2005 Arizona Revised Statutes - Revised Statutes §20-481.12  Standards

A. Transactions within a 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. Charges or fees for services performed are reasonable.

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

4. 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.

5. 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 holding company system 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 in which the reinsurance premium or a change in the insurer's liabilities 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 and cost-sharing arrangements.

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

C. Nothing contained in subsection B of this section is deemed to authorize or permit any transactions that would be otherwise contrary to law.

D. 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.

E. 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.

F. 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.

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