurers, the lesser of three
percent (3%) of the insurer's admitted assets or twenty-five percent
(25%) of surplus as regards policyholders, or, 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 in which the reinsurance
premium or a change in the insurer's liabilities equals or exceeds five
percent (5%) of the insurer's surplus as regards policyholders, as of
December 31 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
(3)
(4)
and nonaffiliate that any portion of the assets will be transferred to one
(1) or more affiliates of the insurer;
4.
All management agreements, service contracts, and all cost sharing
arrangements; and
5.
Any material transactions, specified by regulation, which the
commissioner determines may adversely affect the interests of the
insurer's policyholders.
(b) This subsection shall not authorize or permit any transactions which, in the
case of an insurer not a member of the same holding company system, would
be otherwise contrary to law.
(c) A domestic insurer shall not enter into transactions which 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 thus avoid the review that would otherwise occur. If the
commissioner determines that the separate transactions were entered into over
any twelve (12) month period for avoidance purposes, the commissioner may
exercise his or her authority under KRS 304.99-151.
(d) The commissioner, in reviewing transactions pursuant to this subsection, shall
consider whether the transactions comply with the standards set forth in
subsection (1) of this section and whether they 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 the
corporation by the insurance holding company exceeds ten percent (10%) of
the corporation's voting securities.
(a) Notwithstanding the control of a domestic insurer by any person, the officers
and directors of the insurer shall not be relieved of any obligation or liability
to which they would otherwise be subject by law, and the insurer shall be
managed so as to assure its separate operating identity consistent with this
chapter.
(b) Nothing in this section precludes a domestic insurer from having or sharing a
common management or cooperative or joint use of personnel, property, or
services with one (1) or more other persons under arrangements which meet
the standards of subsection (1) of this section.
The following factors, among others, shall be considered 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:
(a) The size of the insurer as measured by its assets, capital and surplus, reserves,
premium writings, insurance in force, and other appropriate criteria;
(b) The extent to which the insurer's business is diversified among the several
lines of insurance;
(c) The number and size of risks insured in each line of business;
(d) The extent of the geographical dispersion of the insurer's insured risks;
(e)
(f)
(g)
(5)
The nature and extent of the insurer's reinsurance program;
The quality, diversification, and liquidity of the insurer's investment portfolio;
The recent past and projected future trend in the size of the insurer's surplus as
regards policyholders;
(h) The surplus as regards policyholders maintained by other comparable insurers;
(i) The adequacy of the insurer's reserves; and
(j) The quality and liquidity of investments in subsidiaries. The commissioner
may treat any investment as a disallowed asset for purposes of determining the
adequacy of surplus as regards policyholders if in his or her judgment the
investment warrants.
No insurer subject to registration under KRS 304.37-020 shall pay any
extraordinary dividend or make any other extraordinary distribution to its
stockholders until thirty (30) days after the commissioner has received notice of the
declaration thereof and has not within the period disapproved the payment, or the
commissioner shall have approved the payment within the thirty (30) day period.
For purposes of this section, an extraordinary dividend or distribution is any
dividend or distribution which, together with other dividends or distribution made
within the preceding twelve (12) months, exceeds the lesser of (a) ten percent (10%)
of the insurer's surplus as regards policyholders as of December 31 next preceding,
or (b) the net gain from operations of the insurer company, if the insurer is a life
insurer, or the net income, if the insurer is not a life insurer, for the twelve (12)
month period ending December 31 next preceding, but shall not include pro rata
distribution of any class of the insurer's own securities. Notwithstanding any other
provision of law, an insurer may declare an extraordinary dividend or distribution
which is conditional upon the commissioner's approval thereof, and the declaration
shall confer no rights upon stockholders until the commissioner has approved the
payment of the dividend or distribution or until the commissioner has not
disapproved the payment within the thirty (30) day period referred to in this section.
Effective: July 15, 2010
History: Amended 2010 Ky. Acts ch. 24, sec. 1474, effective July 15, 2010. -Amended 1996 Ky. Acts ch. 326, sec. 3, effective July 15, 1996. -- Amended 1992
Ky. Acts ch. 267, sec. 5, effective July 14, 1992. -- Created 1972 Ky. Acts ch. 52,
sec. 3, effective June 16, 1972.
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