2014 Kentucky Revised Statutes CHAPTER 304 - INSURANCE CODE Subtitle 37 - Insurance Holding Company Systems 37.37-030 Standards for insurance holding company system -- Factors to be considered -- Prohibited transactions.
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304.37-030 Standards for insurance holding company system -- Factors to be
considered -- 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) Agreements for cost sharing services and management shall include
provisions as required by administrative regulations promulgated by the
commissioner;
(c) Charges or fees for services performed shall be reasonable;
(d) Expenses incurred and payment received shall be allocated to the insurer
in conformity with consistently applied accounting practices;
(e) 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
(f) 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 insurance holding company system, including amendments or
modifications of affiliate agreements previously filed pursuant to this
subsection, which are subject to any materiality standards contained in
this subsection, 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. The notice for amendments or modifications shall include
the reasons for the change and the financial impact on the domestic
insurer. Informal notice shall be reported, within thirty (30) days after a
termination of a previously filed agreement, to the commissioner for
determination of the type of filing required, if any:
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
(b)
(c)
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 including:
a.
All reinsurance pooling agreements; and
b.
Agreements in which the reinsurance premium or a change in
the insurer's liabilities, or the projected reinsurance premium or
a change in the insurer's liability in any of the next three (3)
years, 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 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;
5.
Guarantees when made by a domestic insurer; provided, however,
that a guarantee which is quantifiable as to amount is not subject to
the notice requirements of this paragraph unless it exceeds the
lesser of one-half of one percent (0.5%) of the insurer's admitted
assets or ten percent (10%) of surplus, regarding policyholders as of
the thirty-first day of December of the preceding year. All guarantees
which are not quantifiable as to amount shall be subject to the notice
requirements of this paragraph;
6.
Direct or indirect acquisitions or investments in a person that
controls the insurer or in an affiliate of the insurer in an amount
which, together with its present holding in investments, exceeds two
and one-half percent (2.5%) of the insurer's surplus to policyholders.
Direct or indirect acquisitions or investments in subsidiaries acquired
pursuant to KRS 304.37-110, authorized under this subtitle, or in
nonsubsidiary insurance affiliates that are subject to the provisions
of this subtitle are exempt from this requirement; and
7.
Any material transactions, specified by regulation, which the
commissioner determines may adversely affect the interests of the
insurer's policyholders.
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.
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)
(3)
(4)
(5)
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) The nature and extent of the insurer's reinsurance program;
(f) The quality, diversification, and liquidity of the insurer's investment
portfolio;
(g) 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 12, 2012
History: Amended 2012 Ky. Acts ch. 74, sec. 15, effective July 12, 2012. -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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