Minnesota Session Laws - 1994, Regular Session

                            CHAPTER 425-H.F.No. 1886 
                  An act relating to insurance; regulating insurers, 
                  investments, rehabilitations and liquidations, policy 
                  loans, and alternative coverage mechanisms; amending 
                  Minnesota Statutes 1992, sections 60A.052, subdivision 
                  2; 60A.11, subdivision 13; 60A.111, subdivision 2; 
                  60A.13, subdivision 8; 60B.60, subdivisions 2 and 3; 
                  61A.28, subdivisions 11 and 12; 62F.02, subdivision 1; 
                  62F.03, by adding a subdivision; 62I.08; 62I.13, 
                  subdivision 2; and 62I.21; Minnesota Statutes 1993 
                  Supplement, sections 60A.23, subdivision 4; 60D.20, 
                  subdivision 2; 62B.12; and 62C.10; repealing Minnesota 
                  Statutes 1992, section 60D.19, subdivision 5. 
        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
           Section 1.  Minnesota Statutes 1992, section 60A.052, 
        subdivision 2, is amended to read: 
           Subd. 2.  [SUMMARY SUSPENSION OR REVOCATION OF AUTHORITY OR 
        CENSURE.] If the commissioner determines that one of the 
        conditions listed in subdivision 1 exists, the commissioner may 
        issue an order requiring the insurance company to show cause why 
        any or all of the following should not occur:  (1) revocation or 
        suspension of any or all certificates of authority granted to 
        the foreign or domestic insurance company or its agent; (2) 
        censuring of the insurance company; or (3) the imposition of a 
        civil penalty.  The order shall be calculated to give reasonable 
        notice of the time and place for hearing thereon, and shall 
        state the reasons for the entry of the order.  The commissioner 
        may by order summarily suspend or revoke a certificate pending 
        final determination of any order to show cause.  If a 
        certificate is suspended or revoked pending final determination 
        of an order to show cause, a hearing on the merits shall be held 
        within 30 days of the issuance of the summary order.  All 
        hearings shall be conducted in accordance with chapter 14.  
        After the hearing, the commissioner shall enter an order 
        disposing of the matter as the facts require.  If the insurance 
        company fails to appear at a hearing after having been duly 
        notified of it, the company shall be considered in default, and 
        the proceeding may be determined against the company upon 
        consideration of the order to show cause, the allegations of 
        which may be considered to be true. 
           Sec. 2.  Minnesota Statutes 1992, 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 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.  Pursuant to section 106 of title I of the 
        Secondary Mortgage Market Enhancement Act of 1984, United States 
        Code, title 15, section 77r-1, included under this paragraph are 
        obligations issued or guaranteed by the Federal Home Loan 
        Mortgage Corporation and the Federal National Mortgage 
        Association. 
           (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. 3.  Minnesota Statutes 1992, section 60A.111, 
        subdivision 2, is amended to read: 
           Subd. 2.  [PLAN.] If the commissioner determines that the 
        required liabilities of any company are greater than its 
        qualified assets and that the combined financial resources of 
        the insurance company members of any insurance holding company 
        system of which the company is a member are not adequate to 
        counterbalance that fact, the commissioner may require the 
        company to submit to the commissioner for approval a plan by 
        which the company undertakes to bring the ratio of its required 
        liabilities to its qualified assets, expressed as a percentage, 
        up to at least 100 110 percent within a reasonable period, 
        usually not exceeding five years.  
           Sec. 4.  Minnesota Statutes 1992, section 60A.13, 
        subdivision 8, is amended to read: 
           Subd. 8.  [ANNUAL REPORTS.] Each insurer licensed to write 
        property and casualty insurance in this state, as a supplement 
        to the annual statement required by this section, shall submit a 
        report on a form furnished by the commissioner separately 
        showing its direct writings in Minnesota and in the United 
        States on:  liquor liability, product liability, medical 
        malpractice, and any other line so designated by the 
        commissioner on January 1 of each year.  
           The supplemental reports must include the following data 
        for the previous year ending on the 31st day of December: 
           (1) direct premiums written; 
           (2) direct premiums earned; 
           (3) net investment income, including net realized capital 
        gains and losses, using appropriate estimates where necessary; 
           (4) incurred claims, developed as the sum, and with figures 
        provided for, of the following:  
           (a) dollar amount of claims closed with payment, plus 
           (b) reserves for reported claims at the end of the current 
        year, minus 
           (c) reserves for reported claims at the end of the previous 
        year, plus 
           (d) reserves for incurred but not reported claims at the 
        end of the current year, minus 
           (e) reserves for incurred but not reported claims at the 
        end of the previous year, plus 
           (f) reserves for loss adjustment expense at the end of the 
        current year, minus 
           (g) reserves for loss adjustment expense at the end of the 
        previous year; 
           (5) actual incurred expenses allocated separately to loss 
        adjustment, commissions, other acquisition costs, general office 
        expenses, taxes, licenses and fees, and all other expenses; 
           (6) net underwriting gain or loss; and 
           (7) net operation gain or loss, including net investment 
        income.  
           This report is due by the first of May of each year and the 
        report due May 1, 1987 must cover the last six months of 1986.  
        The commissioner shall annually compile and review all reports 
        submitted by insurers pursuant to this section.  These filings 
        must be published and made available to any interested insured 
        or citizen. 
           Sec. 5.  Minnesota Statutes 1993 Supplement, section 
        60A.23, subdivision 4, is amended to read: 
           Subd. 4.  [DIVIDENDS; LIMITATIONS.] Domestic stock 
        companies shall follow the dividend limitation and reporting 
        requirements set forth in chapter 60D. 
           Sec. 6.  Minnesota Statutes 1992, section 60B.60, 
        subdivision 2, is amended to read: 
           Subd. 2.  [PRIORITY OF SPECIAL DEPOSIT CLAIMS.] The owners 
        of special deposit claims against an insurer for which a 
        liquidator is appointed in this or any other state shall be 
        given priority against the special deposits in accordance with 
        the statutes governing the creation and maintenance of the 
        deposits.  If there is a deficiency in any deposit so that the 
        claims secured by it are not fully discharged from it, the 
        claimants may claim against a security fund share in the general 
        assets, but the sharing shall be deferred until general 
        creditors having the same priority, and also claimants against 
        other special deposits having the same priority who have 
        received smaller percentages from their respective special 
        deposits, have been paid percentages of their claims equal to 
        the percentage paid from the special deposit.  
           Sec. 7.  Minnesota Statutes 1992, section 60B.60, 
        subdivision 3, is amended to read: 
           Subd. 3.  [PRIORITY OF SECURED CLAIMS.] The owner of a 
        secured claim against an insurer for which a liquidator has been 
        appointed in this or any other state may surrender the security 
        and file a claim as a general creditor, or the claim may be 
        discharged by resort to the security in accordance with section 
        60B.43, in which case the deficiency, if any, shall be treated 
        as a claim against the general assets of the insurer on the same 
        basis as claims of unsecured creditors having the same priority. 
           Sec. 8.  Minnesota Statutes 1993 Supplement, section 
        60D.20, subdivision 2, is amended to read: 
           Subd. 2.  [DIVIDENDS AND OTHER DISTRIBUTIONS.] (a) Subject 
        to the limitations and requirements of this subdivision, the 
        board of directors of any domestic insurer within an insurance 
        holding company system may authorize and cause the insurer to 
        declare and pay any dividend or distribution to its shareholders 
        as the directors deem prudent from the earned surplus of the 
        insurer.  An insurer's earned surplus, also known as unassigned 
        funds, shall be determined in accordance with the accounting 
        procedures and practices governing preparation of its annual 
        statement, minus 25 percent of earned surplus attributable 
        to net unrealized capital gains.  Dividends which are paid from 
        sources other than an insurer's earned surplus or are 
        extraordinary dividends or distributions may be paid only as 
        provided in paragraphs (d), (e), and (f). 
           (b) The insurer shall notify the commissioner within five 
        business days following declaration of a dividend declared 
        pursuant to paragraph (a) and at least ten days prior to its 
        payment.  The commissioner shall promptly consider the 
        notification filed pursuant to this paragraph, taking into 
        consideration the factors described in subdivision 4. 
           (c) The commissioner shall review at least annually the 
        dividends paid by an insurer pursuant to paragraph (a) for the 
        purpose of determining if the dividends are reasonable based 
        upon (1) the adequacy of the level of surplus as regards 
        policyholders remaining after the dividend payments, and (2) the 
        quality of the insurer's earnings and extent to which the 
        reported earnings include extraordinary items, such as surplus 
        relief reinsurance transactions and reserve destrengthening. 
           (d) 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. 
           (e) 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.  
           (f) 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. 
           Sec. 9.  Minnesota Statutes 1992, 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.  In the case of securities enumerated in subdivision 
        8, the provision of this subdivision must be applied in 
        accordance with the type of security subject to the asset backed 
        arrangement. 
           Sec. 10.  Minnesota Statutes 1992, 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.  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, paragraph (a) section 61A.284, may 
        not exceed ten percent of the common stock of the corporation.  
        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. 11.  Minnesota Statutes 1993 Supplement, section 
        62B.12, is amended to read: 
           62B.12 [RULEMAKING.] 
           The commissioner may, after notice and hearing, issue rules 
        the commissioner deems appropriate for the supervision of 
        sections 62B.01 to 62B.14.  The commissioner shall promulgate 
        rules to establish rates for credit involuntary unemployment 
        insurance prior to its issuance, and to enact the other 
        provisions of Laws 1993, chapter 343, and the commissioner shall 
        report by February 15, 1994, to the house of representatives 
        committee on financial institutions and insurance and to the 
        senate commerce and consumer protection committee on the rules 
        or status of the rulemaking, including the expected loss ratio.  
        The commissioner is not obligated to promulgate a rule unless 
        and until four or more insurers who plan to write credit 
        involuntary unemployment insurance in Minnesota agree to pay for 
        the cost of the promulgation of any rules authorized by this 
        section.  Companies selling credit involuntary unemployment 
        insurance shall be assessed by the department to pay the costs 
        of rulemaking. 
           Moneys collected pursuant to this provision must be 
        deposited in the state treasury and credited to a special 
        account and are appropriated to the commissioner for the 
        rulemaking purposes authorized by this section. 
           For the purposes of chapter 62B, any insurer authorized to 
        offer the coverage specified by section 60A.06, subdivision 1, 
        clause (1) or (4), shall be authorized to sell credit 
        involuntary unemployment insurance pursuant to this chapter. 
           Sec. 12.  Minnesota Statutes 1993 Supplement, section 
        62C.10, is amended to read: 
           62C.10 [INVESTMENT.] 
           Funds of a corporation subject to this chapter shall be 
        invested only in securities and property designated by law for 
        investment by domestic life insurance companies.  
        Notwithstanding any limitations set forth in chapter 61A, an 
        organization which has received a certificate of authority from 
        the commissioner to operate under this chapter only for the 
        provision of prepaid dental plans may invest up to 20 percent of 
        its admitted assets in subsidiary corporations whose business is 
        the arrangement for, management of, or provision of health care 
        services, including dental and related managed care and 
        administrative services.  Any amounts so invested in subsidiary 
        corporations shall, for purposes of section 62C.09, be added to 
        the minimum and maximum reserve requirements as calculated for a 
        service plan corporation. 
           Sec. 13.  Minnesota Statutes 1992, section 62F.02, 
        subdivision 1, is amended to read: 
           Subdivision 1.  [CREATION.] There is created a joint 
        underwriting association to provide medical malpractice 
        insurance coverage to any licensed health care provider unable 
        to obtain this insurance through ordinary methods, who practices 
        or provides professional services within the state of Minnesota 
        and obtains at least 60 percent of gross revenues from patients 
        who are residents of the state of Minnesota.  Every insurer 
        authorized to write and writing personal injury liability 
        insurance in this state shall be a member of the association as 
        a condition to obtaining and retaining a license to write 
        insurance in this state. 
           Sec. 14.  Minnesota Statutes 1992, section 62F.03, is 
        amended by adding a subdivision to read:  
           Subd. 8.  "Professional services" means services performed 
        by a licensed health care provider which are undertaken with the 
        objective of:  providing prevention care, rehabilitative care, 
        treatment of specific diseases, injuries, or conditions, or care 
        rendered with the intent of stabilizing the patient's condition 
        and to prevent further deterioration or injury.  Professional 
        services does not include services provided by licensed health 
        care providers who rely solely on spiritual or divine 
        intervention as the only means of care or treatment. 
           Sec. 15.  Minnesota Statutes 1992, section 62I.08, is 
        amended to read: 
           62I.08 [APPLICATION PROCEDURE.] 
           A person or entity that has been denied coverage or is 
        unable to find an insurer willing to write coverage is eligible 
        to make an application to the association.  The application 
        shall be on a form approved by the board of directors.  To show 
        eligibility to participate in the association the applicant 
        shall certify that the applicant has been unable to find anyone 
        to offer the coverage sought by the applicant.  No further proof 
        shall be required of the applicant, except that the application 
        form approved by the board of directors may require the date and 
        the name of the insurance company denying coverage and may 
        require a copy of a written offer if the rate qualifies the 
        applicant to apply under section 62I.13, subdivision 2.  The 
        application shall be filed simultaneously with the association 
        and the market assistance plan of the association. 
           Sec. 16.  Minnesota Statutes 1992, section 62I.13, 
        subdivision 2, is amended to read: 
           Subd. 2.  [MINIMUM OF QUALIFICATIONS.] Anyone who is unable 
        to obtain insurance in the private market and who so certifies 
        to the association in the application is eligible to make 
        written application to the association for coverage.  The 
        application may require information as provided in section 
        62I.08.  Payment of the applicable premium or required portion 
        of it must be paid prior to coverage by the association.  An 
        offer of coverage at a rate in excess of the rate that would be 
        charged by the association for similar coverage and risk shall 
        be deemed to be a refusal of coverage for purposes of 
        eligibility for participation in the association.  It shall not 
        be deemed to be a written notice of refusal if the rate for 
        coverage offered is less than five ten percent in excess of the 
        joint underwriting association rates for similar coverage and 
        risk.  However, the offered rate must also be the rate that the 
        insurer has filed with the department of commerce if the insurer 
        is required to file its rates with the department.  If the 
        insurer is not required to file its rates with the department, 
        the offered rate must be the rate generally charged by the 
        insurer for similar coverage and risk. 
           Sec. 17.  Minnesota Statutes 1992, section 62I.21, is 
        amended to read: 
           62I.21 [ACTIVATION OF MARKET ASSISTANCE PLAN AND JOINT 
        UNDERWRITING ASSOCIATION.] 
           At any time the commissioner of commerce deems it necessary 
        to provide assistance with respect to the Upon submission of an 
        application for placement of general liability insurance 
        coverage on Minnesota risks for under section 62I.13 in a class 
        of business for which the market assistance plan and the joint 
        underwriting association are not then activated, where the 
        applicant has been refused coverage within the meaning of 
        section 62I.13, subdivision 2, the commissioner shall may by 
        notice in the State Register activate the market assistance plan 
        and the joint underwriting association on Minnesota risks for 
        the class of business.  The plan and association are activated 
        for a period of 180 days from publication of the notice.  At the 
        same time the notice is published, the commissioner shall 
        prepare a written petition requesting that a hearing be held to 
        determine whether activation of the market assistance plan and 
        the joint underwriting association is necessary beyond the 
        180-day period.  The hearing must be held in accordance with 
        section 62I.22.  The commissioner by order shall deactivate a 
        market assistance program and the joint underwriting association 
        at any time the commissioner finds that the market assistance 
        program and the joint underwriting association are not necessary.
           Sec. 18.  [REPEALER.] 
           Minnesota Statutes 1992, section 60D.19, subdivision 5, is 
        repealed. 
           Presented to the governor April 11, 1994 
           Signed by the governor April 13, 1994, 1:10 p.m.