5647163 Insurance, Securities and Banking, Department of - Notice of Final Rulemaking - Insurance Holding Company System Act Rulemaking
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DISTRICT OF COLUMBIA
DEPARTMENT OF INSURANCE, SECURITIES, AND BANKING
NOTICE OF FINAL RULEMAKING
The Commissioner of the Department of Insurance, Securities and Banking, pursuant to the authority set forth in Section 10 of the Holding Company System Act of 1993, effective October 21, 1993 (D.C. Law 10-44; D.C. Official Code § 31-701 (2013 Repl.)), and Section 4(a) of the Department of Insurance and Securities Regulation Establishment Act of 1996, effective March 21, 1997 (D.C. Law 11-268; D.C. Official Code § 31-103(a)(1) (2013 Repl.)), hereby gives notice of the adoption of the following amendments to Chapter 16 (Insurance Holding Company System Regulations), of Title 26 (Insurance, Securities, and Banking), Subtitle A (Insurance), of the District of Columbia Municipal Regulations (DCMR).
The purpose of these rules is to implement the recent amendments to the Holding Company System Act of 1993 relating to the supervision and reporting of the enterprise risks of controlling persons of insurers, to enhance the disclosures in company management agreements, and to make other conforming amendments.
The proposed rulemaking was published on July 24, 2015, at 62 DCR 10054. Two comments were received by insurance industry associations expressing general support for the proposed rulemaking. There have been no changes to the final rulemaking. The rules were adopted as final on September 4, 2015, and will be effective upon publication in the D.C. Register.
Chapter 16, INSURANCE HOLDING COMPANY SYSTEM REGULATIONS, of Title 26-A DCMR, INSURANCE, is amended as follows:
Section 1602, FORMS – GENERAL REQUIREMENTS, is amended as follows:
Subsection 1602.1 is amended by striking “Forms A, B, C, and D,” and inserting “Forms A, B, C, D, E and F”.
Subsection 1602.2 is amended by striking the second full sentence beginning with “A copy of Form C shall be filed . . . .” and “manually” in the third full sentence, so that the subsection reads as follows:
1602.2 Two complete copies of each statement including exhibits and all other papers and documents filed as a part thereof, shall be filed with Commissioner by personal delivery or mail addressed to: Department of Insurance, Securities and Banking, 810 First Street, N.E., Suite 701, Washington, D.C. 20002. At least one of the copies shall be signed in a manner prescribed on the form. Unsigned copies shall be conformed. If the signature of any person is affixed pursuant to a power of attorney or other similar authority, a copy of such power of attorney or other authority shall also be filed with the statement.
A new Subsection 1602.2a is added to read as follows:
1602.2a If an applicant requests a hearing on a consolidated basis under Section 4(g)(3A) of the Act, in addition to filing the Form A with the commissioner, the applicant shall file a copy of Form A with the National Association of Insurance Commissioners (NAIC) in electronic form.
The first two sentences of Subsection 1602.3 are amended so that the subsection reads as follows:
1602.3 Statements should be prepared electronically. Statements shall be easily readable and suitable for review and reproduction. All copies of any statement, financial statements, or exhibits shall be clear, easily readable and suitable for photocopying. Debits in credit categories and credits in debit categories shall be designated so as to be clearly distinguishable as such on photocopies. Statements shall be in the English language and monetary values shall be stated in U.S. currency. If any exhibit or other paper or document filed with the statement is in a foreign language, it shall be accompanied by a translation into the English language and any monetary value shown in a foreign currency normally shall be converted into United States currency.
Section 1603, FORMS – INCORPORATION BY REREENCE, SUMMARIES AND OMISSION, is amended as follows:
Subsection 1603.1 is amended by striking “Form A, Form B or Form D” in the first and second sentences and inserting “Form A, Form B, Form D, Form E or Form F”, and by striking “or paper” in the second full sentence, so that the subsection reads as follows:
1603.1 Information required by any item of Form A, Form B, Form D, Form E or Form F may be incorporated by reference in answer or partial answer to any other item. Information contained in any financial statement, annual report, proxy statement filed with a governmental authority, or any other document may be incorporated by reference in answer or partial answer to any item of Form A, Form B, Form D, Form E or Form F, provided such document is filed as an exhibit to the statement. Excerpts of documents may be filed as exhibits if the documents are extensive. Documents currently on file with the Commissioner which were filed within three years need not be attached as exhibits. References to information contained in exhibits or in documents already on file shall clearly identify the material and shall specifically indicate that such material is to be incorporated by reference in answer to the item. Matter shall not be incorporated by reference in any case where such incorporation would render the statement incomplete, unclear or confusing.
Section 1604, FORMS – INFORMATION UNKNOWN OR UNAVAILABLE AND EXTENSION OF TIME TO FURNISH, is amended as follows:
Subsection 1604.1 is REPEALED.
Subsection 1604.2 is amended by striking “may” in the lead-in language and inserting “shall”, so that the subsection reads as follows:
1604.2 If it is impractical to furnish any required information, document or report at the time it is required to be filed, there shall be filed with the Commissioner as a separate document
(a) identifying the information, document or report in question;
(b) stating why the filing thereof at the time required is impractical; and
(c) requesting an extension of time for filing the information, document or report to specified date. The request for extension shall be deemed granted unless the Commissioner within (60) days after receipt thereof enters an order denying the request.
Section 1606, ADDITIONAL INFORMATION AND EXHIBITS, is amended by striking “Form A, Form B or Form D” in the first and last sentences and inserting “Form A, Form B, Form D, Form E or Form F”.
Section 1609, ACQUISITION OF SECTION 4(b) INSURERS, is amended to read as follows:
1609 ACQUISITION OF SECTION 4(b)(4) INSURERS; PRE-ACQUISITION NOTIFICATION
1609 Acquisition of Section 4(b)(4) Insurers
1609.1 If the person being acquired is deemed to be a “domestic insurer” solely because of the provisions of Section 4(b)(4) of the Act, the name of the domestic insurer on the cover page should be indicated as follows:
“ABC Insurance Company, a subsidiary of XYZ Holding Company”.
1609.2 Where a Section 4(b)(4) insurer is being acquired, references to the “the insurer” contained in Form A shall refer to both the domestic subsidiary insurer and the person being acquired.
1609a. Pre-Acquisition Notification
1609a.1 If a domestic insurer, including any person controlling a domestic insurer, is proposing a merger or acquisition pursuant to Section 4(b)(1) of the Act, that person shall file a pre-acquisition notification form, Form E, which was developed pursuant to Section 5(c)(2) of the Act.
1609a.2 If a non-domiciliary insurer licensed to do business in this state is proposing a merger or acquisition pursuant to section 5 of the Act, that person shall file a pre-acquisition notification form, Form E. No pre‑acquisition notification form need be filed if the acquisition is beyond the scope of Section 5 as set forth in Section 5(b)(2).
1609a.3 In addition to the information required by Form E, the Commissioner may wish to require an expert opinion as to the competitive impact of the proposed acquisition.
Section 1611, SUMMARY REGISTRATION – STATEMENT FILING, Subsection 1611.1 is amended by striking the last full sentence, so that the subsection reads as follows:
1611.1 An insurer required to file an annual registration statement pursuant to Section 6 of the Act shall also furnish the required information on Form C, hereby made a part of these regulations.
Section 1615, TRANSACTIONS SUBJECT TO PRIOR NOTICE – NOTICE FILING, is amended by adding a new Subsection 1615.2 to read as follows:
1615.2 Agreements for cost sharing services and management services shall at a minimum and as applicable:
(a) Identify the person providing services and the nature of such services;
(b) Set forth the methods to allocate costs;
(c) Require timely settlement, not less frequently than on a quarterly basis, and compliance with the requirements in the Accounting Practices and Procedures Manual;
(d) Prohibit advancement of funds by the insurer to the affiliate except to pay for services defined in the agreement;
(e) State that the insurer will maintain oversight for functions provided to the insurer by the affiliate and that the insurer will monitor services annually for quality assurance;
(f) Define books and records of the insurer to include all books and records developed or maintained under or related to the agreement;
(g) Specify that all books and records of the insurer are and remain the property of the insurer and are subject to control of the insurer;
(h) State that all funds and invested assets of the insurer are the exclusive property of the insurer, held for the benefit of the insurer and are subject to the control of the insurer;
(i) Include standards for termination of the agreement with and without cause;
(j) Include provisions for indemnification of the insurer in the event of gross negligence or willful misconduct on the part of the affiliate providing the services;
(k) Specify that, if the insurer is placed in receivership or seized by the commissioner under the State Receivership Act:
(1) all of the rights of the insurer under the agreement extend to the receiver or commissioner; and,
(2) all books and records will immediately be made available to the receiver or the commissioner, and shall be turned over to the receiver or commissioner immediately upon the receiver or the commissioner’s request;
(l) Specify that the affiliate has no automatic right to terminate the agreement if the insurer is placed in receivership pursuant to the State Receivership Act; and
(m) Specify that the affiliate will continue to maintain any systems, programs, or other infrastructure notwithstanding a seizure by the commissioner under the State Receivership Act, and will make them available to the receiver, for so long as the affiliate continues to receive timely payment for services rendered.
A new Section 1618 is added to read as follows:
1618 ENTERPRISE RISK REPORT
1618.1 The ultimate controlling person of an insurer required to file an enterprise risk report pursuant to section 5(k-1) of the Act shall furnish the required information on Form F, hereby made a part of these regulations.
Section 1699, DEFINITIONS, APPENDIX 16-1, FORM A, is amended as follows:
ITEM 2(c), IDENTITY AND BACKGROUND OF THE APPLICANT, is amended by striking the second full sentence beginning with “No affiliate need be . . . .”, so that the paragraph reads as follows:
(c) Furnish a chart or listing clearly presenting the identities of the inter-relationships among the applicant and all affiliates of the applicant. Indicate in such chart or listing the percentage of voting securities of each such person is maintained other than by the ownership or control voting securities, indicate the basis of such control. As to each person specified in such chart or listing indicate the type of organization (e.g. corporation, trust, partnership) and the state or other jurisdiction of domicile. If court proceedings involving a reorganization or liquidation are pending with respect to any such person, indicate which person, set forth the title of the court, nature of proceedings and the date when commenced.
The lead-in language to ITEM 3, IDENTITY AND BACKGROUND OF INDIVIDUALS ASSOCIATED WITH THE APPLICANT, is amended by striking “State” and inserting “On the biographical affidavit, include a third party background check, and state”, so that the paragraph reads as follows:
On the biographical affidavit, include a third party background check, and state the following with respect to (1) the applicant if (s)he is an individual or (2) all persons who are directors, executive officers or owners of 10% or more of the voting securities of the applicant if the applicant is not an individual.
ITEM 12(a), FINANCIAL STATEMENTS AND EXHIBITS, is amended by inserting “, and three-year financial projections of the insurer(s)” between “exhibits” and “shall”, so that the paragraph reads as follows:
(a) Financial statements and exhibits and three-year financial projections of the insurer(s) shall be attached to this statement as an appendix, but list under this item the financial statements and exhibits so attached.
A new ITEM 13a is added, to read as follows:
ITEM 13a. AGREEMENT REQUIREMENTS FOR ENTERPRISE RISK MANAGEMENT
Applicant agrees to provide, to the best of its knowledge and belief, the information required by Form F within fifteen (15) days after the end of the month in which the acquisition of control occurs.
APPENDIX 16-2, FORM B, is amended as follows:
ITEM 2, ORGANIZATIONAL CHART, is amended by striking the second full sentence beginning with “No affiliate need be . . . .”, so that the paragraph reads as follows:
Furnish a chart or listing clearly presenting the identities of any interrelationships among all affiliated persons within the insurance holding company system. The chart or listing should show the percentage of each class of voting securities of each affiliate which is owned, directly or indirectly, by another affiliate. If control of any person within the system is maintained other than by the ownership or control of voting securities, indicate the basis of such control. As to each person specified in such chart or listing indicate the type of organization (e.g., - corporation, trust, partnership) and the state or other jurisdiction of domicile.
ITEM 4, BIOGRAPHICAL INFORMATION, is amended to read as follows:
If the ultimate controlling person is a corporation, an organization, a limited liability company, or other legal entity, furnish the following information for the directors and executive officers of the ultimate controlling person: the individual’s name and address, his or her principal occupation and all offices and positions held during the past five (5) years, and any conviction of crimes other than minor traffic violations. If the ultimate controlling person is an individual, furnish the individual's name and address, his or her principal occupation and all offices and positions held during the past five (5) years, and any conviction of crimes other than minor traffic violations.
ITEM 8(b), FINANCIAL STATEMENTS AND EXHIBITS, is amended to read as follows:
(b) If the ultimate controlling person is a corporation, an organization, a limited liability company, or other legal entity, the financial statements shall include the annual financial statements of the ultimate controlling person in the insurance holding company system as of the end of the person’s latest fiscal year.
If at the time of the initial registration, the annual financial statements for the latest fiscal year are not available, annual statements for the previous fiscal year may be filed and similar financial information shall be filed for any subsequent period to the extent such information is available. Such financial statements may be prepared on either an individual basis; or, unless the Commissioner otherwise requires, on a consolidated basis if consolidated statements are prepared in the usual course of business.
Other than with respect to the foregoing, such financial statement shall be filed in a standard form and format adopted by the National Association of Insurance Commissioners, unless an alternative form is accepted by the Commissioner. Documentation and financial statements filed with the Securities and Exchange Commission or audited GAAP financial statements shall be deemed to be an appropriate form and format.
Unless the Commissioner otherwise permits, the annual financial statements shall be accompanied by the certificate of an independent public accountant to the effect that the statements present fairly the financial position of the ultimate controlling person and the results of its operations for the year then ended, in conformity with generally accepted accounting principles or with requirements of insurance or other accounting principles prescribed or permitted under law. If the ultimate controlling person is an insurer which is actively engaged in the business of insurance, the annual financial statements need not be certified, provided they are based on the Annual Statement of the insurer’s domiciliary state and are in accordance with requirements of insurance or other accounting principles prescribed or permitted under the law and regulations of that state.
Any ultimate controlling person who is an individual may file personal financial statements that are reviewed rather than audited by an independent public accountant. The review shall be conducted in accordance with standards for review of personal financial statements published in the Personal Financial Statements Guide by the American Institute of Certified Public Accountants. Personal financial statements shall be accompanied by the independent public accountants’ Standard Review Report stating that the accountant is not aware of any material modifications that should be made to the financial statements in order for the statements to be in conformity with generally accepted accounting principles.
ITEM 9, FORM C REQUIRED, is amended as follows:
A FORM C, Summary of Changes to Registration Statement, must be prepared and filed with this Form B.
APPENDIX 16-3, FORM C, is amended as follows:
The title of the form in APPENDIX 16-3, FORM C, is amended as SUMMARY OF CHANGES TO REGISTRATION STATEMENT.
APPENDIX 16-4, FORM D, is amended as follows:
ITEM 2, DESCRIPTION OF THE TRANSACTION, is amended by striking 2(c) and inserting the following:
(c) A statement of how the transaction meets the ‘fair and reasonable’ standard in § 7(a)(1)(a) of the Act; and
(d) The proposed effective date of the transaction.
ITEM 5, REINSURANCE, is amended to read as follows:
If the transaction is a reinsurance agreement or modification thereto, as described by Section 7(a)(2)(c)(ii) of the Act, or a reinsurance pooling agreement or modification thereto as described by Section 7(a)(2)(c)(i) of the Act, furnish a description of the known and/or estimated amount of liability to be ceded and/or assumed in each calendar year, the period of time during which the agreement will be in effect, and a statement whether an agreement or understanding exists between the insurer and non-affiliate to the effect that any portion of the assets constituting the consideration for the agreement will be transferred to one or more of the insurer’s affiliates. Furnish a brief description of the consideration involved in the transaction, and a brief statement as to the effect of the transaction upon the insurer’s surplus.
No notice need be given for reinsurance agreements or modifications thereto if the reinsurance premium or a change in the insurer’s liabilities, or the projected reinsurance premium or change in the insurer’s liabilities in any of the next three years, in connection with the reinsurance agreement or modification thereto is less than five percent (5%) of the insurer’s surplus as regards policyholders, as of the 31st day of December next preceding. Notice shall be given for all reinsurance pooling agreements including modifications thereto.
ITEM 6, MANAGEMENT AGREEMENTS, SERVICE AGREEMENTS AND COST-SHARING ARRANGEMENTS, is amended by striking the period at the end of ITEM (d) and inserting a semi-colon and adding the following:
(e) A brief statement as to the effect of the transaction upon the insurer’s policyholder surplus;
(f) A statement regarding the cost allocation methods that specifies whether proposed charges are based on “cost or market.” If market based, rationale for using market instead of cost, including justification for the company’s determination that amounts are fair and reasonable; and
(g) A statement regarding compliance with the NAIC Accounting Practices and Procedure Manual regarding expense allocation.
A new APPENDIX 16-5, FORM E, is added to read as follows:
[To be used pursuant to the provision of Sec. 1609a.]
FORM E
PRE-ACQUISITION NOTIFICATION FORM REGARDING THE POTENTIAL COMPETITIVE IMPACT OF A PROPOSED MERGER OR ACQUISITION BY A
NON-DOMICILIARY INSURER DOING BUSINESS IN THIS STATE OR BY A DOMESTIC INSURER
___________________________________
Name of Applicant
___________________________________
Name of Other Person
Involved in Merger or
Acquisition
Filed with the Insurance Department of
______________________________________________________________________________
Dated:__________________________, 20 _______________
Name, title, address and telephone number of person completing this statement:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
ITEM 1. NAME AND ADDRESS
State the names and addresses of the persons who hereby provide notice of their involvement in a pending acquisition or change in corporate control.
ITEM 2. NAME AND ADDRESSES OF AFFILIATED COMPANIES
State the names and addresses of the persons affiliated with those listed in Item 1. Describe their affiliations.
ITEM 3. NATURE AND PURPOSE OF THE PROPOSED MERGER OR ACQUISITION
State the nature and purpose of the proposed merger or acquisition.
ITEM 4. NATURE OF BUSINESS
State the nature of the business performed by each of the persons identified in response to Item 1 and Item 2.
ITEM 5. MARKET AND MARKET SHARE
State specifically what market and market share in each relevant insurance market the persons identified in Item 1 and Item 2 currently enjoy in this state. Provide historical market and market share data for each person identified in Item 1 and Item 2 for the past five years and identify the source of such data. Provide a determination as to whether the proposed acquisition or merger, if consummated, would violate the competitive standards of the state as stated in Section 3.1D of the Act. If the proposed acquisition or merger would violate competitive standards, provide justification of why the acquisition or merger would not substantially lessen competition or create a monopoly in the state.
For purposes of this question, 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.
A new APPENDIX 16-6, FORM F, is added to read as follows:
[To be used pursuant to the provision of Sec. 1615a.]
FORM F
ENTERPRISE RISK REPORT
Filed with the Insurance Department of the State of______________________
By
____________________________________
Name of Registrant/Applicant
On Behalf of/Related to Following Insurance Companies
Name Address
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Date:____________________, 20_____
Name, Title, Address and telephone number of Individual to Whom Notices and Correspondence Concerning This Statement Should Be Addressed:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
ITEM 1. ENTERPRISE RISK
The Registrant/Applicant, to the best of its knowledge and belief, shall provide information regarding the following areas that could produce enterprise risk as defined in Section 2 of the Act, provided such information is not disclosed in the Insurance Holding Company System Annual Registration Statement filed on behalf of itself or another insurer for which it is the ultimate controlling person:
· Any material developments regarding strategy, internal audit findings, compliance or risk management affecting the insurance holding company system;
· Acquisition or disposal of insurance entities and reallocating of existing financial or insurance entities within the insurance holding company system;
· Any changes of shareholders of the insurance holding company system exceeding ten percent (10%) or more of voting securities;
· Developments in various investigations, regulatory activities or litigation that may have a significant bearing or impact on the insurance holding company system;
· Business plan of the insurance holding company system and summarized strategies for next 12 months;
· Identification of material concerns of the insurance holding company system raised by supervisory college, if any, in last year;
· Identification of insurance holding company system capital resources and material distribution patterns;
· Identification of any negative movement, or discussions with rating agencies which may have caused, or may cause, potential negative movement in the credit ratings and individual insurer financial strength ratings assessment of the insurance holding company system (including both the rating score and outlook);
· Information on corporate or parental guarantees throughout the holding company and the expected source of liquidity should such guarantees be called upon; and
· Identification of any material activity or development of the insurance holding company system that, in the opinion of senior management, could adversely affect the insurance holding company system.
The Registrant/Applicant may attach the appropriate form most recently filed with the U.S. Securities and Exchange Commission, provided the Registrant/Applicant includes specific references to those areas listed in Item 1 for which the form provides responsive information. If the Registrant/Applicant is not domiciled in the U.S., it may attach its most recent public audited financial statement filed in its country of domicile, provided the Registrant/Applicant includes specific references to those areas listed in Item 1 for which the financial statement provides responsive information.
ITEM 2. OBLIGATION TO REPORT.
If the Registrant/Applicant has not disclosed any information pursuant to Item 1, the Registrant/Applicant shall include a statement affirming that, to the best of its knowledge and belief, it has not identified enterprise risk subject to disclosure pursuant to Item 1.
