Minnesota Legislature
Office of the Revisor of Statutes
Minnesota Session Laws - 1991, Regular Session
Key: (1) language to be deleted (2) new language
Laws of Minnesota 1991
CHAPTER 325-H.F.No. 12
An act relating to insurance; regulating reinsurance
and other insurance practices, investments, guaranty
funds, and holding company systems; providing
examination authority and reporting requirements;
adopting various NAIC model acts and regulations;
prescribing penalties; amending Minnesota Statutes
1990, sections 60A.02, subdivision 6, and by adding
subdivisions; 60A.03, subdivision 5; 60A.031; 60A.07,
subdivision 5d, and by adding a subdivision; 60A.09,
subdivision 5, and by adding a subdivision; 60A.10,
subdivision 2a; 60A.11, subdivisions 9, 10, 11, 12,
13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 26, and by
adding subdivisions; 60A.12, by adding a subdivision;
60A.13, subdivision 1; 60A.14, subdivision 1; 60A.27;
60B.25; 60B.37, subdivision 2; 60C.02, subdivision 1;
60C.03, subdivisions 6, 8, and by adding a
subdivision; 60C.04; 60C.06, subdivision 1; 60C.09,
subdivision 1; 60C.13, subdivision 1; 60C.14,
subdivision 2; 60E.04, subdivision 7; 61A.25,
subdivisions 5, 6, and by adding subdivisions; 61A.28,
subdivisions 1, 2, 3, 6, 8, 11, 12, and by adding
subdivisions; 61A.281, by adding subdivisions;
61A.283; 61A.29; 61A.31; 61B.06, subdivision 9, and by
adding a subdivision; 61B.12, by adding subdivisions;
62D.044; 62D.045, subdivisions 1 and 2; 62E.14, by
adding a subdivision; 68A.01, subdivision 2; 72A.061,
subdivision 1; 79.34, subdivision 1; and 609.902,
subdivision 4; proposing coding for new law in
Minnesota Statutes, chapters 60A, 60D, 62A, and 72A;
proposing coding for new law as Minnesota Statutes,
chapters 60G, 60H, and 60J; repealing Minnesota
Statutes 1990, sections 60A.076; 60A.09, subdivision
4; 60A.12, subdivision 2; 60D.01 to 60D.08; 60D.10 to
60D.13; and 61A.28, subdivisions 4 and 5.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
ARTICLE 1
REINSURANCE
Section 1. Minnesota Statutes 1990, section 60A.02,
subdivision 6, is amended to read:
Subd. 6. [FOREIGN.] "Foreign," when used without
limitations, shall designate those companies incorporated or
organized in any other state or country.
Sec. 2. Minnesota Statutes 1990, section 60A.02, is
amended by adding a subdivision to read:
Subd. 19. [ALIEN.] "Alien" means an insurer domiciled
outside of the United States, but conducting business within the
United States.
Sec. 3. Minnesota Statutes 1990, section 60A.02, is
amended by adding a subdivision to read:
Subd. 20. [ASSUME.] "Assume" means to accept all or part
of a ceding company's insurance or reinsurance on a risk or
exposure.
Sec. 4. Minnesota Statutes 1990, section 60A.02, is
amended by adding a subdivision to read:
Subd. 21. [CEDE.] "Cede" means to pass on to another
insurer all or part of the insurance written by an insurer for
the purpose of reducing the possible liability of the insurer.
Sec. 5. Minnesota Statutes 1990, section 60A.02, is
amended by adding a subdivision to read:
Subd. 22. [CESSION.] "Cession" means the unit of insurance
passed to a reinsurer by an insurer which issued a policy to the
insured.
Sec. 6. Minnesota Statutes 1990, section 60A.02, is
amended by adding a subdivision to read:
Subd. 23. [FACULTATIVE REINSURANCE.] "Facultative
reinsurance" means the reinsurance of part or all of the
insurance provided by a single policy, with separate negotiation
for each cession.
Sec. 7. Minnesota Statutes 1990, section 60A.02, is
amended by adding a subdivision to read:
Subd. 24. [REINSURER.] "Reinsurer" means an insurer which
assumes the liability of another insurer through reinsurance.
Sec. 8. Minnesota Statutes 1990, section 60A.02, is
amended by adding a subdivision to read:
Subd. 25. [RETROCESSION.] "Retrocession" means a
transaction in which a reinsurer cedes to another reinsurer all
or part of the reinsurance that the reinsurer had previously
assumed.
Sec. 9. Minnesota Statutes 1990, section 60A.02, is
amended by adding a subdivision to read:
Subd. 26. [UNITED STATES BRANCH.] "United States branch"
means the business unit through which business is transacted
within the United States by an alien insurer.
Sec. 10. Minnesota Statutes 1990, section 60A.09,
subdivision 5, is amended to read:
Subd. 5. [REINSURANCE.] (1) [DEFINITIONS.] For the
purposes of this subdivision, the word "insurer" shall be deemed
to include the word "reinsurer," and the words "issue policies
of insurance" shall be deemed to include the words "make
contracts of reinsurance."
(2) [CONDITIONS AND REQUIREMENTS.] Every insurer authorized
to issue policies in this state may reinsure in any other
insurer any part or all of any risk or risks assumed by it; but
such reinsurance, unless effected (1) with an insurer authorized
to issue policies in this state, or (2) with an insurer
similarly authorized in another state, territory, or district of
the United States, and showing the same standards of solvency
and meeting the same statutory and departmental rules which
would be required of or prescribed for such insurer were it at
the time of such reinsurance authorized in this state to issue
policies covering risks of the same kind or kinds as those
reinsured, shall not reduce the reserve or other liability to be
charged to the ceding insurer; provided, that nothing in this
subdivision shall be construed to permit to a ceding insurer any
reduction of reserve or liability through reinsurance effected
with an unauthorized insurer. In case such reinsurance effected
with an insurer so authorized or so recognized for reinsurance
in this state, the ceding insurer shall thereafter be charged on
the gross premium basis with an unearned premium liability
representing the proportion of such obligation retained by it,
and the insurer to which the business is ceded shall be charged
with an unearned premium liability representing the proportion
of such obligation ceded to it, calculated in the same way. The
two parties to the transaction shall together carry the same
reserve as the ceding insurer would have carried had it retained
the risk.
(3) [REINSURANCE OF MORE THAN 75 50 PERCENT OF INSURANCE
LIABILITIES.] Any contract of reinsurance whereby an insurer
cedes more than 75 50 percent of the total of its outstanding
insurance liabilities shall, if such insurer is incorporated by
or, if an insurer of a foreign country, has its principal office
in this state, be subject to the approval, in writing, by the
commissioner.
(4) (3) ACTUAL UNEARNED PREMIUM RESERVE TO BE CARRIED AS
LIABILITY.] Nothing in this subdivision shall be deemed to
permit the ceding insurer to receive, through the cession of the
whole of any risk or risks, any advantage in respect to its
unearned premium reserve that would reduce the same below the
actual amount thereof.
(5) (4) (AIRCRAFT RISKS.] An insurer authorized to transact
the business specified in section 60A.06, subdivision 1, clauses
(4) and (5)(a), may through reinsurance assume any risk arising
from, related to, or incident to the manufacture, ownership, or
operation of aircraft and may retrocede any portion thereof;
provided, however, that no insurer may undertake any such
reinsurance business without the prior approval of the
commissioner and such reinsurance business shall be subject to
any regulations which may be promulgated by the commissioner.
Any such reinsurance business may be provided through pooling
arrangements with other insurers for purposes of spreading the
insurance risk.
Sec. 11. [60A.091] [QUALIFIED UNITED STATES FINANCIAL
INSTITUTION.]
For purposes of sections 12 and 13, "qualified United
States financial institution" means an institution that:
(1) is organized or, in the case of a United States office
of a foreign banking organization, licensed, under the laws of
the United States or any state;
(2) is regulated, supervised, and examined by federal or
state authorities having regulatory authority over banks and
trust companies; and
(3) is a member of the Federal Deposit Insurance
Corporation, or the National Credit Union Administration.
Sec. 12. [60A.092] [REINSURANCE CREDIT ALLOWED A DOMESTIC
CEDING INSURER.]
Subdivision 1. [CREDIT ALLOWED.] Credit for reinsurance
shall be allowed a domestic ceding insurer as either an asset or
a deduction from liability on account of reinsurance ceded only
when the reinsurance is ceded to an assuming insurer which meets
the requirements specified under this section.
Subd. 2. [LICENSED ASSUMING INSURER.] Reinsurance is ceded
to an assuming insurer if the assuming insurer is licensed to
transact insurance or reinsurance in this state.
Subd. 3. [ACCREDITED ASSUMING INSURER.] (a) Reinsurance is
ceded to an assuming insurer if the assuming insurer is
accredited as a reinsurer in this state. An accredited
reinsurer is one which:
(1) files with the commissioner evidence of its submission
to this state's jurisdiction;
(2) submits to this state's authority to examine its books
and records;
(3) is licensed to transact insurance or reinsurance in at
least one state, or in the case of a United States branch of an
alien assuming insurer is entered through and licensed to
transact insurance or reinsurance in at least one state;
(4) files annually with the commissioner a copy of its
annual statement filed with the insurance department of its
state of domicile and a copy of its most recent audited
financial statement; and
(5)(i) maintains a surplus as regards policyholders in an
amount not less than $20,000,000 and whose accreditation has not
been denied by the commissioner within 90 days of its
submission, or maintains a surplus as regards policyholders in
an amount less than $20,000,000 and whose accreditation has been
approved by the commissioner; or
(ii) maintains a surplus as regards policyholders in an
amount not less than $50,000,000 for long-tail casualty
reinsurers. For purposes of this section, "long-tail casualty
reinsurance" means insurance for medical or legal malpractice,
pollution liability, directors and officers liability, and
products liability. The commissioner may determine that an
assuming insurer that maintains a surplus as regards
policyholders in an amount not less than $20,000,000 is
accredited as a reinsurer if there is no detriment to
policyholders and the interest of the public, and to not allow
accrediting would be a hardship or detriment to the reinsurer.
The commissioner shall report to the legislature on any
determination to allow accrediting to a long-term casualty
reinsurer maintaining a surplus in an amount less than
$50,000,000.
Clause (5) does not apply to reinsurance ceded and assumed
pursuant to pooling arrangements among insurers in the same
holding company system.
(b) No credit shall be allowed or continue to be allowed a
domestic ceding insurer if the assuming insurer's accreditation
has been revoked by the commissioner after receipt of a cease
and desist order pursuant to section 45.027, subdivision 5.
Subd. 4. [SIMILAR STATE STANDARDS.] Reinsurance is ceded
to an assuming insurer if the assuming insurer is domiciled and
licensed in, or in the case of a United States branch of an
alien assuming insurer is entered through, a state which employs
standards regarding credit for reinsurance substantially similar
to those applicable under this chapter and the assuming insurer
or United States branch of an alien assuming insurer (1)
maintains a surplus as regards policyholders in an amount not
less than $20,000,000 or maintains a surplus as regards
policyholders in an amount not less than $50,000,000 for
long-tail casualty reinsurers as provided under subdivision 3,
paragraph (a), clause (5), and (2) submits to the authority of
this state to examine its books and records.
Clause (1) does not apply to reinsurance ceded and assumed
pursuant to pooling arrangements among insurers in the same
holding company system.
Subd. 5. [TRUST FUND MAINTAINED.] The reinsurance is ceded
to an assuming insurer if the assuming insurer maintains a trust
fund in a qualified United States financial institution for the
payment of the valid claims, as determined by the commissioner
for the purpose of determining the sufficiency of the trust
fund, of its United States policyholders and ceding insurers,
their assigns and successors in interest. The assuming insurer
shall report annually to the commissioner information
substantially the same as that required to be reported on the
National Association of Insurance Commissioners annual statement
form by licensed insurers to enable the commissioner to
determine the sufficiency of the trust fund.
Subd. 6. [SINGLE ASSUMING INSURER; TRUST FUND
REQUIREMENTS.] In the case of a single assuming insurer, the
trust shall consist of a trusteed account representing the
assuming insurer's liabilities attributable to business written
in the United States and, in addition, the assuming insurer
shall maintain a trusteed surplus of not less than $20,000,000
or maintain a surplus as regards policyholders in an amount not
less than $50,000,000 for long-tail casualty reinsurers as
provided under subdivision 3, paragraph (a), clause (5).
Subd. 7. [INDIVIDUAL UNINCORPORATED UNDERWRITERS GROUP;
TRUST FUND REQUIREMENTS.] In the case of a group of individual
unincorporated underwriters, the trust shall consist of a
trusteed account representing the group's liabilities
attributable to business written in the United States. The
group shall maintain a trusteed surplus of which $100,000,000
shall be held jointly for the benefit of United States ceding
insurers of any member of the group. The group shall make
available to the commissioner an annual certification by the
group's domiciliary regulator and its independent public
accountants of the solvency of each underwriter.
Subd. 8. [INCORPORATED INSURERS GROUP; TRUST FUND
REQUIREMENTS.] A group of incorporated insurers under common
administration must:
(1) comply with the filing requirements specified in
subdivision 7;
(2) be under the supervision of the Department of Trade and
Industry of the United Kingdom;
(3) submit to this state's authority to examine its books
and records;
(4) bear the expense of the examination;
(5) maintain an aggregate policyholders' surplus of
$10,000,000,000;
(6) maintain the trust in an amount equal to the group's
several liabilities attributable to business written in the
United States; and
(7) maintain a joint trusteed surplus of which $100,000,000
must be held jointly for the benefit of United States ceding
insurers of any member of the group.
Each member of the group shall make available to the
commissioner an annual certification by the member's domiciliary
regulator and its independent accountant of the member's
solvency.
Subd. 9. [TRUST FUND GENERAL REQUIREMENTS.] (a) The trust
must be established in a form approved by the commissioner of
commerce. The trust instrument shall provide that contested
claims shall be valid and enforceable upon the final order of
any court of competent jurisdiction in the United States. The
trust shall vest legal title to its assets in the trustees of
the trust for its United States policyholders and ceding
insurers, their assigns and successors in interest. The trust
and the assuming insurer shall be subject to examination as
determined by the commissioner. The trust must remain in effect
for as long as the assuming insurer shall have outstanding
obligations due under the reinsurance agreements subject to the
trust.
(b) No later than February 28 of each year the trustees of
the trust shall report to the commissioner in writing setting
forth the balance of the trust and listing the trust's
investments at the preceding year end and shall certify the date
of termination of the trust, if so planned, or certify that the
trust shall not expire prior to the next following December 31.
Subd. 10. [OTHER JURISDICTIONS.] The reinsurance is ceded
to an assuming insurer not meeting the requirements of
subdivision 2, 3, 4, or 5, but only with respect to the
insurance of risks located in jurisdictions where the
reinsurance is required by applicable law or regulation of that
jurisdiction.
Subd. 11. [REINSURANCE AGREEMENT REQUIREMENTS.] (a) If the
assuming insurer is not licensed or accredited to transact
insurance or reinsurance in this state, the credit authorized
under subdivisions 4 and 5 shall not be allowed unless the
assuming insurer agrees in the reinsurance agreements:
(1) that in the event of the failure of the assuming
insurer to perform its obligations under the terms of the
reinsurance agreement, the assuming insurer shall submit to the
jurisdiction of any court of competent jurisdiction in any state
of the United States, comply with all requirements necessary to
give the court jurisdiction, and abide by the final decision of
the court or of any appellate court in the event of an appeal;
and
(2) to designate the commissioner or a designated attorney
as its true and lawful attorney upon whom may be served any
lawful process in any action, suit, or proceeding instituted by
or on behalf of the ceding company.
(b) Paragraph (a) is not intended to conflict with or
override the obligation of the parties to a reinsurance
agreement to arbitrate their disputes, if an obligation to do so
is created in the agreement.
Sec. 13. [60A.093] [REDUCTION FROM LIABILITY FOR
REINSURANCE CEDED BY A DOMESTIC INSURER TO AN ASSUMING INSURER.]
Subdivision 1. [REDUCTION ALLOWED.] A reduction from
liability for reinsurance ceded by a domestic insurer to an
assuming insurer not meeting the requirements of section 12
shall be allowed in an amount not exceeding the liabilities
carried by the ceding insurer. Such reduction shall be in the
amount of funds held by or on behalf of the ceding insurer,
including funds held in trust for the ceding insurer, as
security for the payment of obligations under the reinsurance
contract with the assuming insurer. Such security must be held
in the United States subject to withdrawal solely by, and under
the exclusive control of, the ceding insurer; or, in the case of
a trust, held in a qualified United States financial
institution. The funds held as security may be in any form of
security acceptable to the commissioner or in the form of:
(1) cash;
(2) securities listed by the securities valuation office of
the National Association of Insurance Commissioners and
qualifying as admitted assets and, with the exception of United
States treasury notes, readily marketable over a national
exchange or NASDAQ with maturity dates within one year; or
(3) clean, irrevocable, unconditional letters of credit
issued or confirmed by a qualified United States financial
institution no later than December 31 in respect of the year for
which filing is being made, and in the possession of the ceding
company on or before the filing date of its annual statement.
The financial institution must meet the standards of financial
condition and standing considered necessary and appropriate to
regulate the quality of financial institutions as determined by
either the commissioner or the securities valuation office of
the National Association of Insurance Commissioners, and the
financial institution's letters of credit must be acceptable to
the commissioner.
Subd. 2. [LETTERS OF CREDIT CONTINUED ACCEPTANCE.] Letters
of credit meeting applicable standards of issuer acceptability
as of the dates of their issuance or confirmation must,
notwithstanding the issuing or confirming institution's
subsequent failure to meet applicable standards of issuer
acceptability, continue to be acceptable as security until their
expiration, extension, renewal, modification, or amendment,
whichever comes first, unless the issuing or confirming
institution fails the following standards:
(1) fails to maintain a minimum ratio of three percent tier
I capital to total risk adjusted assets, leverage ratio, as
required by the Federal Reserve System as disclosed by the bank
in any call report required by state or federal regulatory
authority and available to the ceding insurer; or
(2) has its long-term deposit rating or long-term debt
rating lowered to a rating below Aa2 as found in the current
monthly publication of Moody's credit opinions or its equivalent.
The letter of credit of an institution failing the standards of
clause (1) or this clause continues to be acceptable for no more
than 30 days.
Sec. 14. [60A.094] [RULES.]
The commissioner may adopt rules implementing the
provisions of sections 11 to 13.
Sec. 15. [60A.095] [REINSURANCE AGREEMENTS AFFECTED.]
Sections 11 to 13 apply to all cessions after the effective
date of this act under reinsurance agreements that have had an
inception, anniversary, or renewal date not less than six months
after the effective date of this article.
Sec. 16. [REPEALER.]
Minnesota Statutes 1990, section 60A.09, subdivision 4, is
repealed.
ARTICLE 2
ADMINISTRATIVE SUPERVISION MODEL ACT
Section 1. [60G.01] [DEFINITIONS.]
Subdivision 1. [APPLICATION.] The definitions in this
section apply to this chapter.
Subd. 2. [COMMISSIONER.] "Commissioner" means the
commissioner of commerce, except that "commissioner" means the
commissioner of health for administrative supervision health
maintenance organizations.
Subd. 3. [CONSENT.] "Consent" means agreement to
administrative supervision by the insurer.
Subd. 4. [DEPARTMENT.] "Department" means the department
of commerce, except that "department" means the department of
health for administrative supervision of health maintenance
organizations.
Subd. 5. [INSURER.] "Insurer" means and includes every
person engaged as indemnitor, surety, or contractor in the
business of entering into contracts of insurance or of annuities
as limited to:
(1) any insurer who is doing an insurer business, or has
transacted insurance in this state, and against whom claims
arising from that transaction may exist now or in the future;
(2) any fraternal benefit society which is subject to
chapter 64B;
(3) nonprofit health service plan corporations subject to
chapter 62C;
(4) cooperative life and casualty companies subject to
sections 61A.39 to 61A.52; and
(5) health maintenance organizations regulated under
chapter 62D.
Sec. 2. [60G.02] [NOTICE TO COMPLY WITH WRITTEN
REQUIREMENTS OF COMMISSIONER; NONCOMPLIANCE; ADMINISTRATIVE
SUPERVISION.]
Subdivision 1. [ADMINISTRATIVE SUPERVISION.] An insurer
may be subject to administrative supervision by the commissioner
if upon examination or at any other time it appears in the
commissioner's discretion that:
(1) the insurer's condition renders the continuance of its
business hazardous to the public or to its insureds;
(2) the insurer has refused to permit examination of its
books, papers, accounts, records, or affairs by the
commissioner, the commissioner's deputies, employees, or duly
commissioned examiners;
(3) a domestic insurer has unlawfully removed from this
state books, papers, accounts, or records necessary for an
examination of the insurer;
(4) the insurer has failed to promptly comply with the
applicable financial reporting statutes or rules and
departmental requests relating thereto;
(5) the insurer has neglected or refused to observe an
order of the commissioner to make good, within the time
prescribed by law, any prohibited deficiency in its capital,
capital stock, or surplus;
(6) the insurer is continuing to transact insurance or
write business after its license has been revoked or suspended
by the commissioner;
(7) the insurer, by contract or otherwise, has unlawfully
or has in violation of an order of the commissioner or has
without first having obtained written approval of the
commissioner if approval is required by law:
(i) totally reinsured its entire outstanding business, or
(ii) merged or consolidated substantially its entire
property or business with another insurer;
(8) the insurer engaged in any transaction in which it is
not authorized to engage under the laws of this state;
(9) the insurer refused to comply with a lawful order of
the commissioner;
(10) the insurer has failed to comply with the applicable
provisions of the laws of this state;
(11) the business of the insurer is being conducted
fraudulently; or
(12) the insurer gives its consent.
Subd. 2. [NOTIFICATION.] If the commissioner determines
that at least one of the conditions specified in subdivision 1
exists and places the insurer under supervision, the
commissioner may:
(1) notify the insurer of the commissioner's determination;
(2) furnish to the insurer a written list of the
requirements to abate this determination; and
(3) notify the insurer that it is under the supervision of
the commissioner and that the commissioner is applying and
enforcing the provisions of this chapter. If placed under
administrative supervision, an insurer may request review as
provided under chapter 14.
Subd. 3. [REQUIREMENT COMPLIANCE.] If placed under
administrative supervision, the insurer shall have 60 days, or
another period of time as designated by the commissioner, to
comply with the requirements of the commissioner as provided
under this chapter. If it is determined after notice and
hearing that the insurer has not complied with the requirements
of the commissioner at the end of the supervision period, the
commissioner may extend the period. If the insurer complies
with the requirements of the commissioner, the commissioner
shall release the insurer from supervision.
Sec. 3. [60G.03] [CONFIDENTIALITY OF CERTAIN PROCEEDINGS
AND RECORDS.]
Subdivision 1. [CONFIDENTIALITY.] Notwithstanding any
other provision of law and except as provided in this section,
proceedings, hearings, notices, correspondence, reports,
records, and other information in the possession of the
commissioner or the department relating to the supervision of
any insurer are confidential.
Subd. 2. [ACCESS.] The personnel of the department shall
have access to these proceedings, hearings, notices,
correspondence, reports, records, or information as permitted by
the commissioner.
Subd. 3. [OPEN HEARINGS; DISCLOSURE.] The commissioner may
open the proceedings or hearings or disclose the notices,
correspondence, reports, records, or information to a
department, agency, or instrumentality of this or another state
or the United States if the commissioner determines that the
disclosure is necessary or proper for the enforcement of the
laws of this or another state or the United States.
Subd. 4. [PUBLIC DISCLOSURE.] The commissioner may open
the proceedings or hearings or make public the notices,
correspondence, reports, records, or other information if the
commissioner determines that it is in the best interest of the
public or in the best interest of the insurer, its insureds,
creditors, or the general public.
Subd. 5. [EXEMPTION.] This section does not apply to
hearings, notices, correspondence, reports, records, or other
information obtained upon the appointment of a receiver for the
insurer by a court of competent jurisdiction.
Sec. 4. [60G.04] [PROHIBITED ACTS DURING PERIOD OF
SUPERVISION.]
During the period of supervision, the commissioner shall
serve as the administrative supervisor. The commissioner may
require that the insurer shall not do any of the following
things during the period of supervision without the prior
approval of the commissioner:
(1) dispose of, convey, or encumber its assets or its
business in force;
(2) withdraw funds from its bank accounts;
(3) lend its funds;
(4) invest its funds;
(5) transfer its property;
(6) incur debt, obligation, or liability;
(7) merge or consolidate with another company;
(8) approve new premiums or renew policies;
(9) enter into a new reinsurance contract or treaty;
(10) terminate, surrender, forfeit, convert, or lapse an
insurance policy, certificate, or contract, except for
nonpayment of premiums due;
(11) release, pay, or refund premium deposits, accrued cash
or loan values, unearned premiums, or other reserves on an
insurance policy, certificate, or contract;
(12) make a material change in management; or
(13) increase salaries and benefits of officers or
directors or make preferential payment of bonuses, dividends, or
other payments determined preferential by the commissioner.
Sec. 5. [60G.05] [REVIEW AND STAY OF ACTION.]
During the period of supervision, the insurer may contest
an action taken or proposed to be taken by the commissioner as
provided under chapter 14. The insurer must show that the
action being complained of is detrimental to the condition of
the insurer.
Sec. 6. [60G.06] [ADMINISTRATIVE ELECTION OF PROCEEDINGS.]
Nothing contained in this chapter precludes the
commissioner from initiating judicial proceedings to place an
insurer in rehabilitation or liquidation proceedings under the
laws of this state, regardless of whether the commissioner has
previously initiated administrative supervision proceedings
under this chapter against the insurer.
Sec. 7. [60G.07] [RULES.]
The commissioner may adopt rules necessary for the
implementation of this chapter.
Sec. 8. [60G.08] [IMMUNITY.]
There shall be no liability on the part of, and no cause of
action may be brought against the commissioner or the department
or its employees or agents for any action taken by them in the
performance of their powers and duties under this chapter.
Sec. 9. [60G.09] [APPLICATION.]
Sections 1 to 8 apply to domestic insurers and any other
insurer doing business in this state whose state of domicile has
requested the commissioner of commerce to apply sections 1 to 8.
ARTICLE 3
STANDARDS AND COMMISSIONER'S AUTHORITY
FOR COMPANIES CONSIDERED TO BE IN
HAZARDOUS FINANCIAL CONDITION
Section 1. [60G.20] [STANDARDS.]
Subdivision 1. [HAZARDOUS CONSIDERATION.] The following
standards, either singly or a combination of two or more, may be
considered by the commissioner to determine whether the
continued operation of any insurer, whether domestic, foreign,
or alien, transacting an insurance business in this state may be
considered hazardous to the policyholders, creditors or the
general public. The commissioner may consider:
(1) an adverse finding reported in financial condition and
market conduct examination reports;
(2) the National Association of Insurance Commissioners
insurance regulatory information system and its related reports;
(3) the ratios of commission expense, general insurance
expense, policy benefits, and reserve increases as to annual
premium and net investment income which may lead to an
impairment of capital and surplus;
(4) whether the insurer's asset portfolio when viewed in
light of current economic conditions is not of sufficient value,
liquidity, or diversity to assure the company's ability to meet
its outstanding obligations as they mature;
(5) the ability of an assuming reinsurer to perform and
whether the insurer's reinsurance program provides sufficient
protection for the company's remaining surplus after taking into
account the insurer's cash flow and the classes of business
written as well as the financial condition of the assuming
reinsurer;
(6) whether the insurer's operating loss in the last
12-month period or any shorter period of time, including, but
not limited to, net capital gain or loss, change in nonadmitted
assets, and cash dividends paid to shareholders, is greater than
50 percent of the insurer's remaining surplus as regards
policyholders in excess of the minimum required;
(7) whether any affiliate, subsidiary, or reinsurer is
insolvent, threatened with insolvency, or delinquent in payment
of its monetary or other obligations;
(8) contingent liabilities, pledges, or guaranties which
either individually or collectively involve a total amount which
in the opinion of the commissioner may affect the solvency of
the insurer;
(9) whether any "controlling person" of an insurer is
delinquent in the transmitting to, or payment of, net premiums
to the insurer;
(10) the age and collectability of receivables;
(11) whether the management of an insurer, including
officers, directors, or any other person who directly or
indirectly controls the operation of the insurer, fails to
possess and demonstrate the competence, fitness, and reputation
necessary to serve the insurer in the position;
(12) whether management of an insurer has failed to respond
to inquiries relative to the condition of the insurer or has
furnished false and misleading information concerning an
inquiry;
(13) whether management of an insurer either has filed a
false or misleading sworn financial statement, or has released a
false or misleading financial statement to lending institutions
or to the general public, or has made a false or misleading
entry, or has omitted an entry of material amount in the books
of the insurer;
(14) whether the insurer has grown so rapidly and to such
an extent that it lacks adequate financial and administrative
capacity to meet its obligations in a timely manner; or
(15) whether the company has experienced or will experience
in the foreseeable future cash flow or liquidity problems.
Subd. 2. [COMMISSIONER'S AUTHORITY.] For the purposes of
making a determination of an insurer's financial condition under
subdivision 1, the commissioner may:
(1) disregard any credit or amount receivable resulting
from transactions with a reinsurer which is insolvent, impaired,
or otherwise subject to a delinquency proceeding;
(2) make appropriate adjustments to asset values
attributable to investments in or transactions with the
corporation's parents, subsidiaries, or affiliates;
(3) refuse to recognize the stated value of accounts
receivable if the ability to collect receivables is highly
speculative in view of the age of the account or the financial
condition of the debtor; or
(4) increase the insurer's liability in an amount equal to
any contingent liability, pledge, or guarantee not otherwise
included if there is a substantial risk that the insurer will be
called upon to meet the obligation undertaken within the next
12-month period.
Sec. 2. [60G.21] [COMMISSIONER'S ORDER.]
Subdivision 1. [AUTHORIZATION.] If the commissioner
determines that the continued operation of the insurer licensed
to transact business in this state may be hazardous to the
policyholders or the general public, then the commissioner may,
upon the commissioner's determination, issue an order requiring
the insurer to:
(1) reduce the total amount of present and potential
liability for policy benefits by reinsurance;
(2) reduce, suspend, or limit the volume of business being
accepted or renewed;
(3) reduce general insurance and commission expenses by
methods specified by the commissioner;
(4) increase the insurer's capital and surplus;
(5) suspend or limit the declaration and payment of
dividend by an insurer to its stockholders or to its
policyholders;
(6) file reports in a form acceptable to the commissioner
concerning the market value of an insurer's assets;
(7) limit or withdraw from certain investments or
discontinue certain investment practices to the extent the
commissioner considers necessary;
(8) document the adequacy of premium rates in relation to
the risks insured; or
(9) file, in addition to regular annual statements, interim
financial reports on the form adopted by the National
Association of Insurance Commissioners or in the format adopted
by the commissioner.
Subd. 2. [REVIEW.] An insurer subject to an order under
subdivision 1 may request, within 30 days of issuance of the
order, a hearing as provided under chapter 14 to review that
order. All hearings conducted under this section are closed and
private.
Sec. 3. [60G.22] [JUDICIAL REVIEW.]
Any order or decision of the commissioner is subject to
review as provided under chapter 14 at the request of a party
whose interests are substantially affected by the order or
decision.
ARTICLE 4
MANAGING GENERAL AGENTS ACT
Section 1. [60H.01] [SHORT TITLE.]
This chapter may be cited as the managing general agents
act.
Sec. 2. [60H.02] [DEFINITIONS.]
Subdivision 1. [APPLICATION.] The terms defined in this
section apply to this chapter.
Subd. 2. [ACTUARY.] "Actuary" means a person who is a
member in good standing of the American Academy of Actuaries.
Subd. 3. [INSURER.] "Insurer" means a person, firm,
association, or corporation duly licensed in this state as an
insurance company.
Subd. 4. [MANAGING GENERAL AGENT.] (a) "Managing general
agent" means a person, firm, association or corporation who:
(1) negotiates and binds ceding reinsurance contracts on behalf
of an insurer, or (2) manages all or part of the insurance
business of an insurer, including the management of a separate
division, department, or underwriting office, and acts as an
agent for the insurer whether known as a managing general agent,
manager, or other similar term, who, with or without the
authority, either separately or together with affiliates,
produces, directly or indirectly, and underwrites an amount of
gross direct written premium equal to or more than five percent
of the policyholder surplus as reported in the last annual
statement of the insurer in any one quarter or year, together
with one or more of the following: (i) adjusts or pays claims
in excess of an amount determined by the commissioner, or (ii)
negotiates reinsurance on behalf of the insurer.
(b) Notwithstanding paragraph (a), the following persons
shall not be considered as managing general agents for the
purposes of this chapter:
(1) an employee of the insurer;
(2) a United States manager of the United States branch of
an alien insurer;
(3) an underwriting manager who, pursuant to contract,
manages all of the insurance or reinsurance operation of the
insurer, is under common control with the insurer, subject to
the Insurance Holding Company Act, chapter 60D, and whose
compensation is not based on the volume of premiums written; or
(4) an attorney in fact authorized by and acting for the
subscribers of a reciprocal insurer or interinsurance exchange
under powers of attorney.
Subd. 5. [UNDERWRITE.] "Underwrite" means the authority to
accept or reject risk on behalf of the insurer.
Sec. 3. [60H.03] [LICENSURE.]
Subdivision 1. [RISKS LOCATED IN STATE.] A managing
general agent representing an insurer licensed in this state
with respect to risks located in this state must be licensed in
this state.
Subd. 2. [RISKS LOCATED OUTSIDE OF STATE.] A managing
general agent representing an insurer domiciled in this state
with respect to risks located outside this state must be
licensed in this state as a managing general agent. The license
may be a nonresident license.
Subd. 3. [REQUIREMENTS.] The commissioner may require a
bond in an amount acceptable for the protection of the insurer.
The commissioner may require the managing general agent to
maintain an errors and omissions policy.
Sec. 4. [60H.04] [REQUIRED CONTRACT PROVISIONS.]
No person, firm, association, or corporation acting in the
capacity of a managing general agent shall place business with
an insurer unless there is in force a written contract between
the parties. The contract must specify the responsibilities of
each party and, where both parties share responsibility for a
particular function, must specify the division of the
responsibilities. The contract must include the following
minimum provisions:
(a) The insurer may terminate the contract for cause upon
written notice to the managing general agent. The insurer may
suspend the underwriting authority of the managing general agent
during the pendency of any dispute regarding the cause for
termination.
(b) The managing general agent must give accounts to the
insurer detailing all transactions and remit all funds due under
the contract to the insurer on not less than a monthly basis.
(c) All funds collected for the account of an insurer must
be held by the managing general agent in the name of the insurer
in a fiduciary capacity in a bank which is a member of the
Federal Reserve System. This account must be used for all
payments on behalf of the insurer. The managing general agent
may retain no more than three months' estimated claims payments
and allocated loss adjustment expenses. A managing general
agent shall deposit only trust funds in a trust account and
shall not commingle personal funds or other funds in a trust
account, except that a managing general agent may deposit and
maintain a sum in a trust account from personal funds, which sum
shall be specifically identified and used to pay service charges
or satisfy the minimum balance requirements relating to the
trust account.
(d) Separate records of business written by the managing
general agent must be maintained. The insurer shall have access
to and the right to copy all accounts and records related to its
business in a form usable by the insurer, and the commissioner
shall have access to all books, bank accounts, and records of
the managing general agent in a form usable to the
commissioner. The records shall be retained on a basis
acceptable to the commissioner.
(e) The contract may not be assigned in whole or part by
the managing general agent.
(f) Appropriate underwriting guidelines, including:
(1) the maximum annual premium volume;
(2) the basis of the rates to be charged;
(3) the types of risks which may be written;
(4) maximum limits of liability;
(5) applicable exclusions;
(6) territorial limitations;
(7) policy cancellation provisions; and
(8) the maximum policy period.
The insurer shall have the right to cancel or nonrenew any
policy of insurance subject to the applicable laws and
regulations concerning the cancellation and nonrenewal of
insurance policies.
(g) If the contract permits the managing general agent to
settle claims on behalf of the insurer:
(1) All claims must be reported to the insurer in a timely
manner.
(2) A copy of the claim file must be sent to the insurer at
its request or as soon as it becomes known that the claim:
(i) has the potential to exceed an amount determined by the
commissioner or exceeds the limit set by the insurer, whichever
is less;
(ii) involves a coverage dispute;
(iii) may exceed the managing general agent's claim
settlement authority;
(iv) is open for more than six months; or
(v) is closed by payment of an amount set by the
commissioner or an amount set by the insurer, whichever is less.
(3) All claim files are the joint property of the insurer
and managing general agent. However, upon an order of
liquidation of the insurer the files become the sole property of
the insurer or its estate. The managing general agent shall
have reasonable access to and the right to copy the files on a
timely basis.
(4) Any settlement authority granted to the managing
general agent may be terminated for cause upon the insurer's
written notice to the managing general agent or upon the
termination of the contract. The insurer may suspend the
settlement authority during the pendency of any dispute
regarding the cause for termination.
(h) Where electronic claims files are in existence, the
contract must address the timely transmission of the data.
(i) If the contract provides for a sharing of interim
profits by the managing general agent, and the managing general
agent has the authority to determine the amount of the interim
profits by establishing loss reserves or controlling claim
payments, or in any other manner, interim profits will not be
paid to the managing general agent until one year after they are
earned for property insurance business and five years after they
are earned on casualty business and not until the profits have
been verified as provided under section 5.
(j) The managing general agent shall not:
(1) bind reinsurance or retrocessions on behalf of the
insurer, except that the managing general agent may bind
facultative reinsurance contracts pursuant to obligatory
facultative agreements if the contract with the insurer contains
reinsurance underwriting guidelines including, for both
reinsurance assumed and ceded, a list of reinsurers with which
the automatic agreements are in effect, the coverage and amounts
or percentages that may be reinsured, and commission schedules;
(2) commit the insurer to participate in insurance or
reinsurance syndicates;
(3) appoint an agent without assuring that the agent is
lawfully licensed to transact the type of insurance for which
that person is appointed;
(4) without prior approval of the insurer, pay or commit
the insurer to pay a claim over a specified amount, net of
reinsurance, which shall not exceed one percent of the insurer's
policyholder's surplus as of December 31 of the last completed
calendar year;
(5) collect any payment from a reinsurer or commit the
insurer to any claim settlement with a reinsurer, without prior
approval of the insurer. If prior approval is given, a report
must be promptly forwarded to the insurer;
(6) permit its subagent to serve on the insurer's board of
directors;
(7) jointly employ an individual who is employed with the
insurer; or
(8) appoint a submanaging general agent.
(k) The contract term may not be for an unreasonable period
of time, but in no circumstance may the term exceed five years.
(l) The insurer may not authorize the managing general
agent to establish the amount of the loss reserves.
Sec. 5. [60H.05] [DUTIES OF INSURERS.]
Subdivision 1. [INDEPENDENT FINANCIAL EXAMINATION.] The
insurer shall have on file an independent financial examination,
in a form acceptable to the commissioner, of each managing
general agent with which it has done business.
Subd. 2. [ON-SITE REVIEW.] The insurer shall
periodically, at least semiannually, conduct an on-site review
of the underwriting and claims processing operation of the
managing general agent and maintain on its records the results
of that review.
Subd. 3. [OFFICER OF INSURER.] Except as authorized under
section 4, paragraph (j), clause (1), binding authority for all
reinsurance contracts or participation in insurance or
reinsurance syndicates shall rest with an officer of the insurer
not affiliated with the managing general agent.
Subd. 4. [WRITTEN NOTIFICATION.] Within 30 days of
entering into or termination of a contract with a managing
general agent, the insurer shall provide written notification of
the appointment or termination to the commissioner. Notices of
appointment of a managing general agent must include a statement
of duties which the managing general agent is expected to
perform on behalf of the insurer, the lines of insurance for
which the managing general agent is to be authorized to act, and
any other information the commissioner may request.
Subd. 5. [REVIEW OF BOOKS AND RECORDS.] An insurer shall
review its books and records each quarter to determine if a
licensed agent has become a managing general agent as defined in
section 2, subdivision 4. If the insurer determines that an
agent has become a managing general agent, the insurer shall
promptly notify the agent and the commissioner of the
determination and the insurer and agent must fully comply with
this chapter within 30 days.
Subd. 6. [PROHIBITED APPOINTMENTS.] An insurer shall not
appoint to its board of directors an officer, director,
employee, subagent, or controlling shareholder of its managing
general agents. This section does not apply to relationships
governed by the Insurance Holding Company Act, chapter 60D, or,
if applicable, the Producer Controlled Insurer Act.
Sec. 6. [60H.06] [EXAMINATION AUTHORITY.]
A managing general agent may be examined as if it were the
insurer.
Sec. 7. [60H.07] [ACTS OF MANAGING GENERAL AGENT.]
The acts of the managing general agent are considered to be
the acts of the insurer on whose behalf it is acting.
Sec. 8. [60H.08] [PENALTIES AND LIABILITIES.]
Subdivision 1. [COMMISSIONER'S AUTHORITY.] If the
commissioner finds pursuant to the procedural requirements of
section 45.027 that a person has violated a provision of this
chapter, the commissioner may take any action authorized under
that section.
Subd. 2. [ADDITIONAL PENALTY.] In addition to authority
granted by section 45.027 for each separate violation, the
commissioner may impose a penalty of up to $10,000 for each day
the violation continues and order the managing general agent to
reimburse the insurer, rehabilitator, or liquidator of the
insurer for any losses incurred by the insurer caused by a
violation of this chapter committed by the managing general
agent.
Subd. 3. [JUDICIAL REVIEW.] The decision, determination,
or order of the commissioner under subdivision 1 is subject to
judicial review as provided under chapter 14.
Subd. 4. [IMPOSITION OF OTHER PENALTIES.] Nothing
contained in this section shall affect the right of the
commissioner to impose any other penalties provided for by law.
Subd. 5. [POLICYHOLDER RIGHTS.] Nothing contained in this
chapter is intended to or shall in any manner limit or restrict
the rights of policyholders, claimants, and auditors.
Sec. 9. [60H.09] [RULES.]
The commissioner of commerce may adopt rules for the
implementation and administration of this chapter.
Sec. 10. [REPEALER.]
Minnesota Statutes 1990, section 60A.076, is repealed.
Sec. 11. [EFFECTIVE DATE.]
This article is effective August 1, 1991. No insurer may
continue to utilize the services of a managing general agent on
and after that date unless the utilization is in compliance with
this chapter.
ARTICLE 5
LIFE AND HEALTH GUARANTY ASSOCIATION
Section 1. Minnesota Statutes 1990, section 60B.25, is
amended to read:
60B.25 [POWERS OF LIQUIDATOR.]
The liquidator shall report to the court monthly, or at
other intervals specified by the court, on the progress of the
liquidation in whatever detail the court orders. The liquidator
shall coordinate activities with those of each guaranty
association having an interest in the liquidation and shall
submit a report detailing how coordination will be achieved to
the court for its approval within 30 days following appointment,
or within the time which the court, in its discretion, may
establish. Subject to the court's control, the liquidator may:
(1) Appoint a special deputy to act under sections 60B.01
to 60B.61 and determine the deputy's compensation. The special
deputy shall have all powers of the liquidator granted by this
section. The special deputy shall serve at the pleasure of the
liquidator.
(2) Appoint or engage employees and agents, actuaries,
accountants, appraisers, consultants, and other personnel deemed
necessary to assist in the liquidation without regard to chapter
14.
(3) Fix the compensation of persons under clause (2),
subject to the control of the court.
(4) Defray all expenses of taking possession of,
conserving, conducting, liquidating, disposing of, or otherwise
dealing with the business and property of the insurer. If the
property of the insurer does not contain sufficient cash or
liquid assets to defray the costs incurred, the liquidator may
advance the costs so incurred out of the appropriation made to
the department of commerce. Any amounts so paid shall be deemed
expense of administration and shall be repaid for the credit of
the department of commerce out of the first available money of
the insurer.
(5) Hold hearings, subpoena witnesses and compel their
attendance, administer oaths, examine any person under oath and
compel any person to subscribe to testimony after it has been
correctly reduced to writing, and in connection therewith
require the production of any books, papers, records, or other
documents which the liquidator deems relevant to the inquiry.
(6) Collect all debts and money due and claims belonging to
the insurer, wherever located, and for this purpose institute
timely action in other jurisdictions, in order to forestall
garnishment and attachment proceedings against such debts; do
such other acts as are necessary or expedient to collect,
conserve, or protect its assets or property, including sell,
compound, compromise, or assign for purposes of collection, upon
such terms and conditions as the liquidator deems best, any bad
or doubtful debts; and pursue any creditor's remedies available
to enforce claims.
(7) Conduct public and private sales of the property of the
insurer in a manner prescribed by the court.
(8) Use assets of the estate to transfer coverage
obligations to a solvent assuming insurer, if the transfer can
be arranged without prejudice to applicable priorities under
section 60B.44.
(9) Acquire, hypothecate, encumber, lease, improve, sell,
transfer, abandon, or otherwise dispose of or deal with any
property of the insurer at its market value or upon such terms
and conditions as are fair and reasonable, except that no
transaction involving property the market value of which exceeds
$10,000 shall be concluded without express permission of the
court. The liquidator may also execute, acknowledge, and
deliver any deeds, assignments, releases, and other instruments
necessary or proper to effectuate any sale of property or other
transaction in connection with the liquidation. In cases where
real property sold by the liquidator is located other than in
the county where the liquidation is pending, the liquidator
shall cause to be filed with the county recorder for the county
in which the property is located a certified copy of the order
of appointment.
(10) Borrow money on the security of the insurer's assets
or without security and execute and deliver all documents
necessary to that transaction for the purpose of facilitating
the liquidation.
(11) Enter into such contracts as are necessary to carry
out the order to liquidate, and affirm or disallow any contracts
to which the insurer is a party.
(12) Continue to prosecute and institute in the name of the
insurer or in the liquidator's own name any suits and other
legal proceedings, in this state or elsewhere, and abandon the
prosecution of claims the liquidator deems unprofitable to
pursue further. If the insurer is dissolved under section
60B.23, the liquidator may apply to any court in this state or
elsewhere for leave to be substituted for the insurer as
plaintiff.
(13) Prosecute any action which may exist in behalf of the
creditors, members, policyholders, or shareholders of the
insurer against any officer of the insurer, or any other person.
(14) Remove any records and property of the insurer to the
offices of the commissioner or to such other place as is
convenient for the purposes of efficient and orderly execution
of the liquidation.
(15) Deposit in one or more banks in this state such sums
as are required for meeting current administration expenses and
dividend distributions.
(16) Deposit with the state board of investment for
investment pursuant to section 11A.24, all sums not currently
needed, unless the court orders otherwise.
(17) File any necessary documents for record in the office
of any county recorder or record office in this state or
elsewhere where property of the insurer is located.
(18) Assert all defenses available to the insurer as
against third persons, including statutes of limitations,
statutes of frauds, and the defense of usury. A waiver of any
defense by the insurer after a petition for liquidation has been
filed shall not bind the liquidator.
(19) Exercise and enforce all the rights, remedies, and
powers of any creditor, shareholder, policyholder, or member,
including any power to avoid any transfer or lien that may be
given by law and that is not included within sections 60B.30 and
60B.32.
(20) Intervene in any proceeding wherever instituted that
might lead to the appointment of a receiver or trustee, and act
as the receiver or trustee whenever the appointment is offered.
(21) Enter into agreements with any receiver or
commissioner of any other state relating to the rehabilitation,
liquidation, conservation, or dissolution of an insurer doing
business in both states.
(22) Exercise all powers now held or hereafter conferred
upon receivers by the laws of this state not inconsistent with
sections 60B.01 to 60B.61.
(23) The enumeration in this section of the powers and
authority of the liquidator is not a limitation, nor does it
exclude the right to do such other acts not herein specifically
enumerated or otherwise provided for as are necessary or
expedient for the accomplishment of or in aid of the purpose of
liquidation.
(24) The power of the liquidator of a health maintenance
organization includes the power to transfer coverage obligations
to a solvent and voluntary health maintenance organization,
insurer, or nonprofit health service plan, and to assign
provider contracts of the insolvent health maintenance
organization to an assuming health maintenance organization,
insurer, or nonprofit health service plan permitted to enter
into such agreements. The liquidator is not required to meet
the notice requirements of section 62D.121. Transferees of
coverage obligations or provider contracts shall have no
liability to creditors or obligees of the health maintenance
organization except those liabilities expressly assumed.
Sec. 2. Minnesota Statutes 1990, section 61B.06, is
amended by adding a subdivision to read:
Subd. 8a. [ADJUSTMENT OF LIABILITY LIMITS.] To the extent
there are any limits for particular policies covered under this
act, the dollar amounts stated in subdivision 8 shall be
adjusted for inflation based upon the implicit price deflator
for the gross national product compiled by the United States
Department of Commerce and hereafter referred to as the index.
The dollar amounts stated in subdivision 8 are based upon the
value of the index for January 1990, which is the reference base
index for purposes of this subdivision. The dollar amounts in
subdivision 8 shall change on October 1 of each year after 1992,
based upon the percentage difference between the index for
January of the preceding year and the reference base index,
calculated to the nearest whole percentage point. The
commissioner shall announce and publish, on or before April 30
of each year, the changes in the dollar amounts required by this
clause to take effect on October 1 of that year.
Sec. 3. Minnesota Statutes 1990, section 61B.06,
subdivision 9, is amended to read:
Subd. 9. [POWERS OF ASSOCIATION.] (a) The association may:
(a) (1) enter into contracts necessary or proper to carry
out the provisions of sections 61B.01 to 61B.16 and their
purpose;
(b) (2) sue or be sued, including the taking of legal
actions necessary or proper for recovery of unpaid assessments
under section 61B.07;
(c) (3) borrow money to effect the purposes of sections
61B.01 to 61B.16. Any notes or other evidence of indebtedness
of the association not in default shall be legal investments for
domestic insurers and may be carried as admitted assets;
(d) (4) employ or retain persons necessary to handle the
financial transactions of the association, and perform other
necessary or proper functions;
(e) (5) negotiate and contract with any liquidator,
rehabilitator, conservator, or ancillary receiver to carry out
the powers and duties of the association;
(f) (6) take legal action as may be necessary to avoid
payment of improper claims; and
(g) (7) exercise, for the purposes of sections 61B.01 to
61B.16 and to the extent approved by the commissioner, the
powers of a domestic life or health insurer, but in no case may
the association issue insurance policies or annuity contracts
other than those issued to perform the contractual obligations
of an impaired insurer.
(b) The association must borrow any money necessary to
effect the purposes of sections 61B.01 to 61B.16. Any notes or
other evidence of indebtedness of the association not in default
are legal investments for domestic insurers and may be carried
as admitted assets.
Sec. 4. Minnesota Statutes 1990, section 61B.12, is
amended by adding a subdivision to read:
Subd. 6. [NOTICE CONCERNING LIMITATIONS AND
EXCLUSIONS.] On and after January 1, 1992, no person, including
an insurer, agent, or affiliate of an insurer or agent, shall
offer for sale in this state a covered life insurance, annuity,
or health insurance policy or contract without delivering at the
time of application for that policy or contract a separate
notice in the form the commissioner from time to time may
approve for use in this state relating to coverage provided by
the Minnesota Life and Health Insurance Guaranty Association.
The notice must be signed by the applicant and kept on file by
the person offering the policy or contract for sale. A copy of
the signed notice must be given to the applicant.
Sec. 5. Minnesota Statutes 1990, section 61B.12, is
amended by adding a subdivision to read:
Subd. 7. [EFFECT OF NOTICE.] The distribution, delivery,
or contents or interpretation of the notice described in
subdivision 6 shall not mean that either the policy or contract,
or the owner or holder thereof, would be covered in the event of
the impairment of a member insurer if coverage is not otherwise
provided by this chapter. Failure to receive the notice does
not give the policyholder, contract holder, certificate holder,
insured, owner, beneficiaries, assignees, or payees any greater
rights than those provided by this chapter.
Sec. 6. [EFFECTIVE DATE.]
Sections 2 and 3 are effective August 1, 1992.
ARTICLE 6
MINNESOTA INSURANCE GUARANTY ASSOCIATION AMENDMENTS
Section 1. Minnesota Statutes 1990, section 60B.37,
subdivision 2, is amended to read:
Subd. 2. [EXCUSED LATE FILINGS.] For a good cause shown,
the liquidator shall recommend and the court shall permit a
claimant making a late filing to share in dividends, whether
past or future, as if the claimant were not late, to the extent
that any such payment will not prejudice the orderly
administration of the liquidation. Good cause includes but is
not limited to the following:
(a) That existence of a claim was not known to the claimant
and that the claimant filed within 30 days after learning of it;
(b) That a claim for unearned premiums or for cash
surrender values or other investment values in life insurance or
annuities which was not required to be filed was omitted from
the liquidator's recommendations to the court under section
60B.45, and that it was filed within 30 days after the claimant
learned of the omission;
(c) That a transfer to a creditor was avoided under
sections 60B.30 to 60B.32 or was voluntarily surrendered under
section 60B.33, and that the filing satisfies the conditions of
section 60B.33;
(d) That valuation under section 60B.43 of security held by
a secured creditor shows a deficiency, which is filed within 30
days after the valuation; and
(e) That a claim was contingent and became absolute, and
was filed within 30 days after it became absolute.; and
(f) That the claim is for workers' compensation benefits
and the time limitations and other requirements of chapter 176
have been met.
Sec. 2. Minnesota Statutes 1990, section 60C.02,
subdivision 1, is amended to read:
Subdivision 1. [SCOPE.] This chapter applies to all kinds
of direct insurance, except life, title, accident and sickness
written by life insurance companies, credit, mortgage
guaranty, financial guaranty or other forms of insurance
offering protection against investment risks, and ocean marine.
Sec. 3. Minnesota Statutes 1990, section 60C.03,
subdivision 6, is amended to read:
Subd. 6. "Member insurer" means any person, including
reciprocals or interinsurance exchanges operating under chapter
71A, township mutual fire insurance companies operating under
sections 67A.01 to 67A.26, and farmers mutual fire insurance
companies operating under sections 67A.27 to 67A.39, who (a)
writes any kind of insurance not excepted from the scope of Laws
1971, chapter 145 by section 60C.02, and (b) is licensed to
transact insurance business in this state, except any nonprofit
service plan incorporated or operating under sections 62C.01 to
62C.23 and any health plan incorporated under chapter 317A, and
includes an insurer whose license or certificate of authority in
this state may have been suspended, revoked, not renewed, or
voluntarily withdrawn.
Sec. 4. Minnesota Statutes 1990, section 60C.03, is
amended by adding a subdivision to read:
Subd. 10. "Financial guaranty insurance" includes any
insurance under which loss is payable upon proof of occurrence
of any of the following events to the damage of an insured
claimant or obligee:
(1) failure of any obligor or obligors on any debt
instrument or other monetary obligation, including common or
preferred stock, to pay when due the principal, interest,
dividend or purchase price of such instrument or obligation,
whether such failure is the result of a financial default or
insolvency and whether or not such obligation is incurred
directly or as guarantor by, or on behalf of, another obligor
which has also defaulted;
(2) changes in the level of interest rates whether
short-term or long-term, or in the difference between interest
rates existing in various markets;
(3) changes in the rate of exchange or currency, or from
the inconvertibility of one currency into another for any
reason; and
(4) changes in the value of specific assets or commodities,
or price levels in general.
Sec. 5. Minnesota Statutes 1990, section 60C.04, is
amended to read:
60C.04 [CREATION.]
All insurers subject to the provisions of Laws 1971,
chapter 145 shall form an organization to be known as the
Minnesota insurance guaranty association. All insurers defined
as member insurers in section 60C.03, subdivision 6, are and
shall remain members of the association as a condition of their
authority to transact insurance business or to execute surety
bonds in this state. An insurer's membership obligations under
this chapter shall survive any merger, consolidation,
restructuring, incorporation, or reincorporation. The
association shall perform its functions under a plan of
operation established and approved under section 60C.07 and
shall exercise its powers through a board of directors
established under section 60C.08. For purposes of
administration and assessment the association shall be divided
into five separate accounts: (1) the automobile insurance
account, (2) the township mutuals account, (3) the fidelity and
surety bond account, (4) the account for all other insurance to
which Laws 1971, this chapter 145 applies, and (5) the workers'
compensation insurance account.
Sec. 6. Minnesota Statutes 1990, section 60C.06,
subdivision 1, is amended to read:
Subdivision 1. [DETERMINATION OF AMOUNT.] The assessments
of each member insurer shall be in the proportion that the net
direct written premiums of the member insurer for the preceding
calendar year on the kinds of insurance in the account bear to
the net direct written premiums of all member insurers for the
preceding calendar year on the kinds of insurance in the
account. No member insurer may be assessed in any year on any
account in an amount greater than two percent of that member
insurer's net direct written premiums for the preceding calendar
year on the kinds of insurance in the account. All member
insurers licensed to transact insurance business in this state
on the date an insurer is placed in liquidation may be assessed
as provided by section 60C.06 for necessary payments from the
account.
Sec. 7. Minnesota Statutes 1990, section 60C.09,
subdivision 1, is amended to read:
Subdivision 1. [DEFINITION.] A covered claim is any unpaid
claim, including one for unearned premium, which:
(a)(1) Arises out of and is within the coverage of an
insurance policy issued by a member insurer if the insurer
becomes an insolvent insurer after April 30, 1979; or
(2) Would be within the coverage of an extended reporting
endorsement to a claims-made insurance policy if insolvency had
not prevented the member insurer from fulfilling its obligation
to issue the endorsement, if:
(i) the claims-made policy contained a provision affording
the insured the right to purchase a reporting endorsement;
(ii) coverage will be no greater than if a reporting
endorsement had been issued;
(iii) the insured has not purchased other insurance which
applies to the claim; and
(iv) the insured's deductible under the policy is increased
by an amount equal to the premium for the reporting endorsement,
as provided in the insured's claims-made policy, or if not so
provided, then as established by a rate service organization.
(b) Arises out of a class of business which is not excepted
from the scope of this chapter by section 60C.02; and
(c) Is made by:
(i) A policyholder, or an insured beneficiary under a
policy, who, at the time of the insured event, was a resident of
this state; or
(ii) A person designated in the policy as having an
insurable interest in or related to property situated in this
state at the time of the insured event; or
(iii) An obligee or creditor under any surety bond, who, at
the time of default by the principal debtor or obligor, was a
resident of this state; or
(iv) A third party claimant under a liability policy or
surety bond, if: (a) the insured or the third party claimant
was a resident of this state at the time of the insured event;
(b) the claim is for bodily or personal injuries suffered in
this state by a person who when injured was a resident of this
state; or (c) the claim is for damages to real property situated
in this state at the time of damage; or
(v) A direct or indirect assignee of a person who except
for the assignment might have claimed under item (i), (ii), or
(iii).
For purposes of paragraph (c), item (ii), unit owners of
condominiums, townhouses, or cooperatives are considered as
having an insurable interest.
A covered claim also includes any unpaid claim which arises
or exists within 30 days after the time of entry of an order of
liquidation with a finding of insolvency by a court of competent
jurisdiction unless prior thereto the insured replaces the
policy or causes its cancellation or the policy expires on its
expiration date. A covered claim does not include claims filed
with the guaranty fund after the final date set by the court for
the filing of claims except for workers' compensation claims
that have met the time limitations and other requirements of
chapter 176 and excused late filings permitted under section
60B.37.
Sec. 8. Minnesota Statutes 1990, section 60C.13,
subdivision 1, is amended to read:
Subdivision 1. Any person having a claim against an
insurer under any provision in an insurance policy other than a
policy of an insurer in liquidation which is also a covered
claim, is required to exhaust first any rights under another
policy, which claim arises out of the same facts which give rise
to the covered claim, shall be first required to exhaust the
person's right under the other policy. Any amount payable on a
covered claim under Laws 1971, this chapter 145 shall be reduced
by the amount of any recovery under such insurance policy. For
purposes of this subdivision, another insurance policy does not
include a workers' compensation policy.
Sec. 9. [EFFECTIVE DATE.]
Sections 1 to 7 are effective the day following final
enactment. Section 8 applies to all unsettled existing and
future claims made after that date arising out of any past or
future member insolvencies.
ARTICLE 7
STANDARD VALUATION LAW
Section 1. Minnesota Statutes 1990, section 61A.25, is
amended by adding a subdivision to read:
Subd. 2a. [ACTUARIAL OPINION OF RESERVES; GENERAL.] (a)
Every life insurance company doing business in this state shall
annually submit the opinion of a qualified actuary as to whether
the reserves and related actuarial items held in support of the
policies and contracts specified by the commissioner by rule are
computed appropriately, are based on assumptions which satisfy
contractual provisions, are consistent with prior reported
amounts, and comply with applicable laws of this state. The
commissioner may by rule define the specifics of this opinion
and add any other items considered to be necessary to its
scope. The opinion must be included in the company's annual
statement.
(b) The requirement to annually submit the opinion of a
qualified actuary applies to service plan corporations licensed
under chapter 62C, to legal service plans licensed under chapter
62G, and to all fraternal benefit societies except those
societies paying only sick benefits not exceeding $250 in any
one year, or paying funeral benefits of not more than $350, or
aiding those dependent on a member not more than $350, nor any
subordinate lodge or council which is, or whose members are,
assessed for benefits which are payable by a grand body.
(c) The opinion applies to all business in force, including
individual and group health insurance plans, and must be based
on standards adopted by the Actuarial Standards Board. The
opinion must be acceptable to the commissioner in both form and
substance.
(d) In the case of an opinion required to be submitted by a
foreign or alien company, the commissioner may accept the
opinion filed by that company with the insurance supervisory
official of another state if the commissioner determines that
the opinion reasonably meets the requirements applicable to a
company domiciled in this state.
(e) For the purposes of this section, "qualified actuary"
means a member in good standing of the American Academy of
Actuaries who meets the requirements specified in the
regulations.
(f) The board of directors of every insurer subject to this
section shall appoint a qualified actuary to sign its actuarial
opinion. The appointment of the qualified actuary shall be
approved by the commissioner. The qualified actuary so
appointed may be an employee of the insurer. Notice of the
appointment, including a copy of the board of directors'
resolution, and the date of appointment shall be filed with the
commissioner. The notice may be filed before or at the time the
actuarial opinion is submitted. The notice shall state the
qualifications of the actuary. If the board appoints a new
actuary to sign actuarial opinions during the year, the
commissioner shall be notified of the new appointment and the
reason for change.
(g) Except in cases of fraud or willful misconduct, the
qualified actuary is not liable for damages to any person, other
than the insurance company and the commissioner, for any act,
error, omission, decision, or conduct with respect to the
actuary's opinion.
(h) A memorandum, in form and substance acceptable to the
commissioner based on standards adopted by the Actuarial
Standards Board and on additional standards as the commissioner
may by rule prescribe, must be prepared to support each
actuarial opinion.
(i) If the insurance company fails to provide a supporting
memorandum at the request of the commissioner within a period
specified by the commissioner, or the commissioner determines
that the supporting memorandum provided by the insurance company
fails to meet the standards based on standards adopted by the
Actuarial Standards Board and on additional standards as the
commissioner may by rule prescribe or is otherwise unacceptable
to the commissioner, the commissioner may engage a qualified
actuary at the expense of the company to review the opinion and
the basis for the opinion and prepare the required supporting
memorandum.
(j) Any memorandum in support of the opinion, and any other
material provided by the company to the commissioner in
connection with the memorandum, must be kept confidential by the
commissioner and must not be made public and is not subject to
subpoena, other than for the purpose of defending an action
seeking damages from any person by reason of any action required
by this section or by rules promulgated under this section. The
memorandum or other material may otherwise be released by the
commissioner (1) with the written consent of the company or (2)
to the American Academy of Actuaries upon request stating that
the memorandum or other material is required for the purpose of
professional disciplinary proceedings and setting forth
procedures satisfactory to the commissioner for preserving the
confidentiality of the memorandum or other material. Once any
portion of the confidential memorandum is cited by the company
in its marketing or is cited before any governmental agency
other than a state insurance department or is released by the
company to the news media, all portions of the confidential
memorandum are no longer confidential.
Sec. 2. Minnesota Statutes 1990, section 61A.25, is
amended by adding a subdivision to read:
Subd. 2b. [ACTUARIAL ANALYSIS.] (a) Every life insurance
company, except as exempted by or pursuant to regulation, shall
also annually include in the opinion required under subdivision
2a, paragraph (a), an opinion of the same qualified actuary as
to whether the reserves and related actuarial items, including
page 3, line 10, of the annual statement, held in support of the
policies and contracts specified by the commissioner, when
considered in light of the assets held by the company with
respect to the reserves and related actuarial items, including
but not limited to the investment earnings on the assets and the
considerations anticipated to be received and retained under the
policies and contracts, make adequate provision for the
company's obligations under the policies and contracts,
including but not limited to the benefits under and expenses
associated with the policies and contracts.
(b) The commissioner may provide by rule for a transition
period for establishing any higher reserves which the qualified
actuary may consider necessary in order to give the opinion
required under section 1.
Sec. 3. Minnesota Statutes 1990, section 61A.25,
subdivision 5, is amended to read:
Subd. 5. [MINIMUM AGGREGATE RESERVES.] A company's
aggregate reserves for all life insurance policies, excluding
disability and accidental death benefits, issued on or after the
operative date of Laws 1947, chapter 182, shall not be less than
the aggregate reserves calculated in accordance with the methods
set forth in subdivisions 4, 4a, 7, and 8, and the mortality
table or tables and rate or rates of interest used in
calculating nonforfeiture benefits for the policies.
In no event shall the aggregate reserves for all policies,
contracts, and benefits be less than the aggregate reserves
determined by the qualified actuary to be necessary to render
the opinion required under section 1.
Sec. 4. Minnesota Statutes 1990, section 61A.25,
subdivision 6, is amended to read:
Subd. 6. [CALCULATION OF RESERVES.] (1) Reserves for all
policies and contracts issued prior to the operative date of
Laws 1947, chapter 182, may be calculated, at the option of the
company, according to any standards which produce greater
aggregate reserves for all such policies and contracts than the
minimum reserves required by the laws in effect immediately
prior to such date.
(2) Reserves for any category of policies, contracts or
benefits as established by the commissioner, issued on or after
the operative date of Laws 1947, chapter 182, may be calculated,
at the option of the company, according to any standards which
produce greater aggregate reserves for such category than those
calculated according to the minimum standard herein provided,
but the rate or rates of interest used for policies and
contracts, other than annuity and pure endowment contracts,
shall not be higher than the corresponding rate or rates of
interest used in calculating any nonforfeiture benefits provided
for therein.
(3) Any such company which at any time shall have adopted
any standard of valuation producing greater aggregate reserves
than those calculated according to the minimum standard herein
provided may, with the approval of the commissioner, adopt any
lower standard of valuation, but not lower than the minimum
herein provided. For purposes of this section, the holding of
additional reserves previously determined by a qualified actuary
to be necessary to give the opinion required under section 1
shall not be considered the adoption of a higher standard of
valuation.
Sec. 5. Minnesota Statutes 1990, section 61A.25, is
amended by adding a subdivision to read:
Subd. 9. [MINIMUM STANDARDS FOR HEALTH, DISABILITY,
ACCIDENT, AND SICKNESS PLANS.] The commissioner may adopt a rule
containing the minimum standards applicable to the valuation of
health, disability, accident, and sickness plans.
Sec. 6. [REPORT.]
The commissioner of commerce shall review the standards for
the appointment of qualified actuaries under sections 1 and 2
and submit a report to the legislature relating to the
effectiveness of the standards by January 1, 1994.
Sec. 7. [COMPLEMENT.]
The complement of the department of commerce is increased
by one position in the classified service for the purpose of
reviewing actuarial opinions and analysis submitted under
sections 1 and 2.
Sec. 8. [EFFECTIVE DATE.]
Sections 1 to 5 are effective for reports submitted for
1992 as required under section 60A.13.
ARTICLE 8
INVESTMENTS FOR DOMESTIC INSURERS
Section 1. Minnesota Statutes 1990, section 60A.11,
subdivision 10, is amended to read:
Subd. 10. [DEFINITIONS.] The following terms have the
meaning assigned in this subdivision for purposes of this
section and section 60A.111:
(a) "Adequate evidence" means a written confirmation,
advice, or other verification issued by a depository, issuer, or
custodian bank which shows that the investment is held for the
company;
(b) "Adequate security" means a letter of credit qualifying
under subdivision 11, paragraph (f), cash, or the pledge of an
investment authorized by any subdivision of this section;
(c) "Admitted assets," for purposes of computing percentage
limitations on particular types of investments, means the assets
as shown by the company's annual statement, required by section
60A.13, as of the December 31 immediately preceding the date the
company acquires the investment;
(b) (d) "Clearing corporation" means The Depository Trust
Company or any other clearing agency registered with the federal
securities and exchange commission pursuant to the Federal
Securities Exchange Act of 1934, section 17A, Euro-clear
Clearance System Limited and CEDEL S.A., and, with the approval
of the commissioner, any other clearing corporation as defined
in section 336.8-102;
(c) (e) "Control" has the meaning assigned to that term in,
and must be determined in accordance with, section 60D.01,
subdivision 4;
(d) (f) "Custodian bank" means a bank or trust company or a
branch of a bank or trust company that is acting as custodian
and is supervised and examined by state or federal authority
having supervision over the bank or trust company or with
respect to a company's foreign investments only by the
regulatory authority having supervision over banks or trust
companies in the jurisdiction in which the bank, trust company,
or branch is located, and any banking institutions qualifying as
an "Eligible Foreign Custodian" under the Code of Federal
Regulations, section 270.17f-5, adopted under section 17(f) of
the Investment Company Act of 1940, and specifically includes
including Euro-clear Clearance System Limited and CEDEL S.A.,
acting as custodians;
(g) "Evergreen clause" means a provision that automatically
renews a letter of credit for a time certain if the issuer of
the letter of credit fails to affirmatively signify its
intention to nonrenew upon expiration;
(h) "Government obligations" means direct obligations for
the payment of money, or obligations for the payment of money to
the extent guaranteed as to the payment of principal and
interest by any governmental issuer where the obligations are
payable from ad valorem taxes or guaranteed by the full faith,
credit, and taxing power of the issuer and are not secured
solely by special assessments for local improvements;
(i) "Noninvestment grade obligations" means obligations
which, at the time of acquisition, were rated below Baa/BBB or
the equivalent by a securities rating agency or which, at the
time of acquisition, were not in one of the two highest
categories established by the securities valuation office of the
National Association of Insurance Commissioners;
(e) (j) "Issuer" means the corporation, business trust,
governmental unit, partnership, association, individual, or
other entity which issues or on behalf of which is issued any
form of obligation;
(k) "Licensed real estate appraiser" means a person who
develops and communicates real estate appraisals and who holds a
current, valid license under chapter 82B or a substantially
similar licensing requirement in another jurisdiction;
(f) (l) "Member bank" means a national bank, state bank or
trust company which is a member of the Federal Reserve System;
(g) (m) "National securities exchange" means an exchange
registered under section 6 of the Securities Exchange Act of
1934 or an exchange regulated under the laws of the Dominion of
Canada;
(n) "NASDAQ" means the reporting system for securities
meeting the definition of National Market System security as
provided under Part I to Schedule D of the National Association
of Securities Dealers Incorporated bylaws;
(h) (o) "Obligations" include bonds, notes, debentures,
transportation equipment certificates, repurchase agreements,
bank certificates of deposit, time deposits, bankers'
acceptances, and other obligations for the payment of money not
in default as to payments of principal and interest on the date
of investment, whether constituting general obligations of the
issuer or payable only out of certain revenues or certain funds
pledged or otherwise dedicated for payment. Leases are
considered obligations if the lease is assigned for the benefit
of the company and is nonterminable by the lessee or lessees
thereunder upon foreclosure of any lien upon the leased
property, and rental payments are sufficient to amortize the
investment over the primary lease term;
(i) (p) "Qualified assets" means the sum of (1) all
investments qualified in accordance with this section other than
investments in affiliates and subsidiaries, (2) investments in
obligations of affiliates as defined in section 60D.01,
subdivision 2 secured by real or personal property sufficient to
qualify the investment under subdivision 19 or 23, (3) qualified
investments in subsidiaries, as defined in section 60D.01,
subdivision 9, on a consolidated basis with the insurance
company without allowance for goodwill or other intangible
value, and (4) cash on hand and on deposit, agent's balances or
uncollected premiums not due more than 90 days, assets held
pursuant to section 60A.12, subdivision 2, investment income due
and accrued, funds due or on deposit or recoverable on loss
payments under contracts of reinsurance entered into pursuant to
section 60A.09, premium bills and notes receivable, federal
income taxes recoverable, and equities and deposits in pools and
associations;
(j) (q) "Qualified net earnings" means that the net
earnings of the issuer after elimination of extraordinary
nonrecurring items of income and expense and before income taxes
and fixed charges over the five immediately preceding completed
fiscal years, or its period of existence if less than five
years, has averaged not less than 1-1/4 times its average annual
fixed charges applicable to the period;
(k) (r) "Required liabilities" means the sum of (1) total
liabilities as required to be reported in the company's most
recent annual report to the commissioner of commerce of this
state, (2) for companies operating under the stock plan, the
minimum paid-up capital and surplus required to be maintained
pursuant to section 60A.07, subdivision 5a, (3) for companies
operating under the mutual or reciprocal plan, the minimum
amount of surplus required to be maintained pursuant to section
60A.07, subdivision 5b, and (4) the amount, if any, by which the
company's loss and loss adjustment expense reserves exceed 350
percent of its surplus as it pertains to policyholders as of the
same date. The commissioner may waive the requirement in clause
(4) unless the company's written premiums exceed 300 percent of
its surplus as it pertains to policyholders as of the same
date. In addition to the required amounts pursuant to clauses
(1) to (4), the commissioner may require that the amount of any
apparent reserve deficiency that may be revealed by one to five
year loss and loss adjustment expense development analysis for
the five years reported in the company's most recent annual
statement to the commissioner be added to required liabilities;
and
(s) "Revenue obligations" means obligations for the payment
of money by a governmental issuer where the obligations are
payable from revenues, earnings, or special assessments on
properties benefited by local improvements of the issuer which
are specifically pledged therefor;
(t) "Security" has the meaning given in section 5 of the
Security Act of 1933 and specifically includes, but is not
limited to, stocks, stock equivalents, warrants, rights,
options, obligations, American Depository Receipts (ADR's),
repurchase agreements, and reverse repurchase agreements; and
(l) (u) "Unrestricted surplus" means the amount by which
qualified assets exceed 110 percent of required liabilities.
Sec. 2. Minnesota Statutes 1990, section 60A.11,
subdivision 11, is amended to read:
Subd. 11. [INVESTMENTS IN NAME OF COMPANY OR NOMINEE AND
PROHIBITIONS.] A company's investments shall be held in its own
name or the name of its nominee, except that:
(a) Investments may be held in the name of a clearing
corporation or of a custodian bank or in the name of the nominee
of either on the following conditions:
(1) The clearing corporation, custodian bank, or nominee
must be legally authorized to hold the particular investment for
the account of others;
(2) Where the investment is evidenced by a certificate and
held in the name of a custodian bank or the nominee by a
custodian bank, a written agreement shall provide that
certificates so deposited shall at all times be kept separate
and apart from other deposits with the depository, so that at
all times they may be identified as belonging solely to the
company making the deposit; and
(3) Where a clearing corporation is to act as depository,
the investment may be merged or held in bulk in the clearing
corporation's or its nominee name with other investments
deposited with the clearing corporation by any other person, if
a written agreement provides that adequate evidence of the
deposit is to be obtained and retained by the company or a
custodian bank; and
(4) The company shall monitor current publicly available
financial information and other pertinent data with respect to
the custodian banks.
(b) A company may loan stocks or obligations securities
held by it under this chapter to a broker-dealer registered
under the Securities and Exchange Act of 1934 or a member bank.
The loan must be evidenced by a written agreement which provides:
(1) That the loan will be fully collateralized by cash or
obligations issued or guaranteed by the United States or an
agency or an instrumentality thereof, and that the collateral
will be adjusted each business day during the term of the loan
to maintain the required collateralization in the event of
market value changes in the loaned securities or collateral;
(2) That the loan may be terminated by the company at any
time, and that the borrower will return the loaned stocks or
obligations securities or their equivalent within five business
days after termination;
(3) That the company has the right to retain the collateral
or use the collateral to purchase investments equivalent to the
loaned securities if the borrower defaults under the terms of
the agreement and that the borrower remains liable for any
losses and expenses incurred by the company due to default that
are not covered by the collateral;.
(c) A company may participate through a member bank in the
Federal Reserve book-entry system, and the records of the member
bank shall at all times show that the investments are held for
the company or for specific accounts of the company; or.
(d) An investment may consist of an individual interest in
a pool of obligations or a fractional interest in a single
obligation if the certificate of participation or interest or
the confirmation of participation or interest in the investment
shall be issued in the name of the company or the name of the
custodian bank or the nominee of either and if the certificate
or confirmation must, if held by a custodian bank, be kept
separate and apart from the investments of others so that at all
times the participation may be identified as belonging solely to
the company making the investment.
(e) Except as provided in paragraph (c), where an
investment is not evidenced by a certificate, except as provided
in paragraph (c), adequate evidence of the company's investment
shall be obtained from the issuer or its transfer or recording
agent and retained by the company, a custodian bank, or clearing
corporation. Adequate evidence, for purposes of this
subdivision, shall mean a written receipt or other verification
issued by the depository or issuer or a custodian bank which
shows that the investment is held for the company. Transfers of
ownership of investments held as described in paragraphs (a),
clause (3), (c) and (d) may be evidenced by bookkeeping entry on
the books of the issuer of the investment or its transfer or
recording agent or the clearing corporation without physical
delivery of certificates, if any, evidencing the company's
investment.
(f) A letter of credit may be accepted as a guaranty of
other investments, as collateral to secure loans, or in lieu of
cash to secure loans of securities, if it is issued by a member
bank or any of the 100 largest banks in the world ranked by
deposits in dollars or converted into dollar equivalents, as
compiled annually by the American Bankers Association or listed
in the annual publication of Moody's Bank & Finance Manual and
meets the following requirements:
(1) has a long-term deposit rating or a long-term debt
rating of at least Aa2 as found in the current monthly
publication of Moody's Credit Opinions or its equivalent; and
(2) qualifies under the guidelines of the National
Association of Insurance Commissioners as a clean, irrevocable
letter of credit containing an evergreen clause or having a
maturity date subsequent to the maturity date of the underlying
investment or loan. The company shall monitor current publicly
available financial information and other pertinent data with
respect to the banks issuing the letters of credit.
Sec. 3. Minnesota Statutes 1990, section 60A.11, is
amended by adding a subdivision to read:
Subd. 11a. [ADDITIONAL LIMITATIONS.] Under the standards
and procedures in article 3 for individual insurers, the
commissioner may impose additional limitations on all insurers
on the types and percentages of investments as the commissioner
determines necessary to protect and ensure the safety of the
general public.
Sec. 4. Minnesota Statutes 1990, section 60A.11,
subdivision 12, is amended to read:
Subd. 12. [INVESTMENTS.] (a) A company must comply with
section 60A.112.
(b) A company's investments must be so diversified that the
securities of a single issuer, other than the United States of
America or any agency or instrumentality of the United States of
America backed by the full faith and credit of the issuer, shall
comprise no more than five percent of the company's admitted
assets, except where otherwise specified under this chapter. In
the case of insurance companies which are subsidiaries of a
company, this diversification test must be applied to the assets
of the insurance company subsidiary in determining the company's
compliance.
(c) The investments authorized under the following
subdivisions of this section 12 to 26 shall constitute admitted
assets for a company.
Sec. 5. Minnesota Statutes 1990, section 60A.11,
subdivision 13, is amended to read:
Subd. 13. [UNITED STATES GOVERNMENT OBLIGATIONS.] (a)
Obligations issued or guaranteed by the United States of America
or an any agency or instrumentality of the United States of
America backed by the full faith and credit of the issuer,
including rights to purchase or sell these obligations if those
rights are traded upon a contract market designated and
regulated by a federal agency.
(b) Obligations issued or guaranteed by an agency or
instrumentality of the United States of America other than those
backed by the full faith and credit thereof, including rights to
purchase or sell these obligations if those rights are traded
upon a contract market designated and regulated by a federal
agency. The securities of a single issuer under this paragraph
shall comprise no more than 20 percent of the company's admitted
assets.
Sec. 6. Minnesota Statutes 1990, section 60A.11,
subdivision 14, is amended to read:
Subd. 14. [CERTAIN BANK OBLIGATIONS.] (a) Certificates of
deposits, time deposits, and bankers' acceptances issued by and
other obligations guaranteed by: (i) any bank organized under
the laws of the United States or any state, commonwealth, or
territory thereof, including the District of Columbia, or of the
Dominion of Canada or any province thereof or (ii) any of the
100 largest banks, not a subsidiary or a holding company
thereof, in the world ranked by deposits in dollars or converted
into dollar equivalents, as compiled annually by the American
Bankers Association or listed in the annual publication of
Moody's Bank & Finance Manual, which also has a long-term
deposit rating or a long-term debt rating of at least Aa2 as
found in the current monthly publication of Moody's Credit
Opinions or its equivalent. A company may not invest more than
five percent of its admitted assets in the obligations of any
one bank and may not hold at any time more than ten percent of
the outstanding obligations of any one bank. A letter of credit
issued by a member bank which qualifies under the guidelines of
the National Association of Insurance Commissioners as a clean,
irrevocable letter of credit which contains an "evergreen
clause," may be accepted as a guaranty of other investments and
in lieu of cash to secure loans of securities.
(b) Obligations issued or guaranteed by the International
Bank for Reconstruction and Development, the Asian Development
Bank, the Inter-American Development Bank, the African
Development Bank, the Export-Import Bank, the World Bank or any
United States government sponsored organization of which the
United States is a member, if the principal and interest is
payable in United States dollars. A company may not invest more
than five percent of its total admitted assets in the
obligations of any one of these banks or organizations, and may
not invest more than a total of 15 percent of its total admitted
assets in the obligations of all these banks and organizations.
Sec. 7. Minnesota Statutes 1990, section 60A.11,
subdivision 15, is amended to read:
Subd. 15. [STATE OBLIGATIONS.] (a) Government obligations
issued or guaranteed by any state, commonwealth, or territory of
the United States of America or by any political subdivision
thereof, including the District of Columbia, or by any
instrumentality of any state, commonwealth, territory, or
political subdivision thereof. The diversification requirement
of subdivision 12, paragraph (b), does not apply to government
obligations under this paragraph.
(b) Revenue obligations issued by any state, commonwealth,
or territory of the United States of America or by any political
subdivision thereof, including the District of Columbia, or by
any instrumentality of any state, commonwealth, territory, or
political subdivision thereof. The diversification requirement
of subdivision 12, paragraph (b), is applicable to revenue
obligations under this paragraph.
Sec. 8. Minnesota Statutes 1990, section 60A.11,
subdivision 16, is amended to read:
Subd. 16. [CANADIAN GOVERNMENT OBLIGATIONS.] (a)
Obligations issued or guaranteed by the Dominion of Canada or by
any agency or province thereof, or by any political subdivision
of any province or by an instrumentality of any province or
political subdivision thereof instrumentality of the Dominion of
Canada backed by the full faith and credit of the issuer. The
diversification requirement of subdivision 12, paragraph (b),
does not apply to government obligations under this paragraph.
(b) Obligations issued or guaranteed by an agency or
instrumentality of the Dominion of Canada other than those
backed by the full faith and credit of the issuer. The
securities of a single issuer under this paragraph shall
comprise no more than 20 percent of the company's admitted
assets.
(c) Government obligations issued or guaranteed by a
province or territory of the Dominion of Canada or by a
political subdivision thereof, or by an instrumentality of a
province, territory, or political subdivision thereof. The
diversification requirement of subdivision 12, paragraph (b),
does not apply to government obligations under this paragraph.
(d) Revenue obligations issued by a province or territory
of the Dominion of Canada or by a political subdivision thereof,
or by an instrumentality of a province, territory, or political
subdivision thereof. The diversification requirement of
subdivision 12, paragraph (b), is applicable to revenue
obligations under this paragraph.
Sec. 9. Minnesota Statutes 1990, section 60A.11,
subdivision 17, is amended to read:
Subd. 17. [CORPORATE AND BUSINESS TRUST OBLIGATIONS.]
Obligations issued, assumed or guaranteed by a corporation or
business trust organized under the laws of the United States of
America or any state, commonwealth, or territory of the United
States, including the District of Columbia, or the laws of the
Dominion of Canada or any province or territory of the Dominion
of Canada, or obligations traded on a national securities
exchange on the following conditions:
(a) A company may invest in any obligations traded on a
national securities exchange;
(b) A company may also invest in any obligations which are
secured by adequate security located in the United States or
Canada;
(c) A company may also invest in previously outstanding or
newly issued obligations not qualifying for investment under
paragraph (a) or (b) if the corporation or business trust has
qualified net earnings. If the obligations are not newly
issued, neither principal nor interest payments on the
obligations shall have been in arrears (1) for an aggregate of
90 days during the three-year period preceding the date of
investment, or (2) where the obligations have been outstanding
for less than 90 days, during the period the obligations have
been outstanding;
(d) A company may invest no more than 15 percent of its
total admitted assets in noninvestment grade obligations;
(e) A company may invest in federal farm loan bonds and may
invest up to 20 percent of its total admitted assets in the
obligations of farm mortgage debenture companies; and
(e) (f) A company may not invest more than five percent of
its admitted assets in the obligations of any one corporation or
business trust; provided, however, that a company may invest in
the obligations of a corporation without regard to this
paragraph or the subdivision 12, paragraph (b), diversification
requirement if: (1) the company is wholly owned by the issuer
and affiliates of the issuer of the obligations; (2) the company
insures solely the issuer of the obligations and its affiliates;
(3) the issuer has a net worth, determined on a consolidated
basis, which equals or exceeds $100,000,000; and (4) the issuer
and its affiliates forego any and all claims they may have
against the Minnesota insurance guaranty association pursuant to
chapter 60C in the event of the insolvency of the company. This
does not affect the rights of any unaffiliated third party
claimant under section 60C.09, subdivision 1.
Sec. 10. Minnesota Statutes 1990, section 60A.11,
subdivision 18, is amended to read:
Subd. 18. [STOCKS AND LIMITED PARTNERSHIPS.] (a) Stocks
issued or guaranteed by any corporation incorporated under the
laws of the United States of America or any state, commonwealth,
or territory of the United States, including the District of
Columbia, or the laws of the Dominion of Canada or any province
or territory of Canada, or stocks or stock equivalents,
including American Depository Receipts or unit investment
trusts, listed or regularly traded on a national securities
exchange on the following conditions:
(1) A company may not invest more than a total of 25
percent of its total admitted assets in stocks, stock
equivalents, and convertible issues. Not more than ten percent
of a company's total admitted assets may be invested in stocks,
stock equivalents, and convertible issues not traded or listed
on a national securities exchange or designated or approved for
designation upon notice of issuance on the NASDAQ/National
Market System. This limitation does not apply to investments
under clause (4);
(a) (2) A company may not invest in more than two percent
of its total admitted assets in preferred stocks of any
corporation which are traded on a national securities exchange
and may also invest in other preferred stocks if the issuer has
qualified net earnings and if current or cumulative dividends
are not then in arrears;
(b) (3) A company may not invest in more than two percent
of its total admitted assets in common stocks, common stock
equivalents, or securities convertible into common stock or
common stock equivalents of any corporation or business trust,
provided: which are traded on a national securities exchange or
designated or approved for designation upon notice of issuance
on the NASDAQ/National Market System, and may also invest in
other common stocks, stock equivalents, and convertible issues
subject to the limitations specified in clause (1);
(1) The common stock, common stock equivalent or
convertible issue is publicly traded on a national securities
exchange, or the corporation or business trust has qualified net
earnings;
(2) A company may invest up to two percent of its admitted
assets in common stock, common stock equivalents or convertible
issues which do not meet the requirements of clause (1);
(3) At no time may (4) A company may organize or acquire or
and hold voting control of a corporation or business trust
through its ownership of common stock, common stock equivalents,
or other securities, except that a company may organize and
hold, or acquire and hold more than 50 percent of the common
stock of provided the corporation or business trust is: (a) a
corporation providing investment advisory, banking, management
or sale services to an investment company or to an insurance
company, (b) a data processing or computer service company, (c)
a mortgage loan corporation engaged in the business of making,
originating, purchasing or otherwise acquiring or investing in,
and servicing or selling or otherwise disposing of loans secured
by mortgages on real property, (d) a corporation if its business
is owning and managing or leasing personal property, (e) a
corporation providing securities underwriting services or acting
as a securities broker or dealer, (f) a real property holding,
developing, managing, brokerage or leasing corporation, (g) any
domestic or foreign insurance company, (h) any alien insurance
company, if the organization or acquisition and the holding of
the company is subject to the prior approval of the commissioner
of commerce, which approval must be given upon good cause shown
and is deemed to have been given if the commissioner does not
disapprove of the organization or acquisition within 30 days
after notification by the company, (i) an investment subsidiary
to acquire and hold investments which the company could acquire
and hold directly, if the investments of the subsidiary are
considered direct investments for purposes of this chapter and
are subject to the same percentage limitations, requirements and
restrictions as are contained herein, or (j) any corporation
whose business has been approved by the commissioner as
complementary or supplementary to the business of the company.
The percentage of common stock may be less than 50 percent if
the prior approval of the commissioner is obtained. A company
may invest up to an aggregate of ten percent of its total
admitted assets under subclauses (a) to (e) of this clause (3).
The diversification requirement of subdivision 12, paragraph
(b), does not apply to this clause;
(4) A company may invest in the common stock of any
corporation owning investments in foreign companies used for
purposes of legal deposit, when the insurance company transacts
business therein direct or as reinsurance;
(c) (5) A company may invest in warrants and rights granted
by an issuer to purchase stock securities of the issuer if the
stock that security of the issuer, at the time of the
acquisition of the warrant or right to purchase, would qualify
as an investment under paragraph (a), clause (2) or
(b) (3), whichever is applicable. A company shall not invest
more than two percent of its assets under this paragraph. Any
stock actually acquired through the exercise of a warrant or
right to purchase may be included in paragraph (a) or (b),
whichever is applicable, only if the stock, provided that
security meets the standards prescribed in the clause at the
time of acquisition of the stock securities; and
(d) (6)(i) A company may invest in the securities of any
face amount certificate company, unit investment trust, or
management type investment company, registered or in the process
of registration under the Federal Investment Company Act of 1940
as from time to time amended, provided that the aggregate of all
these investments other than in securities of money market
mutual funds or mutual funds investing primarily in United
States government securities, determined at cost, shall not
exceed five percent of its total admitted assets; investments
may be made under this clause without regard to the percentage
limitations applicable to investments in voting securities.
(e) (ii) A company may invest in any proportion of the
shares or investment units of an investment company or
investment trust, whether or not registered under the Federal
Investment Company Act of 1940, which is managed by an insurance
company, member bank, trust company regulated by state or
federal authority or an investment manager or adviser registered
under the Federal Investment Advisers Act of 1940 or qualified
to manage the investments of an investment company registered
under the Federal Investment Company Act of 1940, provided that
the investments of the investment company or investment trust
are qualified investments made under this section and that the
articles of incorporation, bylaws, trust agreement, investment
management agreement, or some other governing instrument limits
its investments to investments qualified under this section.
(b) A company may invest in or otherwise acquire and hold a
limited partnership interest in any limited partnership formed
under the laws of any state, commonwealth, or territory of the
United States or under the laws of the United States of
America. No limited partnership interest shall be acquired if
the investment, valued at cost, exceeds two percent of the
admitted assets of the company or if the investment, plus the
book value on the date of the investment of all limited
partnership interests then held by the company and held under
the authority of this subdivision, exceeds ten percent of the
company's admitted assets. Limited partnership interests traded
on a national securities exchange must be classified as stock
equivalents and are not subject to the percentage limitations
contained in this paragraph.
Sec. 11. Minnesota Statutes 1990, section 60A.11,
subdivision 19, is amended to read:
Subd. 19. [MORTGAGES ON REAL ESTATE.] Up to 25 percent of
a company's total admitted assets may be invested in loans or
obligations secured by a mortgage or a trust deed on real estate
located in any state, commonwealth, or territory of the United
States, including the District of Columbia, or in any province
or territory of the Dominion of Canada, on the following
conditions:
(a) A leasehold estate constitutes real estate under this
section if its unexpired term on the date of investment is at
least five years longer than the term of the obligation secured
by it. The obligation must be repayable within the leasehold
term in annual or more frequent installments, except that
obligations for commercial purposes may begin up to five years
after the date of the obligations. The mortgage must entitle
the company upon default to be subrogated to all rights of the
lessor under the leasehold;
(b) The real estate to which the mortgage applies must be
(1) improved with permanent buildings, or (2) used for
agriculture or pasture, or (3) income-producing, including but
not limited to parking lots and leases, royalty or other mineral
interests in properties producing oil, gas or other minerals and
interests in properties for the harvesting of forest products,
or (4) subject to a definite plan for the commencement of
development within five years;
(c) The real estate to which the mortgage applies must be
otherwise unencumbered when the mortgage loan is funded except
as provided in paragraph (d) and except for encumbrances which
do not unreasonably interfere with the intended use of the real
estate as security;
(d) The real estate to which the mortgage applies may be
subject to a prior mortgage or trust deed if (1) the amount of
the obligation is equal to the sum of the company's loan and the
other outstanding indebtedness and (2) the company has control
over the payments under the prior mortgage or trust deed;
(e) The amount of the obligation may not exceed 80 percent
of the real estate. If the amount of the obligation exceeds
66-2/3 percent of the market value of the real estate, principal
payments must commence within five years after the date of the
mortgage loan and principal and interest on the loan shall be
fully amortized by regular installments payable during the term
of the loan without irregular or balloon payments, unless the
schedule of irregular or balloon payments is more favorable to
the insurer than regular installments of equal amount would be.
The market value shall be established by the written
certification of a licensed real estate appraiser qualified to
appraise the particular type of real estate involved. The
appraisal must be required at the time the loan is made;
(f) The maximum term of any obligation shall be 40 years,
except as provided in paragraph (g) and except for obligations
secured by a mortgage or trust deed which are or are to be
insured by a private mortgage insurance company approved by the
commissioner;
(g) The 25 percent of total admitted asset limitation in
the preamble of this subdivision and the maximum amount and term
limitations in paragraphs (e) and (f) shall not apply to
obligations secured by mortgage or trust deed which are insured
or guaranteed by the United States of America or any agency or
instrumentality of the United States;
(h) A company may invest in collateralized mortgage
obligations, mortgage participation certificates and pools
issued or administered by a bank or banks and secured by first
mortgages or trust deeds on improved real estate located in the
United States provided the private placement memorandum,
prospectus or other offering circular, or a written agreement
with the issuer of the collateralized mortgage obligations,
certificate or other pool interest provides that each loan meets
the requirements of this subdivision;
(i) Notwithstanding the restrictions in paragraph (e), if a
company disposes of real estate acquired by it under subdivision
20, it may take back a purchase money mortgage from its vendee
purchaser in an amount up to 90 percent of the purchase price
appraised value; and
(j) The vendor's equity in a contract for deed shall be
treated as a mortgage for purposes of this subdivision.
Sec. 12. Minnesota Statutes 1990, section 60A.11,
subdivision 20, is amended to read:
Subd. 20. [REAL ESTATE.] (a) Except as provided in
paragraphs (b) to (d), a company may only acquire, hold, and
convey real estate which:
(1) has been mortgaged to it in good faith by way of
security for loans previously contracted, or for money due;
(2) has been conveyed to it in satisfaction of debts
previously contracted in the course of its dealings;
(3) has been purchased at sales on judgments, decrees or
mortgages obtained or made for the debts; and
(4) is subject to a contract for deed under which the
company holds the vendor's interest to secure the payments the
vendee is required to make thereunder.
All the real estate specified in clauses (1) to (3) must be
sold and disposed of within five years after the company has
acquired title to it, or within five years after it has ceased
to be necessary for the accommodation of the company's business,
and the company must not hold this property for a longer period
unless the company elects to hold the real estate under another
section, or unless it procures a certificate from the
commissioner of commerce that its interest will suffer
materially by the forced sale thereof, in which event the time
for the sale may be extended to the time the commissioner
directs in the certificate. The market value of real estate
must be established by the written certification of a licensed
real estate appraiser. The appraisal is required at the time
the company elects to hold the real estate under this
subdivision.
(b) A company may acquire and hold real estate for the
convenient accommodation of its business.
(c) A company may acquire real estate or any interest in
real estate, including oil and gas and other mineral interests,
as an investment for the production of income, and may hold,
improve or otherwise develop, subdivide, lease, sell and convey
real estate so acquired directly or as a joint venture or
through a limited or general partnership in which the company is
a partner.
(d) A company may also hold real estate (1) if the purpose
of the acquisition is to enhance the sale value of real estate
previously acquired and held by the company under this section,
and (2) if the company expects the real estate so acquired to
qualify under paragraph (b) or (c) above within five years after
acquisition.
(e) A company may, after securing the approval of the
commissioner, acquire and hold real estate for the purpose of
providing necessary living quarters for its employees. The
company must dispose of the real estate within five years after
it has ceased to be necessary for that purpose unless the
commissioner agrees to extend the holding period upon
application by the company.
(f) A company may not invest more than 25 percent of its
total admitted assets in real estate. The cost of any parcel of
real estate held for both the accommodation of business and for
the production of income must be allocated between the two uses
annually. No more than ten percent of a company's total
admitted assets may be invested in real estate held under
paragraph (b). No more than 15 percent of a company's total
admitted assets may be invested in real estate held under
paragraph (c). No more than three percent of its total admitted
assets may be invested in real estate held under paragraph (e).
Upon application by a company, the commissioner of commerce may
increase any of these limits up to an additional five percent.
Sec. 13. Minnesota Statutes 1990, section 60A.11,
subdivision 21, is amended to read:
Subd. 21. [FOREIGN INVESTMENTS.] Obligations of and
investments in foreign countries, on the following conditions:
(a) a company may acquire and hold any foreign investments
which are required as a condition of doing business in the
foreign country or necessary for the convenient accommodation of
its foreign business. An investment is considered necessary for
the convenient accommodation of the insurance company's foreign
business only if it is demonstrably and directly related in size
and purpose to the company's foreign insurance operations; and
(b) a company may also not invest not more than a total of
two five percent of its total admitted assets in any combination
of:
(1) the obligations of foreign governments, corporations,
or business trusts;
(2) obligations of federal, provincial, or other political
subdivisions backed by the full faith and credit of the foreign
governmental unit;
(3) or in the stocks or stock equivalents or obligations of
foreign corporations or business trusts not qualifying for
investment under subdivision 12, if the obligations, stocks or
stock equivalents are listed or regularly traded on the London,
Paris, Zurich, or Tokyo stock exchange or any similar regular
securities exchange not disapproved by the commissioner within
30 days following notice from the company of its intention to
invest in these securities.
Sec. 14. Minnesota Statutes 1990, section 60A.11,
subdivision 22, is amended to read:
Subd. 22. [PERSONAL PROPERTY UNDER LEASE.] Personal
property for intended lease or rental in the United States or
Canada. A company may not invest more than five percent of
its total admitted assets under this subdivision.
Sec. 15. Minnesota Statutes 1990, section 60A.11,
subdivision 23, is amended to read:
Subd. 23. [COLLATERAL LOANS.] Obligations adequately
secured by a qualifying letter of credit issued by a member bank
or by cash or by the pledge of any investment authorized by any
of the preceding subdivisions having adequate security if:
(a) The collateral is legally assigned or delivered to the
company;
(b) The company has the right to declare the obligation
immediately due and payable if the security thereafter
depreciates to the point where the investment would not qualify
under paragraph (c); provided, that additional qualifying
security may be pledged to allow the investment to remain
qualified at its face value;
(c) The collateral must at the time of delivery or
assignment have a market value of at least, in the case of cash,
or a letter of credit meeting the requirements of subdivision
11, paragraph (f), equal to and, in all other cases, 1-1/4 times
the amount of the unpaid balance of the obligations.
A collateral loan made by a company to its parent
corporation or an affiliated party must be secured by
collateral: (i) with a market value equal to the amount of the
unpaid balance of the obligations, and (ii) which is issued or
guaranteed by the United States of America or an agency or an
instrumentality thereof, or any state or territory thereof, and
is secured by the full faith and credit of the United States of
America or any state or territory thereof. A company may not
invest more than five percent of its total admitted assets under
this subdivision.
Sec. 16. Minnesota Statutes 1990, section 60A.11, is
amended by adding a subdivision to read:
Subd. 24a. [DATA PROCESSING SYSTEMS.] Electronic computer
or data processing machines or systems purchased for use in
connection with the business of the company, provided that the
machines or system must have an original cost of not less than
$100,000 nor more than three percent of the admitted assets of
the company and the cost must be amortized in full over a period
not to exceed ten full calendar years.
Sec. 17. Minnesota Statutes 1990, section 60A.11,
subdivision 26, is amended to read:
Subd. 26. [RULES.] (a) The commissioner may adopt
appropriate rules to carry out the purpose and provisions of
this section.
(b) A company may make qualified investments in any
additional securities or property of any kind other type of
investment or exceeding any limitations of quality, quantity, or
percentage of admitted assets contained in this section with the
written order of the commissioner. This approval is at the
discretion of the commissioner, provided that the additional
investments allowed by the commissioner's written order may not
exceed five percent of the company's admitted assets.
(c) Nothing authorized in this subdivision negates or
reduces the investment authority granted in subdivisions 1 to 25.
Sec. 18. [REPEALER.]
Minnesota Statutes 1990, section 60A.12, subdivision 2, is
repealed.
Sec. 19. [EFFECTIVE DATE.]
Section 9, paragraph (d), is effective as follows:
effective January 1, 1992, noninvestment grade obligations are
limited to 20 percent of admitted assets; effective January 1,
1993, noninvestment grade obligations are limited to 17.5
percent of admitted assets; effective January 1, 1994, and
thereafter, noninvestment grade obligations are limited to 15
percent of admitted assets.
ARTICLE 9
LIFE INSURANCE COMPANY INVESTMENTS
Section 1. Minnesota Statutes 1990, section 61A.28,
subdivision 1, is amended to read:
Subdivision 1. [FUNDS TO BE INVESTED INVESTMENT GUIDELINES
AND PROCEDURES.] Each domestic life insurance company must
comply with section 60A.112.
No investment or loan, except policy loans, shall be made
by a domestic life insurance company unless authorized or
approved by the board of directors or by a committee of
directors, officers, or employees of the company designated by
the board and charged with the duty of supervising the
investment or loan. Accurate records of all authorizations and
approvals must be maintained.
The capital, surplus and other funds of every domestic life
insurance company, whether incorporated by special act or under
the general law (in addition to investments in real estate as
otherwise permitted by law) may be invested only in one or more
of the following kinds of securities or property. An investment
may not be made under this section if the required interest
obligation is in default.
Sec. 2. Minnesota Statutes 1990, section 61A.28,
subdivision 2, is amended to read:
Subd. 2. [GOVERNMENT OBLIGATIONS.] Bonds or other
obligations of, or bonds or other obligations insured or
guaranteed by,: (a) the United States or any state thereof; (b)
the Dominion of Canada or any province thereof; (c) any county,
city, town, statutory city formerly a village, organized school
district, municipality, or other civil or political subdivision
of this state, or of any state of the United States or of any
province of the Dominion of Canada; (d) any agency or
instrumentality of the foregoing, including but not limited to,
debentures issued by the federal housing administrator,
obligations of national mortgage associations the Federal Home
Loan Mortgage Corporation, the Federal National Mortgage
Association, the Government National Mortgage Association; and
(e) obligations payable in United States dollars issued or fully
guaranteed by the International Bank for Reconstruction and
Development, the Inter-American Development Bank, the Asian
Development Bank, the African Development Bank, the
Export-Import Bank, or any other United States government
sponsored organization of which the United States is a member;
provided, that. The life insurance company may not invest more
than five percent of its total admitted assets in the
obligations of any one of these banks or organizations and may
not invest more than 15 percent of its total admitted assets in
the obligations of all banks or organizations described in
paragraph (e).
As used in this subdivision with respect to the United
States or any agency or instrumentality of the United States,
"bonds or other obligations" shall include purchases or sales of
rights or options to purchase the obligations if those rights or
options are traded upon a contract market designated and
regulated by a federal agency. if the investment causes the
company's aggregate investments in the obligations of any one of
these banks or organizations to exceed five percent of its
admitted assets or if the investment causes the company's
aggregate investments in the obligations of all banks or
organizations described in clause (e) to exceed 15 percent of
its admitted assets.
Sec. 3. Minnesota Statutes 1990, section 61A.28,
subdivision 3, is amended to read:
Subd. 3. [LOANS OR OBLIGATIONS SECURED BY MORTGAGE.] Loans
or obligations (hereinafter loans) secured by a first mortgage,
or deed of trust (hereinafter mortgage), on improved real estate
in the United States, if the amount of the loan secured thereby
is not in excess of 66-2/3 percent of the market value of the
real estate at the time of the loan, or, when the loan is to be
fully amortized by installment payments of principal, which may
begin up to five years from the date of the loan if the real
estate is to be used for commercial purposes, and interest at
least annually over a period of not to exceed 40 years, the
amount of the loan does not exceed (a) 80 percent of the market
value of the real estate at the time of the loan; (b) 90 percent
of the market value of the real estate at the time of the loan
if the loan is secured by a purchase money mortgage made in
connection with the disposition of real estate acquired pursuant
to section 61A.31, subdivision 1, or, if (1) the real estate is
used for commercial purposes, and (2) the loan is additionally
secured by an assignment of lease or leases, and (3) the lessee
or lessees under the lease or leases, or a guarantor or
guarantors of the lessee's obligations, is a corporation whose
obligations would qualify as an investment under
subdivision 6(f) 6, paragraph (e), and (4) the rents payable
during the primary term of the lease or leases are sufficient to
amortize at least 60 percent of the loan. In calculating the
ratio of the amount of the loan to the value of the property, no
part of the amount of any loan is to be included which the
United States or any agency or instrumentality thereof or other
mortgage insurer as may be approved by the commissioner has
insured or guaranteed or made a commitment to insure or
guarantee; provided, in no event may the loan exceed the market
value of the property. No improvement may be included in
estimating the market value of the real estate unless it is
insured against fire by policies payable to the security holder
or a trustee for its benefit. This requirement may be met by a
program of self-insurance established and maintained by a
corporation whose debt obligations would qualify for purchase
under subdivision 6, paragraph (g), clause (4). Also loans
secured by mortgage, upon leasehold estates in improved real
property where at the date of investment the lease has an
unexpired term of at least five years longer than the term of
the loan secured thereby, and where the leasehold estate is
unencumbered except by the lien reserved in the lease for the
payment of rentals and the observance of the other covenants,
terms and conditions of the lease and where the mortgagee, upon
default, is entitled to be subrogated to, or to exercise, all
the rights and to perform all the covenants of the lessee,
provided that no loan on the leasehold estate may exceed (a)
66-2/3 percent of the market value thereof at the time of the
loan, or (b) 80 percent of the market value thereof at the time
of the loan if the loan is to be fully amortized by installment
payments of principal which begin within five years from the
date of the loan if the leasehold estate is to be used for
commercial purposes, interest is payable at least annually over
the period of the loan which may not exceed 40 years and the
market value of the leasehold estate is shown by the sworn
certificate of a competent appraiser, or (c) 90 percent of the
market value of the leasehold estate at the time of the loan if
the loan is secured by a purchase money mortgage made in
connection with the disposition of real estate acquired pursuant
to section 61A.31, subdivision 1. In calculating the ratio of
the amount of the loan to the value of the leasehold estate, no
part of the amount of any loan is to be included which the
United States or any agency or instrumentality thereof or other
mortgage insurer approved by the commissioner has insured or
guaranteed or made a commitment to insure or guarantee;
provided, in no event may the loan exceed the market value of
the leasehold estate. Also loans secured by mortgage, which the
United States or any agency or instrumentality thereof or other
mortgage insurer approved by the commissioner has insured or
guaranteed or made a commitment to insure or guarantee. Also
loans secured by mortgage, on improved real estate in the
Dominion of Canada if the amount of the loan is not in excess of
66-2/3 percent of the market value of the real estate at the
time of the loan, or, when the loan is to be fully amortized by
installment payments of principal, which may begin up to five
years from the date of the loan if the real estate is used for
commercial purposes, and interest at least annually over a
period of not to exceed 40 years, the amount of the loan does
not exceed (a) 80 percent of the market value of the real estate
at the time of the loan, or (b) 90 percent of the market value
of the real estate at the time of the loan if the loan is
secured by a purchase money mortgage made in connection with the
disposition of real estate acquired pursuant to section 61A.31,
subdivision 1. In calculating the ratio of the amount of the
loan to the value of the property, no part of the amount of any
loan is to be included which the Dominion of Canada or any
agency or instrumentality thereof has insured or guaranteed or
made a commitment to insure or guarantee; provided in no event
may the loan exceed the market value of the property. Also
loans secured by mortgage, on real estate in the United States
which may be unimproved provided there exists a definite plan
for commencement of development for commercial purposes within
not more than five years where the amount of the loan does not
exceed 80 percent of the market value of the unimproved real
estate at the time of the loan and the loan is to be fully
amortized by installment payments of principal, which may begin
up to five years from the date of the loan, and interest at
least annually over a period of not to exceed 40 years. Also
loans secured by second mortgage on improved or unimproved real
estate used, or to be used, for commercial purposes; provided,
that if unimproved real estate there exists a definite plan for
commencement of development within not more than five years, in
the United States or the Dominion of Canada under the following
conditions: (a) the amount of the loan secured by the second
mortgage is equal to the sum of the amount disbursed by the
company and the then outstanding indebtedness under the first
mortgage loan; and (b) the company has control over the payments
under the first mortgage indebtedness; and (c) the total amount
of the loan does not exceed 66-2/3 percent of the market value
of the real estate at the date of the loan or, when the note or
bond is to be fully amortized by installment payments of
principal, beginning not more than five years from the date of
the loan, and interest at least annually over a period of not to
exceed 40 years, the amount of the loan does not exceed 80
percent of the market value of the real estate at the date of
the loan.
A company may not invest in a mortgage loan authorized
under this subdivision, if the investment causes the company's
aggregate investments in mortgages secured by a single property
to exceed one percent of its admitted assets.
For purposes of this subdivision, improved real estate
includes real estate improved with permanent buildings, used for
agriculture or pasture, or income producing real estate,
including but not limited to, parking lots and leases, royalty
or other mineral interests in properties producing oil, gas, or
other minerals and interests in properties for the harvesting of
forest products.
A loan or obligation otherwise permitted under this
subdivision must be permitted notwithstanding the fact that it
provides for a payment of the principal balance prior to the end
of the period of amortization of the loan.
The vendor's equity in a contract for deed qualifies as a
loan secured by mortgage for the purposes of this subdivision.
A mortgage participation certificate evidencing an interest
in a loan secured by mortgage or pools of the same qualifies
under this subdivision, if the loan secured by mortgage, and in
the case of pools of the same that each loan, would otherwise
qualify under this subdivision.
Sec. 4. Minnesota Statutes 1990, section 61A.28,
subdivision 6, is amended to read:
Subd. 6. [STOCKS, OBLIGATIONS, AND OTHER INVESTMENTS.]
Stocks, warrants or options to purchase stocks, bonds, notes,
evidences of indebtedness, or other investments as set forth in
this subdivision, provided that no investment may be made which
will increase the aggregate investment in all common stocks
under paragraphs (a) and (b) beyond 20 percent of admitted
assets as of the end of the preceding calendar year. In
applying the standards prescribed in paragraphs (b), (c), and
(d), (f) and (g) to the stocks, bonds, notes, evidences of
indebtedness, or other obligations of a corporation which in the
qualifying period preceding purchase of the stocks, bonds,
notes, evidences of indebtedness, or other obligations acquired
its property or a substantial part thereof through
consolidation, merger, or purchase, the earnings of the several
predecessors or constituent corporations must be consolidated.
In applying any percentage limitations of this subdivision the
value of the stock, or warrant or option to purchase stock, must
be based on cost. For purposes of this subdivision, National
Securities Exchange means an exchange registered under section 6
of the Securities Exchange Act of 1934 or an exchange regulated
under the laws of the Dominion of Canada.
(a) Stocks of banks, insurance companies, and municipal
corporations organized under the laws of the United States or
any state thereof; but not more than 15 percent of the admitted
assets of any domestic life insurance company may be invested in
stocks of other insurance corporations and banks.
(b) Common stocks, common stock equivalents, or securities
convertible into common stock or common stock equivalents of any
corporation or a business trust not designated in paragraph (a)
of this subdivision, entity organized under the laws of the
United States or any state thereof, or of the Dominion of Canada
or any province thereof, or those traded on a National
Securities Exchange, if the net earnings of the corporation
business entity after the elimination of extraordinary
nonrecurring items of income and expense and before income taxes
and fixed charges over the five immediately preceding completed
fiscal years, or its period of existence if less than five
years, has averaged not less than 1-1/4 times its average annual
fixed charges applicable to the period.
(c) (b) Preferred stock of, or common or preferred stock
guaranteed as to dividends by, any corporation not designated in
paragraph (a), a business entity organized under the laws of the
United States or any state thereof, or of the Dominion of Canada
or any province thereof, or those traded on a National
Securities Exchange, under the following conditions: (1) No
investment may be made under this paragraph in a stock upon
which any dividend, current or cumulative, is in arrears; and
(2) the aggregate investment company may not invest in stocks
under this paragraph and in common stocks under paragraphs
paragraph (a) and (b) may not if the investment causes the
company's aggregate investments in the common or preferred
stocks to exceed 25 percent of the life insurance company's
total admitted assets, provided that no more than 20 percent of
the company's admitted assets may be invested in common stocks
under paragraphs paragraph (a) and (b); and (3) if the net
earnings of the corporation after the elimination of
extraordinary nonrecurring items of income and expenses and
before income taxes and fixed charges over the five immediately
preceding completed fiscal years, or its period of existence if
less than five years, has averaged not less than 1-1/4 times its
average annual fixed charges applicable to the period the
company may not invest in any preferred stock or common stock
guaranteed as to dividends, which is rated in the four lowest
categories established by the securities valuation office of the
National Association of Insurance Commissioners, if the
investment causes the company's aggregate investment in the
lower rated preferred or common stock guaranteed as to dividends
to exceed five percent of its total admitted assets.
(d) (c) Warrants, options, and rights to purchase stock if
the stock, at the time of the acquisition of the warrant,
option, or right to purchase, would qualify as an investment
under paragraph (a), or (b), or (c), whichever is applicable. A
domestic life insurance company shall not invest more than two
percent of its assets under this paragraph. Any stock actually
acquired through the exercise of in a warrant or, option, or
rights right to purchase may be included in paragraph (a), (b),
or (c), whichever is applicable, only if the stock then meets
the standards prescribed in the paragraph at the time of stock
if, upon purchase and immediate exercise thereof, the
acquisition of the stock violates any of the concentration
limitations contained in paragraphs (a) and (b).
(e) (d) In addition to amounts that may be invested under
subdivision 8 and without regard to the percentage limitation
applicable to stocks, warrants, options, and rights to purchase,
the securities of any face amount certificate company, unit
investment trust, or management type investment company,
registered or in the process of registration under the federal
Investment Company Act of 1940 as from time to time amended,
provided that the aggregate of the investments, determined at
cost, by the life insurance company may not exceed five percent
of its admitted assets, and the investments may be made without
regard to the percentage limitations applicable to stocks, and
warrants or options or rights to purchase stock. In addition,
the company may transfer assets into one or more of its separate
accounts for the purpose of establishing, or supporting its
contractual obligations under, the accounts in accordance with
the provisions of sections 61A.13 to 61A.21. A company may not
invest in a security authorized under this paragraph if the
investment causes the company's aggregate investments in the
securities to exceed five percent of its total admitted assets,
except that for a health service plan corporation operating
under chapter 62C, and for a health maintenance organization
operating under chapter 62D, the company's aggregate investments
may not exceed 20 percent of its total admitted assets. No more
than five percent of the allowed investment by health service
plan corporations or health maintenance organizations may be
invested in funds that invest in assets not backed by the
federal government. When investing in money market mutual
funds, nonprofit health service plans regulated under chapter
62C, and health maintenance organizations regulated under
chapter 62D, shall establish a trustee custodial account for the
transfer of cash into the money market mutual fund.
(f) (e) Investment grade obligations that are:
(1) bonds, obligations, notes, debentures, repurchase
agreements, or other evidences of indebtedness (1) secured by
letters of credit issued by a national bank, state bank or trust
company which is a member of the federal reserve system or by a
bank organized under the laws of the Dominion of Canada or (2)
traded on a national securities exchange or (3) issued, assumed,
or guaranteed by a corporation or business trust, other than a
corporation designated in subdivision 4 of a business entity,
organized under the laws of the United States or any state
thereof, or the Dominion of Canada or any province thereof, if
the net earnings of the corporation after the elimination of
extraordinary nonrecurring items of income and expense and
before income taxes and fixed charges over the five immediately
preceding completed fiscal years, or its period of existence if
less than five years, has averaged not less than 1-1/4 times its
average annual fixed charges applicable to the period. No
investment may be made under this paragraph upon which any
interest obligation is in default.; and
(2) rated in one of the four highest rating categories by
at least one nationally recognized statistical rating
organization, or are rated in one of the two highest categories
established by the securities valuation office of the National
Association of Insurance Commissioners.
(f) Noninvestment grade obligations: A company may acquire
noninvestment grade obligations as defined in subclause (i)
(hereinafter noninvestment grade obligations) which meet the
earnings test set forth in subclause (ii). A company may not
acquire a noninvestment grade obligation if the acquisition will
cause the company to exceed the limitations set forth in
subclause (iii).
(i) A noninvestment grade obligation is an obligation of a
business entity, organized under the laws of the United States
or any state thereof, or the Dominion of Canada or any province
thereof, that is not rated in one of the four highest rating
categories by at least one nationally recognized statistical
rating organization, or is not rated in one of the two highest
categories established by the securities valuation office of the
National Association of Insurance Commissioners.
(ii) Noninvestment grade obligations authorized by this
subdivision may be acquired by a company if the business entity
issuing or assuming the obligation, or the business entity
securing or guaranteeing the obligation, has had net earnings
after the elimination of extraordinary nonrecurring items of
income and expense and before income taxes and fixed charges
over the five immediately preceding completed fiscal years, or
its period of existence of less than five years, has averaged
not less than 1-1/4 times its average annual fixed charges
applicable to the period; provided, however, that if a business
entity issuing or assuming the obligation, or the business
entity securing or guaranteeing the obligation, has undergone an
acquisition, recapitalization, or reorganization within the
immediately preceding 12 months, or will use the proceeds of the
obligation for an acquisition, recapitalization, or
reorganization, then such business entity shall also have, on a
pro forma basis, for the next succeeding 12 months, net earnings
averaging 1-1/4 times its average annual fixed charges
applicable to such period after elimination of extraordinary
nonrecurring items of income and expense and before taxes and
fixed charges; no investment may be made under this section upon
which any interest obligation is in default.
(iii) Limitation on aggregate interest in noninvestment
grade obligations. A company may not invest in a noninvestment
grade obligation if the investment will cause the company's
aggregate investments in noninvestment grade obligations to
exceed the applicable percentage of admitted assets set forth in
the following table:
Percentage of
Effective Date Admitted Assets
January 1, 1992 20
January 1, 1993 17.5
January 1, 1994 15
Nothing in this paragraph limits the ability of a company
to invest in noninvestment grade obligations as provided under
subdivision 12.
(g) Obligations for the payment of money under the
following conditions: (1) The obligation must be secured,
either solely or in conjunction with other security, by an
assignment of a lease or leases on property, real or personal;
and (2) the lease or leases must be nonterminable by the lessee
or lessees upon foreclosure of any lien upon the leased
property; and (3) the rents payable under the lease or leases
must be sufficient to amortize at least 90 percent of the
obligation during the primary term of the lease; and (4) the
lessee or lessees under the lease or leases, or a governmental
entity or corporation which business entity, organized under the
laws of the United States or any state thereof, or the Dominion
of Canada, or any province thereof, that has assumed or
guaranteed any lessee's performance thereunder, must be a
governmental entity or corporation business entity whose
obligations would qualify as an investment under subdivision 2
or paragraph (e) or (f). A company may acquire leases assumed
or guaranteed by a noninvestment grade lessee unless the value
of the lease, when added to the other noninvestment grade
obligations owned by the company, exceeds 15 percent of the
company's admitted assets.
(h) A company may sell exchange-traded call options against
stocks or other securities owned by the company and may purchase
exchange-traded call options in a closing transaction against a
call option previously written by the company. In addition to
the authority granted by paragraph (d) (c), to the extent and on
the terms and conditions the commissioner determines to be
consistent with the purposes of this chapter, a company may
purchase or sell other exchange-traded call options, and may
sell or purchase exchange-traded put options.
(i) A company may not invest in a security or other
obligation authorized under this subdivision if the investment,
valued at cost at the date of purchase, causes the company's
aggregate investment in any one business entity to exceed two
percent of the company's admitted assets.
(j) For nonprofit health service plan corporations
regulated under chapter 62C, and for health maintenance
organizations regulated under chapter 62D, a company may invest
in commercial paper rated in one of the two highest rating
categories by at least one nationally recognized statistical
rating organization, or rated in one of the two highest
categories established by the securities valuation office of the
National Association of Insurance Commissioners, if the
investment, valued at cost at the date of purchase, does not
cause the company's aggregate investment in any one business
entity to exceed six percent of the company's admitted assets.
Sec. 5. Minnesota Statutes 1990, section 61A.28,
subdivision 8, is amended to read:
Subd. 8. [PROMISSORY NOTES SECURED BY WAREHOUSE
RECEIPTS ASSET BACKED ARRANGEMENTS.] Promissory notes maturing
within six months, secured by the pledge of registered terminal
warehouse receipts issued against grain deposited in terminal
warehouses, as defined in section 233.01. At the time of
investing in these notes, the market value of the grain shall
exceed the indebtedness secured thereby, and the note or pledge
agreement shall provide that the holder may call for additional
like security or sell the grain without notice upon depreciation
of the security; the insurance company may accept, in lieu of
the deposit with it of the warehouse receipts, a trustee
certificate issued by any national or state bank at a terminal
point, certifying that the warehouse receipts have been
deposited with it and are held as security for the notes; and
the amount invested in the securities mentioned in this
subdivision shall not, at any time, exceed 25 percent of the
unassigned surplus and capital of the company. Investments in
asset backed arrangements that meet the definitions and credit
criteria provided in this subdivision. For purposes of this
subdivision, "asset backed arrangement" means a loan
participation or loan to or equity investment in a business
entity that has as its primary business activity the acquisition
and holding of financial assets for the benefit of its debt and
equity holders.
In order to qualify for investment under this subdivision:
(a) the investment in the asset backed arrangement must be
secured by or represent an undivided interest in a single
financial asset or a pool of financial assets; and
(b) either (1) at least 90 percent of the dollar value of
the financial assets held under the asset backed arrangement
qualifies for direct investment under this section; (2) the
investment in the asset backed arrangement is rated in one of
the four highest rating categories by at least one nationally
recognized statistical rating organization; or (3) the
investment in the asset backed arrangement is rated in one of
the two highest categories established by the securities
valuation office of the National Association of Insurance
Commissioners.
Examples of asset-backed arrangements authorized by this
subdivision include, but are not limited to: general and
limited partnership interests; participations under unit
investment trusts such as collateralized mortgage obligations
and collateralized bond obligations; shares in, or obligations
of, corporations formed for holding investment assets, and
contractual participation interests in a loan or group of loans.
A company may not invest in an asset backed arrangement if
the investment causes the company's aggregate investment in the
financial assets held under the asset backed arrangement to
exceed any of the concentration limits contained in this section.
Sec. 6. Minnesota Statutes 1990, section 61A.28, is
amended by adding a subdivision to read:
Subd. 9a. [HEDGING.] A domestic life insurance company may
enter into financial transactions solely for the purpose of
managing the interest rate risk associated with the company's
assets and liabilities and not for speculative or other purposes.
For purposes of this subdivision, "financial transactions"
include, but are not limited to, futures, options to buy or sell
fixed income securities, repurchase and reverse repurchase
agreements, and interest rate swaps, caps, and floors. This
authority is in addition to any other authority of the insurer.
Sec. 7. Minnesota Statutes 1990, section 61A.28,
subdivision 11, is amended to read:
Subd. 11. [POLICY LOANS.] Loans on the security of
insurance policies issued by itself to an amount not exceeding
the loan value thereof; and loans on the pledge of any of the
securities eligible for investment under the provisions of
subdivisions 2 to 10, with the exception of noninvestment grade
obligations as defined in subdivision 6, paragraph (f), but not
exceeding 95 percent of the value of securities enumerated in
subdivisions 2, 3, and 4 and 80 percent of the value of stocks
and other securities; in case of securities enumerated in
subdivisions 3, 5, and 10 "value" means principal amount unpaid
thereon and in case of other securities market value thereof; in
case of securities enumerated in subdivisions 3 and 10 the
pledge agreement shall require principal payments by the pledgor
at least equal to and concurrent with principal payments on the
pledged security; in loans authorized by this subdivision,
except as otherwise provided by law in regard to policy loans,
the company shall reserve the right at any time to declare the
indebtedness due and payable when in excess of such proportions
of value or, in case of pledge of securities other than those
enumerated in subdivisions 3 and 10, upon depreciation of
security.
Sec. 8. Minnesota Statutes 1990, section 61A.28,
subdivision 12, is amended to read:
Subd. 12. [ADDITIONAL INVESTMENTS.] Investments of any
kind, without regard to the categories, conditions, standards,
or other limitations set forth in the foregoing subdivisions and
section 61A.31, subdivision 3, except that the prohibitions in
clause (d) of subdivision 3 remains applicable, may be made by a
domestic life insurance company in an amount not to exceed the
lesser of the following:
(1) Five percent of the company's total admitted assets as
of the end of the preceding calendar year, or
(2) Fifty percent of the amount by which its capital and
surplus as of the end of the preceding calendar year exceeds
$675,000. Provided, however, that Except as provided in section
61A.281, a company's total investment under this section in the
common stock of any corporation, other than the stock of the
types of corporations specified in subdivision 6(a), may not
exceed ten percent of the common stock of the
corporation. Provided, further, that No investment may be made
under the authority of this clause or clause (1) by a company
that has not completed five years of actual operation since the
date of its first certificate of authority.
If, subsequent to being made under the provisions of this
subdivision, an investment is determined to have become
qualified or eligible under any of the other provisions of this
chapter, the company may consider the investment as being held
under the other provision and the investment need no longer be
considered as having been made under the provisions of this
subdivision.
In addition to the investments authorized by this
subdivision, a domestic life insurance company may make
qualified investments in any additional securities or property
of the type authorized by subdivision 6, paragraph (e), (f), or
(g), with the written order of the commissioner. This approval
is at the discretion of the commissioner, provided that the
additional investments allowed by the commissioner's written
order may not exceed five percent of the company's admitted
assets. This authorization does not negate or reduce the
investment authority granted in subdivision 6,
paragraph (e), (f), or (g), or this subdivision.
Sec. 9. Minnesota Statutes 1990, section 61A.28, is
amended by adding a subdivision to read:
Subd. 13. [ADDITIONAL LIMITATIONS.] Under the standards
and procedures in article 3 for individual insurers, the
commissioner may impose additional limitations on all insurers
on the types and percentages of investments as the commissioner
determines necessary to protect and ensure the safety of the
general public.
Sec. 10. Minnesota Statutes 1990, section 61A.281, is
amended by adding a subdivision to read:
Subd. 5. [CORPORATIONS ORGANIZED TO HOLD INVESTMENTS.] A
domestic life insurance company may organize one or more
corporations domiciled in the United States and hold the capital
stock of them, provided that it shall continuously own all of
the capital stock and that the corporations so organized shall
limit their activities to acquiring and holding investments,
other than under subdivisions 1 to 4, that a domestic life
insurance company may acquire and hold. The investments of
these corporations are subject to the same restrictions and
requirements as apply to domestic life insurance companies,
including the applicable percentage limitations for investments
in individual properties and entities and limitations on the
aggregate amount to be invested in any investment category. For
the purposes of calculating the amount of an investment held by
the life insurance company, investments in the same property,
entity, or investment category that are owned by the company and
all corporations qualifying under this subdivision must be
aggregated.
Sec. 11. Minnesota Statutes 1990, section 61A.29, is
amended to read:
61A.29 [INVESTMENTS; AUTHORIZATION; FOREIGN INVESTMENTS.]
Subdivision 1. [AUTHORIZATION.] No investment or loan,
except policy loans, shall be made by any domestic life
insurance company unless the same shall have been authorized or
be approved by the board of directors or by a committee of
directors, officers or employees of the company designated by
the board charged with the duty of supervising the investment or
loan, and in either case accurate records of all authorizations
and approvals shall be maintained. In addition to the Canadian
investments permitted by this chapter, a domestic life insurance
company may make foreign investments authorized by subdivision
2, subject to the limitations contained in subdivision 3.
Investments authorized by this section are restricted to
countries where the obligations of the sovereign government are
rated in one of the two highest rating categories by at least
one nationally recognized statistical rating organization in the
United States. All investments must be made as provided under
foreign investment guidelines established and maintained by the
company under section 60A.112.
Subd. 2. [FOREIGN AUTHORIZED INVESTMENTS.] Any domestic
life insurance company may invest in obligations of and
investments in foreign countries, other than the Dominion of
Canada, on the following conditions:
(a) A company may acquire and hold any foreign investments
which are required as a condition of doing business in the
foreign country or necessary for the convenient accommodation of
its foreign business. An investment shall be considered
necessary for the convenient accommodation of foreign business
only if it is demonstrably and directly related in size and
purpose to such company's foreign insurance operations; and
(b) A company may also invest not more than a total of two
percent of its admitted assets in any combination of:
(1) the obligations of foreign governments, corporations,
or business trusts;
(2) obligations of federal, provincial, or other political
subdivisions backed by the full faith and credit of the foreign
governmental unit;
(3) or in the stocks or stock equivalents or obligations of
foreign corporations or business trusts not qualifying for
investment under section 61A.28, subdivision 6, if the
obligations, stocks, or stock equivalents are regularly traded
on the London, Paris, Zurich, or Tokyo stock exchange or any
similar regular securities exchange not disapproved by the
commissioner within 30 days following notice from the company of
its intention to invest in these securities. A company may
invest in (i) foreign assets denominated in United States
dollars; (ii) foreign assets denominated in foreign currency;
and (iii) United States assets denominated in foreign currency.
The investments may be made in any combination of the following:
(a) Obligations of sovereign governments and political
subdivisions thereof and obligations issued or fully guaranteed
by a supranational bank or organization, other than those
described in section 61A.28, subdivision 2, paragraph (e),
provided that the obligations are rated in one of the two
highest rating categories by at least one nationally recognized
statistical rating organization in the United States. For
purposes of this section, "supranational bank" means a bank
owned by a number of sovereign nations and engaging in
international borrowing and lending.
(b) Obligations of a foreign business entity, provided that
the obligation (i) is rated in one of the four highest rating
categories by at least one nationally recognized statistical
rating organization in the United States or by a similarly
recognized statistical rating organization, as approved by the
commissioner, in the country where the investment is made; or
(ii) is rated in one of the two highest categories established
by the securities valuation office of the National Association
of Insurance Commissioners.
(c) Stock or stock equivalents issued by a foreign entity
if the stock or stock equivalents are regularly traded on the
Frankfurt, London, Paris, or Tokyo stock exchange or any similar
securities exchange as may be approved from time to time by the
commissioner and subject to oversight by the government of the
country in which the exchange is located.
(d) Financial transactions for the sole purpose of managing
the foreign currency risk of investments made under this
subdivision, provided that the financial transactions are
entered into under a detailed plan maintained by the company.
For purposes of this paragraph, "financial transactions"
include, but are not limited to, the purchase or sale of
currency swaps, forward agreements, and currency futures.
Subd. 3. [INVESTMENT LIMITATIONS.] Investments authorized
by subdivision 2 are subject to the following limitations:
(a) A company shall not make an investment under this
section if the investment causes the company's aggregate
investments authorized under this section to exceed ten percent
of its total admitted assets.
(b) Investments made under subdivision 2 must be aggregated
with United States investments in determining compliance with
percentage concentration limitations, if any, contained in this
chapter.
(c) A company shall not invest in the obligations of one
issuer under subdivision 2 in an amount greater than authorized
for investments of the same class under this chapter. A company
shall not invest more than two percent of its total admitted
assets in the direct or guaranteed obligations of a sovereign
government or political subdivision thereof, or of a
supranational bank.
Sec. 12. Minnesota Statutes 1990, section 61A.31, is
amended to read:
61A.31 [REAL ESTATE HOLDINGS.]
Subdivision 1. [PURPOSES.] Except as provided in
subdivisions 2, 3, and 4, every domestic life insurance company
may acquire, hold and convey real property only for the
following purposes and in the following manner:
(1) Such as shall have been mortgaged to it in good faith
by way of security for loans previously contracted, or for
moneys due;
(2) Such as shall have been conveyed to it in satisfaction
of debts previously contracted in the course of its dealings;
(3) Such as shall have been purchased at sales on
judgments, decrees or mortgages obtained or made for such debts;
(4) Such as shall have been subject to a contract for deed
under which the company held the vendor's interest to secure the
payment by the vendee.
All the real property specified in clauses (1), (2), (3),
and (4), which shall not be necessary for its accommodation in
the convenient transaction of its business, shall be sold and
disposed of within five years after the company shall have
acquired title to the same, or within five years after the same
shall have ceased to be necessary for the accommodation of its
business, and it shall not hold this property for a longer
period unless it shall hold real property pursuant to
subdivision 3, or shall procure a certificate from the
commissioner of commerce that its interest will suffer
materially by the forced sale thereof, in which event the time
for the sale may be extended to such time as the commissioner
shall direct in the certificate.
Subd. 2. [BUILDING PROJECTS.] In order to promote and
supplement public and private efforts to provide an adequate
supply of decent, safe, and sanitary dwelling accommodations for
persons of low and moderate income; to relieve unemployment; to
alleviate the shortage of rental residences; and to assist in
relieving the emergency in the housing situation in this country
through investment of funds, any life insurance company may
purchase or lease from any owner or owners (including states and
political subdivisions thereof), real property in any state in
which such company is licensed to transact the business of life
insurance; and on any real property so acquired or on real
property so located and acquired otherwise in the conduct of its
business, such company may erect apartment, or other dwelling
houses, not including hotels, but including accommodations for
retail stores, shops, offices, and other community services
reasonably incident to such projects; or, to provide such
housing or accommodations, may construct, reconstruct, improve,
or remove any buildings or other improvements thereon. Such
company may thereafter own, improve, maintain, manage, collect
or receive income from, sell, lease, or convey any such real
property and the improvements thereon. The aggregate investment
by any such domestic life insurance company in all such
projects, including the cost of all real property so purchased
or leased and the cost of all improvements to be made upon such
real property and upon real property otherwise acquired, shall
not, at the date of purchase or other acquisition of such real
property, exceed ten percent of the total admitted assets of
such company on the last day of the previous calendar year. A
company may not invest in the building projects if the
investment causes the company's aggregate investments under this
subdivision to exceed ten percent of its total admitted assets.
Subd. 3. [ACQUISITION OF PROPERTY.] Any domestic life
insurance company may:
(a) acquire real property or any interest in real property,
including oil and gas and other mineral interests, in the United
States or any state thereof, or in the Dominion of Canada or any
province thereof, as an investment for the production of income,
and hold, improve or otherwise develop, and lease, sell, and
convey the same either directly or as a joint venturer or
through a limited or general partnership in which the company is
a partner, subject to the following conditions and limitations:
(1) The cost to the company of each parcel of real property
acquired pursuant to this paragraph, including the estimated
cost to the company of the improvement or development thereof,
when added to the book value of all other real property then
held by it pursuant to this clause, may not exceed 15 percent of
its admitted assets as of the end of the preceding calendar
year, and (2) the cost to the company of each parcel of real
property acquired pursuant to this paragraph, including the
estimated costs to the company of the improvement or development
thereof, may not exceed two percent of its admitted assets as of
the end of the preceding calendar year;. A company may not
invest in any real property asset other than property held for
the convenience and accommodation of its business if the
investment causes: (1) the company's aggregate investments in
the real property assets to exceed ten percent of its admitted
assets; or (2) the company's investment in any single parcel of
real property to exceed one-half of one percent of its admitted
assets;
(b) acquire personal property in the United States or any
state thereof, or in the Dominion of Canada or any province
thereof, under lease or leases or commitment for lease or leases
if: (1) either the fair value of the property exceeds the
company's investment in it or the lessee, or at least one of the
lessees, or a guarantor, or at least one of the guarantors, of
the lease is a corporation with a net worth of $1,000,000 or
more; and (2) the lease provides for rent sufficient to amortize
the investment with interest over the primary term of the lease
or the useful life of the property, whichever is less; and (3)
in no event does the total investment in personal property under
this paragraph exceed three percent of the domestic life
insurance company's admitted assets. A company may not invest
in the personal property if the investment causes the company's
aggregate investments in the personal property to exceed three
percent of its admitted assets;
(c) acquire and hold real estate (1) if the purpose of the
acquisition is to enhance the sale value of real estate
previously acquired and held by the company under this section
and (2) if the company expects the real estate so acquired to
qualify and be held by the company under paragraph (a) within
five years after acquisition; and
(d) not acquire real property under paragraphs (a) to (c)
if the property is to be used primarily for agricultural,
horticultural, ranch, mining, or church purposes.
All real property acquired or held under this subdivision
must be carried at a value equal to the lesser of (1) cost plus
the cost of capitalized improvements, less normal depreciation,
or (2) market value.
Subd. 4. [CONVENIENCE AND ACCOMMODATION OF BUSINESS.] The
real estate acquired or held by any domestic life insurance
company for the convenience and accommodation of its business
shall not exceed in value 25 percent of its cash and invested
assets, not including real estate acquired or held for the
convenience and accommodation of its business. Any domestic
life insurance company, after having secured approval of the
commissioner of commerce therefor, may also acquire and hold
real estate for the sole purpose of providing necessary homes
and living quarters for its employees. Such real estate shall
never exceed three percent of the company's cash assets as shown
by its annual statement last filed with the commissioner of
commerce. All real property which shall not be necessary for
its accommodation in the convenient transaction of its business,
or the housing of its employees, shall be sold and disposed of
within five years after the same shall have ceased to be
necessary for the accommodation of its business, or the housing
of its employees, and it shall not hold this property for a
longer period unless, (a) it shall procure a certificate from
the commissioner of commerce that its interest will suffer
materially by the forced sale thereof, in which event the time
for sale may be extended to such time as the commissioner shall
direct in the certificate, or (b) such real property qualifies
as an investment under the terms of subdivision 3 in which event
the company may, at its option consider such real property as
held under the provisions of said subdivision, subject to the
conditions, standards, or other limitations of said subdivision
as though it had been originally acquired thereunder. A company
may acquire and hold real estate for the convenience and
accommodation of its business. Without the prior approval of
the department of commerce, a company may not invest in real
estate authorized under this subdivision if the investment
causes the company's aggregate investments under this
subdivision to exceed five percent of its total admitted assets,
except that a health service plan corporation operating under
chapter 62C may not invest in real estate authorized under this
subdivision if the investment causes the company's aggregate
investments under this subdivision to exceed 25 percent of its
total admitted assets.
Sec. 13. [REPEALER.]
Minnesota Statutes 1990, section 61A.28, subdivisions 4 and
5, are repealed.
ARTICLE 10
ADMINISTRATION
Section 1. Minnesota Statutes 1990, section 60A.02, is
amended by adding a subdivision to read:
Subd. 27. [ADMITTED ASSETS.] "Admitted assets" means the
assets as shown by the company's annual statement on December 31
valued according to valuation regulations prescribed by the
National Association of Insurance Commissioners and procedures
adopted by the National Association of Insurance Commissioners'
financial condition Ex 4 subcommittee if not addressed in
another section, unless the commissioner requires or finds
another method of valuation reasonable under the circumstances.
Sec. 2. Minnesota Statutes 1990, section 60A.03,
subdivision 5, is amended to read:
Subd. 5. [EXAMINATION FEES AND EXPENSES.] When any
visitation, examination, or appraisal is made by order of the
commissioner, the company being examined, visited, or appraised,
including fraternals, township mutuals, reciprocal exchanges,
nonprofit service plan corporations, health maintenance
organizations, vendors of risk management services licensed
under section 60A.23, or self-insurance plans or pools
established under section 176.181 or 471.982, shall pay to the
department of commerce the necessary expenses of the persons
engaged in the examination, visit, or appraisal, or desk audits
of annual statements and records performed by the department
other than on the company premises plus the per diem salary fees
of the employees of the department of commerce who are
conducting or participating in the examination, visitation, or
appraisal, or desk audit. The per diem salary fees may be based
upon the approved examination fee schedules of the National
Association of Insurance Commissioners or otherwise determined
by the commissioner. All of these fees and expenses must be
paid into the department of commerce revolving fund.
Sec. 3. Minnesota Statutes 1990, section 60A.031, is
amended to read:
60A.031 [EXAMINATIONS.]
Subdivision 1. [POWER TO EXAMINE.] (1) [INSURERS AND OTHER
LICENSEES.] At any time and for any reason related to the
enforcement of the insurance laws, or to ensure that companies
are being operated in a safe and sound manner and to protect the
public interest, the commissioner may examine the affairs and
conditions of any foreign or domestic insurance or reinsurance
company, including reciprocals and fraternals, licensee or
applicant for a license under the insurance laws, or any other
person or organization of persons doing or in the process of
organizing to do any insurance business in this state, and of
any licensed advisory organization serving any of the foregoing
in this state.
The commissioner shall examine the affairs and conditions
of every domestic insurance company at least once every five
years.
(2) [WHO MAY BE EXAMINED.] The commissioner in making any
examination of an insurance company as authorized by this
section may, if in the commissioner's discretion, there is cause
to believe the commissioner is unable to obtain relevant
information from such insurance company or that the examination
or investigation is, in the discretion of the commissioner,
necessary or material to the examination of the company, examine
any person, association, or corporation:
(a) transacting, having transacted, or being organized to
transact the business of insurance in this state;
(b) engaged in or proposing to be engaged in the
organization, promotion, or solicitation of shares or capital
contributions to or aiding in the formation of a domestic
insurance company;
(c) holding shares of capital stock of an insurance company
for the purpose of controlling the management thereof as voting
trustee or otherwise;
(d) having a contract, written or oral, pertaining to the
management or control of an insurance company as general agent,
managing agent, attorney-in-fact, or otherwise;
(e) which has substantial control directly or indirectly
over an insurance company whether by ownership of its stock or
otherwise, or owning stock in any domestic insurance company,
which stock constitutes a substantial proportion of either the
stock of the domestic insurance company or of the assets of the
owner thereof;
(f) which is a subsidiary or affiliate of an insurance
company;
(g) which is a licensed agent or solicitor or has made
application for the licenses;
(h) engaged in the business of adjusting losses or
financing premiums.
Nothing contained in this clause (2) shall authorize the
commissioner to examine any person, association, or corporation
which is subject to regular examination by another division of
the commerce department of this state. The commissioner shall
notify the other division when an examination is deemed
advisable.
Subd. 2a. [PURPOSE, SCOPE, AND NOTICE OF EXAMINATION.] An
examination may, but need not, cover comprehensively all aspects
of the examinee's affairs, practices, and conditions. The
commissioner shall determine the nature and scope of each
examination and in doing so shall take into account all
available relevant factors concerning the financial and business
affairs, practices and conditions of the examinee. For
examinations undertaken pursuant to this section, the
commissioner shall issue an order stating the scope of the
examination and designating the person responsible for
conducting the examination. A copy of the order shall be
provided to the examinee.
In conducting the examination, the examiner shall observe
the guidelines and procedures in the examiner's handbook adopted
by the National Association of Insurance Commissioners. The
commissioner may also employ other guidelines or procedures that
the commissioner may consider appropriate.
Subd. 3. [ACCESS TO EXAMINEE.] (a) The commissioner, or
the designated person, shall have timely, convenient, and free
access during normal business at all reasonable hours to all
books, records, securities, accounts, documents, and any or
all computer or other records and papers relating to the
property, assets, business, and affairs of any company,
applicant, association, or person which may be examined pursuant
to this act for the purpose of ascertaining, appraising, and
evaluating the assets, conditions, affairs, operations, ability
to fulfill obligations, and compliance with all the provisions
of law of the company or person insofar as any of the above
pertain to the business of insurance of a person, organization,
or corporation transacting, having transacted, or being
organized to transact business in this state. Every company or
person being examined, its officers, directors, and agents,
shall provide to the commissioner or the designated
person timely, convenient, and free access at all reasonable
hours at its office to all its books, records, accounts, papers,
securities, documents, any or all papers computer or other
records relating to the property, assets, business, and affairs
of the company or person. The officers, directors, and agents
of the company or person shall facilitate the examination and
aid in the examination so far as it is in their power to do so.
The refusal of a company, by its officers, directors,
employees, or agents, to submit to examination or to comply with
a reasonable request of the examiners is grounds for suspension
or refusal of, or nonrenewal of, a license or authority held by
the company to engage in an insurance or other business subject
to the commissioner's jurisdiction. The proceedings for
suspension, revocation, or refusal of a license or authority
must be conducted as provided in section 45.027.
(b) The commissioner or any examiners may issue subpoenas,
administer oaths, and examine under oath any person as to any
matter pertinent to the examination. If a person fails or
refuses to obey a subpoena, the commissioner may petition a
court of competent jurisdiction, and upon proper showing, the
court may enter an order compelling the witness to appear and
testify or produce documentary evidence. Failure to obey the
court order is punishable as contempt of court.
(c) When making an examination or audit under this section,
the commissioner may retain attorneys, appraisers, independent
actuaries, independent certified public accountants, or other
professionals and specialists as examiners, the cost of which
must be paid by the company that is the subject of the
examination or audit.
(d) This section does not limit the commissioner's
authority to terminate or suspend any examination in order to
pursue other legal or regulatory action pursuant to the
insurance laws of this state. Findings of fact and conclusions
made pursuant to an examination are prima facie evidence in a
legal or regulatory action.
(e) Nothing contained in this section shall be construed to
limit the commissioner's authority to use as evidence a final or
preliminary examination report, examiner or company workpapers
or other documents, or other information discovered or developed
during the course of an examination in the furtherance of a
legal or administrative action which the commissioner may, in
the commissioner's sole discretion, consider appropriate.
Subd. 4. [EXAMINATION REPORT; FOREIGN AND DOMESTIC
COMPANIES.] (a) The commissioner shall make a full and true
report of every examination conducted pursuant to this chapter,
which shall include (1) a statement of findings of fact relating
to the financial status and other matters ascertained from the
books, papers, records, documents, and other evidence obtained
by investigation and examination or ascertained from the
testimony of officers, agents, or other persons examined under
oath concerning the business, affairs, assets, obligations,
ability to fulfill obligations, and compliance with all the
provisions of the law of the company, applicant, organization,
or person subject to this chapter and (2) a summary of important
points noted in the report, conclusions, recommendations and
suggestions as may reasonably be warranted from the facts so
ascertained in the examinations. The report of examination
shall be verified by the oath of the examiner in charge thereof,
and shall be prima facie evidence in any action or proceedings
in the name of the state against the company, applicant,
organization, or person upon the facts stated therein.
(b) No later than 60 days following completion of the
examination, the examiner in charge shall file with the
department a verified written report of examination under oath.
Upon receipt of the verified report, the department shall
transmit the report to the company examined, together with a
notice which provides the company examined with a reasonable
opportunity of not more than 30 days to make a written
submission or rebuttal with respect to matters contained in the
examination report.
(c) Within 30 days of the end of the period allowed for the
receipt of written submissions or rebuttals, the commissioner
shall fully consider and review the report, together with the
written submissions or rebuttals and the relevant portions of
the examiner's workpapers and enter an order:
(1) adopting the examination report as filed or with
modification or corrections. If the examination report reveals
that the company is operating in violation of any law, rule, or
prior order of the commissioner, the commissioner may order the
company to take any action the commissioner considers necessary
and appropriate to cure the violation;
(2) rejecting the examination report with directions to the
examiners to reopen the examination for purposes of obtaining
additional data, documentation, or information, and refiling the
report as required under paragraph (b); or
(3) calling for an investigatory hearing with no less than
20 days' notice to the company for purposes of obtaining
additional documentation, data, information, and testimony.
(d)(1) All orders entered under paragraph (c), clause (1),
must be accompanied by findings and conclusions resulting from
the commissioner's consideration and review of the examination
report, relevant examiner workpapers, and any written
submissions or rebuttals. The order is a final administrative
decision and may be appealed as provided under chapter 14. The
order must be served upon the company by certified mail,
together with a copy of the adopted examination report. Within
30 days of the issuance of the adopted report, the company shall
file affidavits executed by each of its directors stating under
oath that they have received a copy of the adopted report and
related orders.
(2) A hearing conducted under paragraph (c), clause (3), by
the commissioner or authorized representative, must be conducted
as a nonadversarial confidential investigatory proceeding as
necessary for the resolution of inconsistencies, discrepancies,
or disputed issues apparent upon the face of the filed
examination report or raised by or as a result of the
commissioner's review of relevant workpapers or by the written
submission or rebuttal of the company. Within 20 days of the
conclusion of the hearing, the commissioner shall enter an order
as required under paragraph (c), clause (1).
(3) The commissioner shall not appoint an examiner as an
authorized representative to conduct the hearing. The hearing
must proceed expeditiously. Discovery by the company is limited
to the examiner's workpapers which tend to substantiate
assertions in a written submission or rebuttal. The
commissioner or the commissioner's representative may issue
subpoenas for the attendance of witnesses or the production of
documents considered relevant to the investigation whether under
the control of the department, the company, or other persons.
The documents produced must be included in the record.
Testimony taken by the commissioner or the commissioner's
representative must be under oath and preserved for the record.
This section does not require the department to disclose
information or records which would indicate or show the
existence or content of an investigation or activity of a
criminal justice agency.
(4) The hearing must proceed with the commissioner or the
commissioner's representative posing questions to the persons
subpoenaed. Thereafter, the company and the department may
present testimony relevant to the investigation.
Cross-examination may be conducted only by the commissioner or
the commissioner's representative. The company and the
department shall be permitted to make closing statements and may
be represented by counsel of their choice.
(e)(1) Upon the adoption of the examination report under
paragraph (c), clause (1), the commissioner shall continue to
hold the content of the examination report as private and
confidential information for a period of 30 days except as
otherwise provided in paragraph (b). Thereafter, the
commissioner may open the report for public inspection if a
court of competent jurisdiction has not stayed its publication.
(2) Nothing contained in this subdivision prevents or shall
be construed as prohibiting the commissioner from disclosing the
content of an examination report, preliminary examination report
or results, or any matter relating to the reports, to the
commerce department or the insurance department of another state
or country, or to law enforcement officials of this or another
state or agency of the federal government at any time, if the
agency or office receiving the report or matters relating to the
report agrees in writing to hold it confidential and in a manner
consistent with this subdivision.
(3) If the commissioner determines that regulatory action
is appropriate as a result of an examination, the commissioner
may initiate proceedings or actions as provided by law.
(f) All working papers, recorded information, documents and
copies thereof produced by, obtained by, or disclosed to the
commissioner or any other person in the course of an examination
made under this subdivision must be given confidential treatment
and are not subject to subpoena and may not be made public by
the commissioner or any other person, except to the extent
provided in paragraph (e). Access may also be granted to the
National Association of Insurance Commissioners. The parties
must agree in writing prior to receiving the information to
provide to it the same confidential treatment as required by
this section, unless the prior written consent of the company to
which it pertains has been obtained.
Subd. 5. [ORDER; FOREIGN AND DOMESTIC COMPANIES.] Within a
reasonable time of receipt of an examination report the
commissioner may issue an order to the examinee directing
compliance within a time specified in the order or by law with
one or more of the following:
(a) to restore within the time and extent prescribed by law
or the commissioner's order any deficiency, whenever its
capital, reserves or surplus have become impaired,
(b) to cease and desist from transaction of any business or
from any business practice which if transacted or continued
might result in the examinee's condition or further transaction
of business being hazardous to its policyholders, its creditors,
or the public,
(c) to cease and desist from any other violation of its
charter or any law of the state.
Subd. 6. [PENALTY.] Notwithstanding section 72A.05, any
person who violates or aids and abets any violation of a written
order issued pursuant to this section may be fined not more than
$10,000 for each day the violation continues for each violation
of the order in an action commenced in Ramsey county by the
attorney general on behalf of the state of Minnesota and the
money so recovered shall be paid into the general fund.
Subd. 7. [ALTERNATIVES TO EXAMINATIONS.] (1) [AUDITS OR
ACTUARIAL EVALUATIONS.] In lieu of all or part of an examination
under this chapter, or in addition to it, the commissioner may
require an independent audit by certified public accountants
approved by the commissioner or an actuarial evaluation by
actuaries approved by the commissioner of any persons subject to
the examination requirement of subdivision 1.
(2) [REPORTS.] In lieu of all or part of an examination
under this section, the commissioner may accept the report of an
audit made by certified public accountants approved by the
commissioner or actuarial evaluation by actuaries approved by
the commissioner or the report of an examination made by the
insurance department of another state, of the examination made
by another government agency in this state, the federal
government or another state. an examination under this section
of a foreign or an alien insurer licensed in this state, the
commissioner may accept an examination report on the company as
prepared by the insurance department for the company's state of
domicile or port of entry state until January 1, 1994. After
January 1, 1994, the reports may only be accepted if:
(1) the insurance department is accredited under the
National Association of Insurance Commissioners Financial
Regulation Standards and Accreditation Program at the time of
the examination; or
(2) the examination is performed under the supervision of
an accredited insurance department or with the participation of
one or more examiners who are employed by an accredited state
insurance department and who, after a review of the examination
workpapers and report, state under oath that the examination was
performed in a manner consistent with the standards and
procedures required by their insurance department.
Subd. 7a. [CONFLICT OF INTEREST.] The department shall
establish reasonable procedures so that no examiner, either
directly or indirectly, has a conflict of interest or is
affiliated with the management of or owns a pecuniary interest
in a person subject to examination under this chapter. This
section shall not be construed to automatically preclude an
examiner from being:
(1) a policyholder or claimant under an insurance policy;
(2) a grantor of a mortgage or similar instrument on the
examiner's residence to a regulated entity if done under
customary terms and in the ordinary course of business;
(3) an investment owner in shares of regulated diversified
investment companies; or
(4) a settlor or beneficiary of a "blind trust" into which
any otherwise impermissible holdings have been placed.
Notwithstanding the requirements of this section, the
commissioner may retain from time to time, on an individual
basis, qualified actuaries, certified public accountants, or
other similar individuals who are independently practicing their
professions, even though the persons may from time to time be
similarly employed or retained by persons subject to examination
under this chapter.
Subd. 8. [POWER TO MAKE RULES.] The commissioner may
promulgate any rules which may be necessary to the
administration of subdivisions 1 to 7 9.
Subd. 9. [IMMUNITY FROM LIABILITY.] (a) No cause of action
shall arise nor shall liability be imposed against the
commissioner, the commissioner's authorized representatives, or
an examiner appointed by the commissioner for statements made or
conduct performed in good faith while carrying out the
provisions of this section.
(b) No cause of action shall arise, nor shall liability be
imposed against a person for the act of communicating or
delivering information or data to the commissioner or the
commissioner's authorized representative or examiner pursuant to
an examination made under this section, if the act of
communication or delivery is performed in good faith and without
fraudulent intent or the intent to deceive.
(c) This section does not abrogate or modify a common law
or statutory privilege or immunity enjoyed by a person
identified in paragraph (a).
(d) A person identified in paragraph (a) may be awarded
attorney fees and costs if the person is the prevailing party in
a civil cause of action for libel, slander, or other relevant
tort arising out of activities in carrying out the provisions of
this section, and the party bringing the action was not
substantially justified in doing so. For purposes of this
section, a proceeding is "substantially justified" if it had a
reasonable basis in law or fact at the time that it was
initiated.
Sec. 4. Minnesota Statutes 1990, section 60A.07, is
amended by adding a subdivision to read:
Subd. 5f. [CAPITAL AND SURPLUS REQUIREMENTS.] (a) Capital
and surplus requirements apply to all types of insurance
transacted by the insurer, whether or not only a portion of the
types of insurance are transacted in this state. The
commissioner may for the protection of the public require an
insurer to maintain funds in excess of the amounts required
under this section, due to the amount, kind, or combination of
types of insurance transacted by the insurer. Failure of an
insurer to maintain funds as ordered by the commissioner is
grounds for suspension or revocation of the insurer's
certificate of authority.
(b) After June 30, 1991, an insurer may not renew and
continue its certificate of authority unless the insurer
possesses at least the basic capital and surplus, and additional
surplus required by the commissioner under this section.
Sec. 5. Minnesota Statutes 1990, section 60A.10,
subdivision 2a, is amended to read:
Subd. 2a. [SPECIAL DEPOSITS.] The commissioner may require
a special deposit of an individual foreign insurer for the
protection of its Minnesota policyholders or claimants. The
special deposit may be required, to a maximum amount of
$500,000. In the event of the filing of a delinquency petition
against the insurer in Minnesota, the deposit is subject to
chapters 60B, 60C, and 61A, and 61B.
Sec. 6. Minnesota Statutes 1990, section 60A.11,
subdivision 9, is amended to read:
Subd. 9. [GENERAL CONSIDERATIONS.] The following
considerations apply in the interpretation of this section:
(a) This section applies to the investments of insurance
companies other than life insurance companies;
(b) The purpose of this section is to protect and further
the interests of policyholders, claimants, creditors and the
public by providing standards for the development and
administration of programs for the investment of the assets of
domestic companies. These standards and the investment programs
developed by companies must take into account the safety of
company's principal, investment yield and growth, stability in
the value of the investment, the liquidity necessary to meet the
company's expected business needs, and investment
diversification;
(c) All financial terms relating to insurance companies
have the meanings assigned to them under statutory accounting
methods. All financial terms relating to noninsurance companies
have the meanings assigned to them under generally accepted
accounting principles;
(d) Investments must be valued in accordance with the
valuation procedures established by the National Association of
Insurance Commissioners, unless the commissioner requires or
finds another method of valuation reasonable under the
circumstances. Other invested assets must be valued according
to the procedures promulgated by the National Association of
Insurance Commissioners', if not addressed in another section,
unless the commissioner requires or finds another method of
valuation reasonable under the circumstances;
(e) A company may elect to hold an investment which
qualifies under more than one subdivision, under the subdivision
of its choice. Nothing herein prevents a company from electing
to hold an investment under a subdivision different from the one
in which it previously held the investment; and
(f) An investment which qualifies under any provision of
the law governing investments of insurance companies when
acquired will continue to be a qualified investment for as long
as it is held by the insurance company.
Sec. 7. Minnesota Statutes 1990, section 60A.13,
subdivision 1, is amended to read:
Subdivision 1. [ANNUAL STATEMENTS REQUIRED.] Every
insurance company, including fraternal beneficiary associations,
and reciprocal exchanges, doing business in this state, shall
transmit to the commissioner, annually, on or before March
first, in the form prescribed by the commissioner, a verified
statement of its entire business and condition during the
preceding calendar year the appropriate verified National
Association of Insurance Commissioners' annual statement blank,
prepared in accordance with the association's instructions
handbook and following those accounting procedures and practices
prescribed by the association's accounting practices and
procedures manual, unless the commissioner requires or finds
another method of valuation reasonable under the circumstances.
In addition, the commissioner may require the filing of any
other information determined to be reasonably necessary for the
continual enforcement of these laws. The statement may be
limited to the insurer's business and condition in the United
States unless the commissioner finds that the business conducted
outside the United States may detrimentally affect the interests
of policyholders in this state. The statements shall also
contain a verified schedule showing all details required by law
for assessment and taxation. The statement or schedules shall be
in the form and shall contain all matters the commissioner may
prescribe, and it may be varied as to different types of
insurers so as to elicit a true exhibit of the condition of each
insurer.
Sec. 8. Minnesota Statutes 1990, section 60A.14,
subdivision 1, is amended to read:
Subdivision 1. [FEES OTHER THAN EXAMINATION FEES.] In
addition to the fees and charges provided for examinations, the
following fees must be paid to the commissioner for deposit in
the general fund:
(a) by township mutual fire insurance companies:
(1) for filing certificate of incorporation $25 and
amendments thereto, $10;
(2) for filing annual statements, $15;
(3) for each annual certificate of authority, $15;
(4) for filing bylaws $25 and amendments thereto, $10.
(b) by other domestic and foreign companies including
fraternals and reciprocal exchanges:
(1) for filing certified copy of certificate of articles of
incorporation, $100;
(2) for filing annual statement, $225;
(3) for filing certified copy of amendment to certificate
or articles of incorporation, $100;
(4) for filing bylaws, $75 or amendments thereto, $75;
(5) for each company's certificate of authority, $575,
annually.
(c) the following general fees apply:
(1) for each certificate, including certified copy of
certificate of authority, renewal, valuation of life policies,
corporate condition or qualification, $15;
(2) for each copy of paper on file in the commissioner's
office 50 cents per page, and $2.50 for certifying the same;
(3) for license to procure insurance in unadmitted foreign
companies, $575;
(4) for receiving and forwarding each notice, proof of
loss, summons, complaint or other process served upon the
commissioner of commerce, as attorney for service of process
upon any nonresident agent or insurance company, including
reciprocal exchanges, $15 plus the cost of effectuating service
by certified mail, which amount must be paid by the party
serving the notice and may be taxed as other costs in the
action;
(5) for valuing the policies of life insurance companies,
one cent per $1,000 of insurance so valued, provided that the
fee shall not exceed $1,000 $13,000 per year for any company.
The commissioner may, in lieu of a valuation of the policies of
any foreign life insurance company admitted, or applying for
admission, to do business in this state, accept a certificate of
valuation from the company's own actuary or from the
commissioner of insurance of the state or territory in which the
company is domiciled;
(6) for receiving and filing certificates of policies by
the company's actuary, or by the commissioner of insurance of
any other state or territory, $50;
(7) for issuing an initial license to an individual agent,
$20 per license, for issuing an initial agent's license to a
partnership or corporation, $50, and for issuing an amendment
(variable annuity) to a license, $20, and for renewal of
amendment, $20;
(8) for each appointment of an agent filed with the
commissioner, a domestic insurer shall remit $5 and all other
insurers shall remit $3;
(9) for renewing an individual agent's license, $20 per
year per license, and for renewing a license issued to a
corporation or partnership, $50 per year;
(10) for issuing and renewing a surplus lines agent's
license, $150;
(11) for issuing duplicate licenses, $5;
(12) for issuing licensing histories, $10;
(13) for filing forms and rates, $50 per filing;
(14) for annual renewal of surplus lines insurer license,
$300.
The commissioner shall adopt rules to define filings that
are subject to a fee.
Sec. 9. Minnesota Statutes 1990, section 61A.283, is
amended to read:
61A.283 [ADMITTED ASSETS.]
For the purpose of applying any investment limitation based
on the amount of a domestic life insurance company's admitted
assets, the term "admitted assets" shall mean such assets as
shown by the company's annual statement, required by section
60A.13, as of the December 31 immediately preceding the date the
company acquires the investment has the meaning given in section
1, with an adjustment in such the admitted asset figure to
exclude amounts which on such the December 31 immediately
preceding the date the company acquires an investment are
allocated to separate accounts; and the value of stocks and
warrants and options to purchase stocks owned by the company on
such December 31 shall be based on cost. For other purposes the
term "admitted assets" shall mean such assets as shown by the
company's annual statement on such December 31, valued in
accordance with the valuation regulations prescribed by the
National Association of Insurance Commissioners.
Sec. 10. Minnesota Statutes 1990, section 72A.061,
subdivision 1, is amended to read:
Subdivision 1. [ANNUAL STATEMENTS.] Any insurance company
licensed to do business in this state, including fraternals,
reciprocals and township mutuals, which neglects to file its
annual statement in the form prescribed and within the time
specified by law shall be subject to a penalty of $25 $100 for
each day in default. If, at the end of 90 45 days, the default
has not been corrected, the company shall be given ten days in
which to show cause to the commissioner why its license should
not be suspended. If the company has not made the requisite
showing within the ten-day period, the license and authority of
the company may, at the discretion of the commissioner, be
suspended during the time the company is in default.
Any insurance company, including fraternals, reciprocals,
and township mutuals, willfully making a false annual or other
required statement shall pay a penalty to the state not to
exceed $5,000. Either or both of the monetary penalties imposed
by this subdivision may be recovered in a civil action brought
by and in the name of the state.
Sec. 11. Minnesota Statutes 1990, section 62D.044, is
amended to read:
62D.044 [ADMITTED ASSETS.]
"Admitted assets" includes the following:
(1) petty cash and other cash funds in the organization's
principal or official branch office that are under the
organization's control;
(2) immediately withdrawable funds on deposit in demand
accounts, in a bank or trust company organized and regularly
examined under the laws of the United States or any state, and
insured by an agency of the United States government, or like
funds actually in the principal or official branch office at
statement date, and, in transit to a bank or trust company with
authentic deposit credit given before the close of business on
the fifth bank working day following the statement date;
(3) the amount fairly estimated as recoverable on cash
deposited in a closed bank or trust company, if the assets
qualified under this section before the suspension of the bank
or trust company;
(4) bills and accounts receivable that are collateralized
by securities in which the organization is authorized to invest;
(5) premiums due from groups or individuals that are not
more than 90 days past due;
(6) amounts due under reinsurance arrangements from
insurance companies authorized to do business in this state;
(7) tax refunds due from the United States or this state;
(8) principal and interest accrued on mortgage loans not
exceeding in aggregate one year's total due and
accrued principal and interest on an individual loan;
(9) the rents due to the organization on real and personal
property, directly or beneficially owned, not exceeding the
amount of one year's total due and accrued rent on each
individual property;
(10) principal and interest or rents accrued on conditional
sales agreements, security interests, chattel mortgages, and
real or personal property under lease to other corporations that
do not exceed the amount of one year's total due and accrued
interest or rent on an individual investment;
(11) the fixed required principal and interest due and
accrued on bonds and other evidences of indebtedness that are
not in default;
(12) dividends receivable on shares of stock, provided that
the market price for valuation purposes does not include the
value of the dividend;
(13) the interest on dividends due and payable, but not
credited, on deposits in banks and trust companies or on
accounts with savings and loan associations;
(14) principal and interest accrued on secured loans that
do not exceed the amount of one year's interest on any loan;
(15) interest accrued on tax anticipation warrants;
(16) the amortized value of electronic computer or data
processing machines or systems purchased for use in the business
of the organization, including software purchased and developed
specifically for the organization's use;
(17) the cost of furniture, equipment, and medical
equipment, less accumulated depreciation thereon, and medical
and pharmaceutical supplies that are used to deliver health care
and are under the organization's control, provided the assets do
not exceed 30 percent of admitted assets;
(18) amounts currently due from an affiliate that has
liquid assets with which to pay the balance and maintain its
accounts on a current basis. Any amount outstanding more than
three months is not current;
(19) amounts on deposit under section 62D.041;
(20) accounts receivable from participating health care
providers that are not more than 60 days past due; and
(21) investments allowed by section 62D.045, except for
investments in securities and properties described under section
61A.284.
Sec. 12. Minnesota Statutes 1990, section 62D.045,
subdivision 1, is amended to read:
Subdivision 1. [RESTRICTIONS.] Funds of a health
maintenance organization shall be invested only in securities
and property designated by law for investment by domestic life
insurance companies, except that money may be used to purchase
real estate, including leasehold estates and leasehold
improvements, for the convenient accommodation of the
organization's business operations, including the home office,
branch offices, medical facilities, and field office operations,
on the following conditions:
(1) a parcel of real estate acquired under this subdivision
may include excess space for rent to others if it is reasonably
anticipated that the excess will be required by the organization
for expansion or if the excess is reasonably required in order
to have one or more buildings that will function as an economic
unit;
(2) the real estate may be subject to a mortgage; and
(3) the purchase price of the asset, including capitalized
permanent improvements, less depreciation spread evenly over the
life of the property or less depreciation computed on any basis
permitted under the Internal Revenue Code and its regulations,
or the organization's equity, plus all encumbrances on the real
estate owned by a company under this subdivision, whichever is
greater, does not exceed 20 percent of its admitted assets,
except if, when calculated in combination with the assets
described in section 62D.044, clause (17), the total of said
assets and the real estate assets described hereunder do not
exceed the total combined percent limitations allowable under
this section and section 62D.044, clause (17), or, if permitted
by the commissioner upon a finding that the percentage of the
health maintenance organization's admitted assets is
insufficient to provide convenient accommodation for the
organization's business. However, a health maintenance
organization that directly provides medical services owns
property used in the delivery of medical services for its
enrollees may invest an additional 20 percent of its admitted
assets in real estate, not requiring the permission of the
commissioner.
Sec. 13. [REPORT.]
Subdivision 1. [REPORT.] The commissioner of commerce
shall submit a report on the overall effectiveness of the
requirements imposed under this act to the legislature by
January 1, 1994. The report must include:
(1) the effectiveness and reliability of risk-adjusted
capital formulas applied as broadly as possible to all insurers,
including a recommendation whether the formula should be adopted
by the state as a formal tool for measuring surplus adequacy;
(2) the accuracy and effectiveness of the internal
appraisal procedure authorized for valuing real estate and
mortgages, including recommendations on any necessary internal
appraisal procedure modifications;
(3) the sufficiency of the department's insurance audit
complement.
Subd. 2. [INTERSTATE COMPACT AGREEMENT STUDY.] The
commissioner of commerce shall conduct a study to determine the
feasibility of entering interstate compact agreements for the
purpose of enhancing the regulation of insurers. The study must
address the costs and benefits of state regulation and the
financial and operational impact on domestic insurers. The
commissioner shall submit a report on the results of the study
to the legislature by January 1, 1992.
Sec. 14. [REPORT ON GUARANTY ASSOCIATIONS.]
The commissioner of commerce shall submit a report on the
life and health guaranty association and the Minnesota insurance
guaranty association to the legislature by January 1, 1992. The
report must include:
(1) the feasibility of prefunding each association;
(2) the capacity of each association to promptly pay
benefits and continue coverages for large insolvencies; and
(3) the feasibility of using risk as a basis for
establishing the amount to be assessed each member of each
association.
Sec. 15. [EXAMINATION AND SELECTION CRITERIA.]
The commissioner of employee relations shall authorize the
commissioner of commerce to establish examination and selection
criteria for the initial appointments for the department of
commerce positions specified in section 16.
Sec. 16. [APPROPRIATION.]
$1,718,000 is appropriated from the general fund to the
commissioner of commerce for the purposes of this act. $858,000
is for fiscal year 1992 and $860,000 is for fiscal year 1993.
The approved complement of the department of commerce is
increased by 15 positions in fiscal year 1992 and 17 positions
in fiscal year 1993.
$200,000 is appropriated from the general fund to the
attorney general for the purposes of this act. $100,000 is for
fiscal year 1992 and $100,000 is for fiscal year 1993. The
approved complement of the office of attorney general is
increased by two positions.
ARTICLE 11
REINSURANCE INTERMEDIARIES
Section 1. [60A.70] [TITLE.]
Sections 60A.70 to 60A.756 may be cited as the reinsurance
intermediary act.
Sec. 2. [60A.705] [DEFINITIONS.]
Subdivision 1. [TERMS.] For purposes of sections 60A.70 to
60A.756, the terms defined in this section have the meanings
given them.
Subd. 2. [ACTUARY.] "Actuary" means a person who is a
member in good standing of the American Academy of Actuaries.
Subd. 3. [CONTROLLING PERSON.] "Controlling person" means
a person, firm, association, or corporation who directly or
indirectly has the power to direct or cause to be directed, the
management, control, or activities of the reinsurance
intermediary.
Subd. 4. [INSURER.] "Insurer" means any person, firm,
association, or corporation duly licensed in this state pursuant
to the applicable provisions of the insurance law as an insurer.
Subd. 5. [LICENSED PRODUCER.] "Licensed producer" means an
agent, broker, or reinsurance intermediary licensed pursuant to
the applicable provision of the insurance law.
Subd. 6. [REINSURANCE INTERMEDIARY.] "Reinsurance
intermediary" means a reinsurance intermediary-broker or a
reinsurance intermediary-manager.
Subd. 7. [REINSURANCE INTERMEDIARY-BROKER.] "Reinsurance
intermediary-broker" or "RB" means any person, other than an
officer or employee of the ceding insurer, firm, association, or
corporation who solicits, negotiates, or places reinsurance
cessions or retrocessions on behalf of a ceding insurer without
the authority or power to bind reinsurance on behalf of this
insurer.
Subd. 8. [REINSURANCE INTERMEDIARY-MANAGER.] "Reinsurance
intermediary-manager" or "RM" means any person, firm,
association, or corporation who has authority to bind or manages
all or part of the assumed reinsurance business of a reinsurer,
including the management of a separate division, department, or
underwriting office, and acts as an agent for that reinsurer
whether known as a RM, manager, or other similar term. However,
the following persons are not considered a RM, with respect to
that reinsurer, for the purposes of sections 60A.70 to 60A.756:
(1) an employee of the reinsurer;
(2) a United States manager of the United States branch of
an alien reinsurer;
(3) an underwriting manager which, pursuant to contract,
manages all the reinsurance operations of the reinsurer, is
under common control with the reinsurer, subject to the holding
company act, and whose compensation is not based on the volume
of premiums written; or
(4) the manager of a group, association, pool, or
organization of insurers which engage in joint underwriting or
joint reinsurance and who are subject to examination by the
insurance commissioner of the state in which the manager's
principal business office is located.
Subd. 9. [REINSURER.] "Reinsurer" means a person, firm,
association, or corporation licensed in this state as an insurer
with the authority to assume reinsurance.
Subd. 10. [TO BE IN VIOLATION.] "To be in violation" means
that the reinsurance intermediary, insurer, or reinsurer for
whom the reinsurance intermediary was acting failed to
substantially comply with the provisions of sections 60A.70 to
60A.756.
Subd. 11. [QUALIFIED UNITED STATES FINANCIAL
INSTITUTION.] "Qualified United States financial institution"
means an institution that:
(1) is organized, or in the case of a United States office
of a foreign banking organization, is licensed, under the laws
of the United States or any state;
(2) is regulated, supervised, and examined by United States
federal or state authorities having regulatory authority over
banks and trust companies; and
(3) has been determined by either the commissioner, or the
securities valuation office of the National Association of
Insurance Commissioners, to meet the standards of financial
condition and standing considered necessary and appropriate to
regulate the quality of financial institutions whose letters of
credit will be acceptable to the commissioner.
Sec. 3. [60A.71] [LICENSURE.]
Subdivision 1. [REINSURANCE INTERMEDIARY-BROKER
REQUIREMENTS.] No person, firm, association, or corporation
shall act as a RB in this state if the RB maintains an office
either directly or as a member or employee of a firm or
association, or an officer, director, or employee of a
corporation:
(1) in this state, unless the RB is a licensed producer in
this state; or
(2) in another state, unless the RB is a licensed producer
in this state or another state having a law substantially
similar to this law or the RB is licensed in this state as a
nonresident reinsurance intermediary.
Subd. 2. [REINSURANCE INTERMEDIARY-MANAGER
REQUIREMENTS.] No person, firm, association, or corporation
shall act as a RM:
(1) for a reinsurer domiciled in this state, unless the RM
is a licensed producer in this state;
(2) in this state, if the RM maintains an office either
directly or as a member or employee of a firm or association, or
an officer, director, or employee of a corporation in this
state, unless the RM is a licensed producer in this state; or
(3) in another state for a nondomestic insurer, unless the
RM is a licensed producer in this state or another state having
a law substantially similar to this law or the person is
licensed in this state as a nonresident reinsurance intermediary.
Subd. 3. [BOND AND INSURANCE REQUIREMENTS FOR REINSURANCE
INTERMEDIARY-MANAGER.] The commissioner may require a RM subject
to subdivision 2 to:
(1) file a bond in an amount from an insurer acceptable to
the commissioner for the protection of the reinsurer; and
(2) maintain an errors and omissions policy in an amount
acceptable to the commissioner.
Subd. 4. [TERMS.] (a) The commissioner may issue a
reinsurance intermediary license to any person, firm,
association, or corporation who has complied with the
requirements of sections 60A.70 to 60A.756. The license issued
to a firm or association will authorize all the members of the
firm or association and any designated employees to act as
reinsurance intermediaries under the license, and these persons
shall be named in the application and any supplements to it.
The license issued to a corporation shall authorize all of the
officers, and any designated employees and directors of the
corporation to act as reinsurance intermediaries on behalf of
the corporation, and all these persons shall be named in the
application and any supplements to it.
(b) If the applicant for a reinsurance intermediary license
is a nonresident, the applicant, as a condition precedent to
receiving or holding a license, shall designate the commissioner
as agent for service of process in the manner, and with the same
legal effect, provided for by this act for designation of
service of process upon unauthorized insurers. The applicant
shall also furnish the commissioner with the name and address of
a resident of this state upon whom notices or orders of the
commissioner or process affecting the nonresident reinsurance
intermediary may be served. The licensee shall promptly notify
the commissioner in writing of every change in its designated
agent for service of process, and the change shall not become
effective until acknowledged by the commissioner.
Subd. 5. [REFUSAL TO ISSUE.] The commissioner may refuse
to issue a reinsurance intermediary license if, in the
commissioner's judgment, the applicant, anyone named on the
application, or any member, principal, officer, or director of
the applicant, is not trustworthy, or that any controlling
person of the applicant is not trustworthy to act as a
reinsurance intermediary, or that any of the foregoing has given
cause for revocation or suspension of the license, or has failed
to comply with any prerequisite for the issuance of the
license. Upon written request, the commissioner will furnish a
summary of the basis for refusal to issue a license. This
document is privileged and not subject to chapter 13.
Subd. 6. [ATTORNEYS EXEMPTION.] Licensed attorneys at law
of this state when acting in their professional capacity as such
are exempt from this section.
Sec. 4. [60A.715] [REQUIRED CONTRACT PROVISIONS;
REINSURANCE INTERMEDIARY-BROKERS.]
Transactions between a RB and the insurer it represents in
this capacity shall only be entered into pursuant to a written
authorization, specifying the responsibilities of each party.
The authorization must, at a minimum, provide that:
(1) the insurer may terminate the RB's authority at any
time;
(2) the RB will render accounts to the insurer accurately
detailing all material transactions, including information
necessary to support all commissions, charges, and other fees
received by, or owing to the RB, and remit all funds due to the
insurer within 30 days of receipt;
(3) all funds collected for the insurer's account will be
held by the RB in a fiduciary capacity in a bank that is a
qualified United States financial institution;
(4) the RB will comply with section 5;
(5) the RB will comply with the written standards
established by the insurer for the cession or retrocession of
all risks; and
(6) the RB will disclose to the insurer any relationship
with any reinsurer to which business will be ceded or retroceded.
Sec. 5. [60A.72] [BOOKS AND RECORDS; REINSURANCE
INTERMEDIARY-BROKERS.]
Subdivision 1. [RECORDS OF TRANSACTIONS.] For at least ten
years after expiration of each contract of reinsurance
transacted by the RB, the RB will keep a complete record for
each transaction showing:
(1) the type of contract, limits, underwriting
restrictions, classes or risks, and territory;
(2) period of coverage, including effective and expiration
dates, cancellation provisions, and notice required of
cancellation;
(3) reporting and settlement requirements of balances;
(4) rate used to compute the reinsurance premium;
(5) names and addresses of assuming reinsurers;
(6) rates of all reinsurance commissioners, including the
commissions on any retrocessions handled by the RB;
(7) related correspondence and memoranda;
(8) proof of placement;
(9) details regarding retrocessions handled by the RB
including the identity of retrocessionaires and percentage of
each contract assumed or ceded;
(10) financial records, including, but not limited to,
premium and loss accounts; and
(11) when the RB procures a reinsurance contract on behalf
of a licensed ceding insurer:
(i) directly from any assuming reinsurer, written evidence
that the assuming reinsurer has agreed to assume the risk; or
(ii) if placed through a representative of the assuming
reinsurer, other than an employee, written evidence that such
reinsurer has delegated binding authority to the representative.
Subd. 2. [ACCESS BY INSURER.] The insurer will have access
and the right to copy and audit all accounts and records
maintained by the RB related to its business in a form usable by
the insurer.
Sec. 6. [60A.725] [DUTIES OF INSURERS UTILIZING THE
SERVICES OF A REINSURANCE INTERMEDIARY-BROKER.]
(a) An insurer shall not engage the services of a person,
firm, association, or corporation to act as a RB on its behalf
unless the person is licensed as required by section 3,
subdivision 1.
(b) An insurer may not employ an individual who is employed
by a RB with which it transacts business, unless the RB is under
common control with the insurer and subject to chapter 60D.
(c) The insurer shall annually obtain a copy of statements
of the financial condition of each RB with which it transacts
business.
Sec. 7. [60A.73] [REQUIRED CONTRACT PROVISIONS;
REINSURANCE INTERMEDIARY-MANAGERS.]
Subdivision 1. [APPROVAL BY COMMISSIONER.] Transactions
between a RM and the reinsurer it represents in this capacity
must only be entered into pursuant to a written contract,
specifying the responsibilities of each party. The contract
shall be approved by the reinsurer's board of directors. At
least 30 days before the reinsurer assumes or cedes business
through this producer, a true copy of the approved contract must
be filed with the commissioner for approval. The contract must,
at a minimum, contain the provisions in subdivisions 2 to 14.
Subd. 2. [TERMINATIONS.] The reinsurer may terminate the
contract for cause upon written notice to the RM. The reinsurer
may immediately suspend the authority of the RM to assume or
cede business during the pendency of any dispute regarding the
cause for termination.
Subd. 3. [PERIODIC ACCOUNTING.] The RM will render
accounts to the reinsurer accurately detailing all material
transactions, including information necessary to support all
commissions, charges, and other fees received by, or owing to
the RM, and remit all funds due under the contract to the
reinsurer on not less than a monthly basis.
Subd. 4. [HANDLING OF FUNDS.] All funds collected for the
reinsurer's account will be held by the RM in a fiduciary
capacity in a bank which is a qualified United States financial
institution as defined herein. The RM may retain no more than
three months estimated claims payments and allocated loss
adjustment expenses. The RM shall maintain a separate bank
account for each reinsurer that it represents.
Subd. 5. [BUSINESS RECORDS.] For at least ten years after
expiration of each contract of reinsurance transacted by the RM,
the RM will keep a complete record for each transaction showing:
(1) the type of contract, limits, underwriting
restrictions, classes or risks, and territory;
(2) period of coverage, including effective and expiration
dates, cancellation provisions and notice required of
cancellation, and disposition of outstanding reserves on covered
risks;
(3) reporting and settlement requirements of balances;
(4) rate used to compute the reinsurance premium;
(5) names and addresses of reinsurers;
(6) rates of all reinsurance commissions, including the
commissions on any retrocessions handled by the RM;
(7) related correspondence and memoranda;
(8) proof of placement;
(9) details regarding retrocessions handled by the RM, as
permitted by section 9, subdivision 4, including the identity of
retrocessionaires and percentage of each contract assumed or
ceded;
(10) financial records, including, but not limited to,
premium and loss accounts; and
(11) when the RM places a reinsurance contract on behalf of
a ceding insurer:
(i) directly from any assuming reinsurer, written evidence
that the assuming reinsurer has agreed to assume the risk; or
(ii) if placed through a representative of the assuming
reinsurer, other than an employee, written evidence that the
reinsurer has delegated binding authority to the representative.
Subd. 6. [REINSURER ACCESS TO RECORDS.] The reinsurer will
have access and the right to copy all accounts and records
maintained by the RM related to its business in a form usable by
the reinsurer.
Subd. 7. [NONASSIGNMENT OF CONTRACT.] The contract cannot
be assigned in whole or in part by the RM.
Subd. 8. [UNDERWRITING AND RATING STANDARDS.] The RM will
comply with the written underwriting and rating standards
established by the insurer for the acceptance, rejection, or
cession of all risks.
Subd. 9. [CHARGES AND COMMISSIONS.] The rates, terms and
purposes of commission, charges, and other fees which the RM may
levy against the reinsurer will be specified in the contract.
Subd. 10. [CLAIMS SETTLEMENT.] If the contract permits the
RM to settle claims on behalf of the reinsurer, the contract
will specify that:
(1) all claims will be reported to the reinsurer in a
timely manner;
(2) a copy of the claim file will be sent to the reinsurer
at its request or as soon as it becomes known that the claim:
(i) has the potential to exceed the lesser of an amount
determined by the commissioner or the limit set by the
reinsurer;
(ii) involves a coverage dispute;
(iii) may exceed the RM's claims settlement authority;
(iv) is open for more than six months; or
(v) is closed by payment of the lesser of an amount set by
the commissioner or an amount set by the reinsurer;
(3) all claim files will be the joint property of the
reinsurer and RM. However, upon an order of liquidation of the
reinsurer the files become the sole property of the reinsurer or
its estate. The RM shall have reasonable access to and the
right to copy the files on a timely basis; and
(4) settlement authority granted to the RM may be
terminated for cause upon the reinsurer's written notice to the
RM or upon the termination of the contract. The reinsurer may
suspend the settlement authority during the pendency of the
dispute regarding the cause of termination.
Subd. 11. [INTERIM PROFITS.] If the contract provides for
a sharing of interim profits by the RM, interim profits will not
be paid until one year after the end of each underwriting period
for property business and five years after the end of each
underwriting period for casualty business, or a later period set
by the commissioner for specified lines of insurance, and not
until the adequacy of reserves on remaining claims has been
verified pursuant to section 9, subdivision 3.
Subd. 12. [CERTIFIED FINANCIAL STATEMENT.] The RM will
annually provide the reinsurer with a statement of its financial
condition prepared by an independent certified accountant.
Subd. 13. [ON-SITE REVIEW BY REINSURER.] The reinsurer
shall periodically, at least semiannually, conduct an on-site
review of the underwriting and claims processing operations of
the RM.
Subd. 14. [DISCLOSURE OF INSURER RELATIONSHIP.] The RM
will disclose to the reinsurer any relationship it has with any
insurer before ceding or assuming any business with the insurer
pursuant to this contract.
Subd. 15. [RESPONSIBILITY OF REINSURER.] Within the scope
of its actual or apparent authority, the acts of the RM are
considered to be the acts of the reinsurer on whose behalf it is
acting.
Sec. 8. [60A.735] [PROHIBITED ACTS.]
The RM shall not:
(1) cede retrocessions on behalf of the reinsurer, except
that the RM may cede facultative retrocessions pursuant to
obligatory facultative agreements if the contract with the
reinsurer contains reinsurance underwriting guidelines for these
retrocessions. These guidelines must include a list of
reinsurers with which these automatic agreements are in effect,
and for each reinsurer, the coverages and amounts or percentages
that may be reinsured, and commission schedules;
(2) commit the reinsurer to participate in reinsurance
syndicates;
(3) appoint any producer without assuring that the producer
is lawfully licensed to transact the type of reinsurance for
which the producer is appointed;
(4) without prior approval of the reinsurer, pay or commit
the reinsurer to pay a claim, net of retrocessions, that exceeds
the lesser of an amount specified by the reinsurer or one
percent of the reinsurer's policyholder's surplus as of December
31 of the last complete calendar year;
(5) collect any payment from a retrocessionaire or commit
the reinsurer to any claim settlement with a retrocessionaire,
without prior approval of the reinsurer. If prior approval is
given, a report must be promptly forwarded to the reinsurer;
(6) jointly employ an individual who is employed by the
reinsurer unless such RM is under common control with the
reinsurer subject to chapter 60D;
(7) appoint a sub-RM.
Sec. 9. [60A.74] [DUTIES OF REINSURER UTILIZING THE
SERVICES OF A REINSURANCE INTERMEDIARY-MANAGER.]
Subdivision 1. [LICENSED PERSONS TO BE USED.] A reinsurer
shall not engage the services of any person, firm, association,
or corporation to act as a RM on its behalf unless the person is
licensed as required by section 3, subdivision 2.
Subd. 2. [ANNUAL FINANCIAL STATEMENTS TO BE OBTAINED.] The
reinsurer shall annually obtain a copy of statements of the
financial condition of each RM which the reinsurer has engaged
prepared by an independent certified accountant in a form
acceptable to the commissioner.
Subd. 3. [LOSS RESERVE OPINIONS.] If a RM establishes loss
reserves, the reinsurer shall annually obtain the opinion of an
actuary attesting to the adequacy of loss reserves established
for losses incurred and outstanding on business produced by the
RM. This opinion must be in addition to any other required loss
reserve certification.
Subd. 4. [BINDING AUTHORITY.] Binding authority for all
retrocessional contracts or participation in reinsurance
syndicates shall rest with an officer of the reinsurer who shall
not be affiliated with the RM.
Subd. 5. [NOTIFICATION OF TERMINATION.] Within 30 days of
termination of a contract with a RM, the reinsurer shall provide
written notification of the termination to the commissioner.
Subd. 6. [RESTRICTION ON BOARD APPOINTMENTS.] A reinsurer
shall not appoint to its board of directors, any officer,
director, employee, controlling shareholder, or subproducer of
its RM. This subdivision does not apply to relationships
governed by chapter 60D or, if applicable, the producer
controlled property/casualty insurer act, article 13.
Sec. 10. [60A.745] [EXAMINATION AUTHORITY.]
(a) A reinsurance intermediary is subject to examination by
the commissioner. The commissioner shall have access to all
books, bank accounts, and records of the reinsurance
intermediary in a form usable to the commissioner.
(b) A RM may be examined as if it were the reinsurer.
Sec. 11. [60A.75] [VIOLATIONS.]
Subdivision 1. [ADMINISTRATIVE AND CIVIL PENALTIES AND
LIABILITIES.] A reinsurance intermediary, insurer, or reinsurer
found by the commissioner, after a hearing conducted in
accordance with chapter 14, to be in violation of any provision
of sections 60A.70 to 60A.756, shall:
(1) for each separate violation, pay a penalty in an amount
not exceeding $5,000; and
(2) be subject to revocation or suspension of its license.
Subd. 2. [JUDICIAL REVIEW.] The decision, determination,
or order of the commissioner pursuant to subdivision 1 is
subject to judicial review pursuant to chapter 14.
Subd. 3. [OTHER PENALTIES.] Nothing contained in this
section affects the right of the commissioner to impose any
other penalties provided in the insurance laws.
Sec. 12. [60A.755] [SCOPE.]
Nothing contained in sections 60A.70 to 60A.756 is intended
to or shall in any manner limit or restrict the rights of
policyholders, claimants, creditors, or other third parties or
confer any rights to these persons.
Sec. 13. [60A.756] [RULES.]
The commissioner may adopt rules for the implementation and
administration of sections 60A.70 to 60A.756.
Sec. 14. [EFFECTIVE DATE.]
Sections 60A.70 to 60A.756 are effective August 1, 1991.
No insurer or reinsurer may continue to utilize the services of
a reinsurance intermediary on and after that date unless
utilization is in compliance with this article.
ARTICLE 12
INSURANCE REGULATORY INFORMATION SYSTEM
Section 1. [60A.90] [SCOPE.]
Sections 60A.90 to 60A.94 apply to all domestic, foreign,
and alien insurers who are authorized to transact business in
this state.
Sec. 2. [60A.91] [FILING REQUIREMENTS.]
(a) A domestic, foreign, and alien insurer who is
authorized to transact insurance in this state shall annually on
or before March 1 of each year, file with the National
Association of Insurance Commissioners (NAIC) a copy of its
annual statement convention blank, along with additional filings
prescribed by the commissioner for the preceding year. The
information filed with the National Association of Insurance
Commissioners must be in the same format and scope as that
required by the commissioner and must include the signed jurat
page and the actuarial certification. Amendments and addenda to
the annual statement filing subsequently filed with the
commissioner must also be filed with the NAIC.
(b) Foreign insurers that are domiciled in a state that has
a law substantially similar to paragraph (a) is considered to be
in compliance with this section.
Sec. 3. [60A.92] [IMMUNITY.]
In the absence of actual malice, members of the NAIC, their
duly authorized committees, subcommittees, and task forces,
their delegates, NAIC employees, and all others charged with the
responsibility of collecting, reviewing, analyzing, and
disseminating the information developed from the filing of the
annual statement convention blanks are acting as agents of the
commissioner under the authority of this act and are not subject
to civil liability for libel, slander, or any other cause of
action by virtue of their collection, review, and analysis or
dissemination of the data and information collected from the
filings required under sections 60A.90 to 60A.94.
Sec. 4. [60A.93] [CONFIDENTIALITY.]
All financial analysis ratios and examination synopses
concerning insurance companies that are submitted to the
department by the National Association of Insurance
Commissioners' Insurance Regulatory Information System are
confidential and may not be disclosed by the department.
Sec. 5. [60A.94] [REVOCATION OF CERTIFICATE OF AUTHORITY.]
The commissioner may suspend, revoke, or refuse to renew
the certificate of authority of an insurer failing to file its
annual statement when due or within any extension of time that
the commissioner, for good cause, may have granted.
Sec. 6. [EFFECTIVE DATE.]
Sections 60A.90 to 60A.94 are effective the day following
final enactment.
ARTICLE 13
BUSINESS TRANSACTED WITH PRODUCER
CONTROLLED PROPERTY/CASUALTY INSURER
Section 1. [60J.01] [TITLE.]
Sections 60J.01 to 60J.05 may be cited as the business
transacted with producer controlled property/casualty insurer
act.
Sec. 2. [60J.02] [DEFINITIONS.]
Subdivision 1. [TERMS.] For the purposes of sections
60J.01 to 60J.05, the terms defined in this section have the
meanings given them.
Subd. 2. [PRODUCER.] "Producer" means an insurance broker
or brokers or any other person, firm, association, or
corporation, when, for any compensation, commission, or other
thing of value, the person, firm, association, or corporation
acts or aids in any manner in soliciting, negotiating, or
procuring the making of any insurance contract on behalf of an
insured other than himself, herself, or itself.
Subd. 3. [REINSURANCE INTERMEDIARY.] "Reinsurance
intermediary" means a person, firm, association, or corporation
who acts as a producer in soliciting, negotiating, or procuring
the making of a reinsurance contract or binder on behalf of a
ceding insurer or acts as a producer in accepting any
reinsurance contract or binder on behalf of an assuming insurer.
Subd. 4. [CONTROL.] "Control" or "controlled" means the
possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract
other than a contract for goods or nonmanagement services, or
otherwise. Control is presumed to exist if a person, directly
or indirectly, owns, controls, holds with the powers to vote, or
holds proxies representing a majority of the outstanding voting
securities of any other person. No person is considered to
control another person solely by reason of being an officer or
director of the other person.
Subd. 5. [LICENSED PROPERTY/CASUALTY INSURER.] "Licensed
property/casualty insurer" or "insurer" means a person, firm,
association, or corporation licensed to transact a
property/casualty insurance business in this state and that
issues policies covered by chapter 60C. The following are not
licensed property/casualty insurers for the purposes of sections
60J.01 to 60J.05:
(1) all nonadmitted insurers;
(2) all risk retention groups as defined in the Superfund
Amendments Reauthorization Act of 1986, Public Law Number
99-499, 100 Stat. 1613 (1986) and the Risk Retention Act, United
States Code, title 15, section 3901 et seq. and chapter 60E;
(3) all residual market pools and joint underwriting
authorities or associations; and
(4) all captive insurers. This term includes insurance
companies owned by another organization whose exclusive purpose
is to insure risks of the parent organization and affiliated
companies or, in the case of groups and associations, insurance
organizations owned by the insureds whose exclusive purpose is
to insure risks of member organizations and/or group members and
their affiliates.
Subd. 6. [INDEPENDENT CASUALTY ACTUARY.] "Independent
casualty actuary" means a casualty actuary who is a member of
the American Academy of Actuaries and who is not affiliated
with, nor an employee, principal, nor the direct or indirect
owner of, or in any way controlled by the insurer or producer.
Subd. 7. [VIOLATION.] "Violation" means a finding by the
commissioner that:
(1) the controlling producer did not materially comply with
section 3;
(2) the controlled insurer, with respect to business placed
by the controlling producer, engaged in a pattern of charging
premiums that were lower than those being charged by the insurer
or other insurers for similar risks written during the same
period and placed by noncontrolling producers. When determining
whether premiums were lower than those prevailing in the market,
the commissioner shall take into consideration applicable
industry or actuarial standards at the time the business was
written;
(3) the controlling producer failed to maintain records,
sufficient:
(i) to demonstrate that the producer's dealings with its
controlled insurer were fair and equitable and in compliance
with chapter 60D; and
(ii) to accurately disclose the nature and details of its
transactions with the controlled insurer, including information
necessary to support the charges or fees to the respective
parties;
(4) the controlled insurer, with respect to business placed
by the controlling producer, either failed to establish or
deviated from its underwriting procedures;
(5) the controlled insurer's capitalization at the time the
business was placed by the controlling producer and with respect
to this business was not in compliance with criteria established
by the commissioner or with the insurance law or rules adopted
under it; or
(6) the controlling producer or the controlled insurer
failed to substantially comply with the insurance holding
company act, chapter 60D and any rules adopted under it.
Sec. 3. [60J.03] [LIMITATION ON BUSINESS PLACED WITH
CONTROLLED INSURER.]
Subdivision 1. [PRODUCER LIMITATION.] No producer that has
control of a licensed property/casualty insurer may directly or
indirectly place business with the insurer in any transaction in
which the producer, at the time the business is placed, is
acting as such on behalf of the insured for any compensation,
commission, or other thing of value, unless:
(1) there is a written contract between the controlling
producer and the insurer, which contract has been approved by
the board of directors of the insurer;
(2) the producer, before the effective date of the policy,
shall deliver written notice to the prospective insured
disclosing the relationship between the producer and the
controlled insurer. The disclosure, signed by the insured, must
be retained in the underwriting file until the filing of the
report on examination covering the period in which the coverage
is in effect. Except that, if the business is placed through a
subproducer who is not a controlling producer, the controlling
producer shall retain in the producer's records a signed
commitment from the subproducer that the subproducer is aware of
the relationship between the insurer and the producer and that
the subproducer has or will notify the insured;
(3) all funds collected for the account of the insurer by
the controlling producer must be paid, net of commissions,
cancellations, and other adjustments, to the insurer no less
often that quarterly;
(4) in addition to any other required loss reserve
certification, the controlled insurer shall annually, on April 1
of each year, file with the commissioner an opinion of an
independent casualty actuary, or other independent loss reserve
specialist acceptable to the commissioner, reporting loss ratios
for each line of business written and attesting to the adequacy
of loss reserves established for losses incurred and outstanding
as of year-end, including incurred but not reported, on business
placed by the producer;
(5) the controlled insurer shall annually report to the
commissioner the amount of commissions paid to the producer, the
percentage the amount represents of the net premiums written and
comparable amounts and percentage paid to noncontrolling
producers for placements of the same kinds of insurance; and
(6) every controlled insurer shall have an audit committee
of the board of directors composed of independent directors.
Before approval of the annual financial statement, the audit
committee shall meet with management, the insurer's independent
certified public accountants, and an independent casualty
actuary, or other independent loss reserve specialist acceptable
to the commissioner, to review the adequacy of the insurer's
loss reserves.
Subd. 2. [REINSURANCE INTERMEDIARY LIMITATION.] No
reinsurance intermediary that has control of an assuming insurer
may directly or indirectly place business with the insurer in
any transaction in which the reinsurance intermediary is acting
as a broker on behalf of the ceding insurer. No reinsurance
intermediary that has control of a ceding insurer may directly
or indirectly accept business from the insurer in any
transaction in which the reinsurance intermediary is acting as a
producer on behalf of the assuming insurer. The prohibitions in
this subdivision do not apply to a reinsurance intermediary that
makes a full and complete written disclosure to the parties of
its relationship with the assuming or ceding insurer before
completion of the transaction.
Sec. 4. [60J.04] [LIABILITY OF CONTROLLING PRODUCER IN THE
EVENT OF INSOLVENCY OF CONTROLLED INSURER.]
Subdivision 1. [INITIATION OF ACTION.] If the commissioner
has reason to believe that a controlling producer has committed
or is committing an act that could be determined to be a
violation of sections 60J.01 to 60J.05, the commissioner shall
serve upon the controlling producer, in the manner provided by
chapter 14, a statement of the charges and notice of a hearing
to be conducted in accordance with chapter 14, at a time not
less than 30 days after the service of the notice and at a place
fixed in the notice.
Subd. 2. [HEARING.] At the hearing, the commissioner shall
establish that the controlling producer engaged in a violation
of sections 60J.01 to 60J.05. The controlling producer shall
have an opportunity to be heard and to present evidence
rebutting the charges and to establish that the insolvency of
the controlled insurer arose out of events not attributable to
the violation. The decision, determination, or order of the
commissioner is subject to judicial review pursuant to chapter
14.
Subd. 3. [PENALTY.] Upon finding that the controlling
producer committed a violation, and the controlling producer
failed to establish that the violation did not substantially
contribute to the insolvency, the controlling producer shall
reimburse the state guaranty funds for all payments made for
losses, loss adjustment, and administrative expenses on the
business placed by the producer in excess of gross earned
premiums and investment income earned on premiums and loss
reserves for the business.
Subd. 4. [OTHER PENALTIES.] Nothing contained in this
section affects the right of the commissioner to impose any
other penalties provided for in the insurance laws.
Sec. 5. [60J.05] [SCOPE.]
Nothing contained in sections 60J.01 to 60J.05 is intended
to or in any manner alters or affects the rights of
policyholders, claimants, creditors, or other third parties.
Sec. 6. [EFFECTIVE DATE.]
This article is effective August 1, 1992.
ARTICLE 14
INSURANCE HOLDING COMPANY SYSTEMS
Section 1. Minnesota Statutes 1990, section 60A.07,
subdivision 5d, is amended to read:
Subd. 5d. [APPLICATION.] All insurance companies shall
meet the requirements of subdivisions 5a to 5d, except as
provided in this subdivision. Any company authorized to
transact a particular kind of insurance as specified in section
60A.06, subdivision 1, on April 9, 1976 may continue until
January 1, 1983 to conduct the same kind of insurance by meeting
and maintaining the applicable capital, surplus, and guaranty
fund requirements which were in effect immediately prior to
April 9, 1976. On and after January 1, 1983, all companies
shall be required to meet the applicable capital, constantly
maintained surplus, and guaranty fund requirements of
subdivisions 5a, 5b, and 5c.
Notwithstanding the foregoing provisions of this
subdivision with respect to the deferred date of compliance,
after April 9, 1976:
(1) Any insurance company which seeks authority to transact
an additional kind of insurance shall, as a condition to the
granting of the authority, immediately comply with the
applicable capital, constantly maintained surplus, and guaranty
fund requirements of subdivisions 5a, 5b, and 5c for all of its
authorized kinds of business.
(2) If any person acquires control of an insurance company,
the insurance company shall as of the date of the acquisition of
control comply with the applicable capital, constantly
maintained surplus, and guaranty fund requirements of
subdivisions 5a, 5b, and 5c for all of its authorized kinds of
business. For purposes of this clause, the term "control" shall
be defined as provided in section 60D.01 60D.15, subdivision 4,
and the term "person" shall be defined as provided in
section 60D.01 60D.15, subdivision 7.
Sec. 2. [60D.15] [DEFINITIONS.]
Subdivision 1. [TERMS.] For purposes of this article, the
terms in subdivisions 2 to 10 have the meanings given them,
unless the context otherwise requires.
Subd. 2. [AFFILIATE.] An "affiliate" of, or person
"affiliated" with, a specific person, is a person that directly,
or indirectly through one or more intermediaries, controls, or
is controlled by, or is under common control with, the person
specified.
Subd. 3. [COMMISSIONER.] The term "commissioner" means the
commissioner of commerce, the commissioner's deputies, or the
commerce department, as appropriate.
Subd. 4. [CONTROL.] The term "control," including the
terms "controlling," "controlled by," and "under common control
with," means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of
a person, whether through the ownership of voting securities, by
contract other than a commercial contract for goods or
nonmanagement services, or otherwise, unless the power is the
result of an official position with or corporate office held by
the person. Control is be presumed to exist if any person,
directly or indirectly, owns, controls, holds with the power to
vote, or holds proxies representing, ten percent or more of the
voting securities of any other person. This presumption may be
rebutted by a showing made in the manner provided by section 6,
subdivision 11, that control does not exist in fact. The
commissioner may determine, after furnishing all persons in
interest notice and opportunity to be heard and making specific
findings of fact to support such determination, that control
exists in fact, notwithstanding the absence of a presumption to
that effect.
Subd. 5. [INSURANCE HOLDING COMPANY SYSTEM.] An "insurance
holding company system" consists of two or more affiliated
persons, one or more of which is an insurer.
Subd. 6. [INSURER.] The term "insurer" means a company
qualified and licensed by the commissioner to transact the
business of insurance, but does not include an insurance
solicitor, agent, or agency. The term also does not include:
(1) agencies, authorities, or instrumentalities of the
United States, its possessions and territories, the commonwealth
of Puerto Rico, the District of Columbia, or a state or
political subdivision of a state; or
(2) nonprofit medical and hospital service associations.
Subd. 7. [PERSON.] A "person" is an individual, a
corporation, a partnership, an association, a joint stock
company, a trust, an unincorporated organization, any similar
entity or any combination of the foregoing acting in concert,
but does not include any joint venture partnership exclusively
engaged in owning, managing, leasing, or developing real or
tangible personal property.
Subd. 8. [SECURITY HOLDER.] A "security holder" of a
specified person is one who owns any security of the person,
including common stock, preferred stock, debt obligations, and
any other security convertible into or evidencing the right to
acquire any security of the person.
Subd. 9. [SUBSIDIARY.] A "subsidiary" of a specified
person is an affiliate controlled by the person directly or
indirectly through one or more intermediaries.
Subd. 10. [VOTING SECURITY.] The term "voting security"
includes any security convertible into or evidencing a right to
acquire a voting security.
Sec. 3. [60D.16] [SUBSIDIARIES OF INSURERS.]
Subdivision 1. [AUTHORIZATION.] A domestic insurer, either
by itself or in cooperation with one or more persons, may
organize or acquire one or more subsidiaries engaged in the
following kinds of business:
(1) any kind of insurance business authorized by the
jurisdiction in which it is incorporated;
(2) acting as an insurance broker or as an insurance agent
for its parent or for any of its parent's insurer subsidiaries;
(3) investing, reinvesting, or trading in securities for
its own account, that of its parent, any subsidiary of its
parent, or any affiliate or subsidiary;
(4) management of any investment company subject to or
registered pursuant to the Investment Company Act of 1940, as
amended, including related sales and services;
(5) acting as a broker-dealer subject to or registered
pursuant to the Securities Exchange Act of 1934, as amended;
(6) rendering investment advice to governments, government
agencies, corporations, or other organizations or groups;
(7) rendering other services related to the operations of
an insurance business including, but not limited to, actuarial,
loss prevention, safety engineering, data processing,
accounting, claims, appraisal, and collection services;
(8) ownership and management of assets that the parent
corporation could itself own or manage;
(9) acting as administrative agent for a governmental
instrumentality which is performing an insurance function;
(10) financing of insurance premiums, agents, and other
forms of consumer financing;
(11) any other business activity determined by the
commissioner to be reasonably ancillary to an insurance
business; and
(12) owning a corporation or corporations engaged or
organized to engage exclusively in one or more of the businesses
specified in this section.
Subd. 2. [ADDITIONAL INVESTMENT AUTHORITY.] In addition to
investments in common stock, preferred stock, debt obligations,
and other securities otherwise permitted, a domestic insurer may
also:
(a) Invest, in common stock, preferred stock, debt
obligations, and other securities of one or more subsidiaries,
amounts that do not exceed the lesser of ten percent of the
insurer's assets or 50 percent of the insurer's surplus as
regards policyholders, provided that after the investments, the
insurer's surplus as regards policyholders will be reasonable in
relation to the insurer's outstanding liabilities and adequate
to its financial needs. In calculating the amount of these
investments, investments in domestic or foreign insurance
subsidiaries must be excluded, and there must be included:
(1) total net money or other consideration expended and
obligations assumed in the acquisition or formation of a
subsidiary, including all organizational expenses and
contributions to capital and surplus of the subsidiary whether
or not represented by the purchase of capital stock or issuance
of other securities; and
(2) all amounts expended in acquiring additional common
stock, preferred stock, debt obligations, and other securities
and all contributions to the capital or surplus, of a subsidiary
subsequent to its acquisition or formation.
(b) Invest any amount in common stock, preferred stock,
debt obligations, and other securities of one or more
subsidiaries engaged or organized to engage exclusively in the
ownership and management of assets authorized as investments for
the insurer provided that the subsidiary agrees to limit its
investments in any asset so that the investments will not cause
the amount of the total investment of the insurer to exceed any
of the investment limitations specified in paragraph (a) or
other statutes applicable to the insurer. For the purpose of
this paragraph, "the total investment of the insurer" includes:
(1) any direct investment by the insurer in an asset; and
(2) the insurer's proportionate share of any investment in
an asset by any subsidiary of the insurer, which must be
calculated by multiplying the amount of the subsidiary's
investment by the percentage of the ownership of the subsidiary.
(c) With the approval of the commissioner, invest any
greater amount in common stock, preferred stock, debt
obligations, or other securities of one or more subsidiaries, if
after the investment the insurer's surplus as regards
policyholders will be reasonable in relation to the insurer's
outstanding liabilities and adequate to its financial needs.
Subd. 3. [EXEMPTION FROM INVESTMENT
RESTRICTIONS.] Investments in common stock, preferred stock,
debt obligations, or other securities of subsidiaries made
pursuant to subdivision 2 are not subject to any of the
otherwise applicable restrictions or prohibitions applicable to
these investments of insurers.
Subd. 4. [QUALIFICATION OF INVESTMENT; WHEN
DETERMINED.] Whether any investment pursuant to subdivision 2
meets the applicable requirements is to be determined before the
investment is made, by calculating the applicable investment
limitations as though the investment had already been made,
taking into account the then outstanding principal balance on
all previous investments in debt obligations, and the value of
all previous investments in equity securities as of the day they
were made, net of any return of capital invested, not including
dividends.
Subd. 5. [CESSATION OF CONTROL.] If an insurer ceases to
control a subsidiary, it shall dispose of any investment in it
made pursuant to this section within three years from the time
of the cessation of control or within any further time the
commissioner prescribes, unless at any time after the investment
has been made, the investment meets the requirements for
investment under any other provision of law, and the insurer has
notified the commissioner of this fact.
Sec. 4. [60D.17] [ACQUISITION OF CONTROL OF OR MERGER WITH
DOMESTIC INSURER.]
Subdivision 1. [FILING REQUIREMENTS.] No person other than
the issuer shall make a tender offer for or a request or
invitation for tenders of, or enter into any agreement to
exchange securities or, seek to acquire, or acquire, in the open
market or otherwise, any voting security of a domestic insurer
if, after the consummation thereof, the person would, directly
or indirectly, or by conversion or by exercise of any right to
acquire, be in control of the insurer. No person shall enter
into an agreement to merge with or otherwise to acquire control
of a domestic insurer or any person controlling a domestic
insurer unless, at the time the offer, request, or invitation is
made or the agreement is entered into, or before the acquisition
of the securities if no offer or agreement is involved, the
person has filed with the commissioner and has sent to the
insurer, a statement containing the information required by this
section and the offer, request, invitation, agreement, or
acquisition has been approved by the commissioner in the manner
prescribed in this section.
For purposes of this section, a domestic insurer includes a
person controlling a domestic insurer unless the person as
determined by the commissioner is either directly or through its
affiliates primarily engaged in business other than the business
of insurance. However, the person shall file a preacquisition
notification with the commissioner containing the information
set forth in section 5, subdivision 3, paragraph (b), 30 days
before the proposed effective date of the acquisition. Failure
to file is subject to section 5, subdivision 5. For the
purposes of this section, "person" does not include any
securities broker holding, in the usual and customary brokers
function, less than 20 percent of the voting securities of an
insurance company or of any person that controls an insurance
company.
Subd. 2. [CONTENT OF STATEMENT.] The statement to be filed
with the commissioner shall be made under oath or affirmation
and shall contain the following information:
(a) The name and address of each person by whom or on whose
behalf the merger or other acquisition of control referred to in
subdivision 1 is to be effected, hereinafter called "acquiring
party"; and
(1) if the person is an individual, the principal
occupation and all offices and positions held during the past
five years, and any conviction of crimes other than minor
traffic violations during the past ten years; and
(2) if the person is not an individual, a report of the
nature of its business operations during the past five years or
for a lesser period as the person and any predecessors have been
in existence; an informative description of the business
intended to be done by the person and the person's subsidiaries;
and a list of all individuals who are or who have been selected
to become directors or executive officers of such person, or who
perform or will perform functions appropriate to such
positions. The list must include for each individual the
information required by clause (1).
(b) The source, nature, and amount of the consideration
used or to be used in effecting the merger or other acquisition
of control, a description of any transaction in which funds were
or are to be obtained for this purpose, including any pledge of
the insurer's stock, or the stock of any of its subsidiaries or
controlling affiliates, and the identity of persons furnishing
the consideration, provided, however, that where a source of the
consideration is a loan made in the lender's ordinary course of
business, the identity of the lender shall remain confidential,
if the person filing the statement so requests.
(c) Fully audited financial information as to the earnings
and financial condition of each acquiring party for the
preceding five fiscal years of each acquiring party, or for a
lesser period as the acquiring party and any predecessors have
been in existence, and similar unaudited information as of a
date not earlier than 90 days before the filing of the statement.
(d) Any plans or proposals that each acquiring party may
have to liquidate the insurer, to sell its assets or merge or
consolidate it with any person, or to make any other material
change in its business or corporate structure or management.
(e) The number of shares of any security referred to in
subdivision 1 that each acquiring party proposes to acquire, and
the terms of the offer, request, invitation, agreement, or
acquisition referred to in subdivision 1.
(f) The amount of each class of any security referred to in
subdivision 1 that is beneficially owned or concerning which
there is a right to acquire beneficial ownership by each
acquiring party.
(g) A full description of any contracts, arrangements, or
understandings with respect to any security referred to in
subdivision 1 in which any acquiring party is involved,
including but not limited to, transfer of any of the securities,
joint ventures, loan or option arrangements, puts or calls,
guarantees of loans, guarantees against loss or guarantees of
profits, division of losses or profits, or the giving or
withholding of proxies. The description must identify the
persons with whom the contracts, arrangements, or understandings
have been entered into.
(h) A description of the purchase of any security referred
to in subdivision 1 during the 12 calendar months preceding the
filing of the statement, by any acquiring party, including the
dates of purchase, names of the purchasers, and consideration
paid or agreed to be paid for it.
(i) A description of any recommendations to purchase any
security referred to in subdivision 1 made during the 12
calendar months preceding the filing of the statement, by any
acquiring party, or by anyone based upon interviews or at the
suggestion of the acquiring party.
(j) Copies of all tender offers for, requests, or
invitations for tenders of, exchange offers for, and agreements
to acquire or exchange any securities referred to in subdivision
1 and, if distributed, of additional soliciting material
relating to them.
(k) The term of any agreement, contract, or understanding
made with or proposed to be made with any broker-dealer as to
solicitation of securities referred to in subdivision 1 for
tender, and the amount of any fees, commissions, or other
compensation to be paid to broker-dealers with regard to it.
(l) Additional information the commissioner may by rule
prescribe as necessary or appropriate for the protection of
policyholders of the insurer or in the public interest.
If the person required to file the statement referred to in
subdivision 1 is a partnership, limited partnership, syndicate,
or other group, the commissioner may require that the
information called for by paragraphs (a) to (l) must be given
with respect to each partner of the partnership or limited
partnership, each member of the syndicate or group, and each
person who controls the partner or member. If a partner,
member, or person is a corporation, or the person required to
file the statement referred to in subdivision 1 is a corporation
the commissioner may require that the information called for by
paragraphs (a) to (l) be given with respect to the corporation,
each officer and director of the corporation, and each person
who is directly or indirectly the beneficial owner of more than
ten percent of the outstanding voting securities of the
corporation.
If any material change occurs in the facts set forth in the
statement filed with the commissioner and sent to the insurer
pursuant to this section, an amendment setting forth the change,
together with copies of all documents and other material
relevant to the change, must be filed with the commissioner and
sent to the insurer within two business days after the person
learns of the change.
Subd. 3. [ALTERNATIVE FILING MATERIALS.] If any offer,
request, invitation, agreement, or acquisition referred to in
subdivision 1 is proposed to be made by means of a registration
statement under the Securities Act of 1933, or in circumstances
requiring the disclosure of similar information under the
Securities Exchange Act of 1934, or under a state law requiring
similar registration or disclosure, the person required to file
the statement referred to in subdivision 1 may utilize these
documents in furnishing the information called for by that
statement.
Subd. 4. [APPROVAL BY COMMISSIONER; HEARINGS.] (a) The
commissioner shall approve any merger or other acquisition of
control referred to in subdivision 1 unless, after a public
hearing, the commissioner finds that:
(1) After the change of control, the domestic insurer
referred to in subdivision 1 would not be able to satisfy the
requirements for the issuance of a license to write the line or
lines of insurance for which it is presently licensed;
(2) The effect of the merger or other acquisition of
control would be substantially to lessen competition in
insurance in this state or tend to create a monopoly therein in
applying the competitive standard in this subdivision:
(i) the informational requirements of section 5,
subdivision 3, paragraph (b), and the standards of section 5,
subdivision 4, paragraph (c), shall apply;
(ii) the merger or other acquisition shall not be
disapproved if the commissioner finds that any of the situations
meeting the criteria provided by section 5, subdivision 4,
paragraph (c), exist; and
(iii) the commissioner may condition the approval of the
merger or other acquisition on the removal of the basis of
disapproval within a specified period of time;
(3) The financial condition of any acquiring party is such
as might jeopardize the financial stability of the insurer, or
prejudice the interest of its policyholders;
(4) The plans or proposals that the acquiring party has to
liquidate the insurer, sell its assets, or consolidate or merge
it with any person, or to make any other material change in its
business or corporate structure or management, are unfair and
unreasonable to policyholders of the insurer and not in the
public interest;
(5) The competence, experience, and integrity of those
persons who would control the operation of the insurer are such
that it would not be in the interest of policyholders of the
insurer and of the public to permit the merger or other
acquisition of control; or
(6) The acquisition is likely to be hazardous or
prejudicial to the insurance buying public.
(b) The public hearing referred to in paragraph (a) must be
held 30 days after the statement required by subdivision 1 is
filed, and at least 20 days notice of it shall be given by the
commissioner to the person filing the statement. Not less than
seven days notice of the public hearing shall be given by the
person filing the statement to the insurer and to other persons
designated by the commissioner. The commissioner shall make a
determination within 30 days after the conclusion of the
hearing. At the hearing, the person filing the statement, the
insurer, any person to whom notice of hearing was sent, and any
other person whose interest may be affected by it may present
evidence, examine and cross-examine witnesses, and offer oral
and written arguments and may conduct discovery proceedings in
the same manner as is presently allowed in the district courts
of this state. All discovery proceedings must be concluded not
later than three days before the start of the public hearing.
(c) The commissioner may retain at the acquiring person's
expense any attorneys, actuaries, accountants, and other experts
not otherwise a part of the commissioner's staff as may be
reasonably necessary to assist the commissioner in reviewing the
proposed acquisition of control.
Subd. 5. [EXEMPTIONS.] This section does not apply to:
(1) Any transaction that is subject to section 60A.16,
dealing with the merger or consolidation of two or more insurers.
(2) Any offer, request, invitation, agreement, or
acquisition that the commissioner by order exempts from this
section as (i) not having been made or entered into for the
purpose and not having the effect of changing or influencing the
control of a domestic insurer, or (ii) as otherwise not
comprehended within the purposes of this section.
Subd. 6. [VIOLATIONS.] The following are violations of
this section:
(1) the failure to file any statement, amendment, or other
material required to be filed pursuant to subdivision 1 or 2; or
(2) the effectuation or any attempt to effectuate an
acquisition of control of, or merger with, a domestic insurer
unless the commissioner has approved it.
Subd. 7. [JURISDICTION, CONSENT TO SERVICE OF
PROCESS.] The courts of this state have jurisdiction over every
person not resident, domiciled, or authorized to do business in
this state who files a statement with the commissioner under
this section, and overall actions involving the person arising
out of violations of this section, and the person is deemed to
have performed acts equivalent to and constituting an
appointment by the person of the commissioner to be the person's
true and lawful attorney upon whom may be served all lawful
process in any action, suit, or proceeding arising out of
violations of this section. Copies of all lawful process shall
be served on the commissioner and transmitted by registered or
certified mail by the commissioner to the person at the person's
last known address.
Sec. 5. [60D.18] [ACQUISITIONS INVOLVING INSURERS NOT
OTHERWISE COVERED.]
Subdivision 1. [DEFINITIONS.] The following definitions
apply for the purposes of this section only:
(a) "Acquisition" means an agreement, arrangement, or
activity the consummation of which results in a person acquiring
directly or indirectly the control of another person, and
includes, but is not limited to, the acquisition of voting
securities, the acquisition of assets, bulk reinsurance, and
mergers.
(b) An "involved insurer" includes an insurer that either
acquires or is acquired, is affiliated with an acquirer or
acquired, or is the result of a merger.
Subd. 2. [SCOPE.] (a) Except as exempted in paragraph (b),
this section applies to any acquisition in which there is a
change in control of an insurer authorized to do business in
this state.
(b) This section does not apply to the following:
(1) an acquisition subject to approval or disapproval by
the commissioner pursuant to section 4;
(2) a purchase of securities solely for investment purposes
so long as such securities are not used by voting or otherwise
to cause or attempt to cause the substantial lessening of
competition in any insurance market in this state. If a
purchase of securities results in a presumption of control under
section 2, subdivision 4, it is not solely for investment
purposes unless the commissioner of the insurer's state of
domicile accepts a disclaimer of control or affirmatively finds
that control does not exist and such disclaimer action or
affirmative finding is communicated by the domiciliary
commissioner to the commissioner of this state;
(3) 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
subdivision 3, paragraph (a), 30 days before the proposed
effective date of the acquisition. However, the preacquisition
notification is not required for exclusion from this section, if
the acquisition would otherwise be excluded from this section by
any other clause of this paragraph;
(4) the acquisition of already affiliated persons;
(5) an acquisition if, as an immediate result of the
acquisition;
(i) in no market would the combined market share of the
involved insurers exceed five percent of the total market;
(ii) there would be no increase in any market share; or
(iii) in no market would the combined market share of the
involved insurers exceeds 12 percent of the total market; and
the market share increases by more than two percent of the total
market.
For the purpose of this clause, a market means direct
written insurance premium in this state for a line of business
as contained in the annual statement required to be filed by
insurers licensed to do business in this state;
(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
commissioner affirmatively finds that the insurer is in failing
condition; there is a 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 commissioner to the
commissioner of this state.
Subd. 3. [PREACQUISITION NOTIFICATION; WAITING
PERIOD.] (a) An acquisition covered by subdivision 2 may be
subject to an order pursuant to subdivision 4 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
section in the same manner as provided in section 9.
(b) The preacquisition notification must be in the form and
contain the information as prescribed by the National
Association of Insurance Commissioners relating to those markets
that, under subdivision 2, paragraph (b), clause (5), cause the
acquisition not to be exempted from the provisions of this
section. The commissioner may require the additional material
and information as the commissioner deems necessary to determine
whether the proposed acquisition, if consummated, would violate
the competitive standard of subdivision 4. The required
information may include an opinion of an economist as to the
competitive impact of the acquisition in this state accompanied
by a summary of the education and experience of the person
indicating that person's ability to render an informed opinion.
(c) The waiting period required begins on the date of
receipt of the commissioner of a preacquisition notification and
ends on the earlier of the 30th day after the date of its
receipt, or termination of the waiting period by the
commissioner. Before the end of the waiting period, the
commissioner on a one-time basis may require the submission of
additional needed information relevant to the proposed
acquisition, in which event the waiting period shall end on the
earlier of the 30th day after receipt of the additional
information by the commissioner or termination of the waiting
period by the commissioner.
Subd. 4. [COMPETITIVE STANDARD.] (a) The commissioner may
enter an order under subdivision 5 with respect to an
acquisition if there is substantial evidence that the effect of
the acquisition may be substantially to lessen competition in
any line of insurance in this state or tend to create a monopoly
therein or if the insurer fails to file adequate information in
compliance with subdivision 3.
(b) In determining whether a proposed acquisition would
violate the competitive standard of paragraph (a), the
commissioner shall consider the following:
(1) any acquisition covered under subdivision 2 involving
two or more insurers competing in the same market is prima facie
evidence of violation of the competitive standards:
(i) if the market is highly concentrated and the involved
insurers possess the following shares of the market:
INSURER A INSURER B
4 percent 4 percent or more
10 percent 2 percent or more
15 percent 1 percent or more
(ii) or, if the market is not highly concentrated and the
involved insurers possess the following shares of the market:
INSURER A INSURER B
5 percent 5 percent or more
10 percent 4 percent or more
15 percent 3 percent or more
19 percent 1 percent or more
A highly concentrated market is one in which the share of
the four largest insurers is 75 percent or more of the market.
Percentages not shown in the tables are interpolated
proportionately to the percentages that are shown. If more than
two insurers are involved, exceeding the total of the two
columns in the table is prima facie evidence of violation of the
competitive standard in paragraph (a). For the purpose of this
clause, 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 largest to the
eight largest, has increased by seven percent or more of the
market over a period of time extending from any base year five
to ten years prior to the acquisition up to the time of the
acquisition. Any acquisition or merger covered under
subdivision 2 involving two or more insurers competing in the
same market is prima facie evidence of violation of the
competitive standard in clause (1) if:
(i) there is a significant trend toward increased
concentration in the market;
(ii) one of the insurers involved is one of the insurers in
a grouping of such large insurers showing the requisite increase
in the market share; and
(iii) another involved insurer's market is two percent or
more.
(3) For the purposes of paragraph (b):
(i) The term "insurer" includes any company or group of
companies under common management, ownership, or control.
(ii) 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, among other things, 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 this state,
and the relevant geographical market is assumed to be this state.
(iii) The burden of showing prima facie evidence of
violation of the competitive standard rests upon the
commissioner.
(iv) Even though an acquisition is not prima facie
violative of the competitive standard under paragraph (b),
clauses (1) and (2), 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), clauses (1) and
(2), a party may establish the absence of the requisite
anticompetitive effect based upon other substantial evidence.
Relevant factors in making a determination under this paragraph
include, but are not limited to, the following: market shares,
volatility of ranking of market leaders, number of competitors,
concentration, trend of concentration in the industry, and ease
of entry and exit into the market.
(c) An order may not be entered under subdivision 5 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 such 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 such
increase exceed the public benefits which would arise from not
lessening competition.
Subd. 5. [ORDERS AND PENALTIES.] If an acquisition
violates the standards of this section, the commissioner may
enter an order:
(1) requiring an involved insurer to cease and desist from
doing business in this state 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 license to do business in this state.
The order must not be entered unless there is a hearing,
the notice of the hearing is issued before the end of the
waiting period and not less than 15 days before the hearing, and
the hearing is concluded and the order is issued no later than
60 days after the end of the waiting period. Every order must
be accompanied by a written decision of the commissioner setting
forth findings of fact and conclusions of law.
An order entered under this paragraph shall not become
final earlier than 30 days after it is issued, during which time
the involved insurer may submit a plan to remedy the
anticompetitive impact of the acquisition within a reasonable
time. Based upon the plan or other information, the
commissioner shall specify the conditions, if any, under the
time period during which the aspects of the acquisition causing
a violation of the standards of this section would be remedied
and the order vacated or modified.
An order pursuant to this subdivision does not apply if the
acquisition is not consummated.
Any person who violates a cease and desist order of the
commissioner and while the order is in effect, may after notice
and hearing and upon order of the commissioner, be subject at
the discretion of the commissioner to any one or more of the
following:
(1) a monetary penalty of not more than $10,000 for every
day of violation;
(2) suspension or revocation of the person's license.
Any insurer or other person who fails to make any filing
required by this section and who also fails to demonstrate a
good faith effort to comply with the filing requirement, is be
subject to a fine of not more than $50,000.
Subd. 6. [INAPPLICABLE PROVISIONS.] Sections 11,
paragraphs (b) and (c); and 13 do not apply to acquisitions
covered under section 5, subdivision 2.
Sec. 6. [60D.19] [REGISTRATION OF INSURERS.]
Subdivision 1. [REGISTRATION.] Every insurer that is
authorized to do business in this state and that is a member of
an insurance holding company system shall register with the
commissioner, except a foreign insurer subject to registration
requirements and standards adopted by statute or regulation in
the jurisdiction of its domicile that are substantially similar
to those contained in:
(1) this section;
(2) section 7, subdivisions 1, paragraph (a), 2, and 4; and
(3) either section 7, subdivision 1, paragraph (b), or a
provision such as the following: Each registered insurer shall
keep current the information required to be disclosed in its
registration statement by reporting all material changes or
additions within 15 days after the end of the month in which it
learns of each such change or addition.
Any insurer that is subject to registration under this
section shall register within 15 days after it becomes subject
to registration, and annually thereafter by March 1 of each year
for the previous calendar year, unless the commissioner for good
cause shown extends the time for registration, and then within
such extended time. The commissioner may require any insurer
authorized to do business in the state that is a member of a
holding company system, and that is not subject to registration
under this section, to furnish a copy of the registration
statement, the summary specified in subdivision 3 or other
information filed by the insurance company with the insurance
regulatory authority of domiciliary jurisdiction.
Subd. 2. [INFORMATION AND FORM REQUIRED.] Every insurer
subject to registration shall file the registration statement on
a form prescribed by the National Association of Insurance
Commissioners, which shall contain the following current
information:
(1) the capital structure, general financial condition,
ownership, and management of the insurer and any person
controlling the insurer;
(2) the identity and relationship of every member of the
insurance holding company system;
(3) the following agreements in force, and transactions
currently outstanding or that have occurred during the last
calendar year between the insurer and its affiliates:
(i) loans, other investments, or purchases, sales, or
exchanges of securities of the affiliates by the insurer or of
the insurer by its affiliates;
(ii) purchases, sales, or exchange of assets;
(iii) transactions not in the ordinary course of business;
(iv) guarantees or undertakings for the benefit of an
affiliate which result in an actual contingent exposure of the
insurer's assets to liability, other than insurance contracts
entered into in the ordinary course of the insurer's business;
(v) all management agreements, service contracts, and all
cost-sharing arrangements;
(vi) reinsurance agreements;
(vii) dividends and other distributions to shareholders;
and
(viii) consolidated tax allocation agreements;
(4) any pledge of the insurer's stock, including stock of
any subsidiary or controlling affiliate, for a loan made to any
member of the insurance holding company system; and
(5) other matters concerning transactions between
registered insurers and any affiliates as may be included from
time to time in any registration forms adopted or approved by
the commissioner.
Subd. 3. [SUMMARY OF REGISTRATION STATEMENT.] All
registration statements must contain a summary outlining all
items in the current registration statement representing changes
from the prior registration statement.
Subd. 4. [MATERIALITY.] No information need be disclosed
on the registration statement filed pursuant to subdivision 2 if
the information is not material for the purposes of this section.
Unless the commissioner by rule or order provides otherwise;
sales, purchases, exchanges, loans or extensions of credit,
investments, or guarantees involving one-half of one percent or
less of an insurer's admitted assets as of the 31st day of
December next preceding shall not be deemed material for
purposes of this section.
Subd. 5. [REPORTING OF DIVIDENDS TO SHAREHOLDERS.] Subject
to section 6, subdivision 2, each registered insurer shall
report to the commissioner all dividends and other distributions
to shareholders within 15 business days following the
declaration thereof.
Subd. 6. [INFORMATION OF INSURERS.] Any person within an
insurance holding company system subject to registration shall
be required to provide complete and accurate information to an
insurer where such information is reasonably necessary to enable
the insurer to comply with the provisions of this article.
Subd. 7. [TERMINATION OF REGISTRATION.] The commissioner
shall terminate the registration of any insurer which
demonstrates that it no longer is a member of an insurance
holding company system.
Subd. 8. [CONSOLIDATED FILING.] The commissioner may
require or allow two or more affiliated insurers subject to
registration to file a consolidated registration statement.
Subd. 9. [ALTERNATIVE REGISTRATION.] The commissioner may
allow an insurer that is authorized to do business in this state
and that is part of an insurance holding company system to
register on behalf of any affiliated insurer that is required to
register under subdivision 1 and to file all information and
material required to be filed under this section.
Subd. 10. [EXEMPTIONS.] The provisions of this section do
not apply to any insurer, information, or transaction if and to
the extent that the commissioner by rule or order shall exempt
the same from the provisions of this section.
Subd. 11. [DISCLAIMER.] Any person may file with the
commissioner a disclaimer of affiliation with any authorized
insurer or the disclaimer may be filed by the insurer or any
member of an insurance holding company system. The disclaimer
shall fully disclose all material relationships and bases for
affiliation between the person and the insurer as well as the
basis for disclaiming the affiliation. After a disclaimer has
been filed, the insurer shall be relieved of any duty to
register or report under this section that may arise out of the
insurer's relationship with the person unless and until the
commissioner disallows the disclaimer. The commissioner shall
disallow the disclaimer only after furnishing all parties in
interest with notice and opportunity to be heard and after
making specific findings of fact to support the disallowance.
Subd. 12. [VIOLATIONS.] The failure to file a registration
statement or any summary of the registration statement required
by this section within the time specified for the filing is a
violation of this section.
Sec. 7. [60D.20] [STANDARDS AND MANAGEMENT OF AN INSURER
WITHIN A HOLDING COMPANY SYSTEM.]
Subdivision 1. [TRANSACTIONS WITHIN A HOLDING COMPANY
SYSTEM.] (a) Transactions within a holding company system to
which an insurer subject to registration is a party is 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 this accounting information as is necessary to support
the reasonableness of the charges or fees to the respective
parties; and
(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.
(b) The following transactions involving a domestic insurer
and any person in its holding company system may not be entered
into unless the insurer has notified the commissioner in writing
of its intention to enter into the transaction at least 30 days
prior thereto, or a shorter period the commissioner permits, and
the commissioner has not disapproved it within this period.
(1) sales, purchases, exchanges, loans or extensions of
credit, guarantees, or investments provided the transactions are
equal to or exceed: (i) with respect to nonlife insurers, the
lesser of three percent of the insurer's admitted assets, or 25
percent of surplus as regards policyholders; (ii) with respect
to life insurers, three percent of the insurer's admitted
assets; each as of the 31st day of December next preceding;
(2) loans or extensions of credit to any person who is not
an affiliate, where 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 provided the
transactions are equal to or exceed: (i) with respect to
nonlife insurers, the lesser of three percent of the insurer's
admitted assets or 25 percent of surplus as regards
policyholders; (ii) with respect to life insurers, three percent
of the insurer's admitted assets; each as of the 31st day of
December next preceding;
(3) reinsurance agreements or modifications to those
agreements in which the reinsurance premium or a change in the
insurer's liabilities equals or exceeds five percent of the
insurer's surplus as regards policyholders, as of the 31st 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;
(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.
Nothing contained in this section authorizes or permits any
transactions that, 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 may 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 occur otherwise. If
the commissioner determines that the separate transactions were
entered into over any 12-month period for the purpose, the
commissioner may exercise the authority under section 12.
(d) The commissioner, in reviewing transactions pursuant to
paragraph (b), shall consider whether the transactions comply
with the standards set forth in paragraph (a), and whether they
may adversely affect the interests of policyholders.
(e) The commissioner shall be notified within 30 days of
any investment of the domestic insurer in any one corporation if
the total investment in the corporation by the insurance holding
company system exceeds ten percent of the corporation's voting
securities.
Subd. 2. [DIVIDENDS AND OTHER DISTRIBUTIONS.] (a) No
domestic insurer shall pay any extraordinary dividend or make
any other extraordinary distribution to its shareholders until:
(1) 30 days after the commissioner has received notice of the
declaration of it and has not within the period disapproved the
payment; or (2) the commissioner has approved the payment within
the 30-day period.
(b) For purposes of this section, an extraordinary dividend
or distribution includes 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 12
months exceeds the greater of (1) ten percent of the insurer's
surplus as regards policyholders as of the 31st day of December
next preceding; or (2) the net gain from operations of the
insurer, if the insurer is a life insurer, or the net income, if
the insurer is not a life insurer, not including realized
capital gains, for the 12-month period ending the 31st day of
December next preceding, but does not include pro rata
distributions of any class of the insurer's own securities. 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. This carry-forward is 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.
(c) Notwithstanding any other provision of law, an insurer
may declare an extraordinary dividend or distribution that is
conditional upon the commissioner's approval, and the
declaration shall confer no rights upon shareholders until: (1)
the commissioner has approved the payment of such a dividend or
distribution; or (2) the commissioner has not disapproved the
payment within the 30-day period referred to above.
Subd. 3. [MANAGEMENT OF DOMESTIC INSURERS SUBJECT TO
REGISTRATION.] (a) Notwithstanding the control of a domestic
insurer by any person, the officers and directors of the insurer
shall not thereby 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 article.
(b) Nothing in this article precludes a domestic insurer
from having or sharing a common management use of personnel,
property, or services with one or more other persons under
arrangements meeting the standards of section 7, paragraph (a),
clause (1).
(c) Not less than one-third of the directors of a publicly
traded domestic insurer, and not less than one-third of the
members of each committee of the board of directors of any
publicly traded domestic insurer shall be persons who are not
officers or employees of the insurer or of any entity
controlling, controlled by, or under common control with the
insurer and who are not beneficial owners of a controlling
interest in the voting stock of the insurer or any such entity.
At least one such person must be included in any quorum for the
transaction of business at any meeting of the board of directors
or any committee of the board.
(d) The board of directors of a publicly traded domestic
insurer shall establish an audit committee having a majority of
directors who are not officers or employees of the insurer or of
any entity controlling, controlled by, or under common control
with the insurer and who are not beneficial owners of a
controlling interest in the voting stock of the insurer or any
such entity. The committee shall have responsibility for
selecting independent certified public accountants and reviewing
the scope and results of the independent audit and any internal
audit.
(e) Paragraphs (c) and (d) do not apply to a domestic
insurer if the person controlling the insurer is an insurer, or
a general business corporation the principal business of which
is insurance, having a board of directors and committees of the
board that meet the requirements of paragraphs (c) and (d).
Subd. 4. [ADEQUACY OF SURPLUS.] For purposes of this
article, 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, must 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; and
(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 the commissioner's judgment
the investment so warrants.
Sec. 8. [60D.21] [EXAMINATION.]
Subdivision 1. [POWER OF COMMISSIONER.] Subject to the
limitation contained in this section and in addition to the
powers that the commissioner has under chapter 60A relating to
the examination of insurers, the commissioner shall also have
the power to order any insurer registered under section 60D.19
to produce records, books, or other information papers in the
possession of the insurer or its affiliates as are reasonably
necessary to ascertain the financial condition of the insurer or
to determine compliance with this article. In the event the
insurer fails to comply with the order, the commissioner shall
have the power to examine the affiliates to obtain the
information.
Subd. 2. [USE OF CONSULTANTS.] The commissioner may retain
at the registered insurer's expense the attorneys, actuaries,
accountants, and other experts not otherwise a part of the
commissioner's staff that are reasonably necessary to assist in
the conduct of the examination under subdivision 1. Any person
so retained shall be under the direction and control of the
commissioner and shall act in a purely advisory capacity.
Subd. 3. [EXPENSES.] Each registered insurer producing for
examination records, books, and papers pursuant to subdivision 1
is liable for and shall pay the expense of the examination in
accordance with section 60A.03.
Sec. 9. [60D.22] [CONFIDENTIAL TREATMENT.]
All information, documents, and copies of them obtained by
or disclosed to the commissioner or any other person in the
course of an examination or investigation made pursuant to
section 7 and all information reported pursuant to sections 5
and 6, shall be given confidential treatment and shall not be
subject to subpoena and shall not be made public by the
commissioner, the National Association of Insurance
Commissioners, or any other person, except to insurance
departments of other states, without the prior written consent
of the insurer to which it pertains unless the commissioner,
after giving the insurer and its affiliates who would be
affected, notice and opportunity to be heard, determines that
the interest of policyholders or the public will be served by
the publication, in which event the commissioner may publish all
or any part in the manner the commissioner considers appropriate.
Sec. 10. [60D.23] [RULES.]
The commissioner may adopt the rules and orders that are
necessary to carry out the provisions of this article.
Sec. 11. [60D.24] [INJUNCTIONS, PROHIBITIONS AGAINST
VOTING SECURITIES, SEQUESTRATION OF VOTING SECURITIES.]
Subdivision 1. [INJUNCTIONS.] Whenever it appears to the
commissioner that any insurer or any director, officer,
employee, or agent of the insurer has committed or is about to
commit a violation of this article or of any rule or order
issued by the commissioner, the commissioner may apply to the
district court for the county in which the principal office of
the insurer is located or if the insurer has no such office in
this state then to the district court for Ramsey county for an
order enjoining the insurer or the director, officer, employee,
or agent of the insurer from violating or continuing to violate
this article or any rule or order, and for other equitable
relief as the nature of the case and the interest of the
insurer's policyholders or the public requires.
Subd. 2. [VOTING OF SECURITIES; WHEN PROHIBITED.] No
security that is the subject of any agreement or arrangement
regarding acquisition, or that is acquired or to be acquired, in
contravention of the provisions of this article or of any rule
or order issued by the commissioner may be voted at any
shareholder's meeting, or may be counted for quorum purposes,
and any action of shareholders requiring the affirmative vote of
a percentage of shares may be taken as though the securities
were not issued and outstanding. No action taken at the meeting
shall be invalidated by the voting of the securities, unless the
action would materially affect control of the insurer or unless
the courts of this state have so ordered. If an insurer or the
commissioner has reason to believe that any security of the
insurer has been or is about to be acquired in contravention of
the provisions of this article or of any rule or order issued by
the commissioner, the insurer or the commissioner may apply to
the district court for the county in which the insurer has its
principal place of business to enjoin any offer, request,
invitation, agreement, or acquisition made in contravention of
section 3 or any rule or order issued by the commissioner to
enjoin the voting of any security so acquired, to void any vote
of the security already cast at any meeting of shareholders and
for other equitable relief as the nature of the case and the
interest of the insurer's policyholders or the public requires.
Subd. 3. [SEQUESTRATION OF VOTING SECURITIES.] In any case
where a person has acquired or is proposing to acquire any
voting securities in violation of this article or any rule or
order issued by the commissioner, the district court for Ramsey
county or the district court for the county in which the insurer
has its principal place of business may, on such notice as the
court considers appropriate, upon the application of the insurer
or the commissioner seize or sequester any voting securities of
the insurer owned directly or indirectly by the person, and
issue any order with respect thereto as may be appropriate to
effectuate the provisions of this article.
Notwithstanding any other provisions of law, for the
purposes of this article the sites of the ownership of the
securities of domestic insurers shall be considered to be in
this state.
Sec. 12. [60D.25] [RECEIVERSHIP.]
Whenever it appears to the commissioner that any person has
committed a violation of this article that so impairs the
financial condition of a domestic insurer as to threaten
insolvency or make the further transaction of business by it
hazardous to its policyholders or the public, then the
commissioner may proceed as provided in chapter 60B to take
possessions of the property of the domestic insurer and to
conduct the business of that insurer.
Sec. 13. [60D.26] [RECOVERY.]
(a) If an order for liquidation or rehabilitation of a
domestic insurer has been entered, the receiver appointed under
the order shall have a right to recover on behalf of the
insurer, (1) from any parent corporation or holding company or
person or affiliate who otherwise controlled the insurer, the
amount of distributions, other than distributions of shares of
the same class of stock, paid by the insurer on its capital
stock, or (2) any payment in the form of a bonus, termination
settlement or extraordinary lump sum salary adjustment made by
the insurer or its subsidiary(s) to a director, officer, or
employee, where the distribution or payment pursuant to clause
(1) or (2) is made at any time during the one year preceding the
petition for liquidation, conservation, or rehabilitation, as
the case may be, subject to the limitations of paragraphs (b),
(c), and (d).
(b) No such distribution shall be recoverable if the parent
or affiliate shows that when paid the distribution was lawful
and reasonable, and that the insurer did not know and could not
reasonably have known that the distribution might adversely
affect the ability of the insurer to fulfill its contractual
obligations.
(c) Any person who was a parent corporation or holding
company or a person who otherwise controlled the insurer or
affiliate at the time such distributions were paid shall be
liable up to the amount of distributions or payments under
paragraph (a), the person received. Any person who otherwise
controlled the insurer at the time the distributions were
declared is liable up to the amount of distributions the person
would have received if they had been paid immediately. If two
or more persons are liable with respect to the same
distributions, they are jointly and severally liable.
(d) The maximum amount recoverable under this subsection
shall be the amount needed in excess of all other available
assets of the impaired or insolvent insurer to pay the
contractual obligations of the impaired or insolvent insurer and
to reimburse any guaranty funds.
(e) To the extent that any person liable under paragraph
(c) is insolvent or otherwise fails to pay claims due from it
pursuant to this paragraph, its parent corporation or holding
company or person who otherwise controlled it at the time the
distribution was paid, is jointly and severally liable for any
resulting deficiency in the amount recovered from the parent
corporation or holding company or person who otherwise
controlled it.
Sec. 14. [60D.27] [REVOCATION, SUSPENSION, OR NONRENEWAL
OF INSURER'S LICENSE.]
Whenever it appears to the commissioner that any person has
committed a violation of this article that makes the continued
operation of an insurer contrary to the interests of
policyholders or the public, the commissioner may, after giving
notice and an opportunity to be heard, determine to suspend,
revoke, or refuse to renew the insurer's license or authority to
do business in this state for the period the commissioner finds
is required for the protection of policyholders or the public.
The determination must be accompanied by specific findings of
fact and conclusions of law.
Sec. 15. [60D.28] [JUDICIAL REVIEW, MANDAMUS.]
(a) Any person aggrieved by any act, determination, rule or
order, or any other action of the commissioner pursuant to this
article may appeal therefrom to the district court for Ramsey
county. The court shall conduct its review without a jury and
by trial de novo, except that if all parties, including the
commissioner, so stipulate, the review shall be confined to the
record. Portions of the record may be introduced by stipulation
into evidence in a trial de novo as to those parties so
stipulated.
(b) The filing of an appeal pursuant to this section shall
stay the application of the rule, order, or other action of the
commissioner to the appealing party unless the court, after
giving the party notice and an opportunity to be heard,
determines that the stay would be detrimental to the interest of
policyholders or the public.
(c) Any person aggrieved by any failure of the commissioner
to act or make a determination required by this article may
petition the district court for Ramsey county for a writ in the
nature of a mandamus or a peremptory mandamus directing the
commissioner to act or make this determination immediately.
Sec. 16. [60D.29] [CONFLICT WITH OTHER LAWS.]
All laws and parts of laws of this state inconsistent with
this article are superseded with respect to matters covered by
this article.
Sec. 17. Minnesota Statutes 1990, section 79.34,
subdivision 1, is amended to read:
Subdivision 1. [CONDITIONS REQUIRING MEMBERSHIP.] The
nonprofit association known as the workers' compensation
reinsurance association may be incorporated under chapter 317A
with all the powers of a corporation formed under that chapter,
except that if the provisions of that chapter are inconsistent
with sections 79.34 to 79.40, sections 79.34 to 79.40 govern.
Each insurer as defined by section 79.01, subdivision 2, shall,
as a condition of its authority to transact workers'
compensation insurance in this state, be a member of the
reinsurance association and is bound by the plan of operation of
the reinsurance association; provided, that all affiliated
insurers within a holding company system as defined in sections
60D.01 to 60D.13 chapter 60D are considered a single entity for
purposes of the exercise of all rights and duties of membership
in the reinsurance association. Each self-insurer approved
under section 176.181 and each political subdivision that
self-insures shall, as a condition of its authority to
self-insure workers' compensation liability in this state, be a
member of the reinsurance association and is bound by its plan
of operation; provided that:
(1) all affiliated companies within a holding company
system, as determined by the commissioner in a manner consistent
with the standards and definitions in sections 60D.01 to 60D.13
chapter 60D, are considered a single entity for purposes of the
exercise of all rights and duties of membership in the
reinsurance association; and
(2) all group self-insurers granted authority to
self-insure pursuant to section 176.181 are considered single
entities for purposes of the exercise of all the rights and
duties of membership in the reinsurance association. As a
condition of its authority to self-insure workers' compensation
liability, and for losses incurred after December 31, 1983, the
state is a member of the reinsurance association and is bound by
its plan of operation. The commissioner of employee relations
represents the state in the exercise of all the rights and
duties of membership in the reinsurance association. The state
treasurer shall pay the premium to the reinsurance association
from the state compensation revolving fund upon warrants of the
commissioner of employee relations. For the purposes of this
section, "state" means the administrative branch of state
government, the legislative branch, the judicial branch, the
University of Minnesota, and any other entity whose workers'
compensation liability is paid from the state revolving fund.
The commissioner of finance may calculate, prorate, and charge a
department or agency the portion of premiums paid to the
reinsurance association for employees who are paid wholly or in
part by federal funds, dedicated funds, or special revenue
funds. The reinsurance association is not a state agency.
Actions of the reinsurance association and its board of
directors and actions of the commissioner of labor and industry
with respect to the reinsurance association are not subject to
chapters 13, 14, and 15. All property owned by the association
is exempt from taxation. The reinsurance association is not
obligated to make any payments or pay any assessments to any
funds or pools established pursuant to this chapter or chapter
176 or any other law.
Sec. 18. [REPEALER.]
Minnesota Statutes 1990, sections 60D.01; 60D.02; 60D.03;
60D.04; 60D.05; 60D.06; 60D.07; 60D.08; 60D.10; 60D.11; 60D.12;
and 60D.13, are repealed.
Sec. 19. [EFFECTIVE DATE.]
Section 5 is effective August 1, 1992. The remainder of
this article is effective August 1, 1991.
ARTICLE 15
LIFE REINSURANCE AGREEMENTS
Section 1. [60A.80] [ACCOUNTING REQUIREMENTS.]
Subdivision 1. [STANDARDS.] No life insurer subject to
this article shall, for reinsurance ceded, reduce any liability
or establish any asset in any financial statement filed with the
department if, by the terms of the reinsurance agreement, in
substance or effect, any of the following conditions exist:
(1) the primary effect of the reinsurance agreement is to
transfer deficiency reserves or excess interest reserves to the
books of the reinsurer for a "risk charge" and the agreement
does not provide for significant participation by the reinsurer
in one or more of the following risks: mortality, morbidity,
investment, or surrender benefit;
(2) the reserve credit taken by the ceding insurer is not
in compliance with the insurance law or rules, including
actuarial interpretations or standards adopted by the
department;
(3) the reserve credit taken by the ceding insurer is
greater than the underlying reserve of the ceding company
supporting the policy obligations transferred under the
reinsurance agreement;
(4) the ceding insurer is required to reimburse the
reinsurer for negative experience under the reinsurance
agreement, except that neither offsetting experience refunds
against prior years' losses nor payment by the ceding insurer of
an amount equal to prior years' losses upon voluntary
termination of in-force reinsurance by that ceding insurer shall
be considered such a reimbursement to the reinsurer for negative
experience;
(5) the ceding insurer can be deprived of surplus at the
reinsurer's option or automatically upon the occurrence of some
event, such as the insolvency of the ceding insurer, except that
termination of the reinsurance agreement by the reinsurer for
nonpayment of reinsurance premiums shall not be considered to be
such a deprivation of surplus;
(6) the ceding insurer must, at specific points in time
scheduled in the agreement, terminate or automatically recapture
all or part of the reinsurance ceded;
(7) no cash payment is due from the reinsurer, throughout
the lifetime of the reinsurance agreement, with all settlements
prior to the termination date of the agreement made only in a
"reinsurance account," and no funds in such account are
available for the payment of benefits; or
(8) the reinsurance agreement involves the possible payment
by the ceding insurer to the reinsurer of amounts other than
from income reasonably expected from the reinsured policies.
Subd. 2. [EXCEPTION.] Notwithstanding subdivision 1, a
life insurer subject to this article may, with the prior
approval of the commissioner of commerce take such reserve
credit as the commissioner considers consistent with the
insurance law or rules adopted under it, including actuarial
interpretations or standards adopted by the department.
Sec. 2. [60A.801] [WRITTEN AGREEMENTS.]
Subdivision 1. [REINSURANCE AGREEMENTS AND AMENDMENTS.] No
reinsurance agreement or amendment to any agreement may be used
to reduce any liability or to establish any asset in any
financial statement filed with the department, unless the
agreement, amendment, or a letter of intent has been duly
executed by both parties no later than the "as of date" of the
financial statement.
Subd. 2. [LETTERS OF INTENT.] In the case of a letter of
intent, a reinsurance agreement, or an amendment to a
reinsurance agreement must be executed within a reasonable
period of time, not exceeding 90 days from the execution date of
the letter of intent, in order for credit to be granted for the
reinsurance ceded.
Sec. 3. [60A.802] [EXISTING AGREEMENTS.]
Life insurers subject to this article may continue to
reduce liabilities or establish assets in financial statements
filed with the department for reinsurance ceded under types of
reinsurance agreements that would violate section 60A.13,
subdivision 1, relating to financial statements of insurers,
thus, resulting in distorted financial statements which do not
properly reflect the financial condition of the ceding life
insurer; section 60A.09, relating to reinsurance reserve
credits, thus, resulting in a ceding insurer improperly reducing
liabilities or establishing assets for reinsurance ceded; and
article 3, relating to creating a situation that may be
hazardous to policyholders and the people of this state provided
that:
(1) the agreements were executed and in force before the
effective date of this article;
(2) no new business is ceded under the agreements after the
effective date of this article;
(3) the reduction of the liability or the asset established
for the reinsurance ceded is reduced to zero by December 31,
1992, or a later date approved by the commissioner of commerce
as a result of an application made by the ceding insurer prior
to December 31 of the year in which this article becomes
effective;
(4) the reduction of the liability or the establishment of
the asset is otherwise permissible under all other applicable
provisions of the insurance law or rules adopted under it,
including actuarial interpretations or standards adopted by the
department; and
(5) the department is notified, within 90 days after the
effective date of this chapter, of the existence of these
reinsurance agreements and all corresponding credits taken in
the ceding insurer's 1990 annual statement.
Sec. 4. [EFFECTIVE DATE.]
This article is effective January 1, 1992.
ARTICLE 16
LOSS RESERVE CERTIFICATION
Section 1. Minnesota Statutes 1990, section 60A.12, is
amended by adding a subdivision to read:
Subd. 10. [LOSS RESERVE CERTIFICATION.] Each domestic
company engaged in providing the types of coverage described in
section 60A.06, subdivision 1, clause (1), (2), (3), (5)(b),
(6), (8), (9), (10), (11), (12), (13), or (14), must have its
loss reserves certified to annually by a qualified actuary. The
company must file the certification with the commissioner within
30 days of completion of the certification. The actuary
providing the certification must not be an employee of the
company. This subdivision does not apply to township mutual
companies.
ARTICLE 17
RICO
Section 1. Minnesota Statutes 1990, section 609.902,
subdivision 4, is amended to read:
Subd. 4. [CRIMINAL ACT.] "Criminal act" means conduct
constituting, or a conspiracy or attempt to commit, a felony
violation of chapter 152, or a felony violation of section
297D.09; 299F.79; 299F.80; 299F.811; 299F.815; 299F.82; 609.185;
609.19; 609.195; 609.20; 609.205; 609.221; 609.222; 609.223;
609.2231; 609.228; 609.235; 609.245; 609.25; 609.27; 609.322;
609.323; 609.342; 609.343; 609.344; 609.345; 609.42; 609.48;
609.485; 609.495; 609.496; 609.497; 609.498; 609.52, subdivision
2, if the offense is punishable under subdivision 3, clause
(3)(b), or clause (4)(e) or (f) 3(d)(v) or (vi); 609.53;
609.561; 609.562; 609.582, subdivision 1 or 2; 609.67; 609.687;
609.713; 609.86; 624.713; or 624.74. "Criminal act" also
includes conduct constituting, or a conspiracy or attempt to
commit, a felony violation of section 609.52, subdivision 2,
clause (3), (4), (15), or (16) if the violation involves an
insurance company as defined in section 60A.02, subdivision 4, a
nonprofit health service plan corporation regulated under
chapter 62C, a health maintenance organization regulated under
chapter 62D, or a fraternal beneficiary association regulated
under chapter 64B.
Sec. 2. [EFFECTIVE DATE.]
Section 1 is effective August 1, 1991, and applies to
crimes committed on or after that date.
ARTICLE 18
INVESTMENT POLICY
Section 1. [60A.112] [INVESTMENT POLICY REQUIRED.]
Each domestic company must have a written investment
policy, designed to provide guidance for investment decisions by
management. The policy must be approved by its board of
directors. The policy must be reviewed by the company's board
of directors and reapproved no less often than once every 12
months. The investment policy must address asset type
diversification, diversification within asset types,
concentration risks, interest rate risk, liquidity, foreign
investments, loans secured by real estate, and investment real
estate. The policy must set forth, in detail, company practices
relating to internal controls regarding the delegation of
investment authority within the company.
The board of directors must also determine at least
annually the extent to which the company has complied with its
investment policy within the preceding 12 months and shall adopt
a written determination.
The company must file, as an attachment to its annual
statement, a certification that:
(1) the company has a written investment policy meeting the
requirements of this section;
(2) the company's board of directors has reviewed and
approved or reapproved the policy within the period covered by
the annual statement; and
(3) the company's board of directors performed the
compliance review and made the written determination required by
this section within the period covered by the annual statement.
A company's failure to meet the requirements of this
section does not affect its ability to enforce its legal or
equitable rights with respect to its investments.
Sec. 2. Minnesota Statutes 1990, section 62D.045,
subdivision 2, is amended to read:
Subd. 2. [AUTHORIZATION AND WRITTEN INVESTMENT POLICY
REQUIRED.] A health maintenance organization shall not make or
engage in a loan or investment unless the loan or investment has
been authorized or ratified by the board of directors or by a
committee supervising investments and loans. In addition, a
health maintenance organization must comply with section 60A.112.
ARTICLE 19
VALUATION OF REAL ESTATE LOANS AND INVESTMENTS
Section 1. [60A.121] [DEFINITIONS.]
Subdivision 1. [APPLICATION.] The definitions in this
section apply to sections 60A.121 to 60A.127.
Subd. 2. [COMMERCIAL MORTGAGE LOAN.] "Commercial mortgage
loan" means a loan by an insurer secured by a mortgage on
commercial real estate. "Commercial mortgage loan" does not
include loans secured by residential real estate containing four
or fewer dwelling units or agricultural real estate.
Subd. 3. [DELINQUENT MORTGAGE LOAN.] "Delinquent mortgage
loan" means a loan 90 days delinquent on a required payment of
principal or interest.
Subd. 4. [DISTRESSED MORTGAGE LOAN.] "Distressed mortgage
loan" means a loan, other than a delinquent loan, that is
determined by the management of the insurer, in the exercise of
its prudent investment judgment, to involve circumstances that
create a reasonable probability that the loan may become a
delinquent mortgage loan or a mortgage loan in foreclosure.
Subd. 5. [INDEPENDENT APPRAISER.] "Independent appraiser"
means a person not employed by the insurer, by an affiliate of
the insurer, or by an investment advisor to the insurer who
develops and communicates real estate appraisals and holds a
current, valid license issued under section 82B.02, or a similar
law enacted by another state.
Subd. 6. [INTERNAL APPRAISAL.] "Internal appraisal" means
an appraisal to determine current market value made by an
internal appraiser and based upon an evaluation of:
(1) the property based upon a physical inspection of the
premises;
(2) the current and expected stabilized cash flow generated
by the property;
(3) the current and expected stabilized market rents in the
geographic market where the property is located; and
(4) the current and stabilized occupancy rates for the
geographic market where the property is located.
Subd. 7. [INTERNAL APPRAISER.] "Internal appraiser" means
an individual:
(1) employed by an insurer, by an affiliate of the insurer,
or by an investment advisor to an insurer;
(2) who has training and experience qualifying the
individual to appraise the value of commercial real estate;
(3) whose direct or indirect compensation is not dependent
upon the outcome of the appraisals performed under sections
60A.121 to 60A.126; and
(4) who has direct reporting access to the chief investment
officer of the insurer.
Subd. 8. [INSURER.] "Insurer" means a domestic insurance
company.
Subd. 9. [MORTGAGE LOAN IN FORECLOSURE.] "Mortgage loan in
foreclosure" means (1) a loan in the process of foreclosure
including the time required for expiration of any equitable or
statutory redemption rights; (2) a loan to a mortgagor who is
the subject of a bankruptcy petition and who is not making
regular monthly payments; or (3) a loan secured by a mortgage on
real estate that is subject to a senior mortgage or other lien
that is being foreclosed.
Subd. 10. [PERFORMING MORTGAGE LOAN.] "Performing mortgage
loan" means a mortgage loan current in payment and not in
distress.
Subd. 11. [REAL ESTATE OWNED.] "Real estate owned" means
real property owned and acquired by an insurer through or in
lieu of foreclosure and as to which all equitable or statutory
rights of redemption have expired.
Subd. 12. [RESTRUCTURED MORTGAGE LOAN.] "Restructured
mortgage loan" means a loan where:
(1) material delinquent payments or accrued interest are
capitalized and added to the balance of an outstanding loan; or
(2) the insurer has abated or reduced interest payments
below market rates existing at the date of restructuring.
Sec. 2. [60A.122] [REQUIRED WRITTEN PROCEDURES.]
An insurer shall establish written procedures, approved by
the company's board of directors, for the valuation of
commercial mortgage loans and real estate owned. The procedures
must be made available to the commissioner upon request. The
commissioner shall review the insurer's compliance with the
procedures in any examination of the insurer under section
60A.031.
Sec. 3. [60A.123] [VALUATION PROCEDURE.]
Subdivision 1. [REQUIREMENT.] An insurer shall value its
commercial mortgage loans and real estate acquired through
foreclosure of commercial mortgage loans as provided in this
section for the purpose of establishing reserves or carrying
values of the investments and for statutory accounting purposes.
Subd. 2. [PERFORMING MORTGAGE LOAN.] A performing mortgage
loan must be carried at its amortized acquisition cost.
Subd. 3. [DISTRESSED MORTGAGE LOAN.] (a) The insurer shall
make an evaluation of the appropriate carrying value of its
commercial mortgage loans which it classifies as distressed
mortgage loans. The carrying value must be based upon one or
more of the following procedures:
(1) an internal appraisal;
(2) an appraisal made by an independent appraiser;
(3) the value of guarantees or other credit enhancements
related to the loan.
(b) The insurer may determine the carrying value of its
distressed mortgage loans through either an evaluation of each
specific distressed mortgage loan or by a sampling methodology.
Insurers using a sampling methodology shall identify a sampling
of its distressed mortgage loans that represents a cross section
of all of its distressed mortgage loans. The insurer shall make
an evaluation of the appropriate carrying value for each sample
loan. The carrying value of all of the insurer's distressed
mortgage loans must be the same percentage of their amortized
acquisition cost as the sample loans. The carrying value must
be based upon an internal appraisal or an appraisal conducted by
an independent appraiser.
(c) The insurer shall either take a charge against its
surplus or establish a reserve for the difference between the
carrying value and the amortized acquisition cost of its
distressed mortgage loans.
Subd. 4. [DELINQUENT MORTGAGE LOAN.] (a) The insurer shall
make an evaluation of the appropriate carrying value of each
delinquent mortgage loan. The carrying value must be based upon
one or more of the following procedures:
(1) an internal appraisal;
(2) an appraisal by an independent appraiser;
(3) the value of guarantees or other credit enhancements
related to the loan.
(b) The insurer shall either take a charge against its
surplus or establish a reserve for the difference between the
carrying value and the amortized acquisition cost of its
delinquent mortgage loans.
Subd. 5. [RESTRUCTURED MORTGAGE LOAN.] (a) The insurer
shall make an evaluation of the appropriate carrying value of
each restructured mortgage loan. The carrying value must be
based upon one or more of the following procedures:
(1) an internal appraisal;
(2) an appraisal by an independent appraiser;
(3) the value of guarantees or other credit enhancements
related to the loan.
(b) The insurer shall either take a charge against its
surplus or establish a reserve for the difference between the
carrying value and the amortized acquisition cost of its
restructured mortgage loans.
Subd. 6. [MORTGAGE LOAN IN FORECLOSURE.] (a) The insurer
shall make an evaluation of the appropriate carrying value of
each mortgage loan in foreclosure. The carrying value must be
based upon an appraisal made by an independent appraiser.
(b) The insurer shall take a charge against its surplus for
the difference between the carrying value and the amortized
acquisition cost of its mortgage loans in the process of
foreclosure.
Subd. 7. [REAL ESTATE OWNED.] (a) The insurer shall make
an evaluation of the appropriate carrying value of real estate
owned. The carrying value must be based upon an appraisal made
by an independent appraiser.
(b) The insurer shall take a charge against its surplus for
the difference between the carrying value and the amortized
acquisition cost of real estate owned.
Sec. 4. [60A.124] [INDEPENDENT AUDIT.]
The audit report of the independent certified public
accountant which prepares the audit of an insurer's annual
statement as required under section 60A.13, subdivision 3,
paragraph (a), must contain findings by the auditor that:
(1) the insurer has adopted valuation procedures meeting
the minimum standards required in section 60A.123;
(2) the procedures adopted by the board of directors have
been uniformly applied by the insurer in conformance with this
section; and
(3) the management of the insurer has an adequate system of
internal controls.
Sec. 5. [60A.125] [APPRAISAL BY INDEPENDENT APPRAISER.]
Subdivision 1. [MORTGAGE LOANS IN THE PROCESS OF
FORECLOSURE.] An insurer may rely upon an appraisal by an
independent appraiser to determine the carrying value of
mortgage loans in the process of foreclosure only if the date of
the appraisal is within six months of the date the foreclosure
procedure is begun. If no appraisal exists, the insurer shall
acquire an appraisal within six months after the foreclosure
proceeding has begun.
Subd. 2. [REAL ESTATE OWNED.] An insurer may rely upon an
appraisal by an independent appraiser to determine the carrying
value of real estate owned only if the date of the appraisal is
within six months of the date when title to the property was
acquired. If no appraisal exists, the insurer shall acquire an
appraisal within six months after title to the property is
acquired.
Subd. 3. [CHARGE TAKEN.] An insurer shall take a charge
against the surplus for mortgage loans in the process of
foreclosure and real estate owned in the first calendar year in
which it holds a current appraisal made by an independent
appraiser as provided in this section.
Sec. 6. [60A.126] [BOARD REPORT.]
The management of the insurer shall make periodic reports,
at least annually, to its board of directors, or an appropriate
committee of the board, as to the application of the insurer's
valuation procedures adopted under sections 60A.121 to 60A.127.
Sec. 7. [60A.127] [INDEPENDENT APPRAISALS OF CERTAIN
PROPERTIES.]
Subdivision 1. [RANDOM SAMPLE APPRAISAL REQUIREMENT.] Each
domestic insurer that does not obtain independent appraisals of
all distressed, delinquent, and restructured mortgage loans and
use such appraisals to determine the carrying values for its
annual statement shall obtain independent appraisals of a random
sample of those loans for which it did not obtain and use such
appraisals. The independent appraisals must be obtained by the
insurer no later than 60 days after the filing of the insurer's
annual statement. The loans to be sampled do not include loans
for which the insurer determined the carrying value on the basis
of guarantees or other credit enhancements.
Subd. 2. [SAMPLING PROCEDURE; RULES.] The commissioner may
adopt rules specifying the percentage of distressed, delinquent,
and restructured loans for which the insurer must obtain an
independent appraisal. The percentage may vary between insurers
or types of loans and may apply to the number of loans, the
dollar value of loans, or both. The rules may also specify a
procedure for determining how to identify the specific loans for
which an appraisal is required. The commissioner may adopt
under this subdivision only rules that would require sampling no
less extensive than that required by subdivision 3.
Subd. 3. [STATUTORY SAMPLING PROCEDURE.] (a) Unless and
until rules authorized by subdivision 2 are adopted, each
domestic insurer must:
(1) obtain an independent appraisal of five percent of its
distressed, delinquent, or restructured loans required to be
sampled under subdivision 1; and
(2) establish a uniform system of assigning sequential
numbers to its distressed, delinquent, or restructured loans
based upon the date on which a loan first enters one of those
categories, and then obtain an independent appraisal of every
twentieth loan required to be sampled under subdivision 1,
beginning with the tenth loan or with the loan having another
number that the commissioner may announce on or within five
business days after the due date for filing of the annual
statement.
(b) A domestic insurer may use a sampling procedure
different from that described in paragraph (a) with the prior
approval of the commissioner. The commissioner may grant such
approval only if the different procedure would result in a
sampling that is at least as accurate and as extensive under the
circumstances as the method required by paragraph (a).
Subd. 4. [RECORDKEEPING; REPORTING.] The independent
appraisals must be kept in the insurer's records and must be
available to the commissioner upon request. Each insurer must
file with the commissioner an annual report listing each
mortgage loan for which the insurer obtained an independent
appraisal under this section and showing for each of those loans
the appraisal value, the carrying value determined by the
insurer, and other information required by the commissioner.
The report must be filed with the commissioner no later than 120
days after the filing of the annual report.
Subd. 5. [ADDITIONAL REQUIREMENTS.] If the commissioner
determines, on the basis of the report of independent appraisals
required by subdivision 4, that the carrying values shown on the
annual statement, determined by methods other than an
independent appraisal, overstate the market value of the loans
required to be sampled, the commissioner may require any of the
following procedures:
(1) independent appraisals of additional loans from the
loans required to be sampled;
(2) filing of a supplement to, or a revision of, the annual
statement, showing revised carrying values for all or any
appropriate portion of the loans required to be sampled; and
(3) a second independent appraisal for any loan for which
an independent appraisal was obtained under this section.
Subd. 6. [SELECTION OF INDEPENDENT APPRAISER.] The insurer
shall not obtain more than one-third of the independent
appraisals required under this section from any one appraiser or
from any one firm.
Subd. 7. [POWERS IN THIS SECTION NOT LIMITING.] This
section does not limit any powers otherwise available to the
commissioner.
Sec. 8. [60A.128] [RESERVE ACCOUNT.]
In computing reserves required to be held by an insurer
under the provisions of section 3, subdivisions 3, 4, and 5, the
commissioner may allow an insurer to take credit for any
reserves held by the insurer attributable to the assets as an
"asset valuation reserve" pursuant to the accounting and
reserving requirements of the National Association of Insurance
Commissioners. Any charges against surplus taken under section
3, subdivisions 3, 4, 5, 6, or 7, may be taken against the asset
valuation reserve to the extent the asset valuation reserve is
sufficient and the charge is permitted by the NAIC. To the
extent the asset valuation reserve is not sufficient, or if the
charge is not permitted by the NAIC, the insurer shall take a
charge against its surplus.
ARTICLE 20
ASSUMPTION TRANSACTIONS
Section 1. Minnesota Statutes 1990, section 60A.09, is
amended by adding a subdivision to read:
Subd. 4a. [ASSUMPTION TRANSACTIONS REGULATED.] No life
company, whether domestic, foreign, or alien, shall perform an
assumption transaction, including an assumption reinsurance
agreement, with respect to a policy issued to a Minnesota
resident, unless:
(1) the assumption agreement has been filed with the
commissioner;
(2) the assumption agreement specifically provides that the
original insurer remains liable to the insured in the event the
assuming insurer is unable to fulfill its obligations or the
original insurer acknowledges in writing to the commissioner
that it remains liable to the insured in the event the assuming
insurer is unable to fulfill its obligations;
(3) the proposed certificate of assumption to be provided
to the policyholder has been filed with the commissioner for
review and approval as provided in section 61A.02; and
(4) the proposed certificate of assumption contains, in
bold face type, the following language:
"Policyholder: Please be advised that you retain all
rights with respect to your policy against your original insurer
in the event the assuming insurer is unable to fulfill its
obligations. In such event, your original insurer remains
liable to you notwithstanding the terms of its assumption
agreement."
With respect to residents of Minnesota, the notice to
policyholders shall also include a statement as to the effect on
guaranty fund coverage, if any, that will result from the
transfer.
Clauses (2) and (4) above do not apply if the policyholder
consents in a signed writing to a release of the original
insurer from liability and to a waiver of the protections
provided in clauses (2) and (4) after being informed in writing
by the insurer of the circumstances relating to and the effect
of the assumption, provided that the consent form signed by the
policyholder has been filed with and approved by the
commissioner.
If a company is deemed by the commissioner to be in a
hazardous condition or is under a court ordered supervision,
rehabilitation, liquidation, conservation or receivership, and
the transfer of policies is in the best interest of the
policyholders, as determined by the commissioner, a transfer may
be effected notwithstanding the provisions in this subdivision
by using a different form of consent by policyholders. This may
include a form of implied consent and adequate notification to
the policyholder of the circumstances requiring the transfer as
approved by the commissioner. This paragraph does not apply
when a policy is transferred to the Minnesota life and health
guaranty association.
ARTICLE 21
MISCELLANEOUS
Section 1. Minnesota Statutes 1990, section 60A.27, is
amended to read:
60A.27 [DISCIPLINE OF INSURER BY ANOTHER STATE; NOTICE TO
COMMISSIONER.]
Subdivision 1. An insurance company licensed to transact
business in this state is hereby required to notify the
commissioner of commerce within 30 ten business days of the
happening of any one or more of the following:
(1) the suspension or revocation of its right to transact
business in another state;
(2) the receipt by the insurance company of an order to
show why its license should not be suspended or revoked; or
(3) the imposition of a penalty by any other state for any
violation of the insurance laws of such other state.
Subd. 2. Any insurance company which fails to notify the
commissioner of commerce within 30 days of the happening of any
of the foregoing shall be the time period specified in
subdivision 1 is subject to a penalty of not more than $500, or
suspension, or both.
Sec. 2. Minnesota Statutes 1990, section 60C.03,
subdivision 8, is amended to read:
Subd. 8. "Insolvent insurer" means an insurer licensed to
transact insurance in this state, either at the time the policy
was issued, or when the insured event occurred, and against whom
an order of liquidation with a finding of insolvency has been
entered after April 30, 1979 by a court of competent
jurisdiction, in the insurer's state of domicile or of this
state, under the provisions of chapter 60B, and which order of
liquidation has not been stayed or been the subject of a writ of
supersedeas or other comparable order. An insurer placed under
administrative supervision under article 2 or determined to be
in hazardous financial condition under article 3 is not an
insolvent insurer as a result of that placement or determination.
Sec. 3. Minnesota Statutes 1990, section 60C.14,
subdivision 2, is amended to read:
Subd. 2. [OPTIONAL POWERS AND DUTIES.] The commissioner
may:
(a) Require the association to notify the insureds of any
insurer undergoing liquidation and any other interested parties
of their possible rights under Laws 1971, chapter 145.
Notification shall be by mail at their last known address, where
available, but if sufficient information for notification by
mail is not available, notice by publication in a newspaper of
general circulation shall be sufficient.
(b) Suspend or revoke, after notice and hearing, the
certificate of authority to transact insurance or to execute
surety bonds in this state of any member insurer which fails to
pay an assessment when due or fails to comply with the plan of
operation. As an alternative, the commissioner may levy a fine
on any member insurer which fails to pay an assessment when
due. The fine shall not exceed five percent of the unpaid
assessment per month, except that no fine shall be less than
$100 per month.
(c) Revoke the designation of any servicing facility if the
commissioner finds claims are being handled unsatisfactorily.
(d) Disclose to the board of directors information
regarding any member insurer, or any company seeking admission
to transact insurance business in this state, whose financial
condition may be hazardous to policyholders or to the public.
This disclosure does not violate any data privacy requirement or
any obligation to treat the information as privileged. This
disclosure does not change the data privacy or privileged status
of the information. Board members shall not disclose the
information to anyone else or use the information for any
purpose other than their duties as board members.
Sec. 4. Minnesota Statutes 1990, section 60E.04,
subdivision 7, is amended to read:
Subd. 7. [EXAMINATION REGARDING FINANCIAL CONDITION.] A
risk retention group must submit to an examination by the
commissioner to determine its financial condition if the
commissioner of the jurisdiction in which the group is chartered
has not initiated an examination or does not initiate an
examination within 60 ten business days after a request by the
commissioner of commerce. The examination must be coordinated
to avoid unjustified repetition and conducted in an expeditious
manner and in accordance with the National Association of
Insurance Commissioner's Examiner Handbook.
Sec. 5. [62A.135] [NONCOMPREHENSIVE POLICIES; MINIMUM LOSS
RATIOS.]
(a) This section applies to individual or group policies,
certificates, or other evidence of coverage designed primarily
to provide coverage for hospital or medical expenses on a per
diem, fixed indemnity, or nonexpense incurred basis offered,
issued, or renewed, to provide coverage to a Minnesota resident.
(b) Notwithstanding section 62A.02, subdivision 3, relating
to loss ratios, policies must return to Minnesota policyholders
in the form of aggregate benefits under the policy, for each
year, on the basis of incurred claims experience and earned
premiums in Minnesota and in accordance with accepted actuarial
principles and practices:
(1) at least 75 percent of the aggregate amount of premiums
earned in the case of group policies; and
(2) at least 65 percent of the aggregate amount of premiums
earned in the case of individual policies.
(c) An insurer may only issue or renew an individual policy
on a guaranteed renewable or noncancelable basis.
(d) Noncomprehensive policies, certificates, or other
evidence of coverage subject to the provisions of this section
are also subject to the requirements, penalties, and remedies
applicable to medicare supplement policies, as set forth in
section 62A.36, subdivisions 1a, 1b, and 2.
The first supplement to the annual statement required to be
filed pursuant to this paragraph must be for the annual
statement required to be submitted on or after January 1, 1993.
Sec. 6. Minnesota Statutes 1990, section 62E.14, is
amended by adding a subdivision to read:
Subd. 4d. [INSURER INSOLVENCY; WAIVER OF PREEXISTING
CONDITIONS.] A Minnesota resident who is otherwise eligible may
enroll in the comprehensive health insurance plan with a waiver
of the preexisting condition limitation described in subdivision
3, if that person applies for coverage within 90 days of
termination of prior coverage due to the insolvency of the
insurer.
Coverage in the comprehensive insurance plan is effective
on the date of termination of prior coverage. The availability
of conversion rights does not affect a person's rights under
this subdivision.
Sec. 7. Minnesota Statutes 1990, section 68A.01,
subdivision 2, is amended to read:
Subd. 2. [GUARANTY FUND AND INVESTMENT THEREOF.] Before
issuing any policy or other contract of guaranty or insurance,
every real estate title insurance company shall set apart and
keep separate a guaranty fund of $100,000 or an amount equal to
two-fifths of its capital stock whichever is the greater, but in
no event shall a company be required to deposit in excess of
$2,500,000. The guaranty fund shall be invested according to
law.
Sec. 8. [72A.206] [IMPAIRMENT OR INSOLVENCY; NOTICE OF
LIMITATIONS AND EXCLUSIONS OF PROTECTION.]
(a) No person, including an insurer, agent, or affiliate of
an insurer or agent shall sell, or offer for sale, a policy or
contract of insurance of any kind unless a separate notice
conforming to the requirements of paragraph (b) is delivered
with the application for that policy or contract. The notice is
considered part of the policy or contract and must be signed by
the applicant and kept on file by the insurer. A copy of the
signed notice must be given to the applicant. This section does
not apply to renewals, unless the renewal increases the dollar
amount of a coverage by more than 100 percent.
(b) The notice must clearly state the limitations and
exclusions relating to the protection afforded the policy or
contract holder should the insurer become financially impaired
or insolvent, including coverages afforded by any guaranty fund.
(c) The notice requirements of section 61B.12, subdivision
6, supersede the requirements of this section. With respect to
combination fixed-variable policies, the notice requirement of
section 61B.12, subdivision 6, supersedes the requirements of
this section, provided that the notice provided under section
61B.12, subdivision 6, clearly describes what portions of the
policy are not covered by the guaranty fund.
(d) This section does not apply to fraternal benefit
societies regulated under chapter 64B.
Sec. 9. [NONCOMPREHENSIVE POLICIES; RESERVES AND
INVESTMENTS STUDY.]
The department of commerce shall review the adequacy of
reserves of companies selling noncomprehensive policies subject
to Minnesota Statutes, section 62A.135. The department shall
also review the earnings generated from the investment of the
premium dollars paid for these policies. The review under this
section shall be treated as an examination for purposes of
applying the requirements of Minnesota Statutes, section 60A.031.
The department shall report the results of its review to
the chairs of the house financial institutions and insurance
committee and the senate commerce committee by January 1, 1992.
Sec. 10. [EFFECTIVE DATE.]
Section 5 is effective for policies, certificates, or other
evidence of coverage issued or offered to a Minnesota resident
on or after August 1, 1991.
Presented to the governor May 30, 1991
Signed by the governor June 3, 1991, 9:45 a.m.
Official Publication of the State of Minnesota
Revisor of Statutes