1.1                          A bill for an act 
  1.2             relating to insurance; conforming state statutes to 
  1.3             the National Association of Insurance Commissioners 
  1.4             model legislation providing uniform accounting 
  1.5             principles; amending Minnesota Statutes 1998, sections 
  1.6             60A.11, subdivision 22; 60A.12, subdivision 5; 
  1.7             60A.121, subdivision 9, and by adding subdivisions; 
  1.8             60A.123; 60A.129, subdivisions 3 and 5; and 66A.16, 
  1.9             subdivisions 1 and 2; proposing coding for new law in 
  1.10            Minnesota Statutes, chapter 60A; repealing Minnesota 
  1.11            Statutes 1998, sections 60A.12, subdivisions 1, 3, 4, 
  1.12            7, 8, and 9; 60A.125, subdivision 3; and 60A.128. 
  1.13  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.14     Section 1.  Minnesota Statutes 1998, section 60A.11, 
  1.15  subdivision 22, is amended to read: 
  1.16     Subd. 22.  [PERSONAL PROPERTY UNDER LEASE.] Personal 
  1.17  property for intended lease or rental in the United States or 
  1.18  Canada.  A company may not invest more than five percent of its 
  1.19  total admitted assets under this subdivision.  In cases where 
  1.20  the asset leased would otherwise be nonadmitted, the asset or 
  1.21  associated lease is nonadmitted. 
  1.22     Sec. 2.  Minnesota Statutes 1998, section 60A.12, 
  1.23  subdivision 5, is amended to read: 
  1.24     Subd. 5.  [LOSS RESERVES.] ~~(1) [FOR OTHER THAN LIABILITY~~ 
  1.25  ~~AND WORKERS' COMPENSATION.] The reserve for outstanding losses~~ 
  1.26  ~~under policies other than workers' compensation and liability~~ 
  1.27  ~~policies shall be at least equal to the aggregate estimated~~ 
  1.28  ~~amounts due or to become due on account of all the losses and~~ 
  1.29  ~~claims of which the corporation has received notice.  The loss~~ 
  2.1   ~~reserve shall also include the estimated liability on any~~ 
  2.2   ~~notices received by the corporation of the occurrence of any~~ 
  2.3   ~~event which may result in a loss, and the estimated liability~~ 
  2.4   ~~for all losses which have occurred but on which no notice has~~ 
  2.5   ~~been received.  For the purpose of these reserves, the~~ 
  2.6   ~~corporation shall keep a complete and itemized record showing~~ 
  2.7   ~~all losses and claims on which it has received notice, including~~ 
  2.8   ~~all notices received by it of the occurrence of any event which~~ 
  2.9   ~~may result in a loss.~~ 
  2.10     When, in the judgment of the commissioner, the loss 
  2.11  reserves, calculated in accordance with ~~the foregoing~~ 
  2.12  ~~provisions,~~ statutory accounting practices are inadequate, the 
  2.13  commissioner may require the corporation to maintain additional 
  2.14  reserves. 
  2.15     ~~(2) [FOR LIABILITY LOSSES.] The reserve for outstanding~~ 
  2.16  ~~losses and loss expenses incurred under liability policies~~ 
  2.17  ~~during each of the three years immediately preceding the date of~~ 
  2.18  ~~the statement shall be not less than 60 percent of the earned~~ 
  2.19  ~~liability premium for each of the three corresponding years~~ 
  2.20  ~~immediately preceding the date of the statement, less all loss~~ 
  2.21  ~~and loss expense payments made under claims incurred during each~~ 
  2.22  ~~of those years.~~ 
  2.23     ~~(3) [FOR COMPENSATION CLAIMS.] The reserve for outstanding~~ 
  2.24  ~~losses and loss expenses incurred under workers' compensation~~ 
  2.25  ~~policies shall be at least equal to the following amounts:~~ 
  2.26     ~~(a) For all compensation claims under policies written more~~ 
  2.27  ~~than three years prior to the date of the statement, the present~~ 
  2.28  ~~values, at four percent interest, of the determined and the~~ 
  2.29  ~~estimated future payments;~~ 
  2.30     ~~(b) For all compensation claims under policies written in~~ 
  2.31  ~~the three years immediately preceding the date of the statement,~~ 
  2.32  ~~the reserve shall be not less than 65 percent of the earned~~ 
  2.33  ~~compensation premiums for each of the three years, less all loss~~ 
  2.34  ~~and loss expense payments made in connection with the claims~~ 
  2.35  ~~under policies written in each of the corresponding years.  For~~ 
  2.36  ~~the first year of the three-year period, the reserve shall be~~ 
  3.1   ~~not less than the present value, at four percent interest, of~~ 
  3.2   ~~the determined and the estimated unpaid compensation claims~~ 
  3.3   ~~under policies written during that year.~~ 
  3.4      Sec. 3.  Minnesota Statutes 1998, section 60A.121, is 
  3.5   amended by adding a subdivision to read: 
  3.6      Subd. 2a.  [CONTRACTUAL TERMS.] "Contractual terms" means 
  3.7   the principal and interest payments of the commercial mortgage 
  3.8   loan as scheduled in the mortgage agreement. 
  3.9      Sec. 4.  Minnesota Statutes 1998, section 60A.121, 
  3.10  subdivision 9, is amended to read: 
  3.11     Subd. 9.  [MORTGAGE LOAN IN FORECLOSURE.] "Mortgage loan in 
  3.12  foreclosure" means (1) a loan in the process of foreclosure 
  3.13  including the time required for expiration of any equitable or 
  3.14  statutory redemption rights; (2) a loan to a mortgagor who is 
  3.15  the subject of a bankruptcy petition and who is not 
  3.16  making ~~regular monthly~~ payments according to the contractual 
  3.17  terms; or (3) a loan secured by a mortgage on real estate that 
  3.18  is subject to a senior mortgage or other lien that is being 
  3.19  foreclosed. 
  3.20     Sec. 5.  Minnesota Statutes 1998, section 60A.121, is 
  3.21  amended by adding a subdivision to read: 
  3.22     Subd. 10a.  [PERMANENTLY IMPAIRED.] A commercial mortgage 
  3.23  loan will be "permanently impaired" when, based on current 
  3.24  information and events, it is probable that an insurer will be 
  3.25  unable to collect all amounts due according to the contractual 
  3.26  terms. 
  3.27     Sec. 6.  Minnesota Statutes 1998, section 60A.123, is 
  3.28  amended to read: 
  3.29     60A.123 [VALUATION PROCEDURE.] 
  3.30     Subdivision 1.  [REQUIREMENT.] An insurer shall value its 
  3.31  commercial mortgage loans and real estate acquired through 
  3.32  foreclosure of commercial mortgage loans as provided in this 
  3.33  section for the purpose of establishing ~~reserves or carrying~~ a 
  3.34  valuation allowance or fair values of the investments and for 
  3.35  statutory accounting purposes. 
  3.36     Subd. 2.  [PERFORMING MORTGAGE LOAN.] A performing mortgage 
  4.1   loan must be carried at its amortized acquisition cost. 
  4.2      Subd. 3.  [DISTRESSED MORTGAGE LOAN.] (a) The insurer shall 
  4.3   make an evaluation of the appropriate ~~carrying~~ fair value of its 
  4.4   commercial mortgage loans which it classifies as distressed 
  4.5   mortgage loans.  The ~~carrying~~ fair value must be based upon one 
  4.6   or more of the following procedures: 
  4.7      (1) an internal appraisal; 
  4.8      (2) an appraisal made by an independent appraiser; 
  4.9      (3) the value of guarantees or other credit enhancements 
  4.10  related to the loan. 
  4.11     (b) The insurer ~~may~~ will determine the ~~carrying~~ fair value 
  4.12  of its distressed mortgage loans through ~~either~~ an evaluation of 
  4.13  each specific distressed mortgage loan ~~or by a sampling~~ 
  4.14  ~~methodology~~.  ~~Insurers using a sampling methodology shall~~ 
  4.15  ~~identify a sampling of its distressed mortgage loans that~~ 
  4.16  ~~represents a cross section of all of its distressed mortgage~~ 
  4.17  ~~loans.  The insurer shall make an evaluation of the appropriate~~ 
  4.18  ~~carrying value for each sample loan.  The carrying value of all~~ 
  4.19  ~~of the insurer's distressed mortgage loans must be the same~~ 
  4.20  ~~percentage of their amortized acquisition cost as the sample~~ 
  4.21  ~~loans.~~  The ~~carrying~~ fair value must be based upon an internal 
  4.22  appraisal or an appraisal conducted by an independent appraiser. 
  4.23     (c) For distressed mortgage loans, the insurer shall ~~either~~ 
  4.24  ~~take a charge against its surplus or establish a reserve~~ 
  4.25  ~~for~~ measure impairment based on the fair value of the collateral 
  4.26  less estimated costs to obtain and sell.  A valuation allowance 
  4.27  should be established for the difference between the 
  4.28  ~~carrying~~ adjusted fair value of the collateral and the amortized 
  4.29  acquisition cost of its distressed mortgage loans. 
  4.30     Subd. 4.  [DELINQUENT MORTGAGE LOAN.] (a) The insurer shall 
  4.31  make an evaluation of the appropriate ~~carrying~~ fair value of 
  4.32  each delinquent mortgage loan.  The ~~carrying~~ fair value must be 
  4.33  based upon one or more of the following procedures: 
  4.34     (1) an internal appraisal; 
  4.35     (2) an appraisal by an independent appraiser; 
  4.36     (3) the value of guarantees or other credit enhancements 
  5.1   related to the loan. 
  5.2      (b) The insurer shall either take a charge against its 
  5.3   surplus or establish a reserve for the difference between the 
  5.4   ~~carrying~~ fair value and the amortized acquisition cost of its 
  5.5   delinquent mortgage loans. 
  5.6      Subd. 5.  [RESTRUCTURED MORTGAGE LOAN.] (a) The insurer 
  5.7   shall make an evaluation of the appropriate ~~carrying~~ fair value 
  5.8   of each restructured mortgage loan.  The ~~carrying~~ fair value 
  5.9   must be based upon one or more of the following procedures: 
  5.10     (1) an internal appraisal; 
  5.11     (2) an appraisal by an independent appraiser; 
  5.12     (3) the value of guarantees or other credit enhancements 
  5.13  related to the loan. 
  5.14     (b) The insurer shall ~~either take a charge against its~~ 
  5.15  ~~surplus or establish a reserve for~~ measure impairment based on 
  5.16  the fair value of the collateral less estimated costs to obtain 
  5.17  and sell.  The difference between the ~~carrying~~ adjusted fair 
  5.18  value of the collateral and other assets received and the 
  5.19  amortized acquisition cost of its restructured mortgage 
  5.20  loans must be recorded as a direct write-down and a new cost 
  5.21  basis established. 
  5.22     Subd. 6.  [MORTGAGE LOAN IN FORECLOSURE.] (a) The insurer 
  5.23  shall make an evaluation of the appropriate ~~carrying~~ fair value 
  5.24  of each mortgage loan in foreclosure.  The ~~carrying~~ fair value 
  5.25  must be based upon an appraisal made by an independent appraiser 
  5.26  and must be adjusted for additional expenses, such as insurance, 
  5.27  taxes, and legal fees that have been imposed to protect the 
  5.28  investment or to obtain clear title to the property to the 
  5.29  extent these amounts are expected to be recoverable from the 
  5.30  disposition of the property. 
  5.31     (b) The insurer shall ~~take a charge against its surplus for~~ 
  5.32  record as a direct write-down the difference between 
  5.33  the ~~carrying~~ fair value and the amortized acquisition cost of 
  5.34  its mortgage loans in the process of foreclosure. 
  5.35     Subd. 7.  [REAL ESTATE OWNED.] (a) The insurer shall make 
  5.36  an evaluation of the appropriate ~~carrying~~ fair value of real 
  6.1   estate owned.  The ~~carrying~~ fair value must be based upon an 
  6.2   appraisal made by an independent appraiser and must be adjusted 
  6.3   for additional expenses, such as insurance, taxes, and legal 
  6.4   fees that have been imposed to protect the investment or to 
  6.5   obtain clear title to the property to the extent these amounts 
  6.6   are expected to be recoverable from the disposition of the 
  6.7   property. 
  6.8      (b) The insurer shall ~~take a charge against its surplus for~~ 
  6.9   record as a direct write-down the difference between 
  6.10  the ~~carrying~~ fair value and the amortized acquisition cost of 
  6.11  real estate owned. 
  6.12     Sec. 7.  [60A.1285] [OTHER IMPAIRMENTS.] 
  6.13     If distressed or delinquent mortgage loans being valued 
  6.14  according to section 60A.123, subdivisions 3 and 4, are 
  6.15  determined to have an impairment that is other than temporary, a 
  6.16  direct write-down must be recognized as a realized loss, and a 
  6.17  new cost basis established. 
  6.18     Sec. 8.  Minnesota Statutes 1998, section 60A.129, 
  6.19  subdivision 3, is amended to read: 
  6.20     Subd. 3.  [ANNUAL AUDIT.] (a) Every insurance company doing 
  6.21  business in this state, including fraternal benefit societies, 
  6.22  reciprocal exchanges, service plan corporations licensed 
  6.23  pursuant to chapter 62C, and legal service plans licensed 
  6.24  pursuant to chapter 62G, unless exempted by the commissioner 
  6.25  pursuant to subdivision 5, paragraph (a), or by subdivision 7, 
  6.26  shall have an annual audit of the financial activities of the 
  6.27  most recently completed calendar year performed by an 
  6.28  independent certified public accountant, and shall file the 
  6.29  report of this audit with the commissioner on or before June 1 
  6.30  for the immediately preceding year ending December 31.  The 
  6.31  commissioner may require an insurer to file an audited financial 
  6.32  report earlier than June 1 with 90 days' advance notice to the 
  6.33  insurer. 
  6.34     Extensions of the June 1 filing date may be granted by the 
  6.35  commissioner for 30-day periods upon a showing by the insurer 
  6.36  and its independent certified public accountant of the reasons 
  7.1   for requesting the extension and a determination by the 
  7.2   commissioner of good cause for the extension.  
  7.3      The request for extension must be submitted in writing not 
  7.4   less than ten days before the due date in sufficient detail to 
  7.5   permit the commissioner to make an informed decision with 
  7.6   respect to the requested extension.  
  7.7      (b) Foreign and alien insurers filing audited financial 
  7.8   reports in another state under the other state's requirements of 
  7.9   audited financial reports which have been found by the 
  7.10  commissioner to be substantially similar to these requirements 
  7.11  are exempt from this subdivision if a copy of the audited 
  7.12  financial report, accountant's letter of qualifications, and 
  7.13  report on significant deficiencies in internal controls, which 
  7.14  are filed with the other state, are filed with the commissioner 
  7.15  in accordance with the filing dates specified in paragraphs (a) 
  7.16  and (l), (Canadian insurers may submit accountants' reports as 
  7.17  filed with the Canadian Dominion Department of Insurance); and a 
  7.18  copy of any notification of adverse financial condition report 
  7.19  filed with the other state is filed with the commissioner within 
  7.20  the time specified in paragraph (k).  This paragraph does not 
  7.21  prohibit or in any way limit the commissioner from ordering, 
  7.22  conducting, and performing examinations of insurers under the 
  7.23  authority of this chapter. 
  7.24     (c)(i) The annual audited financial report shall report, in 
  7.25  conformity with statutory accounting practices required or 
  7.26  permitted by the commissioner of insurance of the state of 
  7.27  domicile, the financial position of the insurer as of the end of 
  7.28  the most recent calendar year and the results of its operations, 
  7.29  cash flows, and changes in capital and surplus for the year 
  7.30  ended.  The annual audited financial report shall include a 
  7.31  report of an independent certified public accountant; a balance 
  7.32  sheet reporting admitted assets, liabilities, capital, and 
  7.33  surplus; a statement of operations; a statement of cash flows; a 
  7.34  statement of changes in capital and surplus; and notes to the 
  7.35  financial statements.  
  7.36     (ii) The notes required under item (i) shall be those 
  8.1   required by the appropriate National Association of Insurance 
  8.2   Commissioners annual statement instructions and ~~any other notes~~ 
  8.3   ~~required by generally accepted accounting principles~~ National 
  8.4   Association of Insurance Commissioners Accounting Practices and 
  8.5   Procedures Manual and shall include reconciliation of 
  8.6   differences, if any, between the audited statutory financial 
  8.7   statements and the annual statement filed under section 60A.13, 
  8.8   subdivision 1, with a written description of the nature of these 
  8.9   differences~~; and shall also include a summary of ownership and~~ 
  8.10  ~~relationships of the insurer and all affiliated companies~~.  
  8.11     (iii) The financial statements included in the audited 
  8.12  financial report shall be prepared in a form and using language 
  8.13  and groupings substantially the same as the relevant sections of 
  8.14  the annual statement of the insurer filed with the 
  8.15  commissioner.  The financial statement shall be comparative, 
  8.16  presenting the amounts as of December 31 of the current year and 
  8.17  the amounts as of the immediately preceding December 31.  In the 
  8.18  first year in which an insurer is required to file an audited 
  8.19  financial report, the comparative data may be omitted.  The 
  8.20  amounts may be rounded to the nearest $1,000, and all 
  8.21  insignificant amounts may be combined.  
  8.22     (d) Each insurer required by this section to file an annual 
  8.23  audited financial report must notify the commissioner in writing 
  8.24  of the name and address of the independent certified public 
  8.25  accountant or accounting firm retained to conduct the annual 
  8.26  audit within 60 days after becoming subject to the annual audit 
  8.27  requirement.  The insurer shall obtain from the accountant a 
  8.28  letter which states that the accountant is aware of the 
  8.29  provisions that relate to accounting and financial matters in 
  8.30  the insurance laws and the rules of the insurance regulatory 
  8.31  authority of the state of domicile.  The letter shall affirm 
  8.32  that the accountant will express an opinion on the financial 
  8.33  statements in terms of their conformity to the statutory 
  8.34  accounting practices prescribed or otherwise permitted by that 
  8.35  insurance regulatory authority, specifying the exceptions 
  8.36  believed to be appropriate.  A copy of the accountant's letter 
  9.1   shall be filed with the commissioner.  
  9.2      (e) If an accountant who was the accountant for the 
  9.3   immediately preceding filed audited financial report is 
  9.4   dismissed or resigns, the insurer shall notify the commissioner 
  9.5   of this event within five business days.  Within ten business 
  9.6   days of this notification, the insurer shall also furnish the 
  9.7   commissioner with a separate letter stating whether in the 24 
  9.8   months preceding this event there were any disagreements with 
  9.9   the former accountant on any matter of accounting principles or 
  9.10  practices, financial statement disclosure, or auditing scope or 
  9.11  procedure, which, if not resolved to the satisfaction of the 
  9.12  former accountant, would have caused that person to make 
  9.13  reference to the subject matter of the disagreement in 
  9.14  connection with the opinion.  The disagreements required to be 
  9.15  reported in response to this paragraph include both those 
  9.16  resolved to the former accountant's satisfaction and those not 
  9.17  resolved to the former accountant's satisfaction.  Disagreements 
  9.18  contemplated by this section are those disagreements between 
  9.19  personnel of the insurer responsible for presentation of its 
  9.20  financial statements and personnel of the accounting firm 
  9.21  responsible for rendering its report.  The insurer shall also in 
  9.22  writing request the former accountant to furnish a letter 
  9.23  addressed to the insurer stating whether the accountant agrees 
  9.24  with the statements contained in the insurer's letter and, if 
  9.25  not, stating the reasons for any disagreement.  The insurer 
  9.26  shall furnish this responsive letter from the former accountant 
  9.27  to the commissioner together with its own. 
  9.28     (f) The commissioner shall not recognize any person or firm 
  9.29  as a qualified independent certified public accountant that is 
  9.30  not in good standing with the American Institute of Certified 
  9.31  Public Accountants and in all states in which the accountant is 
  9.32  licensed to practice, or for a Canadian or British company, that 
  9.33  is not a chartered accountant.  Except as otherwise provided, an 
  9.34  independent certified public accountant shall be recognized as 
  9.35  qualified as long as the person conforms to the standards of the 
  9.36  person's profession, as contained in the Code of Professional 
 10.1   Ethics of the American Institute of Certified Public Accountants 
 10.2   and the rules of professional conduct of the Minnesota board of 
 10.3   public accountancy or similar code.  
 10.4      (g) No partner or other person responsible for rendering a 
 10.5   report for calendar year 1997 and thereafter may act in that 
 10.6   capacity for more than seven consecutive years.  Following any 
 10.7   period of service, the person shall be disqualified from acting 
 10.8   in that or a similar capacity for the same company or its 
 10.9   insurance subsidiaries or affiliates for a period of two years.  
 10.10  An insurer may make application to the commissioner for relief 
 10.11  from the above rotation requirement on the basis of unusual 
 10.12  circumstances.  The commissioner may consider the number of 
 10.13  partners, the expertise of the partners or the number of 
 10.14  insurance clients in the currently registered firm, the premium 
 10.15  volume of the insurer, or the number of jurisdictions in which 
 10.16  the insurer transacts business in determining if the relief 
 10.17  should be granted. 
 10.18     (h) The commissioner shall not recognize as a qualified 
 10.19  independent certified public accountant, nor accept any audited 
 10.20  financial report, prepared in whole or in part by any natural 
 10.21  person who has been convicted of fraud, bribery, a violation of 
 10.22  the Racketeer Influenced and Corrupt Organizations Act, United 
 10.23  States Code, title 18, sections 1961 to 1968, or any dishonest 
 10.24  conduct or practices under federal or state law, has been found 
 10.25  to have violated the insurance laws of this state with respect 
 10.26  to any previous reports submitted under this section, or has 
 10.27  demonstrated a pattern or practice of failing to detect or 
 10.28  disclose material information in previous reports filed under 
 10.29  the provisions of this section. 
 10.30     (i) The commissioner, after notice and hearing under 
 10.31  chapter 14, may find that the accountant is not qualified for 
 10.32  purposes of expressing an opinion on the financial statements in 
 10.33  the annual audited financial report.  The commissioner may 
 10.34  require the insurer to replace the accountant with another whose 
 10.35  relationship with the insurer is qualified within the meaning of 
 10.36  this section. 
 11.1      (j) Financial statements furnished under paragraph (a), 
 11.2   shall be examined by an independent certified public 
 11.3   accountant.  The examination of the insurer's financial 
 11.4   statements shall be conducted in accordance with generally 
 11.5   accepted auditing standards and consideration should be given to 
 11.6   other procedures illustrated in the Financial Condition 
 11.7   Examiners Handbook, issued by the National Association of 
 11.8   Insurance Commissioners, as the independent certified public 
 11.9   accountant considers necessary.  
 11.10     (k) The insurer required to furnish the annual audited 
 11.11  financial report shall require the independent certified public 
 11.12  accountant to provide written notice within five business days 
 11.13  to the board of directors of the insurer or its audit committee 
 11.14  of any determination by that independent certified public 
 11.15  accountant that the insurer has materially misstated its 
 11.16  financial condition as reported to the commissioner as of the 
 11.17  balance sheet date currently under examination or that the 
 11.18  insurer does not meet the minimum capital and surplus 
 11.19  requirement of section 60A.07 as of that date.  An insurer 
 11.20  required to file an annual audited financial report who received 
 11.21  a notification of adverse financial condition from the 
 11.22  accountant shall file a copy of the notification with the 
 11.23  commissioner within five business days of the receipt of the 
 11.24  notification.  The insurer shall provide the independent 
 11.25  certified public accountant making the notification with 
 11.26  evidence of the report being furnished to the commissioner.  If 
 11.27  the independent certified public accountant fails to receive the 
 11.28  evidence within the required five-day period, the independent 
 11.29  certified public accountant shall furnish to the commissioner a 
 11.30  copy of the notification to the board of directors or its audit 
 11.31  committee within the next five business days.  No independent 
 11.32  certified public accountant shall be liable in any manner to any 
 11.33  person for any statement made in connection with this paragraph 
 11.34  if the statement is made in good faith in compliance with this 
 11.35  paragraph.  If the accountant becomes aware of facts which might 
 11.36  have affected the audited financial report after the date it was 
 12.1   filed under this section, the accountant shall take the action 
 12.2   prescribed by Professional Standards issued by the American 
 12.3   Institute of Certified Public Accountants. 
 12.4      (l) In addition to the annual audited financial statements, 
 12.5   each insurer shall furnish the commissioner with a written 
 12.6   report prepared by the accountant describing significant 
 12.7   deficiencies in the insurer's internal control structure noted 
 12.8   by the accountant during the audit.  The accountant shall follow 
 12.9   the professional standards issued by the American Institute of 
 12.10  Certified Public Accountants, which require an accountant to 
 12.11  communicate significant deficiencies, known as reportable 
 12.12  conditions, noted during a financial statement audit, to the 
 12.13  appropriate parties within an entity.  No report shall be issued 
 12.14  if the accountant does not identify significant deficiencies.  
 12.15  Any such report by the accountant describing significant 
 12.16  deficiencies in the insurer's internal control structure, shall 
 12.17  be filed annually by the insurer with the commissioner within 60 
 12.18  days after the filing of the annual audited financial 
 12.19  statements.  This report on internal control shall be in the 
 12.20  form prescribed by generally accepted auditing standards.  The 
 12.21  insurer shall provide the commissioner with a description of 
 12.22  remedial actions taken or proposed to correct significant 
 12.23  deficiencies, if those actions are not described in the 
 12.24  accountant's report. 
 12.25     (m) The accountant shall furnish the insurer in connection 
 12.26  with, and for inclusion in, the filing of the annual audited 
 12.27  financial report, a letter stating that the accountant is 
 12.28  independent with respect to the insurer and conforms to the 
 12.29  standards of the accountant's profession as contained in the 
 12.30  Code of Professional Ethics of the American Institute of 
 12.31  Certified Public Accountants and the rules of professional 
 12.32  conduct of the Minnesota board of accountancy or similar code; 
 12.33  the background and experience in general, and the experience in 
 12.34  audits of insurers of the staff assigned to the engagement and 
 12.35  whether each is an independent certified public accountant; that 
 12.36  the accountant understands that the annual audited financial 
 13.1   report and the opinion thereon will be filed in compliance with 
 13.2   this statute and that the commissioner will be relying on this 
 13.3   information in the monitoring and regulation of the financial 
 13.4   position of insurers; that the accountant consents to the 
 13.5   requirements of paragraph (n) and that the accountant consents 
 13.6   and agrees to make available for review by the commissioner, or 
 13.7   the commissioner's designee or appointed agent, the workpapers, 
 13.8   as defined in paragraph (n); a representation that the 
 13.9   accountant is properly licensed by the appropriate state 
 13.10  licensing authority and is a member in good standing in the 
 13.11  American Institute of Certified Public Accountants; and, a 
 13.12  representation that the accountant complies with paragraph (f).  
 13.13  Nothing in this section shall be construed as prohibiting the 
 13.14  accountant from utilizing staff the accountant deems appropriate 
 13.15  where use is consistent with the standards prescribed by 
 13.16  generally accepted auditing standards. 
 13.17     (n) Workpapers are the records kept by the independent 
 13.18  certified public accountant of the procedures followed, tests 
 13.19  performed, information obtained, and conclusions reached 
 13.20  pertinent to the independent certified public accountant's 
 13.21  examination of the financial statements of an insurer.  
 13.22  Workpapers may include audit planning documents, work programs, 
 13.23  analyses, memoranda, letters of confirmation and representation, 
 13.24  management letters, abstracts of company documents, and 
 13.25  schedules or commentaries prepared or obtained by the 
 13.26  independent certified public accountant in the course of the 
 13.27  examination of the financial statements of an insurer and that 
 13.28  support the accountant's opinion.  Every insurer required to 
 13.29  file an audited financial report shall require the accountant, 
 13.30  through the insurer, to make available for review by the 
 13.31  examiners the workpapers prepared in the conduct of the 
 13.32  examination and any communications related to the audit between 
 13.33  the accountant and the insurer.  The workpapers shall be made 
 13.34  available at the offices of the insurer, at the offices of the 
 13.35  commissioner, or at any other reasonable place designated by the 
 13.36  commissioner.  The insurer shall require that the accountant 
 14.1   retain the audit workpapers and communications until the 
 14.2   commissioner has filed a report on examination covering the 
 14.3   period of the audit but no longer than seven years after the 
 14.4   period reported upon.  In the conduct of the periodic review by 
 14.5   the examiners, it shall be agreed that photocopies of pertinent 
 14.6   audit workpapers may be made and retained by the commissioner.  
 14.7   These copies shall be part of the commissioner's workpapers and 
 14.8   shall be given the same confidentiality as other examination 
 14.9   workpapers generated by the commissioner. 
 14.10     (o)(i) In the case of Canadian and British insurers, the 
 14.11  annual audited financial report means the annual statement of 
 14.12  total business on the form filed by these companies with their 
 14.13  domiciliary supervision authority and duly audited by an 
 14.14  independent chartered accountant. 
 14.15     (ii) For these insurers, the letter required in paragraph 
 14.16  (d), shall state that the accountant is aware of the 
 14.17  requirements relating to the annual audited statement filed with 
 14.18  the commissioner under paragraph (a), and shall affirm that the 
 14.19  opinion expressed is in conformity with those requirements. 
 14.20     (p) The audit report of the independent certified public 
 14.21  accountant that performs the audit of an insurer's annual 
 14.22  statement as required under paragraph (a), shall contain a 
 14.23  statement as to whether anything, in connection with the audit, 
 14.24  came to the accountant's attention that caused the accountant to 
 14.25  believe that the insurer failed to adopt and consistently apply 
 14.26  the valuation procedures as required by sections 60A.122 and 
 14.27  60A.123. 
 14.28     Sec. 9.  Minnesota Statutes 1998, section 60A.129, 
 14.29  subdivision 5, is amended to read: 
 14.30     Subd. 5.  [CONSOLIDATED FILING.] (a) The commissioner may 
 14.31  allow an insurer to file a consolidated loss reserve 
 14.32  certification required by subdivision 2, in lieu of separate 
 14.33  loss certifications and may allow an insurer to file 
 14.34  consolidated or combined audited financial statements required 
 14.35  by subdivision 3, paragraph (a), in lieu of separate annual 
 14.36  audited financial statements, where it can be demonstrated that 
 15.1   an insurer is part of a group of insurance companies that has a 
 15.2   pooling or 100 percent reinsurance agreement which substantially 
 15.3   affects the solvency and integrity of the reserves of the 
 15.4   insurer and the insurer cedes all of its direct and assumed 
 15.5   business to the pool.  Affiliated insurance companies not 
 15.6   meeting these requirements may not be included in the 
 15.7   consolidated or combined audited financial statements, unless 
 15.8   total admitted assets of the affiliates represent less than five 
 15.9   percent of the consolidated group's total admitted assets.  If 
 15.10  these circumstances exist, then the company may file a written 
 15.11  application to file a consolidated loss reserve certification 
 15.12  and/or consolidated or combined audited financial statements.  
 15.13  This application shall be for a specified period. 
 15.14     (b) A consolidated annual audit filing shall include a 
 15.15  columnar consolidated or combining worksheet.  Amounts shown on 
 15.16  the audited consolidated or combined financial statement shall 
 15.17  be shown on the worksheet.  Amounts for each insurer shall be 
 15.18  stated separately.  Noninsurance operations may be shown on the 
 15.19  worksheet on a combined or individual basis.  Explanations of 
 15.20  consolidating or eliminating entries shall be shown on the 
 15.21  worksheet.  A reconciliation of any differences between the 
 15.22  amounts shown in the individual insurer columns of the worksheet 
 15.23  and comparable amounts shown on the annual statement of the 
 15.24  insurers shall be included on the worksheet. 
 15.25     Sec. 10.  Minnesota Statutes 1998, section 66A.16, 
 15.26  subdivision 1, is amended to read: 
 15.27     Subdivision 1.  [MUTUAL FIRE INSURANCE COMPANIES.] A mutual 
 15.28  fire insurance company may be formed with, or an existing fire 
 15.29  insurance company may establish, a guaranty fund divided into 
 15.30  certificates of $10 each, or multiples thereof, and this 
 15.31  guaranty fund shall be invested in the same manner as is 
 15.32  provided for the investment of capital stock of insurance 
 15.33  companies.  The certificate holders of the guaranty fund shall 
 15.34  be entitled to an annual dividend of not more than ten percent 
 15.35  on their respective certificates, if the net profits or unused 
 15.36  premiums left after all losses, expenses, or liabilities then 
 16.1   incurred, with reserves for reinsurance, are provided for shall 
 16.2   be sufficient to pay the same; and, if the dividends in any one 
 16.3   year are less than ten percent, the difference may be made up in 
 16.4   any subsequent year or years from the net profits.  Approval of 
 16.5   the commissioner must be obtained before accrual for or payment 
 16.6   of the dividend, or any repayment of principal.  
 16.7      The guaranty fund shall be applied to the payment of losses 
 16.8   and expenses when necessary and, if the guaranty fund be 
 16.9   impaired, the directors may make good the whole or any part of 
 16.10  the impairment from future profits of the company, but no 
 16.11  dividend shall be paid on guaranty fund certificates while the 
 16.12  guaranty fund is impaired. 
 16.13     The holder of the guaranty fund certificate shall not be 
 16.14  liable for any more than the amount of the certificate which has 
 16.15  not been paid in and this amount shall be plainly and legibly 
 16.16  stated on the face of the certificate. 
 16.17     Each certificate holder of record shall be entitled to one 
 16.18  vote in person or by proxy in any meeting of the members of the 
 16.19  company for each $10 investment in guaranty fund certificates.  
 16.20  The guaranty fund may be reduced or retired by vote of the 
 16.21  policyholders of the company and the assent of the commissioner, 
 16.22  if the net assets of the company above its reinsurance reserve 
 16.23  and all other claims and obligations and the amount of its 
 16.24  guaranty fund certificates and interest thereon for two years 
 16.25  last preceding and including the date of its last annual 
 16.26  statement shall not be less than 50 percent of the premiums in 
 16.27  force. 
 16.28     Due notice of this proposed action on the part of the 
 16.29  company shall be mailed to each policyholder of the company not 
 16.30  less than 30 days before the meeting when the action may be 
 16.31  taken. 
 16.32     In mutual fire insurance companies with a guaranty fund, 
 16.33  the certificate holders shall be entitled to choose and elect 
 16.34  from among their own number or from among the policyholders at 
 16.35  least one-half of the total number of directors. 
 16.36     If any mutual fire insurance company with a guaranty fund 
 17.1   ceases to do business, it shall not divide among its certificate 
 17.2   holders any part of its assets or guaranty fund until all its 
 17.3   debts and obligations have been paid or canceled. 
 17.4      Foreign mutual fire insurance companies having a guaranty 
 17.5   fund shall not be required to make their certificate of guaranty 
 17.6   fund conform to the provisions of this section, but when the 
 17.7   certificates do not conform therewith the amount thereof shall 
 17.8   be charged as a liability. 
 17.9      Sec. 11.  Minnesota Statutes 1998, section 66A.16, 
 17.10  subdivision 2, is amended to read: 
 17.11     Subd. 2.  [MUTUAL CASUALTY COMPANIES.] Any mutual insurance 
 17.12  company which establishes and maintains, over and above its 
 17.13  liabilities and the reserves required by law of a like stock 
 17.14  insurance company, a guaranty fund available for the payment of 
 17.15  losses and expenses at least equal to the capital stock required 
 17.16  of a like stock insurance company may issue policies of 
 17.17  insurance without contingent liability, and when the articles of 
 17.18  incorporation of any mutual insurance company having this 
 17.19  guaranty fund provide, the company may transact any and all of 
 17.20  the kinds of business as set forth in section 60A.06, 
 17.21  subdivision 1, clauses (1) to (15) subject to the restrictions 
 17.22  and limitations imposed by law on a like stock insurance 
 17.23  company, and any domestic mutual company having a guaranty fund 
 17.24  equal to the amount of capital stock required of a like stock 
 17.25  insurance company may insure the same kinds of property and 
 17.26  conduct and carry on its business, subject only to the 
 17.27  restrictions and limitations applicable to like domestic stock 
 17.28  insurance companies. 
 17.29     Subdivision 1 shall not apply to this guaranty fund except 
 17.30  that the guaranty fund of the company shall be invested in the 
 17.31  same manner as is provided by law for the investment of its 
 17.32  other funds.  Every such company shall in its annual statement 
 17.33  show as separate items the amount of the guaranty fund and the 
 17.34  remaining divisible surplus, and the aggregate of these items 
 17.35  shall be shown as surplus to policyholders. 
 17.36     A guaranty fund may be created, in whole or in part, in 
 18.1   either or both of the following ways: 
 18.2      (1) Where an existing mutual company has a surplus, the 
 18.3   members of the company may at any regular or special meeting set 
 18.4   aside from and out of its surplus such sum as shall be fixed by 
 18.5   resolution to be transferred to and thereafter constitute, in 
 18.6   whole or in part, the guaranty fund of the company; or 
 18.7      (2) By the issuance of guaranty fund certificates, as 
 18.8   specified in this subdivision, the same to be issued upon the 
 18.9   conditions and subject to the rights and obligations specified 
 18.10  in this subdivision. 
 18.11     Any such company establishing a guaranty fund, as provided 
 18.12  in this subdivision, may, subject to the restrictions and 
 18.13  limitations imposed by law as to a like stock insurance company, 
 18.14  amend its articles to provide for the doing by it of one or more 
 18.15  of the kinds of insurance business specified in section 60A.06, 
 18.16  subdivision 1, clauses (1) to (15). 
 18.17     The policy liability of any such mutual company issuing 
 18.18  policies without a contingent liability shall, as to these 
 18.19  policies, be computed upon the same basis as is applicable to 
 18.20  like policies issued by stock insurance companies.  Where any 
 18.21  such company shall issue five-year term policies, wherein the 
 18.22  premiums shall be payable in annual or biennial installments and 
 18.23  no premium note is taken by the company as payment of the full 
 18.24  term premium, the company then shall be required to maintain a 
 18.25  reserve fund on only the portion of premiums actually collected 
 18.26  from time to time under these term policies and no company so 
 18.27  creating a guaranty fund shall issue policies without a 
 18.28  contingent liability after the guaranty fund shall be impaired 
 18.29  or reduced below the capital required of a like stock insurance 
 18.30  company doing the same kind or kinds of insurance.  Any company 
 18.31  having a guaranty fund may insure, without a contingent 
 18.32  liability, any kind or class of property which a like stock 
 18.33  company may insure. 
 18.34     Any director, officer, or member of any mutual insurance 
 18.35  company, or any other person, may advance to the company any sum 
 18.36  of money necessary for the purposes of its business or to enable 
 19.1   it to comply with any of the requirements of the law, including 
 19.2   the creation, in whole or in part, of a guaranty fund to enable 
 19.3   it to do one or more of the kinds of business specified in this 
 19.4   subdivision, and for the creation by a company issuing policies 
 19.5   with a contingent liability of a guaranty fund, in such amount 
 19.6   as the board of directors shall determine, for the protection of 
 19.7   policyholders of the company, and the moneys, together with the 
 19.8   interest thereon as may have been agreed upon, not exceeding ten 
 19.9   percent per annum, shall be repaid only out of the surplus 
 19.10  remaining after providing for all reserves, if any, and other 
 19.11  liability, and which shall not otherwise be a liability or claim 
 19.12  against the company or any of its assets. No commission or 
 19.13  promotion expenses shall be paid in connection with the advance 
 19.14  of any money to the company, and the amount of the advance 
 19.15  remaining unpaid shall be reported in each annual statement. 
 19.16     The company shall issue to each person advancing money for 
 19.17  the creation of a guaranty fund a certificate or certificates 
 19.18  specifying the amount advanced.  These certificates may be 
 19.19  assigned by the holder and the transfer recorded upon the books 
 19.20  of the company.  The holders of the guaranty fund certificates 
 19.21  shall be entitled to annual interest thereon at the rate agreed 
 19.22  upon, if the net profits of the company, after all losses, 
 19.23  expenses, liabilities, and legal reserves, if any, have been 
 19.24  paid or provided for, are sufficient to pay the same.  If the 
 19.25  net profits of the company in any year are insufficient to pay 
 19.26  the full amount of interest agreed upon, the difference may be 
 19.27  paid in any subsequent year from the net profits of the 
 19.28  subsequent years, if approval of the commissioner is obtained 
 19.29  before accrual for or payment of the interest. 
 19.30     The guaranty fund shall be applied to the payment of losses 
 19.31  and expenses when necessary and, if the guaranty fund be 
 19.32  impaired, the directors may make good the whole or any part of 
 19.33  the impairment from future net profits of the company or by the 
 19.34  issue and sale of additional guaranty fund certificates, but no 
 19.35  interest shall be paid on the guaranty fund certificates while 
 19.36  the guaranty fund is impaired.  No certificate shall be issued 
 20.1   except for money actually paid to the company, which amount 
 20.2   shall be plainly and legibly stated therein.  The company shall 
 20.3   issue certificates only in sums of $10, or multiples thereof; it 
 20.4   shall keep a record of the name and address of the person to 
 20.5   whom issued and of all assignments thereof.  Upon surrender of a 
 20.6   certificate duly assigned in writing, the company shall cancel 
 20.7   the same and issue a new certificate to the assignee. 
 20.8      Each certificate holder of record shall be entitled to one 
 20.9   vote in person or by proxy at any meeting of the members of the 
 20.10  company, for each $10 investment in the guaranty fund 
 20.11  certificates. 
 20.12     The guaranty fund may be reduced or retired by vote of the 
 20.13  board of directors of the company and the assent of the 
 20.14  commissioner, if the net assets of the company, above its legal 
 20.15  reserves, if any, and all other claims and obligations are 
 20.16  sufficient therefor.  The certificate holders shall be entitled 
 20.17  to choose and elect from among their own members or from among 
 20.18  the policyholders at least one-half of the total number of 
 20.19  directors. 
 20.20     In case the members of any company by resolution adopted at 
 20.21  any regular meeting or special meeting called for that purpose 
 20.22  shall determine to wind up and liquidate the business of any 
 20.23  such company, the assets thereof shall be applied (1) to the 
 20.24  payment of the expense of the liquidation; (2) to the payment of 
 20.25  any accrued liability, including losses, if any; (3) to the 
 20.26  payment of any unearned premiums on policies in force at the 
 20.27  time of the liquidation; (4) to the payment of guaranty fund 
 20.28  certificates, if any, together with accrued interest thereon, if 
 20.29  any; and (5) the residue shall be distributed according to the 
 20.30  provisions of chapter 60B. 
 20.31     Sec. 12.  [REPEALER.] 
 20.32     Minnesota Statutes 1998, sections 60A.12, subdivisions 1, 
 20.33  3, 4, 7, 8, and 9; 60A.125, subdivision 3; and 60A.128, are 
 20.34  repealed.