304.37-130 Acquisition of control or merger of domestic insurers.
(1)
(2)
The following definitions shall apply for the purposes of this section only:
(a) "Acquisition" means any agreement, arrangement, or activity the
consummation of which results in a person acquiring directly or indirectly the
control of another person, such as the acquisition of voting securities, the
acquisition of assets, bulk reinsurance, and mergers; and
(b) An "involved insurer" includes an insurer which either acquires or is acquired,
is affiliated with an acquirer or acquired, or is the result of a merger.
(a) This section applies to any acquisition in which there is a change of control of
an insurer authorized to do business in Kentucky, except as set forth in
paragraph (b) of this subsection.
(b) This section shall not apply to the following:
1.
An acquisition subject to approval or disapproval of the commissioner
pursuant to KRS 304.37-120;
2.
A purchase of securities solely for the investment purposes so long as
the securities are not used by voting or otherwise to cause or attempt to
cause the substantial lessening of competition in any insurance market in
Kentucky. If a purchase of securities results in a presumption of control
under KRS 304.37-010(8), it is not solely for investment purposes
unless the insurance regulatory official of the insurer's state of domicile
accepts a disclaimer of control, or affirmatively finds that control does
not exist, and the disclaimer action or affirmative finding is
communicated by the domiciliary insurance regulatory official to the
commissioners;
3.
If the acquisition of a person by another person when both persons are
neither directly nor through affiliates primarily engaged in the business
of insurance, if preacquisition notification is filed with the commissioner
in accordance with subsection (3)(a) of this section thirty (30) days prior
to the proposed effective date of the acquisition. However, the
acquisition notification shall not be required for exclusion from this
section if the acquisition would otherwise be excluded from this section
by any other subparagraph of this paragraph;
4.
The acquisition of already affiliated persons;
5.
An acquisition if, as an immediate result of the acquisition:
a.
The combined market share of the involved insurers would not
exceed five percent (5%) of the total market;
b.
There would be no increase in any market share; or
c.
The combined market share of the involved insurers would not
exceed twelve percent (12%) of the total market; and the market
share would not increase by more than two percent (2%) of the
total market.
(3)
(4)
For the purpose of this subparagraph (b)5., a market means direct
written insurance premium in Kentucky for a line of business as
contained in the annual statement required to be filed by insurers
authorized to do business in Kentucky;
6.
An acquisition for which a preacquisition notification would be required
pursuant to this section due solely to the resulting effect on the ocean
marine insurance line of business; and
7.
An acquisition of an insurer whose domiciliary insurance regulatory
official affirmatively finds that the insurer is in failing condition, there is
lack of feasible alternative to improving the condition, the public
benefits of improving the insurer's condition through the acquisition
exceed the public benefits that would arise from not lessening
competition, and the findings are communicated by the domiciliary
insurance regulatory official to the commissioner.
An acquisition covered by subsection (2) of this section may be subject to an order
pursuant to subsection (5) of this section or KRS 304.37-010 unless the acquiring
person files a preacquisition notification and the waiting period has expired. The
acquired person may file a preacquisition notification. The commissioner shall give
confidential treatment to information submitted under this subsection in the same
manner as provided in KRS 304.37-050.
(a) The preacquisition notification shall be in the form and contain the
information prescribed by the National Association of Insurance
Commissioners relating to those markets which, under subsection (2)(b)5. of
this section, cause the acquisition not to be exempted from the provisions of
this section. The commissioner may require additional material and
information the commissioner deems necessary to determine whether the
proposed acquisition, if consummated, would violate the competitive standard
of subsection (4) of this section. The required information may include an
opinion of an economist as to the competitive impact of the acquisition in
Kentucky accompanied by a summary of the education and experience of the
economist indicating his or her ability to render an informed opinion.
(b) The waiting period required shall begin on the date of receipt by the
commissioner of a preacquisition notification and shall end on the earlier of
the thirtieth day after the date of receipt, or termination of the waiting period
by the commissioner. Prior to the end of the waiting period, the commissioner
may, on a one-time basis, require the submission of additional needed
information relevant to the proposed acquisition; if the submission is required,
the waiting period shall end on the earlier of the thirtieth day after receipt of
the additional information by the commissioner or termination of the waiting
period by the commissioner.
(a) The commissioner may enter an order under subsection (5)(a) of this section
with respect to an acquisition if there is substantial evidence that the effect of
the acquisition may be to lessen substantially competition in any line of
(b)
insurance in Kentucky or tend to create a monopoly, or if the insurer fails to
file adequate information in compliance with subsection (3) of this section.
In determining whether a proposed acquisition would violate the competitive
standard of paragraph (a) of this subsection, the commissioner shall consider
the following:
1.
Any acquisition covered under subsection (2) of this section involving
two (2) or more insurers competing in the same market is prima facie
evidence of violation of the competitive standards:
a.
If the market is highly concentrated and the involved insurers
possess the following shares of the market:
Insurer A
Insurer B
4%
4% or more
10%
2% or more
15%
1% or more;
or
b.
If the market is not highly concentrated and the involved insurers
possess the following shares of the market:
Insurer A
Insurer B
5%
5% or more
10%
4% or more
15%
3% or more
19%
1% or more.
A highly concentrated market means one in which the share of the four
(4) largest insurers is seventy-five percent (75%) or more of the market.
Percentages not shown in the tables are interpolated proportionately to
the percentages that are shown. If more than two (2) insurers are
involved, exceeding the total of the two (2) columns in the table is prima
facie evidence of violation of the competitive standard in paragraph (a)
of this subsection. For the purpose of this subparagraph, the insurer with
the largest share of the market shall be deemed to be insurer A;
2.
There is a significant trend toward increased concentration when the
aggregate market share of any grouping of the largest insurers in the
market, from the two (2) largest to the eight (8) largest, has increased by
seven percent (7%) or more of the market over a period of time
extending from any base year five (5) to ten (10) years prior to the
acquisition up to the time of the acquisition. Any acquisition or merger
covered under subsection (2) of this section involving two (2) or more
insurers competing in the same market is prima facie evidence of
violation of the competitive standard in paragraph (a) of this subsection
if:
a.
There is a significant trend toward increased concentration in the
market;
b.
(c)
(5)
(a)
One of the insurers involved is one of the insurers in a grouping of
the large insurers showing the requisite increase in the market
share; and
c.
Another involved insurer's market is two percent (2%) or more;
3.
For the purposes of subsection (4)(b) of this section:
a.
The term "insurer" includes any company or group of companies
under common management, ownership or control;
b.
The term "market" means the relevant product and geographical
markets. In determining the relevant product and geographical
markets, the commissioner shall give due consideration to factors
such as the definitions or guidelines, if any, promulgated by the
National Association of Insurance Commissioners and to
information, if any, submitted by parties to the acquisition. In the
absence of sufficient information to the contrary, the relevant
product market is assumed to be the direct written insurance
premium for a line of business, the line being that used in the
annual statement required to be filed by insurers doing business in
Kentucky, and the relevant geographical market is assumed to be
Kentucky; and
c.
The burden of showing prima facie evidence of violation of the
competitive standard rests upon the commissioner; and
4.
Even though an acquisition is not prima facie violative of the
competitive standard under paragraph (b) of this subsection, the
commissioner may establish the requisite anticompetitive effect based
upon other substantial evidence. Even though an acquisition is prima
facie violative of the competitive standard under paragraph (b) of this
subsection, a party may establish the absence of the requisite
anticompetitive effect based upon other substantial evidence. Relevant
factors in making this determination shall be such factors as market
shares, volatility of ranking of market leaders, number of competitors,
concentration, trend of concentration in the industry, and ease of entry
into and exit from the market.
An order shall not be entered under subsection (5)(a) of this section if:
1.
The acquisition will yield substantial economies of scale or economies
in resource utilization that cannot be feasibly achieved in any other way,
and the public benefits which would arise from the economies exceed
the public benefits which would arise from not lessening competition; or
2.
The acquisition will substantially increase the availability of insurance,
and the public benefits of the increase exceed the public benefits which
would arise from not lessening competition.
If an acquisition violates the standards of this section, the commissioner may
enter an order:
1.
(b)
Requiring an involved insurer to cease and desist from doing business in
Kentucky with respect to the line or lines of insurance involved in the
violation; or
2.
Denying the application of an acquired or acquiring insurer for a
certificate of authority to do business in Kentucky.
The order referred to in paragraph (a) of this subsection shall be entered
pursuant to a hearing held under Subtitle 2 of this chapter.
Effective: July 15, 2010
History: Amended 2010 Ky. Acts ch. 24, sec. 1484, effective July 15, 2010. -- Created
1992 Ky. Acts ch. 267, sec. 3, effective July 14, 1992.
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