2011 Louisiana Laws
Revised Statutes
TITLE 22 — Insurance
RS 22:704 — Standards and management of an insurer within a holding company system

§704. Standards and management of an insurer within a holding company system

A. Transactions within a holding company system. Transactions within a holding company system to which an insurer subject to registration is a party shall be subject to the following standards:

(1) The terms shall be fair and reasonable.

(2) Charges or fees for services performed shall be reasonable.

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

(4) The books, accounts, and records of each party to all such transactions shall be so maintained as to clearly and accurately disclose the nature and details of the transactions, including such accounting information as 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 shall be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs.

(6) 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 such transaction at least thirty days prior thereto, or such shorter period as the commissioner may permit, and the commissioner has not disapproved the transaction within such period:

(a) Sales, purchases, exchanges, loans, or extensions of credit, guarantees, or investments provided such transactions are equal to or exceed:

(i) With respect to nonlife insurers, the lesser of three percent of the admitted assets of the insurer or twenty-five percent of surplus as regards policyholders;

(ii) With respect to life insurers, three percent of the admitted assets of the insurer;

each as of the thirty-first day of December next preceding.

(b) Loans or extensions of credit to any person who is not an affiliate, where the insurer makes such loans or extensions of credit with the agreement or understanding that the proceeds of such 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, provided such transactions are equal to or exceed:

(i) With respect to nonlife insurers, the lesser of three percent of the admitted assets of the insurer or twenty-five percent of surplus as regards policyholders;

(ii) With respect to life insurers, three percent of the admitted assets of the insurer;

each as of the thirty-first day of December next preceding.

(c) All reinsurance agreements, or modifications thereto, in which the reinsurance premium, or a change in the liabilities of the insurer, equals or exceeds five percent of the surplus of the insurer as regards policyholders, as of the thirty-first day of December 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 such assets will be transferred to one or more affiliates of the insurer.

(d) All management agreements, service contracts, and all cost-sharing arrangements, other than cost-sharing arrangements based upon generally accepted accounting principles.

(e) Any material transactions, specified by regulation, which the commissioner determines may adversely affect the interests of the policyholders of the insurer.

(7) A domestic insurer shall not enter into transactions, which are part of a plan or series of similar transactions, with persons within the holding company system, if the purpose of the separate transactions is the avoidance of the statutory threshold amount and thus avoid the review that would occur otherwise. If the commissioner determines that the separate transactions were entered into over any twelve-month period for such purpose, he may exercise his authority under R.S. 22:709.

(8) The commissioner, in reviewing transactions pursuant to Paragraph (6) of this Subsection shall consider whether the transactions comply with the standards set forth in Paragraphs (1) through (5) of this Subsection and whether they may adversely affect the interest of policyholders.

(9) The commissioner shall be notified, within thirty days, of any investment of the domestic insurer in any one corporation if the total investment in such corporation by the insurance holding company system exceeds ten percent of the voting securities of the corporation.

B. Dividends and other distributions.

(1) No domestic insurer shall pay any extraordinary dividend or make any other extraordinary distribution to its shareholders until:

(a) Thirty days after the commissioner has received notice of the declaration thereof and has not within such period disapproved such payment.

(b) The commissioner shall have approved such payment within such thirty-day period.

(2)(a) For purposes of this Section, effective October 30, 1993, an extraordinary dividend or distribution shall include any dividend or distribution of cash or other property, whose fair market value, together with that of other dividends or distributions made within the preceding twelve months, exceeds the lesser of:

(i) Ten percent of the surplus of the insurer as regards policyholders as of the thirty-first day of December next preceding; or

(ii) The net gain from operations of such insurer, if such insurer is a life insurer, or the net income, if such insurer is not a life insurer, not including realized capital gains, for the twelve-month period ending the thirty-first day of December next preceding, but shall not include pro rata distributions of any class of the insurer's own securities.

(b) In determining whether a dividend or distribution is extraordinary, an insurer, other than a life insurer, may carry forward net income from the previous two calendar years that has not already been paid out as dividends. The carry forward shall be computed by taking the net income from the second and third preceding calendar years, not including realized capital gains, less dividends paid in the second and immediate preceding calendar years.

(3) 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 such a declaration shall confer no rights upon shareholders until:

(a) The commissioner has approved the payment of such a dividend or distribution.

(b) The commissioner has not disapproved such payment within the thirty-day period referred to above.

C. Adequacy of surplus. For purposes of this Subpart, 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, the following factors, among others, shall be considered:

(1) The size of the insurer as measured by its assets, capital and surplus, reserves, premium writings, insurance in force, and other appropriate criteria.

(2) The extent to which the insurer's business is diversified among the several lines of insurance.

(3) The number and size of risks insured in each line of business.

(4) The extent of the geographical dispersion of the insurer's insured risks.

(5) The nature and extent of the insurer's reinsurance program.

(6) The quality, diversification, and liquidity of the insurer's investment portfolio.

(7) The recent past and projected future trend in the size of the insurer's investment portfolio.

(8) The surplus as regards policyholders maintained by other comparable insurers.

(9) The adequacy of the insurer's reserves.

(10) The quality and liquidity of investments in affiliates. The commissioner may treat any such investment as a disallowed asset for purposes of determining the adequacy of surplus as regards policyholders whenever in his judgment such investment so warrants.

Acts 1991, No. 794, §1; Acts 1992, No. 811, §1; Redesignated from R.S. 22:1006 by Acts 2008, No. 415, §1, eff. Jan. 1, 2009; Acts 2009, No. 503, §1.