PRIOR PRINTER'S NOS. 1967, 3225 PRINTER'S NO. 4196
No. 1670 Session of 1991
INTRODUCED BY JOSEPHS, FREIND, MURPHY, TANGRETTI, MAIALE,
VAN HORNE, MICHLOVIC, CARN, BUTKOVITZ, McNALLY, ULIANA,
GLADECK, LaGROTTA, VEON, MELIO, COLAIZZO, GANNON, GODSHALL,
WAMBACH, JAMES, DURHAM, VROON, DEMPSEY, BUSH, HECKLER,
BOWLEY, KUKOVICH, KOSINSKI, TRELLO, DeLUCA, STURLA,
RICHARDSON, PISTELLA AND HAYDEN, JUNE 12, 1991
AS RE-REPORTED FROM COMMITTEE ON APPROPRIATIONS, HOUSE OF
REPRESENTATIVES, AS AMENDED, NOVEMBER 17, 1992
AN ACT
1 Amending the act of May 17, 1921 (P.L.682, No.284), entitled "An
2 act relating to insurance; amending, revising, and
3 consolidating the law providing for the incorporation of
4 insurance companies, and the regulation, supervision, and
5 protection of home and foreign insurance companies, Lloyds
6 associations, reciprocal and inter-insurance exchanges, and
7 fire insurance rating bureaus, and the regulation and
8 supervision of insurance carried by such companies,
9 associations, and exchanges, including insurance carried by
10 the State Workmen's Insurance Fund; providing penalties; and
11 repealing existing laws," further providing for the purposes
12 of incorporation, for capital stock, surplus, investments and
13 other financial requirements, for reinsurance and for certain
14 annual reports; providing for business transacted with
15 broker-controlled property and casualty insurers and for
16 insurance holding companies; implementing the Risk Retention
17 Amendments of 1986; providing for regulation by the Insurance
18 Department of risk retention groups and purchasing groups
19 doing business in this Commonwealth; further providing for
20 the taxation of risk retention groups and purchasing groups;
21 providing for the regulation of the placing of insurance on
22 risks located in this Commonwealth with insurers not licensed
23 to transact insurance business in this Commonwealth;
24 providing for a life and health insurance guaranty
25 association; providing for certain fees and for civil and
26 criminal penalties; and making repeals.
27 The General Assembly of the Commonwealth of Pennsylvania
1 hereby enacts as follows:
2 Section 1. Section 202 of the act of May 17, 1921 (P.L.682,
3 No.284), known as The Insurance Company Law of 1921, is amended
4 by adding a subsection to read:
5 Section 202. Purposes for Which Companies May Be
6 Incorporated; Underwriting Powers.--* * *
7 (h) (1) No domestic stock fire, stock marine, stock fire
8 and marine, or stock casualty insurance company shall issue a
9 policy containing an aggregate limit on any one risk in an
10 amount exceeding ten per centum (10%) of its capital and
11 surplus, unless it shall be protected in excess of that amount
12 by reinsurance or collateral. This collateral may be in the form
13 of:
14 (i) Cash.
15 (ii) Securities listed by the Securities Valuation Office of
16 the National Association of Insurance Commissioners and
17 qualifying as admitted assets.
18 (iii) (A) Clean, irrevocable, unconditional letters of
19 credit and credit agreements issued or confirmed by a qualified
20 United States financial institution no later than the thirty-
21 first day of December in respect of the year for which filing is
22 being made, and in the possession of the insurance company on or
23 before the filing date of its annual statement.
24 (B) Letters of credit agreements meeting applicable
25 standards of issuer acceptability as of the dates of their
26 issuance or confirmation shall, notwithstanding the issuing or
27 confirming institution's subsequent failure to meet applicable
28 standards of issuer acceptability, continue to be acceptable as
29 collateral until their expiration, extension, renewal,
30 modification or amendment, whichever first occurs.
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1 (iv) Any other form of collateral acceptable to the
2 Insurance Commissioner.
3 (2) The term "qualified Untied States financial institution"
4 when used in this subsection means an institution which meets
5 the following qualifications:
6 (i) Is organized or, in the case of a United States office
7 of a foreign banking organization, licensed, under the laws of
8 the United States or any state thereof.
9 (ii) Is regulated, supervised and examined by United States
10 Federal or state authorities having regulatory authority over
11 banks and trust companies.
12 (iii) Has been determined by either the Insurance
13 Commissioner or the Securities Valuation Office of the National
14 Association of Insurance Commissioners to meet such standards of
15 financial condition and standing as are considered necessary and
16 appropriate to regulate the quality of financial institutions
17 whose letters of credit will be acceptable to the Insurance
18 Commissioner.
19 Section 2. Section 206(d) and (e) of the act, amended or
20 added July 2, 1953 (P.L.331, No.74), November 27, 1968
21 (P.L.1118, No.349), July 9, 1976 (P.L.948, No.184) and June 19,
22 1981 (P.L.94, No.33), are amended to read:
23 Section 206. Minimum Capital Stock and Financial
24 Requirements To Do Business.--* * *
25 (d) Companies organized under this act to insure lives on
26 the mutual plan must have applications for insurance, to the
27 amount of one million dollars ($1,000,000), by not less than
28 four hundred persons. Companies organized under this act to
29 insure lives on the mutual plan must also have a guarantee
30 capital, before commencing business, of not less than [five
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1 hundred thousand dollars ($500,000)] two million dollars
2 ($2,000,000), and shall maintain unimpaired a policyholders'
3 surplus of [two hundred fifty thousand dollars ($250,000)] one
4 million dollars ($1,000,000) out of guarantee capital, surplus,
5 or any combination thereof.
6 (e) Mutual companies, other than mutual life companies and
7 other than title insurance companies, [hereafter organized under
8 this act, and existing mutual companies which determine to add]
9 which seek a certificate of authority to transact a line or
10 lines of insurance business shall comply with the following
11 conditions:
12 (1) Each such company shall hold bona fide applications for
13 at least twenty (20) policies, to be issued promptly and
14 simultaneously to at least twenty (20) policyholders or members
15 upon not less than two hundred (200) separate risks, each within
16 the maximum single risk described herein, upon the granting of
17 the certificate of authority to do business.
18 (2) The "maximum single risk" shall not exceed three times
19 the average risk or one percentum (1%) of the total insurance
20 applied for, whichever is the greater.
21 (3) It shall have collected at least an annual cash premium
22 upon each of such applications, which premium shall be held in
23 cash [or securities in which such insurance companies are
24 authorized to invest.] in an interest-bearing account
25 established in the name of the insurance company at financial
26 institutions located in this Commonwealth. In the case of
27 companies organized for any of the purposes mentioned in
28 paragraphs (1) or (2) or (3) of subdivision (b) of section two
29 hundred two of this act, the [said cash premiums, together with
30 any] sum or sums of money [which may be] advanced under section
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1 eight hundred nine of this act, shall amount to not less than
2 twenty-five thousand dollars ($25,000) for the purpose mentioned
3 in each numbered paragraph of subdivision (b). If organized for
4 all of the purposes mentioned in paragraphs (1), (2) and (3) of
5 subdivision (b) of section two hundred two of this act, the
6 [said cash premiums, together with any] sum or sums of money
7 [which may be] advanced under section eight hundred nine of this
8 act, shall amount to not less than fifty thousand dollars
9 ($50,000). In the case of companies organized for any one of the
10 purposes mentioned in subdivision (c) of said section two
11 hundred two, except paragraphs (1), (4), (11) and (14), the
12 [said cash premiums collected, together with any] sum or sums of
13 money advanced under the said section eight hundred nine, shall
14 amount to not less than ten thousand dollars ($10,000) for the
15 purpose mentioned in each numbered paragraph of said subdivision
16 (c). In the case of companies authorized to issue non-assessable
17 policies of insurance for the purposes mentioned in clause (11)
18 or clause (14), subdivision (c) of section two hundred and two
19 (202) of the act, the [said cash premiums collected, together
20 with any] sum or sums of money advanced under the said section
21 eight hundred nine, shall amount to not less than seven hundred
22 fifty thousand dollars ($750,000). For the purpose mentioned in
23 either numbered paragraph (1) or (4) of said subdivision (c),
24 such amount shall be not less than twenty-five thousand dollars
25 ($25,000): Provided, That in no event shall a company be
26 organized for any of the purposes mentioned in said subdivision
27 (c) unless the [amount collected as premiums, together with the]
28 sum or sums of money advanced under said section eight hundred
29 nine, shall amount to not less than fifty thousand dollars
30 ($50,000); nor shall a company be organized for all of the
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1 purposes mentioned in said subdivision (c) except paragraph (11)
2 or (14) unless the [cash premiums so collected and the] sum or
3 sums of money so advanced shall amount to not less than three
4 hundred fifty thousand dollars ($350,000).
5 (4) In the case of companies hereafter organized [under this
6 act] for the purposes mentioned in subdivisions (b) and (c) of
7 section two hundred two of this act, each such company shall
8 meet the requirements of paragraphs (1) and (2) of subdivision
9 (e) of this section, and the required sum of [the cash premiums
10 collected and] money advanced under said section eight hundred
11 nine shall not be less than the aggregate of the sums required
12 under paragraph (3) of subdivision (e) of this section for the
13 purposes for which the company is to be incorporated.
14 (5) For the purpose of transacting employer's liability and
15 workmen's compensation insurance, the application shall cover
16 not less than five thousand (5,000) employes, each such employe
17 being considered a separate risk for determining the maximum
18 single risk.
19 (6) Each company writing non-assessable policies shall
20 maintain unimpaired so much of its surplus as is equal to the
21 minimum capital required for stock companies authorized to
22 transact the same class or classes of insurance; each company
23 writing assessable policies shall maintain unimpaired fifty per
24 centum (50%) of its required surplus.
25 * * *
26 Section 3. The act is amended by adding a section to read:
27 Section 206.2. Additional Capital and Surplus.--(a) In
28 addition to the minimum capital and surplus required for an
29 insurance company to qualify for authority to transact one or
30 more of the classes of insurance set out in section 202 of this
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1 act, the Insurance Commissioner shall have the authority to
2 require additional capital and surplus based upon the nature,
3 type and volume of insurance a company is transacting or
4 proposes to transact.
5 (b) Whenever the Insurance Commissioner believes, from
6 evidence satisfactory to him, that an insurance company has
7 failed to meet the capital and surplus required by this section,
8 the Insurance Commissioner may, in his discretion:
9 (1) disapprove an insurance company's request for a
10 certificate of authority, or amendment thereto; or
11 (2) otherwise restrict, as provided by law, a company's
12 authority to transact business within this Commonwealth.
13 Before the Insurance Commissioner shall take any action as above
14 set forth, he shall give written notice to the company stating
15 specifically the nature of the proposed action and within thirty
16 (30) days from the date of mailing of such notice to the
17 company, such company may make written application to the
18 Insurance Commissioner for a hearing thereon, and such hearing
19 shall be held within thirty (30) days after receipt of such
20 application.
21 Section 4. Section 319.1 of the act, added December 3, 1975
22 (P.L.474, No.139), is amended to read:
23 Section 319.1. Reinsurance Credits.--(a) Unless an
24 unlicensed reinsurer is qualified to accept reinsurance from
25 insurers licensed in this Commonwealth, no credit shall be
26 allowed as an admitted asset or as a reduction of liability
27 relative to risks ceded by such licensed insurers. Qualified
28 reinsurers are those meeting the conditions for reinsurers
29 specified by the commissioner, in his discretion, and included
30 on a list of qualified reinsurers published and periodically
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1 reviewed by said commissioner.
2 (b) A reduction from liability for the reinsurance ceded by
3 a domestic insurer to an assuming insurer which is not a
4 qualified reinsurer in accordance with this section shall be
5 allowed in an amount not exceeding the liabilities carried by
6 the ceding insurer and such reduction shall be in the amount of
7 funds held by or on behalf of the ceding insurer, including
8 funds held in trust for the ceding insurer, under a reinsurance
9 contract with such assuming insurer as security for the payment
10 of obligations thereunder, if such security is held in the
11 United States subject to withdrawal solely by, and under the
12 exclusive control of, the ceding insurer; or, in the case of a
13 trust, held in a qualified United States financial institution,
14 as defined in subsection (g)(2). This security may be in the
15 form of:
16 (1) Cash.
17 (2) Securities listed by a securities valuation office of a
18 national association of insurance commissioners, or any
19 successor thereto, and qualifying as admitted assets.
20 (3) (i) Clean, irrevocable, unconditional and evergreen
21 letters of credit issued or confirmed by a qualified United
22 States financial institution, as defined in subsection (g)(1),
23 no later than the thirty-first day of December in respect of the
24 year for which filing is being made, and in the possession of
25 the ceding company on or before the filing date of its annual
26 statement.
27 (ii) Letters of credit meeting applicable standards of
28 issuer acceptability as of the dates of their issuance or
29 confirmation shall, notwithstanding the issuing or confirming
30 institution's subsequent failure to meet applicable standards of
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1 issuer acceptability, continue to be acceptable as security
2 until their expiration, extension, renewal, modification or
3 amendment, whichever first occurs.
4 (4) Funds or letters of credit provided by a noninsurer
5 parent corporation of the ceding insurer, in lieu of the funds
6 to be withheld by the ceding insurer under a reinsurance
7 contract with such assuming insurer as security for payment of
8 obligations thereunder, if the following requirements are met:
9 (i) The funds or letters of credit are held subject to
10 withdrawal by, and under the control of, the ceding insurer.
11 (ii) The type, amount and form of the funds or letters of
12 credit receive the prior approval of the Insurance Commissioner.
13 (5) Any other form of security acceptable to the Insurance
14 Commissioner.
15 [(a) Reserve Credit for Liability Assumed.--] (c) No credit
16 shall be allowed as an admitted asset or as a deduction from
17 liability, to any ceding company for reinsurance unless the
18 reinsurance is payable to such company or its statutory
19 liquidator by the assuming company on the basis of the liability
20 of the ceding company under contract or contracts reinsured
21 without diminution because of insolvency of the ceding company.
22 [(b) Payment by the Assuming Company.--] (d) No such credit
23 shall be allowed for reinsurance unless the reinsurance
24 agreement provides that payment by the company shall be made
25 directly to the ceding company or to its liquidator, receiver,
26 or statutory successor.
27 (e) No credit shall be allowed as an admitted asset or as a
28 reduction in liability if the gross reserves established by the
29 ceding insurer do not include provision for the policy benefits
30 against which the ceding insurer is being indemnified by the
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1 reinsurer.
2 (f) Notwithstanding the provisions of this section, the
3 Insurance Department may promulgate one or more regulations to
4 limit, prohibit or authorize the credit which a domestic insurer
5 may take as an admitted asset or as a reduction in liability
6 with respect to reinsurance ceded on any financial statements
7 filed with the Insurance Department.
8 (g) (1) The term "qualified United States financial
9 institution" when used in this section means an institution
10 which meets the following qualifications:
11 (i) Is organized or, in the case of a United States office
12 of a foreign banking organization, licensed, under the laws of
13 the United States or any state thereof.
14 (ii) Is regulated, supervised and examined by United States
15 Federal or state authorities having regulatory authority over
16 banks and trust companies.
17 (iii) Has been determined by either the Insurance
18 Commissioner or the Securities Valuation Office of the National
19 Association of Insurance Commissioners or a successor thereto to
20 meet such standards of financial condition and standing as are
21 considered necessary and appropriate to regulate the quality of
22 financial institutions whose letters of credit will be
23 acceptable to the Insurance Commissioner.
24 (2) The term "qualified United States financial institution"
25 also means, for the purposes of the provisions of this act
26 specifying those institutions that are eligible to act as a
27 fiduciary of a trust, an institution that meets the following
28 qualifications:
29 (i) Is organized or, in the case of a United States branch
30 or agency office of a foreign banking organization, licensed,
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1 under the laws of the United States or any state thereof and has
2 been granted authority to operate with fiduciary powers.
3 (ii) Is regulated, supervised and examined by Federal or
4 state authorities having regulatory authority over banks and
5 trust companies.
6 Section 5. Section 320 of the act, amended June 20, 1947
7 (P.L.683, No.295), is amended to read:
8 Section 320. Annual and Other Reports; Penalties.--(a)
9 Every stock and mutual insurance company, association, and
10 exchange, doing business in this Commonwealth, shall annually,
11 on or before the first day of March, file in the office of the
12 Insurance Commissioner and with the National Association of
13 Insurance Commissioners a statement which shall exhibit its
14 financial condition on the thirty-first day of December of the
15 previous year, and its business of that year and shall, within
16 thirty days after requested by the Insurance Commissioner,
17 [render] file with the Insurance Commissioner and with the
18 National Association of Insurance Commissioners such additional
19 statement or statements concerning its affairs and financial
20 condition as the Insurance Commissioner may, in his discretion,
21 require. The Insurance Commissioner shall [furnish to each of
22 the insurance companies, associations, and exchanges blanks, in
23 such form as he may adopt, for their statement] require each
24 insurance company, association, and exchange to report its
25 financial condition on the annual statement convention blanks,
26 in such form as adopted by the National Association of Insurance
27 Commissioners and shall, upon written request, furnish such
28 blanks for their convenience; and [he] may make such changes,
29 from time to time, in the form of the same as shall seem [to
30 him] best adapted to elicit from them a true exhibit of their
19910H1670B4196 - 11 -
1 financial condition.
2 (b) Insurance companies of foreign governments, doing
3 business in this Commonwealth, shall be required to return only
4 the business done in the United States, and the assets held by
5 and for them within the United States for the protection of
6 policyholders therein.
7 (c) In the absence of actual malice, members of the National
8 Association of Insurance Commissioners, their duly authorized
9 committees, subcommittees, and task forces, their delegates and
10 employes, and all others charged with the responsibility of
11 collecting, reviewing, analyzing and disseminating the
12 information developed from the filing of the annual statement
13 convention blanks shall be acting as agents of the Insurance
14 Commissioner under the authority of this act and shall not be
15 subject to civil liability for libel, slander or any other cause
16 of action by virtue of their collection, review, and analysis or
17 dissemination of the data and information collected from the
18 filings required hereunder.
19 (d) All financial analysis ratios and examination synopses
20 concerning insurance companies that are submitted to the
21 Insurance Department by the National Association of Insurance
22 Commissioners' Insurance Regulatory Information System are
23 confidential and may not be disclosed by the Insurance
24 Department.
25 (e) (1) Any company, association, or exchange, which
26 neglects to make and file its annual statement, or other
27 statements that may be required, in the form or within the time
28 herein provided shall forfeit a sum not to exceed [one hundred
29 dollars ($100)] two hundred dollars ($200) for each day during
30 which such neglect continues, and, upon notice by the
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1 commissioner, its authority to do new business shall cease while
2 such default continues.
3 (2) For wilfully making a false annual or other statement
4 required by law, an insurance company, association or exchange,
5 and the persons making oath to or subscribing the same, shall
6 severally be punished by a fine of not less than [five hundred
7 dollars ($500) nor more than five thousand dollars ($5,000)] one
8 thousand dollars ($1,000) nor more than ten thousand dollars
9 ($10,000). A person who wilfully makes oath to such false
10 statement shall be guilty of perjury.
11 (3) The Insurance Commissioner may suspend, revoke or refuse
12 to renew the certificate of authority of any insurer failing to
13 file its annual statement when due.
14 Section 6. Section 322(d) of the act, amended October 4,
15 1978 (P.L.1009, No.216), is amended to read:
16 Section 322. Amendment of Charter.--* * *
17 (d) A mutual insurance company, other than life or title,
18 shall be permitted to amend its charter to include any or all of
19 the kinds of insurance included in section 202, subdivisions (b)
20 and (c), if its total assets less net liability for losses, for
21 expenses and for unearned premium reserve [for those premiums
22 received on nonassessable policies] are not less than the
23 minimum [premiums] surplus specified in section 206 (e) for the
24 incorporation of new companies, without the necessity of
25 obtaining or of holding any application or of issuing any policy
26 as specified in section 206 (e) for the incorporation of new
27 companies.
28 * * *
29 Section 7. The act is amended by adding a section to read:
30 Section 322.1. Contributions to Surplus.--(a) Any director,
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1 officer, person, corporation or other entity may advance to a
2 domestic stock insurance company or mutual life insurance
3 company, in exchange for a surplus note, any sum or sums of
4 money necessary for the purpose of its business or to enable it
5 to comply with any of the requirements of law. If, as a result
6 of such advance, the director, officer, person, corporation or
7 other entity is presumed to secure control, as that term is
8 defined in Article XII of this act, the advance can only be made
9 after the director, officer, person, corporation or other entity
10 provides a filing to the Insurance Commissioner in accordance
11 with the provisions of Article XII of this act.
12 (b) The surplus note and interest thereon shall not be a
13 liability or claim against the company or any of its assets,
14 except as specified in this section. Payments of principal
15 and/or interest can only be made from the unassigned surplus of
16 the insurer and must be subordinated to payment of all other
17 liabilities of the insurer. If unassigned surplus is
18 insufficient and the insurer is unable to make payments of
19 principal and/or interest in a given year, the interest earned
20 for that year will be forfeited and cannot be paid in subsequent
21 years unless the insurer establishes unpaid interest as a
22 liability in each annual and quarterly statement filed with the
23 Insurance Commissioner.
24 (c) No commissions, promotion expenses or finders fees shall
25 be paid in connection with the advance of such money to the
26 company.
27 (d) Such company shall, prior to any transaction, provide
28 the Insurance Commissioner with such evidence as he may, by
29 regulation, prescribe concerning the receipt of any such advance
30 or the making of any payments, whether of principal or interest,
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1 on account thereof.
2 Section 8. Sections 337.6 and 337.7 of the act are repealed.
3 Section 9. The act is amended by adding a section to read:
4 Section 357. Redomestication.--(a) Any insurer which is
5 organized under the laws of any other state and is admitted to
6 do business in this Commonwealth for the purpose of writing
7 insurance may become a domestic insurer by complying with all of
8 the requirements of law relative to the organization and
9 licensing of a domestic insurer of the same type and by
10 designating its principal place of business at a place in this
11 Commonwealth. Said domestic insurer will be entitled to a like
12 certificate of authority to transact business in this
13 Commonwealth, and shall be subject to the authority and
14 jurisdiction of this Commonwealth.
15 (b) Any domestic insurer may, upon the approval of the
16 Insurance Commissioner transfer its domicile to any other state
17 in which it is admitted to transact the business of insurance,
18 and upon such a transfer shall cease to be a domestic insurer,
19 and shall be admitted to this Commonwealth if qualified as a
20 foreign insurer. The Insurance Commissioner shall approve any
21 such proposed transfer unless he shall determine such transfer
22 is not in the interest of all the policyholders.
23 (c) The certificate of authority, agents appointments and
24 licenses, rates and other items which the Insurance Commissioner
25 allows, in his discretion, which are in existence at the time
26 any insurer licensed to transact the business of insurance in
27 this Commonwealth transfers its corporate domicile to this or
28 any other state by merger, consolidation or any other lawful
29 method shall continue in full force and effect upon such
30 transfer if such insurer remains duly qualified to transact the
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1 business of insurance in this Commonwealth. All outstanding
2 policies of any transferring insurer shall remain in full force
3 and effect and need not be endorsed as to the new name of the
4 company or its new location unless so ordered by the Insurance
5 Commissioner. Every transferring insurer shall file new policy
6 forms with the Insurance Commissioner on or before the effective
7 date of the transfer, but may use existing policy forms with
8 appropriate endorsements if allowed by, and under such
9 conditions as approved by the Insurance Commissioner. However,
10 every such transferring insurer shall notify the Insurance
11 Commissioner of the details of the proposed transfer, and shall
12 file promptly, any resulting amendments to corporate documents
13 filed or required to be filed with the Insurance Commissioner.
14 Section 10. Sections 404.1, 404.2(10) and (17) and 406(f) of
15 the act, amended or added June 11, 1986 (P.L.226, No.64), are
16 amended to read:
17 Section 404.1. Investment Regulations.--(a) Any domestic
18 company may invest its funds as provided in this act and not
19 otherwise. Notwithstanding the provisions of this act, the
20 Insurance Commissioner may, after notice and hearing, order a
21 domestic company to limit or withdraw from certain investments,
22 or discontinue certain investment practices, to the extent that
23 the commissioner finds that such investments or investment
24 practices endanger the solvency of the company. The investments
25 of a foreign company shall be as permitted by the investment
26 laws of its state of domicile if such laws are substantially
27 similar to that provided by this act.
28 (b) No investment or loan (except loans on life policies) or
29 an investment practice shall be made or engaged in by any
30 domestic company unless the same has been authorized or ratified
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1 by the board of directors or by a committee thereof charged with
2 the duty of supervising investments and loans. No such company
3 shall subscribe to or participate in any underwriting of the
4 purchase or sale of securities or property or enter into any
5 agreement to withhold from sale any of its property, but the
6 disposition of its property shall be at all times within the
7 control of the board of directors. Any agreement or contract
8 providing for the lawful disposition of property, wherein such
9 disposition may be determined at the option of a third person at
10 some specified future price or condition or specified time or
11 upon demand, shall be construed to be within the control of the
12 board of directors. Nothing contained in this section shall
13 prevent the board of directors of any such company from
14 depositing any of its securities with a committee appointed for
15 the purpose of protecting the interest of security holders or
16 with authorities of any state or country where it is necessary
17 to do so in order to secure permission to transact its
18 appropriate business therein; and nothing contained in this
19 section shall prevent the board of directors of such company
20 from depositing securities as collateral for the securing of any
21 bond required for the business of the company.
22 (c) Any domestic company subject to the provisions of this
23 act is required to have a formal investment plan which shall be
24 updated on an annual basis as authorized by the board of
25 directors. The investment plan shall include, at a minimum, a
26 description of the investment strategy of the company designed
27 to provide for liquidity and diversity of the investment
28 portfolio. The investment plan, and such other information as
29 the Insurance Department may require in order to determine the
30 impact of the investment plan on the solvency of the company,
19910H1670B4196 - 17 -
1 shall be made available to the Insurance Department during the
2 course of a financial condition examination conducted in
3 accordance with the laws pertaining to the conduct of
4 examinations.
5 Section 404.2. Investment.--Subject to the provisions of
6 sections 405.2 and 406.1, the assets of any life insurance
7 company organized under the laws of this Commonwealth shall be
8 invested in the following classes of investment, provided the
9 value of which, as determined for annual statement purposes, but
10 in no event in excess of cost, shall not exceed the specified
11 percentage of such company's assets as of the thirty-first day
12 of December next preceding the date of investment:
13 * * *
14 (10) Equity interests:
15 (i) Investments (other than investments provided for in
16 section 406, clauses (11) and (13) of this section 404.2 and
17 investments in subsidiaries as provided for in section 405.2(c))
18 in common stocks, limited partnership interests, trust
19 certificates (except equipment trust certificates described in
20 clause (5)) or other equity interests (other than preferred
21 stocks) of corporations, joint-stock associations, business
22 trusts, business partnerships and business joint ventures
23 incorporated, organized or existing under the laws of the United
24 States, or of any state, district or territory thereof.
25 (ii) Stocks or shares of any regulated investment company
26 which is registered as an investment company under the Federal
27 Investment Company Act of 1940 (54 Stat 789, 15 U.S.C. §§ 80a-1
28 to 80a-52, 107), as, from time to time, amended, and which has
29 no preferred stock, bonds, loans or any other outstanding
30 securities having preference or priority as to the assets or
19910H1670B4196 - 18 -
1 earnings over its common stock at the date of purchase.
2 (iii) Investments under this clause shall not exceed twenty-
3 five per centum (25%) of such company's admitted assets, and no
4 investment in any single corporation or entity contemplated by
5 this clause shall exceed five per centum (5%) of such company's
6 admitted assets.
7 (iv) Limited partnership interests under this clause shall
8 not exceed ten per centum (10%) of the company's admitted assets
9 in the aggregate. A company may not invest more than ten per
10 centum (10%) of its capital and surplus in any one such limited
11 partnership.
12 * * *
13 (17) (i) Investments shall be valued in accordance with the
14 published valuation standards of the National Association of
15 Insurance Commissioners. Securities investments as to which the
16 National Association of Insurance Commissioners has not
17 published valuation standards in its valuation of securities
18 manual or its successor publication shall be valued as follows:
19 (A) Any investment by any insurer that is not valued by
20 Standards published by the National Association of Insurance
21 Commissioners shall, at the time of acquisition, be submitted to
22 the National Association of Insurance Commissioners for
23 evaluation.
24 (B) Other securities investments shall be valued in
25 accordance with regulations promulgated by the Insurance
26 Commissioner pursuant to subclause (iv) of this clause.
27 (ii) Other investments, including real property, shall be
28 valued in accordance with regulations promulgated by the
29 Insurance Commissioner pursuant to subclause (iv) of this
30 clause, but in no event shall such other investments be valued
19910H1670B4196 - 19 -
1 at more than their purchase price. Purchase price for real
2 property includes capitalized permanent improvements, less
3 depreciation spread evenly over the life of the property or, at
4 the option of the company, less depreciation computed on any
5 basis permitted under the Internal Revenue Code of 1954 (68A
6 Stat. 3, 26 U.S.C. § 1 et seq.) and regulations thereunder. Such
7 investments that have been affected by [permanent declines] an
8 impairment, other than a temporary decline, in value shall be
9 valued at not more than their market value.
10 (iii) Any investment, including real property, not purchased
11 by a company but acquired in satisfaction of a debt or
12 otherwise, shall be valued in accordance with the [applicable
13 procedures for that type of investment contained in this
14 section. For purposes of applying the valuation procedures, the
15 purchase price shall be deemed to be the market value at the
16 time the investment is acquired or, in the case of any
17 investment acquired in satisfaction of debt, the amount of the
18 debt (including interest, taxes and expenses), whichever amount
19 is less.] accounting procedures and practices developed by the
20 National Association of Insurance Commissioners as required by
21 the law relating to the filing of annual financial statement
22 blanks.
23 (iv) The Insurance Commissioner may promulgate rules and
24 regulations for determining and calculating values to be used in
25 financial statements submitted to the Insurance Department for
26 investments not subject to published National Association of
27 Insurance Commissioners' valuation standards.
28 Section 406. Real Estate Which May Be Purchased, Held or
29 Conveyed.--Subject to the provisions of section four hundred
30 six, point one, it shall be lawful for any life insurance
19910H1670B4196 - 20 -
1 company, organized under the laws of this Commonwealth, directly
2 or indirectly, alone or together with one or more persons or
3 entities, to purchase, receive, hold and convey, real estate or
4 any interest therein:
5 * * *
6 (f) Purchased, leased or owned for residential, business,
7 commercial or industrial use, or for development, improvement,
8 maintenance or construction and maintenance. [Provided that
9 investments] The aggregate cost of investments in unimproved
10 real estate under this subsection (f) shall not, however, exceed
11 the lesser of ten per centum (10%) of the company's admitted
12 assets or forty-five per centum (45%) of its capital and
13 surplus. Investments under this subsection (f), including
14 investments in limited partnership interests or other entities
15 where said entities are engaged primarily in holding real estate
16 or interests therein under this subsection and corporations
17 which are engaged primarily in holding real estate or interests
18 therein as defined in this subsection and the majority of whose
19 voting securities are owned directly or indirectly through one
20 or more intermediaries, shall not exceed twenty-five per centum
21 (25%) of such company's admitted assets.
22 Section 11. Section 419 of the act, amended July 28, 1959
23 (P.L.580, No.189), is amended to read:
24 Section 419. Certain Companies Heretofore Organized May Come
25 within Provisions of Act.--Every company incorporated or
26 reincorporated under the act of April twenty-eighth, one
27 thousand nine hundred and three (Pamphlet Laws, three hundred
28 twenty-nine), entitled "An act to provide for the incorporation
29 and regulation of corporations for the purpose of making
30 insurance upon the health of individuals, and against personal
19910H1670B4196 - 21 -
1 injury and disablement and death therein; limiting the amount
2 for which such corporations may issue policies, and providing
3 the manner in which certain existing corporations may become
4 reincorporated under this act," or under the act of April
5 twentieth, one thousand nine hundred twenty-seven (Pamphlet
6 Laws, three hundred seventeen), entitled "An act authorizing
7 certain existing beneficial or protective societies, heretofore
8 incorporated, to reincorporate for the purpose of making
9 insurance upon the health of individuals and against personal
10 injury and disablement and death; regulating such corporations
11 and limiting the amount for which corporations may issue
12 policies; and imposing a tax on gross premiums of companies
13 reincorporated under the provisions of this act," or under the
14 act of June twenty-fourth, one thousand nine hundred thirty-nine
15 (Pamphlet Laws, six hundred eighty-six), entitled "An act
16 authorizing certain existing beneficial or protective societies,
17 heretofore incorporated, to reincorporate as limited life
18 insurance companies for the purpose of making insurance upon the
19 health of individuals and against personal injury and
20 disablement and death; regulating such corporations and limiting
21 the amount for which such corporations may issue policies," or
22 under any subsequent act, authorizing certain existing
23 incorporated beneficial or protective societies to
24 reincorporate, or to merge and reincorporate as limited life
25 insurance companies, or under the act of July 15, 1957 (P.L.
26 929), entitled "An act authorizing the incorporation of limited
27 life insurance companies for the purpose of issuing insurance
28 upon the health of individuals and against personal injury and
29 disablement and death, including endowment insurance; regulating
30 such companies and limiting the amounts for which such companies
19910H1670B4196 - 22 -
1 may issue policies," [having in the case of a stock company a
2 capital of not less than three hundred thousand dollars
3 ($300,000), and a surplus at least equal to fifty per centum of
4 the capital, or having, in the case of a mutual company,
5 insurance in force in an aggregate amount of not less than one
6 million dollars ($1,000,000), on not less than four hundred
7 persons and a surplus of not less than two hundred thousand
8 dollars ($200,000),] may, notwithstanding any limitation to the
9 contrary, established by any act of Assembly or by the
10 provisions of its charter, issue policies insuring the lives of
11 persons, and every insurance appertaining thereto, may grant and
12 dispose of annuities, and may insure against personal injury,
13 disablement or death resulting from traveling or general
14 accidents, and against disablement resulting from sickness, and
15 every insurance appertaining thereto, as specified in
16 subdivision (a) [clause one (1)] clauses one (1) and two (2) of
17 section two hundred and two (202) of this act[.], if such
18 company has and maintains the capital and surplus required of
19 stock and mutual insurers under sections 206 and 206.2 of this
20 act.
21 Section 12. Section 516 of the act is amended to read:
22 Section 516. Capital of Foreign Companies.--Stock fire,
23 stock marine, and stock fire and marine insurance companies, of
24 other States and foreign governments, to be licensed to do, in
25 this Commonwealth, any one of the classes of business mentioned
26 in section two hundred and two (202), subdivision (b) of this
27 act, must have a paid up and safely invested capital and
28 surplus, if a company of any other State, or a deposit in the
29 United States, if a company of a foreign government, of not less
30 than [two hundred thousand dollars ($200,000); and, if to do all
19910H1670B4196 - 23 -
1 of the classes of business mentioned in section two hundred and
2 two (202), subdivision (b) of this act, a paid up capital or
3 deposit of not less than four hundred thousand dollars
4 ($400,000)] that required of domestic insurers to be authorized
5 to transact the class or classes of business.
6 Section 13. Sections 518B, 518C(a)(7), 518D(b) and (c) and
7 519(e) of the act, amended or added December 22, 1989 (P.L.755,
8 No.106), are amended to read:
9 Section 518B. Investment Regulations.--(a) Any domestic
10 company may invest its funds in sound investments as provided in
11 this act and not otherwise. Notwithstanding the provisions of
12 this act, the Insurance Commissioner may, after notice and
13 hearing, order a domestic company to limit or withdraw from
14 certain investments, or discontinue certain investment
15 practices, to the extent that the Insurance Commissioner finds
16 that such investments or investment practices are unsound or may
17 endanger the solvency of the company. The investments of a
18 foreign company shall be as permitted by the investment laws of
19 its state of domicile if such laws are substantially similar to
20 that provided by this act. No investment or loan or an
21 investment practice shall be made or engaged in by any domestic
22 company unless the same has been authorized or ratified by the
23 board of directors or by a committee thereof charged with the
24 duty of supervising investments and loans. No such company shall
25 subscribe to or participate in any underwriting of the purchase
26 or sale of securities or property or enter into any agreement to
27 withhold from sale any of its property, but the disposition of
28 its property shall be at all times within the control of the
29 board of directors. Any agreement or contract providing for the
30 lawful disposition of property wherein such disposition may be
19910H1670B4196 - 24 -
1 determined at the option of a third person at some specified
2 future price or condition or specified time or upon demand shall
3 be construed to be within the control of the board of directors.
4 Nothing contained in this section shall prevent the board of
5 directors of any such company from depositing any of its
6 securities with a committee appointed for the purpose of
7 protecting the interest of security holders or with authorities
8 of any state or country where it is necessary to do so in order
9 to secure permission to transact its appropriate business
10 therein; and nothing contained in this section shall prevent the
11 board of directors of such company from depositing securities as
12 collateral for the securing of any bond required for the
13 business of the company.
14 (b) Any domestic company subject to the provisions of this
15 act is required to have a formal investment plan which shall be
16 updated on an annual basis as authorized by the board of
17 directors. The investment plan shall include, at a minimum, a
18 description of the investment strategy of the company designed
19 to provide for liquidity and diversity of the investment
20 portfolio. The investment plan, and such other information as
21 the Insurance Department may require in order to determine the
22 impact of the investment plan on the solvency of the company,
23 shall be made available to the Insurance Department during the
24 course of a financial condition examination conducted in
25 accordance with the laws pertaining to the conduct of
26 examinations.
27 Section 518C. Eligible Investments.--(a) Every domestic
28 stock fire, stock marine or stock fire and marine insurance
29 company shall invest and keep invested all its funds in sound
30 investments enumerated below, except such cash as may be
19910H1670B4196 - 25 -
1 required in the transaction of its business. Such investments
2 shall include:
3 * * *
4 (7) Tangible personal property or fixtures or interest
5 therein, however evidenced, as an investment for the production
6 of income. Investments under this subsection shall not exceed
7 fifteen per centum (15%) of the company's admitted assets.
8 * * *
9 Section 518D. Valuation of Investments.--* * *
10 (b) Other investments, including real property, shall be
11 valued in accordance with regulations promulgated by the
12 Insurance Commissioner pursuant to subsection (d) of this
13 section, but in no event shall such other investments be valued
14 at more than their purchase price. Purchase price for real
15 property includes capitalized permanent improvements, less
16 depreciation spread evenly over the life of the property or, at
17 the option of the company, less depreciation computed on any
18 basis permitted under the United States Internal Revenue Code of
19 1954 (68A Stat. 3, 26 U.S.C. § 1 et seq.) and regulations
20 thereunder. Such investments that have been affected by
21 [permanent declines] an impairment, other than a temporary
22 decline, in value shall be valued at not more than their market
23 value.
24 (c) Any investment, including real property, not purchased
25 by a company but acquired in satisfaction of a debt or otherwise
26 shall be valued in accordance with the [applicable procedures
27 for that type of investment contained in this section. For
28 purposes of applying the valuation procedures, the purchase
29 price shall be deemed to be the market value at the time the
30 investment is acquired or in the case of any investment acquired
19910H1670B4196 - 26 -
1 in satisfaction of debt, the amount of the debt, including
2 interest, taxes and expenses, whichever amount is less.]
3 accounting procedures and practices developed by the National
4 Association of Insurance Commissioners as required by the law
5 relating to the filing of annual financial statement blanks.
6 * * *
7 Section 519. Real Estate Which May Be Acquired, Held, and
8 Conveyed.--A domestic stock fire, stock marine, or stock fire
9 and marine insurance company may, directly or indirectly, alone
10 or in combination with one or more other persons or entities
11 (except that no domestic stock fire, stock marine, or stock fire
12 and marine insurance company may participate in a general
13 partnership), acquire by purchase, lease or otherwise or
14 receive, hold, or convey real estate, or any interest therein:
15 * * *
16 (e) As an investment for the production of income or capital
17 appreciation, or so acquired for development, improvement,
18 maintenance or construction and maintenance for such investment
19 purposes. Provided that the aggregate cost of investments in
20 unimproved real estate under this clause (e) shall not exceed
21 the lesser of ten per centum (10%) of the company's admitted
22 assets or forty-five per centum (45%) of its capital and
23 surplus.
24 Section 14. The act is amended by adding a section to read:
25 Section 519.1. Additional Investment Authority for
26 Subsidiaries.--(a) As used in this section the following words
27 and phrases shall have the meanings given to them in this
28 subsection:
29 "Insurance company" or "insurer" includes any company,
30 association or exchange authorized to conduct an insurance
19910H1670B4196 - 27 -
1 business in the jurisdiction of its domicile.
2 "NAIC" means the National Association of Insurance
3 Commissioners.
4 "Owner" or "holder" of securities of a specified person is
5 one who owns any security of such person, including common
6 stock, preferred stock, debt obligations and any other security
7 convertible into or evidencing the right to acquire any of the
8 foregoing.
9 "Person" is an individual, corporation, partnership,
10 association, joint-stock company, business trust, unincorporated
11 organization, any similar entity or any combination of the
12 foregoing acting in concert.
13 "Subsidiary" shall mean only a corporation in which another
14 person owns or holds, with the power to vote directly or through
15 one or more intermediaries, a majority of the outstanding voting
16 securities. A person whose business consists primarily of real
17 property and interests therein shall not be deemed a subsidiary
18 for the purposes of determining the volume limitations set forth
19 in clause (1) of subsection (c) of this section. A person which
20 is controlled by another person solely as a result of the
21 temporary assumption of control by the owner of securities upon
22 the happening of a prescribed event of default shall not be
23 deemed a subsidiary or affiliate for purposes of this section,
24 if such securities are disposed of within five (5) years from
25 the date of acquisition, unless such period is extended by the
26 Insurance Commissioner to enable the owner to dispose of such
27 securities in a reasonable and orderly manner.
28 "Voting security" means stock of any class or any ownership
29 interest having the power to elect the directors, trustees or
30 management of a person, other than securities having such power
19910H1670B4196 - 28 -
1 only by reason of the happening of a contingency.
2 (b) Any domestic stock fire, stock marine or stock fire and
3 marine insurance company, either by itself or in cooperation
4 with one or more persons, may, in addition to any authority to
5 acquire or hold securities in corporations provided for
6 elsewhere in this act, organize or acquire one or more
7 subsidiaries. Such subsidiaries may conduct any kind of business
8 or businesses, and their authority to do so shall not be limited
9 by reason of the fact that they are subsidiaries of a domestic
10 stock fire, stock marine or stock fire and marine insurance
11 company. No domestic stock fire, stock marine or stock fire and
12 marine insurance company shall be deemed to be authorized to
13 participate in or to form a general partnership with any other
14 person.
15 (c) (1) At no time shall a domestic stock fire, stock
16 marine or stock fire and marine insurance company make an
17 investment in any subsidiary which will bring the aggregate
18 value of its investments, as determined for annual statement
19 purposes but not in excess of cost, in all subsidiaries under
20 this subsection to an amount in excess of twenty-five per centum
21 (25%) of its total admitted assets as of the immediately
22 preceding thirty-first day of December. In determining the
23 amount of investments of any domestic stock fire, stock marine
24 or stock fire and marine insurance company in subsidiaries for
25 purposes of this subsection, there shall be included investments
26 made directly by such insurance company and, if such investment
27 is made by another subsidiary, then to the extent that funds for
28 such investments are provided by the insurance company for such
29 purpose.
30 (2) The limitations set forth in clause (1) of this
19910H1670B4196 - 29 -
1 subsection shall not apply to investments in any subsidiary
2 which is:
3 (i) An insurance company.
4 (ii) A holding company to the extent its business consists
5 of the holding of the stock of, or otherwise controlling, its
6 own subsidiaries.
7 (iii) A corporation whose business primarily consists of
8 direct or indirect ownership, operation or management of assets
9 authorized as investments pursuant to sections 518C and 519.
10 (iv) A company engaged in any combination of the activities
11 described in subclauses (i), (ii) and (iii) of this clause.
12 Investments made pursuant to subclause (i) shall not be
13 restricted in amount provided that after such investment, as
14 calculated for NAIC annual statement purposes, the insurer's
15 surplus will be reasonable in relation to the insurer's
16 outstanding liabilities and adequate to its financial needs.
17 Investments made pursuant to subclause (ii), or to the extent
18 applicable in this subclause, shall in addition not be subject
19 to any limitations on the amount of a domestic stock fire, stock
20 marine or stock fire and marine insurance company's assets
21 provided for under any other provision of this act and which
22 might otherwise be applicable: Provided, however, That such
23 stock fire, stock marine or stock fire and marine insurance
24 company's investments, to the extent that such stock fire, stock
25 marine or stock fire and marine insurance company provided the
26 funds therefor, in each of the subsidiaries of such holding
27 company shall be subject to the limitations, if any, applicable
28 to such investment as if the holding company's interest in each
29 such subsidiary were instead owned directly by the stock fire,
30 stock marine or stock fire and marine insurance company.
19910H1670B4196 - 30 -
1 Investments made pursuant to subclause (iii), or, to the extent
2 applicable, this subclause, shall be counted in determining the
3 limitations contained in applicable subsections of sections 518C
4 and 519: Provided, however, That the value as calculated for
5 annual statement purposes, but not in excess of the cost
6 thereof, of such investment shall include only funds provided by
7 the insurance company therefor. Investments made in other
8 subsidiaries of such stock fire, stock marine or stock fire and
9 marine insurance company by any subsidiary described in
10 subclauses (i), (ii), (iii) and this subclause or by a person
11 whose business primarily consists of direct or indirect
12 ownership, operation or management of real property and interest
13 therein under section 519 shall be deemed investments made by
14 the insurance company only to the extent the funds for such
15 investment were provided by such insurance company.
16 (d) No restrictions, prohibitions or limitations contained
17 in this act otherwise applicable to investments of domestic
18 stock fire, stock marine or stock fire and marine insurers shall
19 be applicable to investments in common stock, preferred stock,
20 debt obligations or other securities of subsidiaries made
21 pursuant to subsection (c) of this section; nor shall the
22 additional investment authority granted by said subsection (c)
23 have the effect of restricting, prohibiting or limiting the
24 rights of a domestic stock fire, stock marine or stock fire and
25 marine insurer to make investments permitted under any other
26 section of this act.
27 (e) Whether any investment made pursuant to subsection (c)
28 of this section meets, at any time thereafter, the applicable
29 requirements thereof is to be determined when such investment is
30 made, taking into account the then outstanding principal balance
19910H1670B4196 - 31 -
1 on all previous investments in debt obligations and the value,
2 but not in excess of the cost thereof, of all previous
3 investments in equity securities as calculated for annual
4 statement purposes. In calculating the amount of such
5 investments, there shall be included, as determined for NAIC
6 annual statement purposes:
7 (1) Total net moneys or other consideration expended and
8 obligations assumed in the acquisition or formation of a
9 subsidiary, including all organizational expenses and
10 contributions to capital and surplus of such subsidiary whether
11 or not represented by the purchase of capital stock or issuance
12 of other securities.
13 (2) All amounts expended by the domestic stock fire, stock
14 marine or stock fire and marine insurance company in acquiring
15 additional common stock, preferred stock, debt obligations, and
16 other securities and all contributions to the capital or
17 surplus, or a subsidiary subsequent to its acquisition or
18 formation.
19 (f) If a domestic stock fire, stock marine or stock fire and
20 marine insurer ceases to own, directly or indirectly through one
21 or more intermediaries, a majority of the voting securities of a
22 subsidiary held pursuant to subsection (c) of this section, it
23 shall dispose of any investment therein made pursuant to such
24 subsection within five (5) years from the time of the cessation
25 of control or within such further time as the commissioner may
26 prescribe, unless, at any time after such investment shall have
27 been made, such investment shall have met the requirements for
28 investment under any other section of this act.
29 Section 15. Section 601 of the act is amended to read:
30 Section 601. Financial Requirements of Foreign Companies.--
19910H1670B4196 - 32 -
1 Stock casualty insurance companies of other States and foreign
2 governments, organized to transact any of the classes of
3 insurance mentioned in subdivision (c), section two hundred and
4 two (202) of this act, in order to be licensed to do business in
5 this Commonwealth, must have a paid up and safely invested
6 capital and surplus, if a company of another State, or a deposit
7 in the United States, if a company of a foreign government, of
8 at least the amount required in this act for [Pennsylvania]
9 domestic companies. [Nothing contained in this act shall prevent
10 any foreign stock life insurance company now engaged in the
11 business of accident and sickness or liability insurance, or
12 both, from continuing the same, if the amount of its paid up
13 capital shall be equal to the amount required of a domestic
14 company to transact the business of life insurance, and at least
15 fifty thousand dollars for each of the other classes of
16 insurance undertaken.]
17 Section 16. The act is amended by adding a section to read:
18 Section 755. Investment Plan.--Any title insurance company
19 subject to the provisions of this act is required to have a
20 formal investment plan which shall be updated on an annual basis
21 as authorized by the board of directors. The investment plan
22 shall include, at a minimum, a description of the investment
23 strategy of the company designed to provide for liquidity and
24 diversity of the investment portfolio. The investment plan, and
25 such other information as the Insurance Department may require
26 in order to determine the impact of the investment plan on the
27 solvency of the company, shall be made available to the
28 Insurance Department during the course of a financial condition
29 examination conducted in accordance with the laws pertaining to
30 the conduct of examinations.
19910H1670B4196 - 33 -
1 Section 17. Section 1004(d) of the act, amended June 24,
2 1939 (P.L.683, No.318), is amended to read:
3 Section 1004. Declaration To Be Filed with Insurance
4 Commissioner; Contents.--Such subscribers, so contracting among
5 themselves, shall, through their attorney, file with the
6 Insurance Commissioner of this Commonwealth a declaration
7 verified by the oath of such attorney, setting forth:
8 * * *
9 (d) A copy of the form of power of attorney, or other
10 authority of such attorney, under which such insurance is to be
11 effected or exchanged, and which shall provide that the
12 liability of the subscribers, exchanging contracts of indemnity,
13 shall make provision for contingent liability, equal to not less
14 than one additional annual premium or deposit charged: Provided,
15 however, That where an exchange has a surplus equal to the
16 [minimum] capital and surplus required of a stock insurance
17 company transacting the same kind or kinds of business, its
18 power of attorney need not provide for such contingent liability
19 of subscribers, and such exchange, so long as it maintains such
20 surplus, may issue to its subscribers policies or contracts
21 without contingent liability.
22 * * *
23 Section 18. Article XI of the act is repealed.
24 Section 19. The act is amended by adding articles to read:
25 ARTICLE XI.
26 BROKER CONTROLLED PROPERTY AND CASUALTY INSURERS.
27 Section 1101. Definitions.--As used in this article the
28 following words and phrases shall have the meanings given to
29 them in this section:
30 "Broker." A person, copartnership or corporation, not an
19910H1670B4196 - 34 -
1 officer or agent of the company, association or exchange
2 interested, who or which, for compensation, acts or aids in any
3 manner in obtaining insurance for a person other than himself or
4 itself. An attorney-in-fact authorized by and acting for the
5 subscribers of a reciprocal insurer or inter-insurance exchange
6 under powers of attorney shall not be considered a broker for
7 the purposes of this article.
8 "Commissioner." The Insurance Commissioner of the
9 Commonwealth.
10 "Control," "controlled," and "controlling." These terms
11 shall have the meaning ascribed in section 1201.
12 "Department." The Insurance Department of the Commonwealth.
13 "Independent casualty actuary." A casualty actuary who is a
14 member in good standing of the American Academy of Actuaries and
15 who is not affiliated with, nor an employe, a principal, nor the
16 direct or indirect owner of, or in any way controlled by an
17 insurer or broker.
18 "Licensed property or casualty insurer" or "insurer." Any
19 person, firm, association or corporation duly licensed to
20 transact a property or casualty insurance business in this
21 Commonwealth. The following, inter alia, are not deemed to be
22 licensed property or casualty insurers for the purposes of this
23 article:
24 (1) All nonadmitted insurers.
25 (2) All risk retention groups as defined in the Superfund
26 Amendments and Reauthorization Act of 1986 (Public Law 99-499,
27 100 Stat. 1613) and Article XIII of this act.
28 (3) All residual market pools and joint underwriting
29 authorities or associations.
30 (4) All captive insurers, which shall include, but not be
19910H1670B4196 - 35 -
1 limited to, insurance companies owned by another organization
2 whose exclusive purpose is to insure risks of the parent
3 organization and affiliated companies or, in the case of groups
4 and associations, insurance organizations owned by the insureds
5 whose exclusive purpose is to insure risks of member
6 organizations or group members and their affiliates.
7 "Reinsurance intermediary." Any person, firm, association or
8 corporation which acts as a broker in soliciting, negotiating or
9 procuring the making of any reinsurance contract or binder on
10 behalf of a ceding insurer, or acts as a broker in accepting any
11 reinsurance contract or binder on behalf of an assuming insurer.
12 "Violation." A finding by the Insurance Department of any
13 one or more of the following:
14 (1) The controlling broker did not materially comply with
15 section 1102.
16 (2) The controlled insurer, with respect to business placed
17 by the controlling broker, engaged in a pattern of charging
18 premiums that were lower than those being charged by such
19 insurer or other insurers for similar risks written during the
20 same period and placed by noncontrolling brokers. When
21 determining whether premiums were lower than those prevailing in
22 the market, the Insurance Department shall take into
23 consideration applicable industry or actuarial standards at the
24 time the business was written.
25 (3) The controlling broker failed to maintain records
26 sufficient:
27 (i) to demonstrate that such broker's dealings with its
28 controlled insurer were fair and equitable and in compliance
29 with the provisions of Article XII; and
30 (ii) to accurately disclose the nature and details of its
19910H1670B4196 - 36 -
1 transactions with the controlled insurer, including such
2 information as is necessary to support the charges or fees to
3 the respective parties.
4 (4) The controlled insurer, with respect to business placed
5 by the controlling broker, either failed to establish or
6 deviated from its underwriting procedures.
7 (5) The controlled insurer's capitalization at the time the
8 business was placed by the controlling broker and with respect
9 to such business was not in compliance with criteria established
10 by the Insurance Department or otherwise by the insurance laws
11 or regulations of this Commonwealth.
12 (6) The controlling broker or the controlled insurer failed
13 to substantially comply with the provisions of Article XII and
14 any rules and regulations relative thereto.
15 Section 1102. Limitation on Business Placed with Controlled
16 Insurer.--(a) No broker which has control of a licensed
17 property or casualty insurer may directly or indirectly place
18 business with such insurer in any transaction in which such
19 broker, at the time the business is placed, is acting as such on
20 behalf of the insured for any compensation, commission or other
21 thing of value, unless the requirements of this section are met,
22 including all of the following:
23 (1) There is a written contract between the controlling
24 broker and the insurer which contract has been approved by the
25 board of directors of the insurer.
26 (2) The broker, prior to the effective date of the policy,
27 delivers written notice to the prospective insured disclosing
28 the relationship between that broker and the controlled insurer.
29 This disclosure, signed by the insured, shall be retained in the
30 underwriting file until the filing of the report on the
19910H1670B4196 - 37 -
1 examination covering the period in which the coverage is in
2 effect. If, however, the business is placed through a subbroker
3 who is not a controlling broker, the controlling broker shall
4 retain in its records a signed commitment from the subbroker
5 that the subbroker is aware of the relationship between the
6 insurer and the broker and that the subbroker has or will notify
7 the insured.
8 (3) All funds collected for the account of the insurer by
9 the controlling broker are paid, net of commissions,
10 cancellations and other adjustments, to the insurer no less
11 often than quarterly.
12 (b) In addition to any other required loss reserve
13 certification, the controlled insurer shall annually on the
14 first day of April of each year, file with the department an
15 opinion of an independent casualty actuary reporting loss ratios
16 for each line of business written and attesting to the adequacy
17 of loss reserves established for losses incurred and outstanding
18 as of year-end, including incurred but not reported, on business
19 placed by such broker.
20 (c) The controlled insurer shall annually report to the
21 department the amount of commissions paid to the broker, the
22 percentage such amount represents of the net premiums written
23 and comparable amounts and percentage paid to noncontrolling
24 brokers for placements of the same kinds of insurance.
25 (d) Every controlled insurer shall have an audit committee
26 of the board of directors composed of several directors. Prior
27 to approval of the annual financial statement, the audit
28 committee shall meet with management, the insurer's independent
29 certified public accountants, and an independent casualty
30 actuary to review the adequacy of the insurer's loss reserves.
19910H1670B4196 - 38 -
1 (e) No reinsurance intermediary which has control of an
2 assuming insurer may directly or indirectly place business with
3 such insurer in any transaction in which such reinsurance
4 intermediary is acting as a broker on behalf of the ceding
5 insurer. No reinsurance intermediary which has control of a
6 ceding insurer may directly or indirectly accept business from
7 such insurer in any transaction in which the reinsurance
8 intermediary is acting as a broker on behalf of the assuming
9 insurer. The prohibitions in this subsection shall not apply to
10 a reinsurance intermediary which makes a full and complete
11 written disclosure to the parties of its relationship with the
12 assuming or ceding insurer prior to completion of the
13 transaction.
14 Section 1103. Penalties.--(a) If the department has reason
15 to believe that a controlling broker has committed or is
16 committing an act which could be determined to be a violation,
17 as defined in section 1101, it shall serve upon the controlling
18 broker a statement of the charges and notice of a hearing to be
19 conducted in accordance with 2 Pa.C.S. (relating to
20 administrative law and procedure) at a time not less than thirty
21 (30) days after the service of the notice and at a place fixed
22 in the notice.
23 (b) At this hearing, the department must establish that the
24 controlling broker committed the violation. The controlling
25 broker shall have an opportunity to be heard and to present
26 evidence rebutting the charges. The decision, determination or
27 order of the department shall be subject to judicial review
28 pursuant to 2 Pa.C.S.
29 (c) If an order for liquidation or rehabilitation of the
30 controlled insurer has been entered pursuant to Article V of
19910H1670B4196 - 39 -
1 this act, and the liquidator or rehabilitator appointed under
2 that order believes that the controlling broker or any other
3 person subject to this article has not materially complied with
4 this article, or any regulation or order promulgated hereunder,
5 and the insurer suffered any loss or damage therefrom, the
6 liquidator or rehabilitator may maintain a civil action for
7 recovery of damages or other appropriate sanctions for the
8 benefit of the insurer.
9 Section 1104. Other Penalties Applicable.--Nothing in this
10 article shall affect the right of the department to impose any
11 other penalties provided for in the insurance laws of this
12 Commonwealth.
13 Section 1105. Rights of Certain Parties not Affected.--
14 Nothing contained in this article is intended to or shall in any
15 manner alter or affect rights of policyholders, claimants,
16 creditors or other third parties.
17 ARTICLE XII.
18 INSURANCE HOLDING COMPANIES.
19 Section 1201. Definitions.--As used in this article the
20 following words and phrases shall have the meanings given to
21 them in this section:
22 "Affiliate." A person that directly or indirectly through
23 one or more intermediaries, controls or is controlled by, or is
24 under common control with, the person specified.
25 "Commissioner." The Insurance Commissioner of the
26 Commonwealth.
27 "Control," "controlling," "controlled by" and "under common
28 control with." The possession, direct or indirect, of the power
29 to direct or cause the direction of the management and policies
30 of a person, whether through the ownership of voting securities,
19910H1670B4196 - 40 -
1 by contract other than a commercial contract for goods or
2 nonmanagement services, or otherwise, unless the power is the
3 result of an official position with or corporate office held by
4 the person. Control shall be presumed to exist if any person,
5 directly or indirectly, owns, controls, holds with the power to
6 vote, or holds proxies representing, ten per centum (10%) or
7 more of the voting securities of any other person. This
8 presumption may be rebutted by a showing that control does not
9 exist in fact. The Insurance Department may determine, after
10 furnishing all persons in interest notice and opportunity to be
11 heard and making specific findings of fact to support such
12 determination, that control exists in fact, notwithstanding the
13 absence of a presumption to that effect.
14 "Department." The Insurance Department of the Commonwealth.
15 "Insurance holding company system." Two or more affiliated
16 persons, one or more of which is an insurer.
17 "Insurer." Any company, association or exchange authorized
18 by the Insurance Commissioner to transact the business of
19 insurance in this Commonwealth except that the term shall not
20 include:
21 (1) the Commonwealth or any agency or instrumentality
22 thereof;
23 (2) agencies, authorities or instrumentalities of the United
24 States, its possessions and territories, the Commonwealth of
25 Puerto Rico, the District of Columbia or a state or political
26 subdivision;
27 (3) fraternal benefit societies; or
28 (4) nonprofit medical and hospital service associations.
29 "NAIC." The National Association of Insurance Commissioners.
30 "Person." An individual, a corporation, a partnership, an
19910H1670B4196 - 41 -
1 association, a joint stock company, a trust, an unincorporated
2 organization, any similar entity or any combination of the
3 foregoing acting in concert. The term shall not include any
4 joint venture partnership exclusively engaged in owning,
5 managing, leasing or developing real or tangible personal
6 property.
7 "Security holder." One who owns any security of a specified
8 person, including common stock, preferred stock, debt
9 obligations and any other security convertible into or
10 evidencing the right to acquire any of the foregoing.
11 "Subsidiary." An affiliate of a specified person controlled
12 by another person directly or indirectly through one or more
13 intermediaries.
14 "Voting security." Includes any security convertible into or
15 evidencing a right to acquire a voting security.
16 Section 1202. Acquisition of Control of or Merger with
17 Domestic Insurer.--(a) (1) No person other than the issuer
18 shall make a tender offer for or a request or invitation for
19 tenders of, or enter into any agreement to exchange securities
20 or, seek to acquire, or acquire, in the open market or
21 otherwise, any voting security of a domestic insurer if, after
22 the consummation thereof, such person would, directly or
23 indirectly, or by conversion or by exercise of any right to
24 acquire, be in control of such insurer, and no person shall
25 enter into an agreement to merge with or otherwise to acquire
26 control of a domestic insurer or any person controlling a
27 domestic insurer unless, at the time any such offer, request, or
28 invitation is made or any such agreement is entered into, or
29 prior to the acquisition of such securities if no offer or
30 agreement is involved, such person has filed with the department
19910H1670B4196 - 42 -
1 and has sent to such insurer, a statement containing the
2 information required by this section and such offer, request,
3 invitation, agreement or acquisition has been approved by the
4 department in the manner hereinafter prescribed.
5 (2) For purposes of this section, a "domestic insurer" shall
6 include any person controlling a domestic insurer unless such
7 person as determined by the department is either directly or
8 through its affiliates primarily engaged in business other than
9 the business of insurance. Such person shall, however, file a
10 preacquisition notification with the department containing the
11 information set forth in section 1203(c)(2) thirty (30) days
12 prior to the proposed effective date of the acquisition. Failure
13 to file is subject to section 1203(e)(3). For purposes of this
14 section, "person" shall not include any securities broker
15 holding, in the usual and customary manner, less than twenty per
16 centum (20%) of the voting securities of an insurance company or
17 of any person which controls an insurance company.
18 (b) The statement to be filed with the department under this
19 section shall be made under oath or affirmation and shall
20 contain the following information:
21 (1) The name and address of each person by whom or on whose
22 behalf the merger or other acquisition of control referred to in
23 subsection (a) is to be effected, hereinafter called "acquiring
24 party," and
25 (i) if such person is an individual, his principal
26 occupation and all offices and positions held during the past
27 five years, and any conviction of crimes other than minor
28 traffic violations during the past ten years; or
29 (ii) if such person is not an individual, a report of the
30 nature of its business operations during the past five years or
19910H1670B4196 - 43 -
1 for such lesser period as the person and any predecessors
2 thereof shall have been in existence; an informative description
3 of the business intended to be done by the person and the
4 person's subsidiaries; and a list of all individuals who are or
5 who have been selected to become directors or executive officers
6 of the person, or who perform or will perform functions
7 appropriate to those positions. This list shall include for each
8 individual the information required by subparagraph (i).
9 (2) The source, nature and amount of the consideration used
10 or to be used in effecting the merger or other acquisition of
11 control, a description of any transaction wherein funds were or
12 are to be obtained for any such purpose, including any pledge of
13 the insurer's stock, or the stock of any of its subsidiaries or
14 controlling affiliates, and the identity of persons furnishing
15 such consideration, provided, however, that where a source of
16 such consideration is a loan made in the lender's ordinary
17 course of business, the identity of the lender shall remain
18 confidential, if the person filing such statement so requests.
19 (3) Fully audited financial information as to the earnings
20 and financial condition of each acquiring party for the
21 preceding five fiscal years of each such acquiring party, or for
22 such lesser period as such acquiring party and any predecessors
23 thereof shall have been in existence, and similar unaudited
24 information as of a date not earlier than ninety (90) days prior
25 to the filing of the statement.
26 (4) Any plans or proposals which each acquiring party may
27 have to liquidate such insurer, to sell its assets or merge or
28 consolidate it with any person, or to make any other material
29 change in its business or corporate structure or management.
30 (5) The number of shares of any security referred to in
19910H1670B4196 - 44 -
1 subsection (a) which each acquiring party proposes to acquire,
2 and the terms of the offer, request, invitation, agreement or
3 acquisition referred to in subsection (a), and a statement as to
4 the method by which the fairness of the proposal was arrived.
5 (6) The amount of each class of any security referred to in
6 subsection (a) which is beneficially owned or concerning which
7 there is a right to acquire beneficial ownership by each
8 acquiring party.
9 (7) A full description of any contracts, arrangements or
10 understandings with respect to any security referred to in
11 subsection (a) in which any acquiring party is involved,
12 including, but not limited to, transfer of any of the
13 securities, joint ventures, loan or option arrangements, puts or
14 calls, guarantees of loans, guarantees against loss or
15 guarantees of profits, division of losses or profits, or the
16 giving or withholding of proxies. Such description shall
17 identify the persons with whom such contracts, arrangements or
18 understandings have been entered into.
19 (8) A description of the purchase of any security referred
20 to in subsection (a) during the twelve calendar months preceding
21 the filing of the statement, by any acquiring party, including
22 the dates of purchase, names of the purchasers and consideration
23 paid or agreed to be paid therefor.
24 (9) A description of any recommendations to purchase any
25 security referred to in subsection (a) made during the twelve
26 calendar months preceding the filing of the statement, by any
27 acquiring party, or by anyone based upon interviews or at the
28 suggestion of such acquiring party.
29 (10) Copies of all tender offers for, requests, or
30 invitations for tenders of, exchange offers for, and agreements
19910H1670B4196 - 45 -
1 to acquire or exchange any securities referred to in subsection
2 (a) and, if distributed, of additional soliciting material
3 relating thereto.
4 (11) The term of any agreement, contract or understanding
5 made with or proposed to be made with any broker-dealer as to
6 solicitation of securities referred to in subsection (a) for
7 tender and the amount of any fees, commissions or other
8 compensation to be paid to broker-dealers with regard thereto.
9 (12) Such additional information as the department may by
10 rule or regulation prescribe as necessary or appropriate for the
11 protection of policyholders of the insurer or in the public
12 interest.
13 (c) If the person required to file the statement referred to
14 in subsection (a) is a partnership, limited partnership,
15 syndicate or other group, the department may require that the
16 information called for by subsection (b)(1) through (12) shall
17 be given with respect to each partner of such partnership or
18 limited partnership, each member of such syndicate or group and
19 each person who controls such partner or member. If any such
20 partner, member or person is a corporation, or the person
21 required to file the statement referred to in subsection (a) is
22 a corporation, the department may require that the information
23 called for by subsection (b)(1) through (12) shall be given with
24 respect to such corporation, each officer and director of such
25 corporation, and each person who is directly or indirectly the
26 beneficial owner of more than ten per centum (10%) of the
27 outstanding voting securities of such corporation.
28 (d) If any material change occurs in the facts set forth in
29 the statement filed with the department and sent to such insurer
30 pursuant to this section, an amendment setting forth such
19910H1670B4196 - 46 -
1 change, together with copies of all documents and other material
2 relevant to such change, shall be filed with the department and
3 sent to such insurer within two (2) business days after the
4 person learns of such change.
5 (e) If any offer, request, invitation, agreement or
6 acquisition referred to in subsection (a) is proposed to be made
7 by means of a registration statement under the Securities Act of
8 1933 (48 Stat. 74, 15 U.S.C. § 77a et seq.), or in circumstances
9 requiring the disclosure of similar information under the
10 Securities Exchange Act of 1934 (48 Stat. 881, 15 U.S.C. § 78a
11 et seq.), or under a State law requiring similar registration or
12 disclosure, the person required to file the statement referred
13 to in subsection (a) may utilize such documents in furnishing
14 the information called for by that statement.
15 (f) (1) The department shall approve any merger or other
16 acquisition of control referred to in subsection (a) unless it
17 finds any of the following:
18 (i) After the change of control, the domestic insurer
19 referred to in subsection (a) would not be able to satisfy the
20 requirements for the issuance of a license to write the line or
21 lines of insurance for which it is presently licensed.
22 (ii) The effect of the merger or other acquisition of
23 control would be to substantially lessen competition in
24 insurance in this Commonwealth or tend to create a monopoly
25 therein. In applying the competitive standard in this
26 subparagraph:
27 (A) the informational requirements of section 1203(c)(2) and
28 the standards of section 1203(d)(2) shall apply;
29 (B) the merger or other acquisition shall not be disapproved
30 if the department finds that any of the situations meeting the
19910H1670B4196 - 47 -
1 criteria provided by section 1203(d)(3) exist; and
2 (C) the department may condition the approval of the merger
3 or other acquisition on the removal of the basis of disapproval
4 within a specified period of time.
5 (iii) The financial condition of any acquiring party is such
6 as might jeopardize the financial stability of the insurer or
7 prejudice the interest of its policyholders.
8 (iv) The plans or proposals which the acquiring party has to
9 liquidate the insurer, sell its assets or consolidate or merge
10 it with any person, or to make any other material change in its
11 business or corporate structure or management, are unfair and
12 unreasonable to policyholders of the insurer and not in the
13 public interest.
14 (v) The competence, experience and integrity of those
15 persons who would control the operation of the insurer are such
16 that it would not be in the interest of policyholders of the
17 insurer and of the public to permit the merger or other
18 acquisition of control.
19 (vi) The acquisition is likely to be hazardous or
20 prejudicial to the insurance buying public.
21 (2) If the merger or other acquisition of control is
22 approved, the department shall so notify the person filing the
23 statement and the insurer whose stock is proposed to be
24 acquired, and such a determination is hereafter referred to as
25 an approving determination. Notice shall also be given by the
26 department of any determination which is not an approving
27 determination. If an approving determination is made by the
28 department, and not otherwise, the proposed offer and
29 acquisition may thereafter be made and consummated on the terms
30 and conditions and in the manner described in the statement and
19910H1670B4196 - 48 -
1 subject to such conditions as may be prescribed by the
2 department as hereinafter provided. An approving determination
3 by the department shall be deemed to extend to offers or
4 acquisitions made pursuant thereto within one year following the
5 date of determination. The department may, as a condition of its
6 approving determination, require the inclusion in any offer of
7 provisions requiring the offer to remain open a specified
8 minimum length of time, permitting withdrawal of shares
9 deposited prior to the time the offeror becomes bound to
10 consummate the acquisition, and requiring pro rata acceptance of
11 any shares deposited pursuant to the offer. The department shall
12 hold a hearing before making the determination required by this
13 subsection if, within ten (10) days following the filing with
14 the department of the statement, written request for the holding
15 of such hearing is made either by the person proposing to make
16 the acquisition, by the insurer whose stock is proposed to be
17 acquired, or, if such issuer is not an insurer, by the insurance
18 company controlled by such issuer. Otherwise the department
19 shall determine in its discretion whether such a hearing shall
20 be held. Thirty (30) days' notice of any such hearing shall be
21 given to the person proposing to make the acquisition, to the
22 issuer whose stock is proposed to be acquired and, if such
23 issuer is not an insurer, to the insurance company controlled by
24 such issuer. Notice of any such hearing shall also be given to
25 such other persons, if any, as the department may determine.
26 (3) The department may retain at the acquiring person's
27 expense any attorneys, actuaries, accountants and other experts
28 not otherwise a part of the department's staff as may be
29 reasonably necessary to assist the department in reviewing the
30 proposed acquisition of control.
19910H1670B4196 - 49 -
1 (g) The provisions of this section shall not apply to any
2 offer, request, invitation, agreement or acquisition which the
3 department by order shall exempt therefrom as:
4 (1) not having been made or entered into for the purpose and
5 not having the effect of changing or influencing the control of
6 a domestic insurer; or
7 (2) as otherwise not comprehended within the purposes of
8 this section.
9 (h) The following shall constitute a violation of this
10 section:
11 (1) the failure to file any statement, amendment or other
12 material required to be filed pursuant to subsection (a) or (b);
13 or
14 (2) the effectuation or any attempt to effectuate an
15 acquisition of control of, or merger with, a domestic insurer
16 unless the department has given its approval thereto.
17 Section 1203. Acquisitions Involving Insurers not Otherwise
18 Covered.--(a) As used in this section the following words and
19 phrases shall have the meanings given to them in this
20 subsection:
21 "Acquisition." Any agreement, arrangement or activity the
22 consummation of which results in a person acquiring, directly or
23 indirectly, the control of another person and includes, but is
24 not limited to, the acquisition of voting securities, the
25 acquisition of assets, bulk reinsurance and mergers.
26 "Involved insurer." Includes an insurer which either
27 acquires or is acquired, is affiliated with an acquirer or
28 acquired or is the result of a merger.
29 (b) (1) Except as exempted in paragraph (2), this section
30 applies to any acquisition in which there is a change in control
19910H1670B4196 - 50 -
1 of an insurer authorized to do business in this Commonwealth.
2 (2) This section shall not apply to any of the following:
3 (i) An acquisition subject to approval or disapproval by the
4 department pursuant to section 1202.
5 (ii) A purchase of securities solely for investment purposes
6 so long as such securities are not used by voting or otherwise
7 to cause or attempt to cause the substantial lessening of
8 competition in any insurance market in this Commonwealth. If a
9 purchase of securities results in a presumption of control as
10 described in the definition of "control" in section 1101, it is
11 not solely for investment purposes unless the insurance
12 department of the insurer's state of domicile accepts a
13 disclaimer of control or affirmatively finds that control does
14 not exist and such disclaimer action or affirmative finding is
15 communicated by the domiciliary insurance department to the
16 Insurance Department of the Commonwealth.
17 (iii) The acquisition of a person by another person when
18 both persons are neither directly nor through affiliates
19 primarily engaged in the business of insurance, if
20 preacquisition notification is filed with the department in
21 accordance with subsection (c)(2) thirty (30) days prior to the
22 proposed effective date of the acquisition. However, such
23 preacquisition notification is not required for exclusion from
24 this section if the acquisition would otherwise be excluded from
25 this section by this paragraph.
26 (iv) The acquisition of already affiliated persons.
27 (v) An acquisition if, as an immediate result of the
28 acquisition:
29 (A) in no market would the combined market share of the
30 involved insurers exceed five per centum (5%) of the total
19910H1670B4196 - 51 -
1 market;
2 (B) there would be no increase in any market share; or
3 (C) in no market would:
4 (I) the combined market share of the involved insurers
5 exceeds twelve per centum (12%) of the total market; and
6 (II) the market share increases by more than two per centum
7 (2%) of the total market.
8 For the purpose of this subparagraph, a market means direct
9 written insurance premium in this Commonwealth for a line of
10 business as contained in the annual statement required to be
11 filed by insurers licensed to do business in this Commonwealth.
12 (vi) An acquisition for which a preacquisition notification
13 would be required pursuant to this section due solely to the
14 resulting effect on the ocean marine insurance line of business.
15 (vii) An acquisition of an insurer whose domiciliary
16 insurance department affirmatively finds that such insurer is in
17 failing condition; there is a lack of feasible alternative to
18 improving such condition; the public benefits of improving such
19 insurer's condition through the acquisition exceed the public
20 benefits that would arise from not lessening competition; and
21 such findings are communicated by the domiciliary insurance
22 department to the Insurance Department of the Commonwealth.
23 (3) Sections 1209(b) and (c) and 1211 shall not apply to
24 acquisitions provided for in this subsection.
25 (c) (1) An acquisition covered by subsection (b) may be
26 subject to an order pursuant to subsection (e) unless the
27 acquiring person files a preacquisition notification and the
28 waiting period has expired. The acquired person may file a
29 preacquisition notification. The department shall give
30 confidential treatment to information submitted under this
19910H1670B4196 - 52 -
1 subsection in the same manner provided in section 1207.
2 (2) The preacquisition notification shall be in such form
3 and contain such information as prescribed by the NAIC relating
4 to those markets which, under subsection (b)(2)(v), cause the
5 acquisition not to be exempted from the provisions of this
6 section. The department may require such additional material and
7 information as it deems necessary to determine whether the
8 proposed acquisition, if consummated, would violate the
9 competitive standard of subsection (d). The required information
10 may include an opinion of an economist as to the competitive
11 impact of the acquisition in this Commonwealth accompanied by a
12 summary of the education and experience of such person
13 indicating his or her ability to render an informed opinion.
14 (3) The waiting period required shall begin on the date of
15 receipt by the department of a preacquisition notification and
16 shall end on the earlier of the thirtieth day after the date of
17 such receipt, or termination of the waiting period by the
18 department. Prior to the end of the waiting period, the
19 department on a one-time basis may require the submission of
20 additional needed information relevant to the proposed
21 acquisition, in which event the waiting period shall end on the
22 earlier of the thirtieth day after receipt of such additional
23 information by the department or termination of the waiting
24 period by the department.
25 (d) (1) The department may enter an order under subsection
26 (e)(1) with respect to an acquisition if there is substantial
27 evidence that the effect of the acquisition may be substantially
28 to lessen competition in any line of insurance in this
29 Commonwealth or tend to create a monopoly therein or if the
30 insurer fails to file adequate information in compliance with
19910H1670B4196 - 53 -
1 subsection (c).
2 (2) In determining whether a proposed acquisition would
3 violate the competitive standard of paragraph (1), the
4 department shall consider the following:
5 (i) Any acquisition covered under subsection (b) involving
6 two or more insurers competing in the same market is prima facie
7 evidence of violation of the competitive standards as follows:
8 (A) if the market is highly concentrated and the involved
9 insurers possess the following shares of the market:
10 Insurer A Insurer B
11 4% 4% or more
12 10% 2% or more
13 15% 1% or more; or
14 (B) if the market is not highly concentrated and the
15 involved insurers possess the following shares of the market:
16 Insurer A Insurer B
17 5% 5% or more
18 10% 4% or more
19 15% 3% or more
20 19% 1% or more.
21 A highly concentrated market is one in which the share of the
22 four largest insurers is seventy-five per centum (75%) or more
23 of the market. Percentages not shown in the tables are
24 interpolated proportionately to the percentages that are shown.
25 If more than two insurers are involved, exceeding the total of
26 the two columns in the table is prima facie evidence of
27 violation of the competitive standard in paragraph (1). For the
28 purpose of this subparagraph, the insurer with the largest share
29 of the market shall be deemed to be insurer A.
30 (ii) There is a significant trend toward increased
19910H1670B4196 - 54 -
1 concentration when the aggregate market share of any grouping of
2 the largest insurers in the market, from the two largest to the
3 eight largest, has increased by seven per centum (7%) or more of
4 the market over a period of time extending from any base year
5 five to ten years prior to the acquisition up to the time of the
6 acquisition. Any acquisition or merger covered under subsection
7 (b) involving two or more insurers competing in the same market
8 is prima facie evidence of violation of the competitive standard
9 in paragraph (1) if:
10 (A) there is a significant trend toward increased
11 concentration in the market;
12 (B) one of the insurers involved is one of the insurers in a
13 grouping of such large insurers showing the requisite increase
14 in the market share; and
15 (C) another involved insurer's market is two per centum (2%)
16 or more.
17 (iii) For the purposes of this paragraph:
18 (A) The term "insurer" includes any company or group of
19 companies under common management, ownership or control.
20 (B) The term "market" means the relevant product and
21 geographical markets. In determining the relevant product and
22 geographical markets, the department shall give due
23 consideration to, among other things, the definitions or
24 guidelines, if any, promulgated by the NAIC and to information,
25 if any, submitted by parties to the acquisition. In the absence
26 of sufficient information to the contrary, the relevant product
27 market is assumed to be the direct written insurance premium for
28 a line of business, such line being that used in the annual
29 statement required to be filed by insurers doing business in
30 this Commonwealth and the relevant geographical market is
19910H1670B4196 - 55 -
1 assumed to be this Commonwealth.
2 (C) The burden of showing prima facie evidence of violation
3 of the competitive standard rests upon the commissioner.
4 (iv) Even though an acquisition is not prima facie violative
5 of the competitive standard under subparagraphs (i) and (ii),
6 the department may establish the requisite anticompetitive
7 effect based upon other substantial evidence. Even though an
8 acquisition is prima facie violative of the competitive standard
9 under subparagraphs (i) and (ii), a party may establish the
10 absence of the requisite anticompetitive effect based upon other
11 substantial evidence. Relevant factors in making a determination
12 under this paragraph include, but are not limited to, the
13 following: market shares, volatility of ranking of market
14 leaders, number of competitors, concentration, trend of
15 concentration in the industry and ease of entry and exit into
16 the market.
17 (3) An order may not be entered under subsection (e)(1) if:
18 (i) the acquisition will yield substantial economies of
19 scale or economies in resource utilization that cannot be
20 feasibly achieved in any other way, and the public benefits
21 which would arise from such economies exceed the public benefits
22 which would arise from not lessening competition; or
23 (ii) the acquisition will substantially increase the
24 availability of insurance, and the public benefits of such
25 increase exceed the public benefits which would arise from not
26 lessening competition.
27 (e) (1) (i) If an acquisition violates the standards of
28 this section, the department may enter an order:
29 (A) requiring an involved insurer to cease and desist from
30 doing business in this Commonwealth with respect to the line or
19910H1670B4196 - 56 -
1 lines of insurance involved in the violation; or
2 (B) denying the application of an acquired or acquiring
3 insurer for a license to do business in this Commonwealth.
4 (ii) Such an order shall be issued in compliance with 2
5 Pa.C.S. (relating to administrative law and procedure).
6 (iii) An order pursuant to this paragraph shall not apply if
7 the acquisition is not consummated.
8 (2) Any person who violates a cease and desist order of the
9 department under paragraph (1) and while such order is in
10 effect, may, after notice and hearing and upon order of the
11 department, be subject at the discretion of the department to
12 either or both of the following:
13 (i) A civil penalty of not more than ten thousand dollars
14 ($10,000) for every day of violation.
15 (ii) Suspension or revocation of such person's license.
16 (3) Any insurer or other person who fails to make any filing
17 required by this section and who also fails to demonstrate a
18 good faith effort to comply with any such filing requirement
19 shall be subject to a civil penalty not to exceed fifty thousand
20 dollars ($50,000).
21 Section 1204. Registration of Insurers.--(a) (1) Every
22 insurer which is authorized to do business in this Commonwealth
23 and which is a member of an insurance holding company system
24 shall register with the department, except a foreign insurer
25 subject to registration requirements and standards adopted by
26 statute or regulation in the jurisdiction of its domicile which
27 are substantially similar to those contained in sections 1204
28 and 1205(a)(1) and (2), (b) and (d). Each registered insurer
29 shall keep current the information required to be disclosed in
30 its registration statement by reporting all material changes or
19910H1670B4196 - 57 -
1 additions within fifteen (15) days after the end of the month in
2 which it learns of each such change or addition.
3 (2) Any insurer which is subject to registration under this
4 section shall register within fifteen (15) days after it becomes
5 subject to registration, and annually thereafter by the thirty-
6 first day of March of each year for the previous calendar year,
7 unless the department for good cause shown extends the time for
8 registration, and then within such extended time. The department
9 may require any insurer authorized to do business in this
10 Commonwealth which is a member of a holding company system, and
11 which is not subject to registration under this section, to
12 furnish a copy of the registration statement, the summary
13 specified in subsection (c) or other information filed by such
14 insurance company with the insurance regulatory authority of its
15 domiciliary jurisdiction.
16 (b) Every insurer subject to registration shall file the
17 registration statement on a form prescribed by the NAIC, which
18 shall contain all of the following current information:
19 (1) The capital structure, general financial condition,
20 ownership and management of the insurer and any person
21 controlling the insurer.
22 (2) The identity and relationship of every member of the
23 insurance holding company system.
24 (3) All of the following agreements in force and
25 transactions currently outstanding or which have occurred during
26 the last calendar year between such insurer and its affiliates:
27 (i) Loans and other investments, and the purchase, sale or
28 exchange of securities of an affiliate by the insurer or of the
29 insurer by an affiliate.
30 (ii) Purchases, sales or exchange of assets.
19910H1670B4196 - 58 -
1 (iii) Transactions not in the ordinary course of business.
2 (iv) Guarantees or undertakings for the benefit of an
3 affiliate which result in an actual contingent exposure of the
4 insurer's assets to liability, other than insurance contracts
5 entered into in the ordinary course of the insurer's business.
6 (v) All management agreements, service contracts and all
7 cost-sharing arrangements.
8 (vi) Reinsurance agreements.
9 (vii) Dividends and other distributions to shareholders.
10 (viii) Consolidated tax allocation agreements.
11 (4) Any pledge of the insurer's stock, including stock of
12 any subsidiary or controlling affiliate, for a loan made to any
13 member of the insurance holding company system.
14 (5) Any other matters concerning transactions between
15 registered insurers and any affiliates as may be included from
16 time to time in any registration forms adopted or approved by
17 the department.
18 (c) All registration statements shall contain a summary
19 outlining all items in the current registration statement
20 representing changes from the prior registration statement.
21 (d) No information need be disclosed on the registration
22 statement filed pursuant to subsection (b) if such information
23 is not material for the purposes of this section. Unless the
24 department by rule, regulation or order provides otherwise;
25 sales, purchases, exchanges, loans or extensions of credit,
26 investments, or guarantees involving one-half of one per centum
27 (0.5%) or less of an insurer's admitted assets as of the thirty-
28 first day of December next preceding shall not be deemed
29 material for purposes of this section.
30 (e) Subject to section 1205(b), each registered insurer
19910H1670B4196 - 59 -
1 shall report to the department all dividends and other
2 distributions to shareholders within fifteen (15) business days
3 following the declaration thereof.
4 (f) Any person within an insurance holding company system
5 subject to registration shall be required to provide complete
6 and accurate information to an insurer, where such information
7 is reasonably necessary to enable the insurer to comply with the
8 provisions of this article.
9 (g) The department shall terminate the registration of any
10 insurer which demonstrates that it no longer is a member of an
11 insurance holding company system.
12 (h) The department may require or allow two or more
13 affiliated insurers subject to registration hereunder to file a
14 consolidated registration statement.
15 (i) The department may allow an insurer which is authorized
16 to do business in this Commonwealth and which is part of an
17 insurance holding company system to register on behalf of any
18 affiliated insurer which is required to register under
19 subsection (a) and to file all information and material required
20 to be filed under this section.
21 (j) The provisions of this section shall not apply to any
22 insurer, information or transaction if and to the extent that
23 the department by rule, regulation or order shall exempt the
24 same from the provisions of this section.
25 (k) Any person may file with the department a disclaimer of
26 affiliation with any authorized insurer or such a disclaimer may
27 be filed by such insurer or any member of an insurance holding
28 company system. The disclaimer shall fully disclose all material
29 relationships and bases for affiliation between such person and
30 such insurer as well as the basis for disclaiming such
19910H1670B4196 - 60 -
1 affiliation. After a disclaimer has been filed, the insurer
2 shall be relieved of any duty to register or report under this
3 section which may arise out of the insurer's relationship with
4 such person unless and until the department disallows such a
5 disclaimer. The department shall disallow such a disclaimer only
6 after furnishing all parties in interest with notice and
7 opportunity to be heard and after making specific findings of
8 fact to support such disallowance.
9 (l) The failure to file a registration statement or any
10 summary of the registration statement thereto required by this
11 section within the time specified for such filing shall be a
12 violation of this section.
13 Section 1205. Standards and Management of an Insurer within
14 a Holding Company System.--(a) (1) Transactions within a
15 holding company system to which an insurer subject to
16 registration is a party shall be subject to all of the following
17 standards:
18 (i) The terms shall be fair and reasonable.
19 (ii) Charges or fees for services performed shall be
20 reasonable.
21 (iii) Expenses incurred and payment received shall be
22 allocated to the insurer in conformity with customary insurance
23 accounting practices consistently applied and all cost-sharing
24 or expense allocation arrangements must be formalized in writing
25 and authorized by the board of directors of the domestic
26 insurer.
27 (iv) The books, accounts and records of each party to all
28 such transactions shall be so maintained as to clearly and
29 accurately disclose the nature and details of the transactions,
30 including such accounting information as is necessary to support
19910H1670B4196 - 61 -
1 the reasonableness of the charges or fees to the respective
2 parties.
3 (v) The insurer's surplus as regards policyholders following
4 any dividends or distributions to shareholder affiliates shall
5 be reasonable in relation to the insurer's outstanding
6 liabilities and adequate to its financial needs.
7 (2) The following transactions involving a domestic insurer
8 and any person in its holding company system may not be entered
9 into unless the insurer has notified the department in writing
10 of its intention to enter into such transaction at least thirty
11 (30) days prior thereto, or such shorter period as the
12 department may permit and the department has not disapproved it
13 within such period:
14 (i) Sales, purchases, exchanges, loans or extensions of
15 credit, guarantees or investments, including assets to be
16 received by the domestic insurer as contributions to its
17 surplus, provided that, as of the thirty-first day of December
18 next preceding, such transactions are equal to or exceed:
19 (A) with respect to nonlife insurers, the lesser of five per
20 centum (5%) of the insurer's admitted assets or thirty-five per
21 centum (35%) of surplus as regards policyholders;
22 (B) with respect to life insurers, three per centum (3%) of
23 the insurer's admitted assets.
24 (ii) Loans or extensions of credit to any person who is not
25 an affiliate, where the insurer makes such loans or extensions
26 of credit with the agreement or understanding that the proceeds
27 of such transactions, in whole or in substantial part, are to be
28 used to make loans or extensions of credit to, to purchase
29 assets of, or to make investments in, any affiliate of the
30 insurer making such loans or extensions of credit provided that,
19910H1670B4196 - 62 -
1 as of the thirty-first day of December next preceding, such
2 transactions are equal to or exceed:
3 (A) with respect to nonlife insurers, the lesser of five per
4 centum (5%) of the insurer's admitted assets or thirty-five per
5 centum (35%) of surplus as regards policyholders;
6 (B) with respect to life insurers, three per centum (3%) of
7 the insurer's admitted assets.
8 (iii) For domestic insurers which have experienced a decline
9 in policyholder surplus in an amount of ten per centum (10%) or
10 more for two consecutive years and net loss from operations in
11 both those years, reinsurance agreements or modifications
12 thereto in which the reinsurance premium or a change in the
13 insurer's liabilities equals or exceeds five per centum (5%) of
14 the insurer's surplus as regards policyholders, as of the
15 thirty-first day of December next preceding, including those
16 agreements which may require as consideration the transfer of
17 assets from an insurer to a nonaffiliate, if an agreement or
18 understanding exists between the insurer and nonaffiliate that
19 any portion of such assets will be transferred to one or more
20 affiliates of the insurer. Nothing in this paragraph shall
21 affect or limit the requirements and applicability of section 3
22 of the act of July 31, 1968 (P.L.941, No.288), entitled "An act
23 providing for reporting to the Insurance Commissioner by
24 domestic insurance companies, associations, or exchanges, of
25 certain conveyances of interests in the assets of such
26 companies, associations, or exchanges."
27 (iv) Any material transactions, specified by regulation,
28 which the department determines may adversely affect the
29 interests of the insurer's policyholders.
30 Nothing in this paragraph shall be deemed to authorize or permit
19910H1670B4196 - 63 -
1 any transactions which, in the case of an insurer not a member
2 of the same holding company system, would be otherwise contrary
3 to law.
4 (3) A domestic insurer may not enter into transactions which
5 are part of a plan or series of like transactions with persons
6 within the holding company system if the purpose of those
7 separate transactions is to avoid the statutory threshold amount
8 and thus avoid the review that would occur otherwise. If the
9 department determines that such separate transactions were
10 entered into over any twelve-month period for such purpose, it
11 may exercise its authority under section 1210.
12 (4) The department, in reviewing transactions pursuant to
13 paragraph (2), shall consider whether the transactions comply
14 with the standards set forth in paragraph (1) and whether they
15 may adversely affect the interests of policyholders. The
16 department may retain at the insurer's expense any attorneys,
17 actuaries, accountants and other experts not otherwise a part of
18 the department's staff as may be reasonably necessary to assist
19 the department in reviewing the transaction.
20 (5) The department shall be notified within thirty (30) days
21 of any investment of the domestic insurer in any one corporation
22 if the total investment in such corporation by the insurance
23 holding company system exceeds ten per centum (10%) of such
24 corporations' voting securities.
25 (b) (1) No domestic insurer shall pay any extraordinary
26 dividend to its stockholders until:
27 (i) thirty (30) days after the commissioner has received
28 written notice from the insurer of the declaration of the
29 dividend and has not within such period disapproved the payment;
30 or
19910H1670B4196 - 64 -
1 (ii) the commissioner shall have approved the payment within
2 such thirty-day period.
3 (2) For purposes of this subsection, an extraordinary
4 dividend is any dividend or other distribution which, together
5 with other dividends and distributions made within the preceding
6 twelve (12) months, exceeds the greater of:
7 (i) ten per centum (10%) of such insurer's surplus as
8 regards policyholders as shown on its last annual statement on
9 file with the commissioner; or
10 (ii) the net gain from operations after dividends to
11 policyholders and Federal income taxes and before realized gains
12 or losses, of such insurer,if such insurer is a life insurer, or
13 the net investment income earned, excluding net realized capital
14 gains or losses, if such insurer is not a life insurer, for the
15 period covered by such statement, but shall not include pro rata
16 distributions of any class of the insurer's own securities.
17 (c) (1) Notwithstanding the control of a domestic insurer
18 by any person, the officers and directors of the insurer shall
19 not thereby be relieved of any obligation or liability to which
20 they would otherwise be subject by law, and the insurer shall be
21 managed so as to assure its separate operating identity
22 consistent with this article.
23 (2) Nothing herein shall preclude a domestic insurer from
24 having or sharing a common management or cooperative or joint
25 use of personnel, property or services with one or more other
26 persons under arrangements meeting the standards of subsection
27 (a)(1).
28 (3) Not less than one-third of the directors of a domestic
29 insurer, and not less than one-third of the members of each
30 committee of the board of directors of any domestic insurer
19910H1670B4196 - 65 -
1 shall be persons who are not officers or employes of such
2 insurer or of any entity controlling, controlled by, or under
3 common control with such insurer and who are not beneficial
4 owners of a controlling interest in the voting stock of such
5 insurer or any such entity. At least one such person must be
6 included in any quorum for the transaction of business at any
7 meeting of the board of directors or any committee thereof.
8 (4) The board of directors of a domestic insurer shall
9 establish one or more committees comprised solely of directors
10 who are not officers or employes of the insurer or of any entity
11 controlling, controlled by, or under common control with the
12 insurer and who are not beneficial owners of a controlling
13 interest in the voting stock of the insurer or any such entity.
14 The committee or committees shall have responsibility for
15 recommending the selection of independent certified public
16 accountants, reviewing the insurer's financial condition, the
17 scope and results of the independent audit and any internal
18 audit, nominating candidates for director for election by
19 shareholders or policyholders, evaluating the performance of
20 officers deemed to be principal officers of the insurer and
21 recommending to the board of directors the selection and
22 compensation of the principal officers.
23 (5) The provisions of paragraphs (3) and (4) shall not apply
24 to a domestic insurer if the person controlling such insurer is
25 an insurer or a publicly held corporation having a board of
26 directors and committees thereof which already meet the
27 requirements of paragraphs (3) and (4).
28 (d) For purposes of this article, in determining whether an
29 insurer's surplus as regards policyholders is reasonable in
30 relation to the insurer's outstanding liabilities and adequate
19910H1670B4196 - 66 -
1 to its financial needs, the following factors, among others,
2 shall be considered:
3 (1) The size of the insurer as measured by its assets,
4 capital and surplus, reserves, premium writings, insurance in
5 force and other appropriate criteria.
6 (2) The extent to which the insurer's business is
7 diversified among the several lines of insurance.
8 (3) The number and size of risks insured in each line of
9 business.
10 (4) The extent of the geographical dispersion of the
11 insurer's insured risks.
12 (5) The nature and extent of the insurer's reinsurance
13 program.
14 (6) The quality, diversification and liquidity of the
15 insurer's investment portfolio.
16 (7) The recent past and projected future trend in the size
17 of the insurer's investment portfolio.
18 (8) The surplus as regards policyholders maintained by other
19 comparable insurers.
20 (9) The adequacy of the insurer's reserves.
21 (10) The quality and liquidity of investments in affiliates.
22 The department may treat any such investment as a disallowed
23 asset for purposes of determining the adequacy of surplus as
24 regards policyholders whenever in its judgment such investment
25 so warrants.
26 Section 1206. Examination.--(a) Subject to the limitation
27 contained in this section and in addition to the powers which
28 the department has under law relating to the examination of
29 insurers, the department shall also have the power to order any
30 insurer registered under section 1204 to produce such records,
19910H1670B4196 - 67 -
1 books or other information papers in the possession of the
2 insurer or its affiliates as are reasonably necessary to
3 ascertain the financial condition of such insurer or to
4 determine compliance with this article. In the event an insurer
5 fails to comply with such order, the department shall have the
6 power to examine affiliates to obtain this information.
7 (b) The department may retain at the registered insurer's
8 expense such attorneys, actuaries, accountants and other experts
9 not otherwise a part of the department's staff as shall be
10 reasonably necessary to assist in the conduct of the examination
11 under subsection (a). Any persons so retained shall be under the
12 direction and control of the commissioner and shall act in a
13 purely advisory capacity.
14 (c) Each registered insurer producing for examination
15 records, books and papers pursuant to subsection (a) shall be
16 liable for and shall pay the expense of such examination as
17 provided for in Article IX of the act of May 17, 1921 (P.L.789,
18 No.285), known as "The Insurance Department Act of one thousand
19 nine hundred and twenty-one."
20 Section 1207. Confidential Treatment.--All information,
21 documents and copies thereof obtained by or disclosed to the
22 department or any other person in the course of an examination
23 or investigation made pursuant to section 1206 and all
24 information reported pursuant to sections 1204 and 1205 shall be
25 given confidential treatment and shall not be subject to
26 subpoena and shall not be made public by the department or any
27 other person, except to insurance departments of other states,
28 without the prior written consent of the insurer to which it
29 pertains unless the department, after giving the insurer and its
30 affiliates who would be affected thereby, notice and opportunity
19910H1670B4196 - 68 -
1 to be heard, determines that the interest of policyholders,
2 shareholders or the public will be served by the publication
3 thereof, in which event it may publish all or any part thereof
4 in such manner as he may deem appropriate.
5 Section 1208. Rules and Regulations.--The department may, in
6 the manner provided by law, promulgate the rules and
7 regulations, and may issue such orders as are necessary to carry
8 out this article.
9 Section 1209. Injunctions and Certain Prohibitions.--(a)
10 Whenever it appears to the department that any insurer or any
11 director, officer, employe or agent thereof has committed or is
12 about to commit a violation of this article or of any rule,
13 regulation or order issued by the department hereunder, the
14 department may apply to the Commonwealth Court for an order
15 enjoining such insurer or such director, officer, employe or
16 agent thereof from violating or continuing to violate this
17 article or any such rule, regulation or order, and for such
18 other equitable relief as the nature of the case and the
19 interest of the insurer's policyholders, creditors and
20 shareholders or the public may require.
21 (b) No security which is the subject of any agreement or
22 arrangement regarding acquisition, or which is acquired or to be
23 acquired, in contravention of the provisions of this article or
24 of any rule, regulation or order issued by the department
25 hereunder may be voted at any shareholder's meeting, or may be
26 counted for quorum purposes, and any action of shareholders
27 requiring the affirmative vote of a percentage of shares may be
28 taken as though such securities were not issued and outstanding;
29 but no action taken at any such meeting shall be invalidated by
30 the voting of such securities, unless the action would
19910H1670B4196 - 69 -
1 materially affect control of the insurer or unless the courts of
2 this Commonwealth have so ordered. If an insurer or the
3 department has reason to believe that any security of the
4 insurer has been or is about to be acquired in contravention of
5 the provisions of this article or of any rule, regulation or
6 order issued by the department hereunder, the insurer or the
7 department may apply to the Commonwealth Court to enjoin any
8 offer, request, invitation, agreement or acquisition made in
9 contravention of section 1202, or any rule, regulation or order
10 issued by the department thereunder to enjoin the voting of any
11 security so acquired, to void any vote of such security already
12 cast at any meeting of shareholders and for such other equitable
13 relief as the nature of the case and the interest of the
14 insurer's policyholders, creditors and shareholders or the
15 public may require.
16 (c) In any case where a person has acquired or is proposing
17 to acquire any voting securities in violation of this article or
18 any rule, regulation or order issued by the department
19 hereunder, the Commonwealth Court may, on such notice as the
20 court deems appropriate, upon the application of the insurer or
21 the department seize or sequester any voting securities of the
22 insurer owned directly or indirectly by such person, and issue
23 such order with respect thereto as may be appropriate to
24 effectuate the provisions of this article.
25 (d) Notwithstanding any other provisions of law, for the
26 purposes of this article, the situs of the ownership of the
27 securities of domestic insurers shall be deemed to be in this
28 Commonwealth.
29 Section 1210. Sanctions.--(a) Any insurer failing, without
30 just cause, to file any registration statement as required in
19910H1670B4196 - 70 -
1 this article shall be required, after notice and hearing, to pay
2 a penalty not to exceed five hundred ($500) dollars for each
3 day's delay. The maximum penalty under this section is twenty-
4 five thousand ($25,000) dollars. The department may reduce the
5 penalty if the insurer demonstrates to the department that the
6 imposition of the penalty would constitute a financial hardship
7 to the insurer.
8 (b) Every director or officer of an insurance holding
9 company system who knowingly violates, participates in, or
10 assents to, or who knowingly shall permit any of the officers or
11 agents of the insurer to engage in transactions or make
12 investments which have not been properly reported or submitted
13 pursuant to section 1204(a) or 1205(a)(2) and (b), or which
14 violate this article shall pay, in their individual capacity, a
15 civil forfeiture of not more than twenty-five thousand ($25,000)
16 dollars per violation, after notice and hearing before the
17 department. In determining the amount of the civil forfeiture,
18 the department shall take into account the appropriateness of
19 the forfeiture with respect to the gravity of the violation, the
20 history of previous violations, and such other matters as
21 justice may require.
22 (c) Whenever it appears to the department that any insurer
23 subject to this article or any director, officer, employe or
24 agent thereof has engaged in any transaction or entered into a
25 contract which is subject to section 1205 and which would not
26 have been approved had such approval been requested, the
27 department may order the insurer to cease and desist immediately
28 any further activity under the transaction or contract. After
29 notice and hearing the department may also order the insurer to
30 void any such contracts and restore the status quo if such
19910H1670B4196 - 71 -
1 action is in the best interest of the policyholders, creditors
2 or the public.
3 (d) Whenever it appears to the department that any insurer
4 or any director, officer, employe or agent thereof has committed
5 a wilful violation of this article, the department may cause
6 criminal proceedings to be instituted in the common pleas court
7 for the county in which the principal office of the insurer is
8 located or if such insurer has no such office in this State,
9 then in any other court having jurisdiction against such insurer
10 or the responsible director, officer, employe or agent thereof.
11 Any insurer which wilfully violates this article may be fined
12 not more than one hundred thousand ($100,000) dollars. Any
13 individual who wilfully violates this article may be fined in
14 his individual capacity not more than fifty thousand ($50,000)
15 dollars or be imprisoned for not more than one to three years,
16 or both.
17 (e) Any officer, director or employe of an insurance holding
18 company system who wilfully and knowingly subscribes to or makes
19 or causes to be made any false statements or false reports or
20 false filings with the intent to deceive the department in the
21 performance of its duties under this article shall, upon
22 conviction, be sentenced to pay a fine of one hundred thousand
23 ($100,000) dollars or to imprisonment for not more than three
24 years, or both. Any fines imposed shall be paid by the officer,
25 director or employe in his individual capacity.
26 Section 1211. Receivership.--Whenever it appears to the
27 department that any person has committed a violation of this
28 article which so impairs the financial condition of a domestic
29 insurer as to threaten insolvency or make the further
30 transaction of business by it hazardous to its policyholders,
19910H1670B4196 - 72 -
1 creditors, shareholders or the public, the department may
2 proceed, in the manner provided by law, to take possession of
3 the property of such domestic insurer and to conduct the
4 business thereof.
5 Section 1212. Recovery.--(a) If an order for liquidation or
6 rehabilitation of a domestic insurer has been entered, the
7 statutory liquidator appointed under such order shall have a
8 right to recover on behalf of the insurer:
9 (i) from any parent corporation or holding company or person
10 or affiliate who otherwise controlled the insurer, the amount of
11 distributions, other than the distributions of shares of the
12 same class of stock, paid by the insurer on its capital stock;
13 or
14 (ii) any payment in the form of a bonus, termination
15 settlement or extraordinary lump sum salary adjustment made by
16 the insurer or its subsidiaries to a director, officer or
17 employe, where the distribution or payment pursuant to this
18 subsection is made at any time during the one year preceding the
19 petition for liquidation, conservation or rehabilitation, as the
20 case may be, subject to the limitations of subsections (b), (c)
21 and (d).
22 (b) No such distribution shall be recoverable if the parent
23 or affiliate shows that when paid such distribution was lawful
24 and reasonable, and that the insurer did not know and could not
25 reasonably have known that such distribution might adversely
26 affect the ability of the insurer to fulfill its contractual
27 obligations.
28 (c) Any person who was a parent corporation or holding
29 company or a person who otherwise controlled the insurer or
30 affiliate at the time such distributions were paid shall be
19910H1670B4196 - 73 -
1 liable up to the amount of distributions or payments under
2 subsection (a) such person received. Any person who otherwise
3 controlled the insurer at the time such distributions were
4 declared shall be liable up to the amount of distributions he
5 would have received if they had been paid immediately. If two or
6 more persons are liable with respect to the same distributions,
7 they shall be jointly and severally liable.
8 (d) The maximum amount recoverable under this section shall
9 be the amount needed in excess of all other available assets of
10 the impaired or insolvent insurer to pay the contractual
11 obligations of the impaired or insolvent insurer and to
12 reimburse any guaranty funds.
13 (e) To the extent that any person liable under subsection
14 (c) of this section is insolvent or otherwise fails to pay
15 claims due from it pursuant to that subsection, its parent
16 corporation or holding company or person who otherwise
17 controlled it at the time the distribution was paid, shall be
18 jointly and severally liable for any resulting deficiency in the
19 amount recovered from such parent corporation or holding company
20 or person who otherwise controlled it.
21 Section 1213. Revocation, Suspension or Nonrenewal of
22 Insurer's License.--Whenever it appears to the department that
23 any person has committed a violation of this article which makes
24 the continued operation of an insurer contrary to the interests
25 of policyholders or the public, the department may, after giving
26 notice and an opportunity to be heard, determine to suspend,
27 revoke or refuse to renew such insurer's license or authority to
28 do business in this Commonwealth for such period as it finds is
29 required for the protection of policyholders or the public. Any
30 such determination shall be accompanied by specific findings of
19910H1670B4196 - 74 -
1 fact and conclusions of law.
2 ARTICLE XIII.
3 RISK RETENTION.
4 Section 1301. Statement of Purpose.--The purpose of this
5 article is to regulate the formation and operation of risk
6 retention groups and purchasing groups in this Commonwealth
7 formed pursuant to the Risk Retention Amendments of 1986 (Public
8 Law 99-563, 100 Stat. 3170) to the extent permitted by such law.
9 Section 1302. Definitions.--As used in this article the
10 following words and phrases shall have the meanings given to
11 them in this section:
12 "Admitted insurer." An insurer with a valid certificate of
13 authority to do insurance business in this Commonwealth.
14 "Commissioner." The Insurance Commissioner of the
15 Commonwealth.
16 "Completed operations liability." Liability arising out of
17 the installation, maintenance or repair of any product at a site
18 which is not owned or controlled by:
19 (1) any person who performs that work; or
20 (2) any person who hires an independent contractor to
21 perform that work;
22 but shall include liability for activities which are completed
23 or abandoned before the date of the occurrence giving rise to
24 the liability.
25 "Department." The Insurance Department of the Commonwealth.
26 "Doing business." Those acts which constitute the doing of
27 insurance business in this Commonwealth as set forth in section
28 208(b) of the act of May 17, 1921 (P.L.789, No.285), known as
29 "The Insurance Department Act of one thousand nine hundred and
30 twenty-one," except that risk retention groups and purchasing
19910H1670B4196 - 75 -
1 groups are not doing business when responding to a request for
2 coverage received directly from a Pennsylvania resident and not
3 as a result of solicitation.
4 "Domicile." For purposes of determining the state in which a
5 purchasing group is domiciled, the term means the following:
6 (1) For a corporation, the state in which the purchasing
7 group is incorporated.
8 (2) For an unincorporated entity, the state of its principal
9 place of business.
10 "Eligible surplus lines insurer." A nonadmitted insurer
11 doing business in this Commonwealth in conformance with Article
12 XIV.
13 "Hazardous financial condition." A condition in which, based
14 on its present or reasonably anticipated financial condition, a
15 risk retention group, although not yet financially impaired or
16 insolvent, is unlikely to be able:
17 (1) to meet obligations to policyholders with respect to
18 known claims and reasonably anticipated claims; or
19 (2) to pay other obligations in the normal course of
20 business.
21 "Insurance." Primary insurance, excess insurance,
22 reinsurance, surplus lines insurance and any other arrangement
23 for shifting and distributing risk which is determined to be
24 insurance under the laws of this Commonwealth.
25 "Liability."
26 (1) The term means legal liability for damages (including
27 costs of defense, legal costs and fees and other claims
28 expenses) because of injuries to other persons, damage to their
29 property, or other damage or loss to such other persons
30 resulting from or arising out of:
19910H1670B4196 - 76 -
1 (i) any business (whether profit or nonprofit), trade,
2 product, services (including professional services), premises or
3 operations; or
4 (ii) any activity of any state or local government, or any
5 agency or political subdivision thereof.
6 (2) The term does not include personal risk liability and an
7 employer's liability with respect to its employes other than
8 legal liability under the Employers' Liability Act (45 U.S.C. §
9 51 et seq.).
10 "Nonadmitted insurer." An insurer that does not have a
11 certificate of authority to do insurance business in this
12 Commonwealth. The term includes insurance exchanges authorized
13 under laws of various states.
14 "Personal risk liability." A liability for damages because
15 of injury to any person, damage to property or other loss or
16 damage resulting from any personal, familial or household
17 responsibilities or activities, rather than from
18 responsibilities or activities referred to in the definition of
19 "liability."
20 "Plan of operation or a feasibility study." An analysis
21 which presents the expected activities and results of a risk
22 retention group, including, at a minimum, all of the following:
23 (1) Information sufficient to verify that its members are
24 engaged in businesses or activities similar or related with
25 respect to the liability to which such members are exposed by
26 virtue of any related, similar or common business, trade,
27 product, services, premises or operations.
28 (2) For each state in which it intends to operate, the
29 coverages, deductibles, coverage limits, rates and rating
30 classification systems for each kind of liability insurance the
19910H1670B4196 - 77 -
1 group intends to offer.
2 (3) Historical and expected loss experience of the proposed
3 members and national experience of similar exposures to the
4 extent that this experience is reasonably available.
5 (4) Pro forma financial statements and projections.
6 (5) Appropriate opinions by a qualified, independent
7 casualty actuary, including a determination of minimum premium
8 or participation levels required to commence operations and to
9 prevent a hazardous financial condition.
10 (6) Identification of management, underwriting and claims
11 procedures, marketing methods, managerial oversight methods,
12 investment policies and reinsurance agreements.
13 (7) The states in which the risk retention group intends to
14 operate or is currently operating.
15 (8) Such other matters as may be prescribed by the
16 department for liability insurance companies authorized by the
17 insurance laws of the state in which the risk retention group is
18 chartered.
19 "Product liability." Liability for damages because of any
20 personal injury, death, emotional harm, consequential economic
21 damage or property damage (including damages resulting from the
22 loss of use of property) arising out of the manufacture, design,
23 importation, distribution, packaging, labeling, lease or sale of
24 a product. The term does not include the liability of any person
25 for these damages if the product involved was in the possession
26 of such a person when the incident giving rise to the claim
27 occurred.
28 "Purchasing group." Any group which:
29 (1) has as one of its purposes the purchase of liability
30 insurance on a group basis;
19910H1670B4196 - 78 -
1 (2) purchases such insurance only for its group members and
2 only to cover their similar or related liability exposure, as
3 described in paragraph (3);
4 (3) is composed of members whose businesses or activities
5 are similar or related with respect to the liability to which
6 members are exposed by virtue of any related, similar or common
7 business, trade, product, services, premises or operations; and
8 (4) is domiciled in any state.
9 "Risk retention group." Any corporation or other limited
10 liability association:
11 (1) whose primary activity consists of assuming and
12 spreading all, or any portion, of the liability exposure of its
13 group members;
14 (2) which is organized for the primary purpose of conducting
15 the activity described under paragraph (1);
16 (3) which:
17 (i) is chartered and licensed as an insurance company to
18 write liability insurance and authorized to engage in the
19 business of insurance under the laws of any state; or
20 (ii) before January 1, 1985, was chartered or licensed and
21 authorized to engage in the business of insurance under the laws
22 of Bermuda or the Cayman Islands and, before such date, had
23 certified to the insurance department of at least one state that
24 it satisfied the capitalization requirements of such state,
25 except that any such group shall be considered to be a risk
26 retention group only if it has been engaged in business
27 continuously since such date and only for the purpose of
28 continuing to provide insurance to cover product liability or
29 completed operations liability, as such terms were defined in
30 the Product Liability Risk Retention Act of 1981 (Public Law 97-
19910H1670B4196 - 79 -
1 45, 95 Stat. 949), before the date of the enactment of the Risk
2 Retention Amendments of 1986 (Public Law 99-563, 100 Stat.
3 3170);
4 (4) which does not exclude any person from membership in the
5 group solely to provide for members of such a group a
6 competitive advantage over such a person;
7 (5) which:
8 (i) has as its owners only persons who comprise the
9 membership of the risk retention group and who are provided
10 insurance by such group; or
11 (ii) has as its sole owner an organization which has as its
12 members only persons who comprise the membership of the risk
13 retention group and which organization has as its owners only
14 persons who comprise the membership of the risk retention group
15 and who are provided insurance by the risk retention group;
16 (6) whose members are engaged in businesses or activities
17 similar or related with respect to the liability of which such
18 members are exposed by virtue of any related, similar or common
19 business trade, product, services, premises or operations;
20 (7) whose activities do not include the provision of
21 insurance other than:
22 (i) liability insurance for assuming and spreading all or
23 any portion of the liability of its group members; and
24 (ii) reinsurance with respect to the liability of any other
25 risk retention group (or any members of such other risk
26 retention group) which is engaged in businesses or activities so
27 that the group or member meets the requirement described in
28 paragraph (6) for membership in the risk retention group which
29 provides such reinsurance; and
30 (8) the name of which includes the phrase "Risk Retention
19910H1670B4196 - 80 -
1 Group."
2 "State." Any state of the United States or the District of
3 Columbia.
4 Section 1303. Risk Retention Groups Chartered in this
5 Commonwealth.--(a) A domestic risk retention group shall,
6 pursuant to this act and the act of May 17, 1921 (P.L.789,
7 No.285), known as "The Insurance Department Act of one thousand
8 nine hundred and twenty-one," be chartered and licensed as a
9 domestic fire or casualty insurance company to write only
10 liability insurance pursuant to this article and, except as
11 provided elsewhere in this article, shall comply with all the
12 laws, rules, regulations and requirements applicable to such
13 insurers chartered and licensed in this Commonwealth and with
14 section 1304 to the extent that such requirements are not a
15 limitation of laws, rules, regulations or requirements of this
16 Commonwealth.
17 (b) Before it may offer insurance in any state, each
18 domestic risk retention group shall also submit for approval to
19 the department a plan of operation or a feasibility study. In
20 the event of any subsequent material change in any item of the
21 plan of operation or feasibility study, the risk retention group
22 shall submit an appropriate revision within ten (10) days of any
23 such change. The group shall not offer any additional kinds of
24 liability insurance in this Commonwealth or in any other state
25 until a revision of such plan or study is approved by the
26 department.
27 (c) The provisions of subsection (b), relating to the
28 submission of a plan of operation or feasibility study, shall
29 not apply with respect to any kind or classification of
30 liability insurance which:
19910H1670B4196 - 81 -
1 (1) was defined in the Product Liability Risk Retention Act
2 of 1981 (Public Law 97-45, 95 Stat. 949), before October 27,
3 1986; and
4 (2) was offered before such date by any risk retention group
5 which had been chartered and operating for not less than three
6 years before such date.
7 (d) At the time of filing its application for charter, the
8 risk retention group shall provide to the department in summary
9 form the following information:
10 (1) The identity of the initial members of the group.
11 (2) The identity of those individuals who organized the
12 group or who will provide administrative services or otherwise
13 influence or control the activities of the group.
14 (3) The amount and nature of initial capitalization.
15 (4) The coverages to be afforded.
16 (5) The states in which the group intends to operate.
17 Section 1304. Risk Retention Groups not Chartered in this
18 Commonwealth.--(a) A risk retention group chartered and
19 licensed in a state other than this Commonwealth and seeking to
20 do business as a risk retention group in this Commonwealth shall
21 comply with the laws of this Commonwealth, as provided in this
22 section.
23 (b) Before doing business in this Commonwealth, a risk
24 retention group shall submit to the department all of the
25 following:
26 (1) A statement identifying the state or states in which the
27 risk retention group is chartered and licensed as an insurance
28 company to write liability insurance, the charter date, its
29 principal place of business and such other information,
30 including information on its membership, as the department may
19910H1670B4196 - 82 -
1 require to verify that the risk retention group is qualified
2 under the definition of "risk retention group" in section 1302.
3 (2) A copy of its plan of operations or a feasibility study
4 and copies of all revisions of such plan or study submitted to
5 the state in which the risk retention group is chartered and
6 licensed, provided that the provision relating to the submission
7 of a plan of operation or a feasibility study shall not apply
8 with respect to any kind or classification of liability
9 insurance which:
10 (i) was defined in the Product Liability Risk Retention Act
11 of 1981 (Public Law 97-45, 95 Stat. 949 et seq.) before October
12 27, 1986; and
13 (ii) was offered before such date by any risk retention
14 group which had been chartered and was operating for not less
15 than three years before such date.
16 (3) A copy of the most recent annual statement as described
17 in subsection (d)(1).
18 (4) (i) A statement of registration for which a filing fee
19 shall be imposed, which statement appoints the department as its
20 agent for the purpose of receiving service of legal documents or
21 process.
22 (ii) The appointment of the department shall be accompanied
23 by written designation of the name and address of the officer,
24 agent or other person to whom such process shall be forwarded by
25 the department or its deputy on behalf of such risk retention
26 group. In the event such designation is changed, a new
27 certificate of designation shall be filed with the department
28 within ten (10) days of such change.
29 (iii) Service of process upon a risk retention group
30 pursuant to this paragraph shall be made by serving the
19910H1670B4196 - 83 -
1 department, or any deputy thereof or any salaried employe of the
2 department whom the department designates for such purpose, with
3 two copies thereof and the payment of a fee to be published by
4 notice in the Pennsylvania Bulletin. The department shall
5 forward a copy of such process by registered or certified mail
6 to the risk retention group at the address given in its written
7 certificate of designation and shall keep a record of all
8 process so served upon him. Service of process so made shall be
9 deemed made within the territorial jurisdiction of any court in
10 this Commonwealth.
11 (c) The risk retention group shall submit a copy of any
12 revision to its plan of operation or feasibility study required
13 by section 1303(b) at the same time that such revision is
14 submitted to the department of its chartering state.
15 (d) Any risk retention group doing business in this
16 Commonwealth shall submit annually to the department, on or
17 before March 1, all of the following:
18 (1) A copy of the group's financial statement submitted to
19 the state in which the risk retention group is chartered and
20 licensed, which shall be certified by an independent public
21 accountant and shall contain a statement of opinion on loss and
22 loss adjustment expense reserves made by a member of the
23 American Academy of Actuaries or a qualified loss reserve
24 specialist.
25 (2) A copy of the most recent examination of the risk
26 retention group as certified by the department or public
27 official conducting the examination.
28 (3) Upon request by the department, a copy of any
29 information or document pertaining to any outside audit
30 performed with respect to the risk retention group.
19910H1670B4196 - 84 -
1 (4) Such information as may be required to verify its
2 continuing qualification as a risk retention group, as defined
3 in section 1302.
4 (e) If a risk retention group is found to be in a hazardous
5 financial condition by any court of competent jurisdiction, the
6 risk retention group shall submit a copy of the court order to
7 the department within ten (10) days of the date of the order.
8 (f) A risk retention group shall be liable for a fine of two
9 hundred ($200) dollars per day of delinquency for either of the
10 following:
11 (1) Failure to file the annual statement as provided by law
12 on the first day of March, except that, for good cause shown,
13 the department may grant, after written request, a reasonable
14 extension of time within which such statement may be filed.
15 (2) Failure to submit to the department a copy of the order
16 of a court of competent jurisdiction finding the risk retention
17 group to be in a hazardous financial condition or financially
18 impaired within ten (10) days of the date of such order.
19 (g) (1) Each risk retention group shall be liable for the
20 payment of premium taxes and taxes on premiums of direct
21 business for risks resident or located within this Commonwealth
22 and shall report to the department the gross direct premiums,
23 less returns thereon, written for risks resident or located
24 within this Commonwealth. Such risk retention group shall be
25 subject to taxation and any applicable fines and penalties
26 related thereto on the same basis as a foreign admitted insurer,
27 pursuant to section 902 of the act of March 4, 1971 (P.L.6,
28 No.2), known as the "Tax Reform Code of 1971."
29 (2) To the extent that licensed agents, brokers or surplus
30 lines agents with Pennsylvania licenses are utilized pursuant to
19910H1670B4196 - 85 -
1 section 1314, they shall report to the department the premiums
2 for direct business for risks resident or located within this
3 Commonwealth which such licensees have placed with or on behalf
4 of a risk retention group not chartered and licensed in this
5 Commonwealth.
6 (h) Any risk retention group and its agents and
7 representatives shall comply with the act of July 22, 1974
8 (P.L.589, No.205), known as the "Unfair Insurance Practices
9 Act," insofar as its provisions apply to unfair claims practices
10 and deceptive, false or fraudulent practices. However, if the
11 department seeks an injunction regarding such conduct, the
12 injunction must be obtained from a court of competent
13 jurisdiction.
14 (i) Any risk retention group shall submit to an examination
15 by the Insurance Department of the Commonwealth to determine its
16 financial condition if the department of the jurisdiction in
17 which the group is chartered and licensed has not initiated an
18 examination or does not initiate an examination within sixty
19 (60) days after a request by the Insurance Commissioner of the
20 Commonwealth. Any such examination shall be coordinated with
21 other jurisdictions to the extent feasible in order to avoid
22 unjustified repetition and shall be conducted in an expeditious
23 manner and in accordance with The National Association of
24 Insurance Commissioners' Examination Handbook.
25 (j) The terms of any insurance policy issued by such risk
26 retention group shall not provide or be construed to provide
27 insurance policy coverage prohibited generally by state statute
28 or declared unlawful by the highest court of the state whose law
29 applies to such policy.
30 (k) A risk retention group doing business in this
19910H1670B4196 - 86 -
1 Commonwealth shall comply with a lawful order issued in a
2 voluntary dissolution proceeding or in a delinquency proceeding
3 commenced by a state insurance department if there has been a
4 finding of hazardous financial condition or financial impairment
5 after an examination under subsection (i).
6 (l) Any risk retention groups doing business in this
7 Commonwealth prior to the enactment of this article shall,
8 within thirty (30) days after the effective date of this
9 article, comply with the provisions of this section.
10 (m) A risk retention group which violates any provision of
11 this article shall be subject to fines and penalties applicable
12 to admitted insurers generally, including revocation of its
13 right to do business in this Commonwealth.
14 Section 1305. Notice and Prohibited Acts.--(a) Every
15 application form for insurance from a risk retention group and
16 every policy issued by a risk retention group shall contain, in
17 ten-point type on the front page and the declaration page, the
18 following notice:
19 NOTICE
20 This policy is issued by your risk retention group. Your
21 risk retention group may not be subject to all of the
22 insurance laws and regulations of your state. State
23 insurance insolvency guaranty funds are not available for
24 your risk retention group.
25 (b) The following acts by a risk retention group are hereby
26 prohibited:
27 (1) The solicitation or sale of insurance by a risk
28 retention group to any person who is not eligible for membership
29 in such group.
30 (2) The solicitation or sale of insurance by, or operation
19910H1670B4196 - 87 -
1 of, a risk retention group that has been found by a court of
2 competent jurisdiction to be in a hazardous financial condition
3 or financially impaired.
4 (c) No risk retention groups shall be allowed to do business
5 in this Commonwealth if an insurance company is directly or
6 indirectly a member or owner of such risk retention group, other
7 than in the case of a risk retention group all of whose members
8 are insurance companies.
9 Section 1306. Guaranty Funds and Compulsory Associations.--
10 (a) No risk retention group shall be required or permitted to
11 join or contribute financially to any insurance insolvency
12 guaranty fund, or similar mechanism, in this Commonwealth, nor
13 shall any risk retention group, or its insureds or claimants
14 against its insureds, receive any benefit from any such fund for
15 claims arising under the insurance policies issued by such risk
16 retention group.
17 (b) When a purchasing group obtains insurance covering its
18 members' risks from an insurer not admitted in this Commonwealth
19 or from a risk retention group, no such risks, wherever resident
20 or located, shall be covered by any insurance guaranty fund or
21 similar mechanism in this Commonwealth.
22 (c) When a purchasing group obtains insurance covering its
23 members' risks from an admitted insurer, only covered claims as
24 defined in the act of November 25, 1970 (P.L.716, No.232), known
25 as "The Pennsylvania Insurance Guaranty Association Act," shall
26 be covered by the State guaranty fund.
27 (d) The department may require risk retention groups not
28 chartered in this Commonwealth to participate, and may exempt
29 domestic risk retention groups from participation, in any
30 mechanism established or authorized under the laws of this
19910H1670B4196 - 88 -
1 Commonwealth for the equitable apportionment among insurers of
2 liability insurance losses and expenses incurred on policies
3 written through such mechanism; and such risk retention groups
4 shall submit sufficient information to the department to enable
5 the department to apportion on a nondiscriminatory basis the
6 risk retention group's proportionate share of such losses and
7 expenses.
8 Section 1307. Countersignatures not Required.--A policy of
9 insurance issued by a risk retention group to any member of that
10 group or by an insurer to a purchasing group or any member of a
11 purchasing group shall not be required to be countersigned by an
12 insurance agent or broker residing in this Commonwealth.
13 Section 1308. Exemption.--(a) A purchasing group and its
14 insurer or insurers shall be subject to all applicable laws of
15 this Commonwealth, except that the purchasing group and its
16 insurer or insurers shall be exempt, in regard to liability
17 insurance for the purchasing group, from any law that would do
18 any of the following:
19 (1) Prohibit the establishment of a purchasing group.
20 (2) Make it unlawful for an insurer to provide or offer to
21 provide insurance on a basis providing, to a purchasing group or
22 its members, advantages, based on their loss and expense
23 experience, not afforded to other persons with respect to rates,
24 policy forms, coverages or other matters.
25 (3) Prohibit a purchasing group or its members from
26 purchasing insurance on a group basis described in paragraph
27 (2).
28 (4) Prohibit a purchasing group from obtaining insurance on
29 a group basis because the group has not been in existence for a
30 minimum period of time or because any member has not belonged to
19910H1670B4196 - 89 -
1 the group for a minimum period of time.
2 (5) Require that a purchasing group must have a minimum
3 number of members, common ownership or affiliation, or a certain
4 legal form.
5 (6) Require that a certain percentage of a purchasing group
6 must obtain insurance on a group basis.
7 (7) Otherwise discriminate against a purchasing group or any
8 of its members.
9 (b) An insurer shall be exempt from any laws of this
10 Commonwealth which prohibits providing or offering to provide,
11 to a purchasing group or its members, advantages, based on their
12 loss and expense experience, not afforded to other persons with
13 respect to rates, policy forms, coverages or other matters.
14 Section 1309. Notice and Registration Requirements.--(a) A
15 purchasing group which intends to do business in this
16 Commonwealth shall, prior to doing such business, furnish notice
17 to the department which notice shall do all of the following:
18 (1) Identify the state in which the group is domiciled.
19 (2) Identify the principal place of business of the group.
20 (3) Identify all other states in which the group intends to
21 do business or is doing business.
22 (4) Specify the kinds and classifications of liability
23 insurance which the purchasing group intends to purchase.
24 (5) Specify the method by which, and the person or persons,
25 if any, through whom, insurance will be offered to its members
26 whose risks are resident or located in this Commonwealth.
27 (6) Identify the names and chartering jurisdictions of the
28 insurance company or companies from which the group intends to
29 purchase its insurance.
30 (7) Confirm that the insurer from which the purchasing group
19910H1670B4196 - 90 -
1 intends to purchase insurance has filed with the department,
2 pursuant to section 354, and all other provisions of insurance
3 laws, rules and regulations governing policy form and rate
4 standards, the rates and forms it intends to use to provide
5 coverage for the risks resident in this Commonwealth.
6 (8) Provide such other information as may be required by the
7 department to verify that the purchasing group is qualified
8 under the definition of "purchasing group" in section 1302.
9 (b) A purchasing group shall notify the department within
10 ten (10) days as to any subsequent changes in any of the items
11 set forth in subsection (a).
12 (c) Each purchasing group which is required to give notice
13 pursuant to subsection (a) shall also furnish such information
14 as may be required by the department to do any of the following:
15 (1) Verify that the entity qualifies as a purchasing group.
16 (2) Determine the location of the purchasing group.
17 (3) Determine appropriate tax treatment.
18 (d) (1) The purchasing group shall submit a statement of
19 registration, for which a filing fee shall be imposed, which
20 designates the department as its agent solely for the purpose of
21 receiving service of legal documents or process.
22 (2) The designation of the department shall be accompanied
23 by written designation of the name and address of the officer,
24 agent or other person to whom such process shall be forwarded by
25 the department or its deputy on behalf of such purchasing group.
26 In the event such designation is changed, a new certificate of
27 designation shall be filed with the department within ten (10)
28 days of such change.
29 (3) Service of process upon a purchasing group pursuant to
30 this subsection shall be made by serving the department, any
19910H1670B4196 - 91 -
1 deputy thereof or any salaried employe of the department whom
2 the department designates for such purpose with two copies
3 thereof and the payment of a fee to be published by notice in
4 the Pennsylvania Bulletin. The department shall forward a copy
5 of such process by registered or certified mail to the
6 purchasing group at the address given in its written certificate
7 of designation, and shall keep a record of all process so served
8 upon him. Service of process so made shall be deemed made within
9 the territorial jurisdiction of any court in this Commonwealth.
10 (4) Such requirements shall not apply in the case of a
11 purchasing group which only purchases insurance that was
12 authorized under the Products Liability Risk Retention Act of
13 1981 (Public Law 97-45, 95 Stat. 949); and
14 (i) which in any state of the United States:
15 (A) was domiciled before April 1, 1986; and
16 (B) is domiciled on and after October 27, 1986; and
17 (ii) which:
18 (A) before October 27, 1986, purchased insurance from an
19 insurance company licensed in any state;
20 (B) since October 27, 1986, purchased its insurance from an
21 insurance company licensed in any state;
22 (C) was a purchasing group under the requirements of the
23 Product Liability Risk Retention Act of 1981 before October 27,
24 1986; and
25 (D) does not purchase insurance that was not authorized for
26 purposes of an exemption under that article, as in effect before
27 October 27, 1986.
28 (e) Any purchasing group which was doing business in this
29 Commonwealth prior to the enactment of this act shall, within
30 thirty (30) days after the effective date of this article,
19910H1670B4196 - 92 -
1 furnish notice to the department pursuant to the provisions of
2 subsection (a) and furnish such information as may be required
3 pursuant to subsections (b), (c) and (d).
4 Section 1310. Restrictions on Insurance Purchased by
5 Purchasing Groups.--(a) A purchasing group may purchase
6 liability insurance for its members who are residents of this
7 Commonwealth only from:
8 (1) a risk retention group chartered and licensed in this
9 Commonwealth;
10 (2) an admitted insurer;
11 (3) a risk retention group not chartered and licensed in
12 this Commonwealth which has complied with section 1303; or
13 (4) an eligible surplus lines insurer if the liability
14 insurance is obtained through surplus lines agents acting
15 pursuant to Article XIV.
16 (b) The terms of any liability insurance policy obtained by
17 a purchasing group shall not provide or be construed to provide
18 insurance coverage prohibited generally by state statute or
19 declared unlawful by the highest court of the state whose law
20 applies to such policy. If the laws of this Commonwealth apply
21 to an insurance policy obtained by a purchasing group, the terms
22 of that policy shall not provide or be construed to provide
23 insurance coverage prohibited generally by state statute or
24 declared unlawful by the highest court of this Commonwealth
25 which has construed such coverage.
26 (c) A purchasing group which obtains liability insurance
27 from a nonadmitted insurer that is an eligible surplus lines
28 insurer in this Commonwealth or from a risk retention group
29 shall inform each of the members of such purchasing group which
30 has a risk resident or located in this Commonwealth that such
19910H1670B4196 - 93 -
1 risk is not protected by an insurance insolvency guaranty fund
2 in this Commonwealth, and that such risk retention group or such
3 nonadmitted insurer may not be subject to all insurance laws and
4 regulations of this Commonwealth.
5 (d) No purchasing group may purchase insurance providing for
6 a deductible or self-insured retention applicable to the group
7 as a whole; however, coverage may provide for a deductible or
8 self-insured retention applicable to individual members.
9 (e) Purchases of insurance by purchasing groups are subject
10 to the same standards regarding aggregate limits which are
11 applicable to all purchases of group insurance.
12 Section 1311. Insurance Company Interest in Purchasing
13 Groups Doing Business in this Commonwealth Prohibited.--No
14 insurer, or director, officer or employe of an insurer, may have
15 any interest in a purchasing group doing business in this
16 Commonwealth. Prohibited interest includes, but is not limited
17 to, soliciting members for the purchasing group, and belonging
18 to the purchasing group as a member, provided that nothing in
19 this section will prohibit a purchasing group composed entirely
20 of insurers, or directors, officers or employes of insurers, if
21 coverage is obtained from a company not related to the group
22 members.
23 Section 1312. Taxation of Premiums Paid by Purchasing
24 Groups.--(a) (1) Premiums paid for coverage obtained from
25 admitted insurers and risk retention groups doing business in
26 this Commonwealth shall be taxed on the same basis as premiums
27 paid to admitted insurers under section 902 of the act of March
28 4, 1971 (P.L.6, No.2), known as the "Tax Reform Code of 1971."
29 (2) Premiums paid for coverage obtained from a nonadmitted
30 insurer in compliance with this article shall be taxed at the
19910H1670B4196 - 94 -
1 rate applicable to premiums paid to surplus lines insurers
2 pursuant to section 1421(a).
3 (b) (1) To the extent that the purchasing group or its
4 members pay premiums for coverage of risks resident or located
5 within this Commonwealth to admitted insurers or risk retention
6 groups doing business in this Commonwealth, the insurer or risk
7 retention group receiving those premiums is responsible for
8 remitting the tax to the Department of Revenue.
9 (2) To the extent that the purchasing group or its members
10 pay premiums for coverage of risks resident or located within
11 this Commonwealth to a nonadmitted insurer, the surplus lines
12 agent who places the business shall collect and remit the taxes
13 for premiums.
14 (3) To the extent a surplus lines agent does not effect
15 coverage, the purchasing group shall collect and remit the tax
16 for coverage of risks resident or located in this Commonwealth.
17 To the extent the purchasing group does not remit the tax, the
18 purchasing group shall inform each member of the responsibility
19 for individual remittance of the tax.
20 Section 1313. Administrative and Procedural Authority
21 Regarding Risk Retention Groups and Purchasing Groups.--The
22 department is authorized to make use of any of the powers
23 established under the insurance laws of this Commonwealth to
24 enforce the laws of this Commonwealth not specifically preempted
25 by the Risk Retention Amendments of 1986 (Public Law 99-563, 100
26 Stat. 3170), including the department's administrative authority
27 to investigate, issue subpoenas, conduct depositions and
28 hearings, issue orders, impose penalties and seek injunctive
29 relief. With regard to any investigation, administrative
30 proceedings or litigation, the department may rely on the
19910H1670B4196 - 95 -
1 procedural laws of this Commonwealth. The injunctive authority
2 of the department in regard to risk retention groups is
3 restricted by the requirement that any injunction be issued by a
4 court of competent jurisdiction.
5 Section 1314. Duty of Agent or Broker to Obtain License.--
6 (a) (1) No person, firm, association or corporation shall act
7 or aid in any manner in soliciting, negotiating or procuring
8 liability insurance in this Commonwealth for a risk retention
9 group unless such person, firm, association or corporation is
10 licensed either as an insurance agent in accordance with section
11 603 of the act of May 17, 1921 (P.L.789, No.285), known as "The
12 Insurance Department Act of one thousand nine hundred and
13 twenty-one," or as an insurance broker in accordance with
14 section 622 of "The Insurance Department Act of one thousand
15 nine hundred and twenty-one."
16 (2) No person, firm, association or corporation shall act or
17 aid in any manner in negotiating or procuring liability
18 insurance in this Commonwealth for a purchasing group or for any
19 of its members from an admitted insurer or a risk retention
20 group unless such person, firm, association or corporation is
21 licensed either as an insurance agent in accordance with section
22 603 of "The Insurance Department Act of one thousand nine
23 hundred and twenty-one," or as an insurance broker in accordance
24 with section 622 of "The Insurance Department Act of one
25 thousand nine hundred and twenty-one."
26 (b) (1) No person, firm, association or corporation shall
27 act or aid in any manner in negotiating or procuring liability
28 insurance from a nonadmitted insurer on behalf of a purchasing
29 group unless such person, firm, association or corporation is
30 licensed as a surplus lines agent in accordance with section
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1 1415.
2 (2) Notwithstanding the provisions of section 1415, a
3 nonresident of this Commonwealth who acts in this Commonwealth
4 solely on behalf of a purchasing group in obtaining liability
5 insurance with a nonadmitted insurer is exempt from the
6 requirements of maintaining an office in this Commonwealth in
7 order to obtain a surplus lines agent's license for the limited
8 purpose of effecting coverage for such purchasing group.
9 (c) Every person, firm, association or corporation licensed
10 pursuant to the provisions of this section shall inform each
11 prospective insured of the provisions of the notice required by
12 section 1305(a) in the case of a risk retention group and by
13 section 1310(c) in the case of a purchasing group.
14 (d) This section shall not apply to officers or salaried
15 employes of any risk retention group or purchasing group who do
16 not solicit, negotiate or place risks.
17 Section 1315. Financial Responsibility.--(a) Whenever,
18 pursuant to the laws of this Commonwealth or any local law, a
19 demonstration of financial responsibility is required as a
20 condition for obtaining a license or permit to undertake
21 specified activities, if any such requirement may be satisfied
22 only by obtaining insurance coverage from an admitted insurer or
23 nonadmitted insurer that qualifies as an eligible surplus lines
24 insurer, such requirement may not be satisfied by purchasing
25 insurance from a risk retention group not chartered and licensed
26 in this Commonwealth or through a purchasing group which has
27 purchased coverage from a risk retention group not chartered and
28 licensed in this Commonwealth.
29 (b) Any risk retention group and any insurer who transacts
30 the business of insurance in this Commonwealth with a purchasing
19910H1670B4196 - 97 -
1 group or its members shall not be exempt from the policy form or
2 coverage requirements of 75 Pa.C.S. Ch. 17 (relating to
3 financial responsibility).
4 Section 1316. Order of United States District Court.--An
5 order issued by any district court of the United States
6 enjoining a risk retention group from soliciting or selling
7 insurance, or operating in any state, or in all states or in any
8 territory or possession of the United States, upon a finding
9 that such a group is in a hazardous financial or financially
10 impaired condition shall be enforceable in the courts of this
11 Commonwealth.
12 ARTICLE XIV.
13 SURPLUS LINES.
14 Section 1401. Purpose.--The purpose of this article is to
15 protect the public interest by:
16 (1) Protecting persons seeking insurance in this
17 Commonwealth.
18 (2) Permitting surplus lines insurance to be placed with
19 reputable and financially sound nonadmitted insurers and
20 exported from this Commonwealth pursuant to this article.
21 (3) Establishing a system of regulation which will permit
22 orderly access to surplus lines insurance in this Commonwealth
23 and encouraging insurers to make new and innovative types of
24 insurance available to consumers in this Commonwealth.
25 (4) Protecting revenues of this Commonwealth.
26 Section 1402. Definitions.--As used in this article the
27 following words and phrases shall have the meanings given to
28 them in this section:
29 "Admitted insurer." An insurer licensed to do an insurance
30 business in this Commonwealth.
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1 "Capital." The term, as used in the financial requirements
2 of section 1405, means funds paid for stock or other evidence of
3 ownership.
4 "Commissioner." The Insurance Commissioner of the
5 Commonwealth.
6 "Department." The Insurance Department of the Commonwealth.
7 "Eligible surplus lines insurer." A nonadmitted insurer with
8 which a surplus lines licensee may place surplus lines insurance
9 under section 1404.
10 "Export." To place surplus lines insurance with either a
11 nonadmitted insurer or an eligible surplus lines insurer in
12 accordance with this article.
13 "Independently procured insurance." Any insurance which a
14 resident of this Commonwealth directly negotiates with and
15 purchases, continues or renews from a nonadmitted insurer
16 without securing the services of an insurance agent, broker or
17 surplus lines licensee, whether the agent or broker holds a
18 resident or nonresident license issued by the department.
19 "Kind of insurance." One of the types of insurance required
20 to be reported in the annual statement which must be filed with
21 the department by admitted insurers.
22 "Nonadmitted insurer." An insurer not authorized and not
23 licensed to do an insurance business in this Commonwealth. The
24 term includes insurance exchanges as authorized under the laws
25 of various states.
26 "Producing broker." The broker dealing directly with the
27 party seeking insurance.
28 "Purchasing group." An entity formed to purchase liability
29 insurance under the Risk Retention Amendments of 1986 (Public
30 Law 99-563, 100 Stat. 3170).
19910H1670B4196 - 99 -
1 "Risk retention group." An insurer organized to do business
2 under the Risk Retention Amendments of 1986 (Public Law 99-563,
3 100 Stat. 3170).
4 "Surplus." The term, as used in the financial requirements
5 of section 1405, means funds over and above liabilities and
6 capital of the company for the protection of its policyholders.
7 "Surplus lines insurance." Any insurance of risks resident,
8 located or to be performed in this Commonwealth, permitted to be
9 placed through a surplus lines licensee with a nonadmitted
10 insurer eligible to accept such insurance, other than
11 reinsurance, wet marine and transportation insurance,
12 independently procured insurance, life and health insurance and
13 annuities and coverage obtained from risk retention groups under
14 the Risk Retention Amendments of 1986 (Public Law 99-563, 100
15 Stat. 3170).
16 "Surplus lines licensee." An individual, partnership or
17 corporation licensed under section 1415 to place surplus lines
18 insurance with nonadmitted insurers eligible to accept such
19 insurance.
20 "Wet marine and transportation insurance." Any of the
21 following:
22 (1) Insurance upon vessels, crafts or hulls and of interests
23 therein or with relation thereto.
24 (2) Insurance of marine builder's risks, marine war risks
25 and contracts of marine protection and indemnity insurance.
26 (3) Insurance of freights and disbursements pertaining to a
27 subject of insurance coming within this definition.
28 (4) Insurance of personal property and interest therein, in
29 the course of exportation from or importation into any country,
30 or in the course of transportation coastwise or on inland
19910H1670B4196 - 100 -
1 waters, including transportation by land, water or air from
2 point of origin to final destination, in connection with any and
3 all risks or perils of navigation, transit or transportation,
4 and while being prepared for and while awaiting shipment, and
5 during any delays, transshipment or reshipment incident thereto.
6 Section 1403. Acting for or Aiding Nonadmitted Insurers.--
7 (a) No person in this Commonwealth shall directly or indirectly
8 act as agent for, or otherwise represent or aid on behalf of
9 another, any nonadmitted insurer in the solicitation,
10 negotiation, procurement or effectuation of insurance, or
11 renewals thereof, or forwarding of applications, or delivery of
12 policies or contracts or inspection of risks, or fixing of
13 rates, or investigation or adjustment of claims or losses, or
14 collection or forwarding of premiums, or in any other manner
15 represent or assist such insurer in the transaction of
16 insurance.
17 (b) If the nonadmitted insurer is not an eligible surplus
18 lines insurer and fails to pay a claim or loss within the
19 provisions of the insurance contract, a person who assisted or
20 in any manner aided, directly or indirectly, in the procurement
21 of the insurance contract shall be liable to the insured for the
22 full amount payable under the provisions of the insurance
23 contract.
24 (c) This section does not apply to any of the following:
25 (1) Surplus lines insurance if it is effected and written
26 pursuant to this article.
27 (2) Insurance effected with a nonadmitted insurer pursuant
28 to sections 1406 and 1410.
29 (3) Transactions for which a certificate of authority to do
30 business is not required of an insurer under the insurance laws
19910H1670B4196 - 101 -
1 of this Commonwealth.
2 (4) Reinsurance.
3 (5) Wet marine and transportation insurance.
4 (6) Transactions subsequent to issuance of a policy not
5 covering domestic risks at time of issuance and lawfully
6 solicited, written or delivered outside of this Commonwealth.
7 (7) Transactions involving risk retention groups chartered
8 and licensed outside of this Commonwealth.
9 Section 1404. Placement of Surplus Lines Insurance.--
10 Insurance may be procured through a surplus lines licensee from
11 nonadmitted insurers if the following requirements are met:
12 (1) Each insurer is an eligible surplus lines insurer.
13 (2) The placement satisfies the criteria set forth in at
14 least one of the following subparagraphs:
15 (i) The full amount or kind of insurance cannot be obtained
16 from admitted insurers. Such full amount or kind of insurance,
17 or any portion thereof, may be procured from eligible surplus
18 lines insurers, provided that a diligent search is made among
19 the admitted insurers who are writing, in this Commonwealth,
20 coverage comparable to the coverage being sought.
21 (ii) The full amount or kind of insurance cannot be obtained
22 from any admitted insurers because no such insurers are writing
23 coverage comparable to the coverage being sought.
24 (iii) The kind of insurance sought to be obtained from
25 admitted insurers requires a unique form of coverage not
26 available in the admitted market.
27 (3) The policy or contract form used by the insurer does not
28 differ materially from policies or contracts customarily used by
29 admitted insurers for the kind of insurance involved. Coverage
30 may be placed in an eligible surplus lines insurer using a
19910H1670B4196 - 102 -
1 unique form or policy designed for the kind of insurance if a
2 copy of such form is filed with the department by the surplus
3 lines licensee desiring to use it simultaneously with the
4 affidavit required by section 1409.
5 (4) All other requirements of this article are met.
6 Section 1405. Requirements for Eligible Surplus Lines
7 Insurers.--(a) No surplus lines licensee shall place any
8 coverage with a nonadmitted insurer unless, at the time of
9 placement, such nonadmitted insurer:
10 (1) Is of good repute and financial integrity.
11 (2) Qualifies under any of the following subparagraphs:
12 (i) Has policyholder surplus equal to or greater than two
13 times the minimum capital and surplus required to be fully
14 licensed in this Commonwealth. Two years from the effective date
15 of this article is granted to allow those nonadmitted insurers
16 which are eligible surplus lines insurers on the effective date
17 of this article to achieve this capital and surplus requirement.
18 If an alien insurer, as defined by the act of December 10, 1974
19 (P.L.804, No.266), referred to as the Alien Insurer
20 Domestication Law, it shall maintain in the United States an
21 irrevocable trust fund in either a national bank or a member of
22 the Federal Reserve System, in an amount not less than that
23 currently required by the National Association of Insurance
24 Commissioners' Nonadmitted Insurers Information Office for the
25 protection of all of its policyholders in the United States, and
26 such trust fund consists of cash, securities, letters of credit
27 or investments of substantially the same character and quality
28 as those which are eligible investments for admitted insurers
29 authorized to write like kinds of insurance in this
30 Commonwealth. Such trust fund will be in addition to the capital
19910H1670B4196 - 103 -
1 and surplus required in this subparagraph and shall have an
2 expiration date which at no time shall be less than five years.
3 (ii) Is any Lloyd's or other similar unincorporated group of
4 alien individual insurers that maintains a trust fund of not
5 less than fifty million ($50,000,000) dollars as security to the
6 full amount thereof for all policyholders and creditors in the
7 United States of each member of the group. Such trust funds
8 shall likewise comply with the terms and conditions established
9 in subparagraph (i) for alien insurers.
10 (iii) Is an insurance exchange created by the laws of
11 individual states that maintains capital and surplus, or the
12 substantial equivalent thereof, of not less than fifteen million
13 ($15,000,000) dollars in the aggregate. For insurance exchanges
14 which maintain funds for the protection of all insurance
15 exchange policyholders, each individual syndicate shall maintain
16 minimum capital and surplus, or the substantial equivalent
17 thereof, of not less than one million five hundred thousand
18 ($1,500,000) dollars. In the event the insurance exchange does
19 not maintain funds for the protection of all insurance exchange
20 policyholders, each individual syndicate shall meet the minimum
21 capital and surplus requirements of subparagraph (i).
22 (3) Has provided to the department a copy of its current
23 annual financial statement certified by such insurer, such
24 statement to be provided no more than thirty (30) days after the
25 date required for filing an annual financial statement in its
26 domiciliary jurisdiction and which is either:
27 (i) certified by the regulatory authority in the domicile of
28 the insurer; or
29 (ii) certified by an accounting or auditing firm licensed in
30 the jurisdiction of the insurer's domicile.
19910H1670B4196 - 104 -
1 In the case of an insurance exchange, the statement may be an
2 aggregate statement of all underwriting syndicates operating
3 during the period reported.
4 (b) In addition to meeting the requirements in subsection
5 (a), a nonadmitted insurer shall be an eligible surplus lines
6 insurer if it appears on the most recent list of eligible
7 surplus lines insurers published by the department from time to
8 time but at least semiannually. Nothing in this section shall
9 require the department to place or maintain the name of any
10 nonadmitted insurer on the list of eligible surplus lines
11 insurers.
12 Section 1406. Other Nonadmitted Insurers.--Only that
13 portion, not to exceed twenty-five per centum (25%), of any risk
14 eligible for export for which the full amount of coverage is not
15 procurable from either admitted insurers or eligible surplus
16 lines insurers may be placed with any other nonadmitted insurer
17 which does not appear on the list of eligible surplus lines
18 insurers published by the department pursuant to section 1405(b)
19 but nonetheless meets the requirements set forth in section
20 1405(a) and any regulations of the department. The surplus lines
21 licensee seeking to provide coverage through a nonadmitted
22 insurer which is not an eligible surplus lines insurer shall
23 make a filing specifying the amount and percentage of each risk
24 along with a full explanation of why the risk could not be
25 placed with admitted or eligible surplus lines insurers and
26 naming the nonadmitted insurer with which placement is intended.
27 At the time of presenting a quotation to the insured, the
28 surplus lines licensee shall present to the insured, or to the
29 producing broker, written notice that a portion of the insurance
30 will be placed with such nonadmitted insurer.
19910H1670B4196 - 105 -
1 Section 1407. Withdrawal of Eligibility from a Surplus Lines
2 Insurer.--If at any time the department has reason to believe
3 that an eligible surplus lines insurer:
4 (1) is in unsound financial condition;
5 (2) is no longer eligible under section 1405;
6 (3) has wilfully violated the laws of this Commonwealth; or
7 (4) does not make reasonably prompt payment of just losses
8 and claims in this Commonwealth or elsewhere;
9 the department may declare it ineligible. The department shall
10 promptly mail notice of all such declarations to each surplus
11 lines licensee and, in the event the department's action is
12 based upon paragraph (4), the notice shall be issued at least
13 thirty (30) days prior to the effective date of the withdrawal
14 of eligibility.
15 Section 1408. Surplus Lines Licensee's Duty to Notify
16 Insured.--At the time of presenting a quotation to the insured,
17 the surplus lines licensee shall present to the insured, or to
18 the producing broker, written notice that the insurance, or a
19 portion thereof, involves placement with nonadmitted insurers.
20 The licensee shall, either directly or through the producing
21 broker, give notice to the insured that:
22 (1) the insurer with which the licensee places the insurance
23 is not licensed by the Pennsylvania Insurance Department and is
24 subject to its limited regulation; and
25 (2) in the event of the insolvency of an eligible surplus
26 lines insurer, losses will not be paid by the Pennsylvania
27 Insurance Guaranty Association.
28 Section 1409. Declarations.--(a) In the case of each
29 placement of insurance in accordance with this article:
30 (1) Within thirty (30) days after the surplus lines licensee
19910H1670B4196 - 106 -
1 has placed insurance with an eligible surplus lines insurer, the
2 producing broker must execute and forward to the surplus lines
3 licensee a written statement, in a form prescribed by the
4 department, declaring that:
5 (i) A diligent effort to procure the desired coverage from
6 admitted insurers was made.
7 (ii) The insured was expressly advised, in writing, prior to
8 placement of the insurance that:
9 (A) the insurer with whom the insurance is to be placed is
10 not admitted to transact business in this Commonwealth and is
11 subject to limited regulation by the department; and
12 (B) in the event of the insolvency of the insurer, losses
13 will not be paid by the Pennsylvania Insurance Guaranty
14 Association.
15 This written declaration shall be open to public inspection.
16 (2) Within forty-five (45) days after insurance has been
17 placed in an eligible surplus lines insurer, the surplus lines
18 licensee shall file with the department a written declaration of
19 his lack of knowledge of how the coverage could have been
20 procured from admitted insurers. The surplus lines licensee
21 shall simultaneously file the written declaration of the
22 producing broker, as set forth in paragraph (1).
23 (3) In a particular transaction where the producing broker
24 and surplus lines licensee are one in the same entity, he shall
25 execute both declarations.
26 (b) Subsection (a) shall not apply to any insurance which
27 has been placed continuously with an eligible surplus lines
28 insurer for a period of at least three consecutive years
29 immediately preceding the current placement. However, within
30 forty-five (45) days after insurance has been placed with an
19910H1670B4196 - 107 -
1 eligible surplus lines insurer, the surplus lines licensee shall
2 file with the department his written declaration on a form
3 prescribed by the department.
4 Section 1410. Exempt Risks.--(a) The diligent search
5 requirements of section 1404(2), the reporting requirements of
6 section 1409(a) and the twenty-five per centum (25%) limitation
7 of section 1406 are not applicable to placements of insurance
8 with nonadmitted insurers for risks of an insured which meets at
9 least three of the following requirements:
10 (1) The insured employs a full-time risk manager or
11 contracts for services from a qualified risk management service.
12 (2) The insured has gross sales in excess of one hundred
13 million ($100,000,000) dollars.
14 (3) The insured regularly employs in excess of 250 full-time
15 employes.
16 (4) The insured has assets in excess of one hundred million
17 ($100,000,000) dollars.
18 (5) The insured has insurance premiums for property and
19 casualty insurance, excluding employe benefits, in excess of two
20 hundred fifty thousand ($250,000) dollars.
21 (6) The insured is seeking insurance for risks resident,
22 located or to be performed in one or more states other than this
23 Commonwealth, and the portion of the total risk ascribable to
24 states other than this Commonwealth exceeds fifty per centum
25 (50%).
26 (b) (1) The diligent search requirement of section 1404(2)
27 and the reporting requirements of section 1409(a) are not
28 applicable to placements of insurance with eligible surplus
29 lines insurers for:
30 (i) Risks of members of a purchasing group established under
19910H1670B4196 - 108 -
1 the Risk Retention Amendments of 1986 (Public Law 99-563, 100
2 Stat. 3170) if all of the insured members of the purchasing
3 group are covered under its group policy or if the members are
4 additional named insureds under the group's policy.
5 (ii) Risks of members of a risk retention group established
6 under the Risk Retention Amendments of 1986.
7 (2) Within forty-five (45) days after insurance has been
8 placed with an eligible surplus lines insurer for members of a
9 purchasing group or risk retention groups by a surplus lines
10 licensee, the licensee shall file with the department his
11 written declaration, reporting the transaction on a form
12 prescribed by the department.
13 Section 1411. Surplus Lines Advisory Organizations.--(a) A
14 surplus lines advisory organization of surplus lines licensees
15 may be formed to:
16 (1) Facilitate and encourage compliance by its members with
17 the laws of this Commonwealth and the rules and regulations of
18 the department relative to surplus lines insurance.
19 (2) Provide means for the examination, which shall remain
20 confidential, of all surplus lines coverages written by its
21 members to determine whether such coverages comply with such
22 laws and regulations.
23 (3) Communicate with organizations of admitted insurers with
24 respect to the proper use of the surplus lines market.
25 (4) Receive and disseminate to its members information
26 relative to surplus lines insurance.
27 (b) The functions of the organization shall in no way
28 supplant or delegate current regulatory authority of the
29 department to administer the provisions of this article.
30 (c) Each such advisory organization shall file with the
19910H1670B4196 - 109 -
1 department for approval:
2 (1) A copy of its constitution, its articles of agreement or
3 association or its certificate of incorporation.
4 (2) A copy of its bylaws, rules and regulations governing
5 its activities.
6 (3) A current list of its members.
7 (4) The name and address of a resident of this Commonwealth
8 upon whom notices or orders of the department or processes
9 issued at its direction may be served.
10 (5) An agreement that the department may examine such
11 advisory organization in accordance with the provisions of this
12 section.
13 (d) The department shall, at least once every four years,
14 make or cause to be made an examination of each such advisory
15 organization. The reasonable cost of any such examination shall
16 be paid by the advisory organization upon presentation to it by
17 the department of a detailed account of each cost. The officers,
18 managers, agents and employes of such advisory organization may
19 be examined at any time, under oath, and shall exhibit all
20 books, records, accounts, documents or agreements governing its
21 method of operation. The department shall furnish two copies of
22 the examination report to the advisory organization examined and
23 shall notify such organization that it may, within twenty (20)
24 days thereof, request a hearing on the report or on any facts or
25 recommendations therein. If the department finds such advisory
26 organization or any member thereof to be in violation of this
27 article, it may issue a cease and desist order requiring the
28 discontinuance of such violation and may impose any other
29 penalties as set forth in this article.
30 (e) The department may contract with a surplus lines
19910H1670B4196 - 110 -
1 advisory organization to render advice and assistance in
2 carrying out the purposes of this article. The services
3 performed by the advisory organization pursuant to such contract
4 may be funded by a stamping fee assessed on each surplus lines
5 policyholder whose policy is submitted to the advisory
6 organization. The stamping fee shall be established by the board
7 of governors of the advisory organization, from time to time,
8 and shall be subject to approval by the department.
9 (f) The advisory organization may submit reports and make
10 recommendations to the department regarding the financial
11 condition of any eligible surplus lines insurer. These reports
12 and recommendations shall not be considered to be public
13 information or subject to any Federal or State freedom of
14 information law. There shall be no liability on the part of, nor
15 shall any cause of action of any nature be sustained against,
16 eligible surplus lines insurers, the advisory organization or
17 its members, agents, employes or directors, or the department or
18 authorized representatives of the department, for statements and
19 any reports or recommendations made by them in good faith under
20 this section.
21 (g) By order of the department, a surplus lines licensee may
22 be compelled to join an advisory organization as a condition of
23 continued licensure under this article.
24 Section 1412. Evidence of Insurance.--(a) Upon placing
25 surplus lines insurance, the surplus lines licensee shall
26 deliver to the insured or the producing broker the contract of
27 insurance. If the contract of insurance is not immediately
28 available, a cover note, binder or other evidence of insurance
29 shall be delivered by the surplus lines licensee to the insured
30 or the producing broker and shall, at a minimum, show the
19910H1670B4196 - 111 -
1 description and location of the subject of insurance, coverages,
2 including any material limitations other than those in standard
3 forms, the premium and rate charged and taxes to be collected
4 from the insured, the name and address of the insured and the
5 eligible surplus lines insurer and other nonadmitted insurer
6 involved under section 1406 and proportion of the risk assumed
7 by each, and the name of the surplus lines licensee.
8 (b) No surplus lines licensee shall bind or provide evidence
9 of insurance unless he has authority from the eligible surplus
10 lines insurer or other nonadmitted insurer to bind the risk or
11 has received information from the insurer in the regular course
12 of business that it has assumed the risk.
13 (c) If, after delivery of any such evidence of insurance,
14 there is any change in the identity of the eligible surplus
15 lines insurer, or the proportion of the risk assumed by any
16 nonadmitted insurer, or any other material change in coverage as
17 stated in the surplus lines licensee's original evidence of
18 insurance, or any other material change as to the insurance
19 coverage so evidenced, the surplus lines licensee shall promptly
20 issue and deliver to the insured or to the original producing
21 broker an appropriate substitute for, or endorsement of, the
22 original document accurately showing the current status of the
23 coverage and the insurer responsible thereunder.
24 (d) Every evidence of insurance negotiated, placed or
25 procured under the provisions of this article issued by the
26 surplus lines licensee shall bear the name of the licensee and
27 the following legend in 10-point type: "The insurer which has
28 issued this insurance is not licensed by the Pennsylvania
29 Insurance Department and is subject to limited regulation. This
30 insurance is NOT covered by the Pennsylvania Insurance Guaranty
19910H1670B4196 - 112 -
1 Association."
2 Section 1413. Valid Surplus Lines Insurance.--Contracts of
3 insurance procured under this article shall be valid and
4 enforceable as to all parties. Nothing in this article shall be
5 interpreted to prevent an insured from enforcing his rights
6 under the terms and conditions of a contract of insurance
7 entered into in violation of this article.
8 Section 1414. Effect of Payment to Surplus Lines Licensee.--
9 A payment of premium to the producing broker or to a surplus
10 lines licensee acting for a person other than himself in
11 negotiating, continuing or reviewing any contract of insurance
12 under this article shall be deemed to be payment to the insurer,
13 whatever conditions or stipulations may be inserted in the
14 contract notwithstanding.
15 Section 1415. Licensing of Surplus Lines Licensee.--(a) No
16 agent or broker licensed by the department shall transact
17 surplus lines insurance with any nonadmitted insurer unless such
18 agent or broker possesses a valid surplus lines agent's license
19 issued by the department.
20 (b) The department shall issue a surplus lines agent's
21 license to any resident of this Commonwealth who is a qualified
22 holder of a current property and casualty broker's license, but
23 only when the broker has complied with the following:
24 (1) Remitted the license fee to the department.
25 (2) Submitted a properly completed license application on a
26 form supplied by the department.
27 (3) Passed a qualifying examination approved by the
28 department, except that all holders of a license prior to the
29 effective date of this article shall be deemed to have passed
30 such an examination.
19910H1670B4196 - 113 -
1 (4) Filed with the department, and maintained concurrent
2 with the term of the license, in force and unimpaired, a bond in
3 favor of the Commonwealth of Pennsylvania in the penal sum of at
4 least fifty thousand ($50,000) dollars, aggregate liability,
5 with corporate sureties approved by the department. The bond
6 shall be conditioned that the surplus lines licensee will
7 conduct business in accordance with the provisions of this
8 article and will promptly remit the taxes as provided by law. No
9 bond shall be terminated except for nonpayment of premiums.
10 Termination notice shall be given to the surplus lines licensee
11 and to the department at least thirty (30) days prior to the
12 termination date.
13 (c) Corporations and partnerships shall be eligible to be
14 resident surplus lines licensees, upon the following conditions:
15 (1) The corporation or partnership licensee shall list all
16 employes, including at least one active officer or partner, who
17 have satisfied the requirements of this article to become
18 surplus lines licensees.
19 (2) Only those employes resident in this Commonwealth
20 holding a certificate of eligibility may transact surplus lines
21 insurance.
22 (d) Each surplus lines license shall expire on the last day
23 of February of each year and shall be renewed before March 1 of
24 each year upon payment of the annual fee, in compliance with
25 other provisions of this section. Any surplus lines licensee who
26 fails to apply for renewal of a license before expiration of the
27 current license shall pay a penalty of two times the license fee
28 and be subject to other penalties as provided by law before his
29 license will be renewed.
30 Section 1416. Surplus Lines Licensees May Accept Business
19910H1670B4196 - 114 -
1 from Brokers.--A surplus lines licensee may originate surplus
2 lines insurance or accept such insurance from any broker duly
3 licensed as to the kind or kinds of insurance involved, and the
4 surplus lines licensee may compensate such broker therefor.
5 Section 1417. Compliance with Law by Two or More Surplus
6 Lines Licensees.--(a) When two or more surplus lines licensees
7 are involved in a transaction subject to this article, the
8 surplus lines licensee dealing directly with or closest to the
9 insured is responsible for compliance with sections 1404, 1408,
10 1409, 1412, 1419 and 1421.
11 (b) This provision shall not serve to relieve any surplus
12 lines licensee involved in any transaction subject to this
13 article from compliance with any other section of this article.
14 Section 1418. Surplus Lines Licensee with Binding
15 Authority.--Any surplus lines licensee who is granted binding or
16 underwriting authority by an eligible surplus lines insurer
17 shall be subject to regulations and rules promulgated, from time
18 to time, by the department.
19 Section 1419. Records of Surplus Lines Licensee.--(a) Each
20 surplus lines licensee shall keep in its office in this
21 Commonwealth a full and true record of each surplus lines
22 insurance contract placed by or through it, including a copy of
23 the policy, certificate, cover note or other evidence of
24 insurance, showing such of the following items as may be
25 applicable:
26 (1) Amount of the insurance and perils insured.
27 (2) Brief description of the risk insured and its location.
28 (3) Gross premium charged.
29 (4) Any return premium paid.
30 (5) Rate of premium charged for each risk insured.
19910H1670B4196 - 115 -
1 (6) Effective date and terms of the contract.
2 (7) Name and address of the insured.
3 (8) Name and address of the eligible surplus lines insurer
4 and any nonadmitted insured involved pursuant to section 1406.
5 (9) Amount of tax and other sums to be collected from the
6 insured.
7 (10) Identity of the producing broker, any confirming
8 correspondence from the insurer or its representative and the
9 application.
10 (11) A copy of the written notice required by section 1408.
11 (b) The record of each contract shall be kept open at all
12 reasonable times to examination by the department without notice
13 for a period of not less than five years following termination
14 of the contract.
15 Section 1420. Monthly Reports.--Within thirty (30) days
16 following the end of each month, each surplus lines licensee
17 shall file with the department, on forms prescribed by the
18 department, a verified report in duplicate of all surplus lines
19 insurance transacted during the preceding month.
20 Section 1421. Surplus Lines Tax.--(a) There is hereby
21 levied a tax of three per centum (3%) on all premiums charged
22 for insurance which is placed with either an eligible surplus
23 lines insurer (other than a risk retention group) or other
24 nonadmitted insurer in accordance with this article, such taxes
25 to be based on the gross premiums charged less any return
26 premiums. This tax shall be in addition to the full amount of
27 the gross premium charged by the insurer for the insurance. The
28 tax on any unearned portion of the premium shall be returned to
29 the insured.
30 (b) Neither the surplus lines licensee, nor the producing
19910H1670B4196 - 116 -
1 broker, shall pay directly or indirectly such tax or any portion
2 thereof, either as an inducement to the insured to purchase the
3 insurance or for any other reason.
4 (c) The surplus lines licensee shall collect from the
5 insured or the producing broker the amount of the tax at the
6 time of delivery of the initial policy, cover note or other
7 evidence of insurance or at such time thereafter as is
8 reasonably consistent with normal credit terms customary in the
9 business. Each surplus lines licensee shall, on or before
10 January 31 of each year, file with the Department of Revenue a
11 report of all transactions involving the placement of insurance
12 with either an eligible surplus lines insurer or other
13 nonadmitted insurers during the previous calendar year. The
14 report shall set forth the name of the insured, identification
15 of the insurer, the type of insurance, gross premiums charged
16 less any return premiums allowed and the tax due as provided in
17 this section. The remittance for the taxes due shall accompany
18 this report. Such report shall be made on forms prescribed and
19 furnished by the Department of Revenue. A copy of the report
20 shall be filed with the commissioner by the surplus lines
21 licensee.
22 (d) In the event that a placement of insurance involves
23 subjects of insurance resident, located or to be performed in
24 one or more states other than this Commonwealth, then the
25 premium taxes provided for in this section shall be levied only
26 on that portion of the premium reasonably ascribable to that
27 portion of the risk situated in this Commonwealth.
28 (e) With respect to insurance placed with or issued by a
29 risk retention group which is an eligible surplus lines insurer,
30 there is hereby levied a tax of two per centum (2%) on all
19910H1670B4196 - 117 -
1 premiums charged for risks resident, located or to be performed
2 in this Commonwealth. The risk retention group shall be
3 responsible for the payment of the taxes levied in this article
4 in accordance with procedures set forth in Article XIII.
5 (f) The settlement and resettlement of taxes imposed by this
6 article, including the granting of extensions of time to file
7 reports and the rights of the taxpayers to present and prosecute
8 a petition for resettlement, a petition for review or an appeal
9 to court or to file a petition for refund and the imposition of
10 interest and penalties, shall be governed by the provisions of
11 the act of March 4, 1971 (P.L.6, No.2), known as the "Tax Reform
12 Code of 1971," as approved in the case of capital stock and
13 franchise taxes.
14 Section 1422. Tax on Independently Procured Insurance.--The
15 tax provided by section 1421(a) is imposed upon an insured who
16 independently procures insurance on a subject of insurance
17 resident, located or to be performed in this Commonwealth from a
18 nonadmitted insurer or continues or renews such independently
19 procured insurance. The insured shall, within thirty (30) days
20 after the date when such insurance was independently procured,
21 continued or renewed, report such transaction on forms
22 prescribed by the Department of Revenue. This report shall set
23 forth the information required of surplus lines licensees as
24 required in section 1421(c). The tax of three per centum (3%)
25 shall be paid on the date the report is due as provided in this
26 section. If the independently procured insurance covers risks
27 resident, located or to be performed in one or more states other
28 than this Commonwealth, the premium taxes shall be prorated in
29 accordance with provisions in section 1421(d). A copy of such
30 report shall be filed with the commissioner by the insured.
19910H1670B4196 - 118 -
1 Section 1423. Suspension, Revocation or Nonrenewal of
2 Surplus Lines Licensee's License.--The department may suspend,
3 revoke or refuse to renew the license of a surplus lines
4 licensee after notice and a hearing, as provided under the
5 applicable provision of the laws of this Commonwealth, upon any
6 one or more of the following grounds:
7 (1) Removal of the resident surplus lines licensee's office
8 from this Commonwealth.
9 (2) Removal of the resident surplus lines licensee's
10 accounts and records from this Commonwealth during the period
11 during which such accounts and records are required to be
12 maintained under section 1419.
13 (3) Closing of the surplus lines licensee's office for a
14 period of more than thirty (30) business days, unless permission
15 is granted by the department.
16 (4) Failure to make and file required reports.
17 (5) Failure to transmit required tax on surplus lines
18 premiums.
19 (6) Failure to maintain required bonds.
20 (7) Failure to remit premiums due insurers or return
21 premiums due insureds in the normal course of business and
22 within reasonable time limits.
23 (8) Violation of any provision of this article.
24 (9) For any other cause for which an insurance agent's or
25 broker's license could be denied, revoked or suspended or
26 refused upon renewal.
27 Section 1424. Service of Process in Actions Against Surplus
28 Lines Insurer.--(a) An eligible surplus lines insurer may be
29 sued upon any cause of action arising in this Commonwealth under
30 any surplus lines insurance contract made by it or evidence of
19910H1670B4196 - 119 -
1 insurance issued or delivered by the surplus lines licensee.
2 Service of process shall be made pursuant to the procedures
3 provided by 42 Pa.C.S. Ch. 53 Subch. B (relating to interstate
4 and international procedure). Any such policy delivered by the
5 surplus lines licensee shall contain a provision stating the
6 substance of this section and designating the person to whom
7 process shall be mailed.
8 (b) Each nonadmitted insurer accepting surplus lines
9 insurance shall be deemed thereby to have subjected itself to
10 accepting service of process under 42 Pa.C.S. Ch. 53 Subch. B.
11 (c) The service of process procedures provided in this
12 section are in addition to any other methods provided by law for
13 service of process upon insurers.
14 Section 1425. Penalties.--(a) Any surplus lines licensee
15 who, in this Commonwealth, represents or aids a nonadmitted
16 insurer in violation of this article commits a misdemeanor of
17 the third degree and shall, upon conviction, be sentenced to pay
18 a fine of not more than one thousand ($1,000) dollars.
19 (b) In addition to any other penalty provided for in
20 subsection (a) or otherwise provided by law, including any
21 suspension, revocation or refusal to renew a license, any
22 person, firm, association or corporation violating any provision
23 of this article shall be liable to a civil penalty not exceeding
24 one thousand ($1,000) dollars for the first offense, and not
25 exceeding two thousand ($2,000) dollars for each succeeding
26 offense.
27 (c) The penalties in this section are not exclusive
28 remedies. Penalties may also be assessed under the act of July
29 22, 1974 (P.L.589, No.205), known as the "Unfair Insurance
30 Practices Act," and any other applicable statute.
19910H1670B4196 - 120 -
1 ARTICLE XV.
2 LIFE AND HEALTH INSURANCE
3 GUARANTY ASSOCIATION.
4 Section 1501. Purpose.--The purpose of this article is to
5 protect, subject to certain limitations, the persons specified
6 in section 1503(a) against failure in the performance of
7 contractual obligations, under life and health insurance
8 policies and annuity contracts specified in section 1503(b),
9 because of the impairment or insolvency of the member insurer
10 that issued the policies or contracts. To provide this
11 protection, an association of insurers is created to pay
12 benefits and to continue coverages as limited herein, and
13 members of the association are subject to assessment to provide
14 funds to carry out the purpose of this article.
15 Section 1502. Definitions.--As used in this article the
16 following words and phrases shall have the meanings given to
17 them in this section:
18 "Account." Any of the two accounts created under section
19 1504.
20 "Association." The Pennsylvania Life and Health Insurance
21 Guaranty Association created under section 1504.
22 "Commissioner." The Insurance Commissioner of the
23 Commonwealth.
24 "Contractual obligation." Any obligation under a policy or
25 contract or certificate under a group policy or contract, or
26 portion thereof, for which coverage is provided under section
27 1503.
28 "Covered policy." Any policy or contract within the scope of
29 this article under section 1503.
30 "Department." The Insurance Department of the Commonwealth.
19910H1670B4196 - 121 -
1 "Employee Retirement Income Security Act of 1974" or "ERISA."
2 The Employee Retirement Income Security Act of 1974 (Public Law
3 93-406, 29 U.S.C. § 1001 et seq.).
4 "Impaired insurer." A member insurer which, after the
5 effective date of this article, is not an insolvent insurer,
6 and;
7 (1) is deemed by the Insurance Commissioner to be potentially
8 unable to fulfill its contractual obligations; or
9 (2) is placed under an order of rehabilitation or
10 conservation by a court of competent jurisdiction.
11 "Insolvent insurer." A member insurer which after the
12 effective date of this article is placed under an order of
13 liquidation by a court of competent jurisdiction with a finding
14 of insolvency.
15 "Internal Revenue Code of 1986." The Internal Revenue Code
16 of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.).
17 "Member insurer." Any insurer licensed or which holds a
18 certificate of authority to transact in this Commonwealth any
19 kind of insurance for which coverage is provided under section
20 1503 and includes any insurer whose license or certificate of
21 authority in this Commonwealth may have been suspended, revoked,
22 not renewed or voluntarily withdrawn. The term does not include
23 any of the following:
24 (1) A nonprofit hospital or medical service organization.
25 (2) A health maintenance organization.
26 (3) A fraternal benefit society.
27 (4) A mandatory State pooling plan.
28 (5) A mutual assessment company or any entity that operates
29 on an assessment basis.
30 (6) An insurance exchange.
19910H1670B4196 - 122 -
1 (7) Any entity similar to any of the above.
2 "Moody's Corporate Bond Yield Average." The Monthly Average
3 Corporates as published by Moody's Investors Service, Inc., or
4 any successor thereto.
5 "Person." Any individual, corporation, partnership,
6 association or voluntary organization.
7 "Premiums." The amounts received on covered policies or
8 contracts less premiums, considerations and deposits returned
9 thereon, and less dividends and experience credits thereon. The
10 term does not include any amounts received for any policies or
11 contracts or for the portions of any policies or contracts for
12 which coverage is not provided under section 1503(b) except that
13 assessable premium shall not be reduced on account of sections
14 1503(b)(2)(iii) relating to interest limitations and
15 1503(c)(1)(ii) relating to limitations with respect to any one
16 individual, any one participant and any one contract holder. The
17 term does not include any premiums in excess of five million
18 ($5,000,000) dollars on any unallocated annuity contract not
19 issued under a governmental retirement plan established under
20 section 401, 403(b) or 457 of the Internal Revenue Code of 1986
21 (Public Law 99-514, 26 U.S.C. § 1 et seq.).
22 "Resident." Any person who resides in this Commonwealth at
23 the time a member insurer is determined to be an impaired or
24 insolvent insurer and to whom a contractual obligation is owed.
25 A person may be a resident of only one state, which in the case
26 of a person other than a natural person shall be its principal
27 place of business.
28 "Supplemental contract." Any agreement entered into for the
29 distribution of policy or contract proceeds.
30 "Unallocated annuity contract." Any annuity contract or
19910H1670B4196 - 123 -
1 group annuity certificate which is not issued to and owned by an
2 individual, except to the extent of any annuity benefits
3 guaranteed to an individual by an insurer under such contract or
4 certificate.
5 Section 1503. Coverage and Limitations.--(a) This article
6 shall provide coverage to the following persons for the policies
7 and contracts specified in subsection (b):
8 (1) To persons who, regardless of where they reside, except
9 for nonresident certificate holders under group policies or
10 contracts, are the beneficiaries, assignees or payees of the
11 persons covered under paragraph (2).
12 (2) To persons who are owners of or certificate holders
13 under these policies or contracts or, in the case of unallocated
14 annuity contracts, to the persons who are the contract holders,
15 and who:
16 (i) are residents; or
17 (ii) are not residents, but only under all of the following
18 conditions:
19 (A) the insurers which issued such policies or contracts are
20 domiciled in this Commonwealth;
21 (B) such insurers never held a license or certificate of
22 authority in the states in which such persons reside;
23 (C) these states have associations similar to the
24 association created by this article; and
25 (D) these persons are not eligible for coverage by those
26 associations.
27 (b) (1) This article shall provide coverage to the persons
28 specified in subsection (a) for direct, nongroup life, health,
29 annuity and supplemental policies or contracts, for certificates
30 under direct group policies and contracts, and for unallocated
19910H1670B4196 - 124 -
1 annuity contracts issued by member insurers, except as limited
2 by this article. Annuity contracts and certificates under group
3 annuity contracts include, but are not limited to, guaranteed
4 investment contracts, deposit administration contracts,
5 unallocated funding agreements, allocated funding agreements,
6 structured settlement agreements, lottery contracts and any
7 immediate or deferred annuity contracts.
8 (2) This article shall not provide coverage for any of the
9 following:
10 (i) Any portion of a policy or contract not guaranteed by
11 the insurer, or under which the risk is borne by the policy or
12 contract holder.
13 (ii) Any policy or contract of reinsurance, unless
14 assumption certificates have been issued.
15 (iii) Any portion of a policy or contract to the extent that
16 the rate of interest on which it is based:
17 (A) averaged over the period of four (4) years prior to the
18 date on which the association becomes obligated with respect to
19 such policy or contract, exceeds a rate of interest determined
20 by subtracting two (2) percentage points from Moody's Corporate
21 Bond Yield Average averaged for the same four-year period or for
22 such lesser period if the policy or contract was issued less
23 than four (4) years before the association became obligated; and
24 (B) on and after the date on which the association becomes
25 obligated with respect to such policy or contract, exceeds the
26 rate of interest determined by subtracting three (3) percentage
27 points from Moody's Corporate Bond Yield Average as most
28 recently available.
29 (iv) Any plan or program of an employer, association or
30 similar entity to provide life, health or annuity benefits to
19910H1670B4196 - 125 -
1 its employes or members to the extent that such plan or program
2 is self-funded or uninsured, including, but not limited to,
3 benefits payable by an employer, association or similar entity
4 under:
5 (A) a Multiple Employer Welfare Arrangement as defined in
6 section 514 of the Employee Retirement Income Security Act of
7 1974;
8 (B) a minimum premium group insurance plan;
9 (C) a stop-loss group insurance plan; or
10 (D) an administrative services only contract.
11 (v) Any portion of a policy or contract to the extent that
12 it provides dividends or experience rating credits, or provides
13 that any fees or allowances to be paid to any person, including
14 the policyholder or contract holder, in connection with the
15 service to or administration of such policy or contract.
16 (vi) Any policy or contract issued in this Commonwealth by a
17 member insurer at a time when it was not licensed or did not
18 have a certificate of authority to issue such policy or contract
19 in this Commonwealth.
20 (vii) Any unallocated annuity contract issued to an employe
21 benefit plan protected under the Federal Pension Benefit
22 Guaranty Corporation.
23 (viii) Any portion of any unallocated annuity contract which
24 is not issued to or in connection with a specific employe, union
25 or association of natural persons benefit plan or a government
26 lottery.
27 (c) (1) The benefits for which the association may become
28 liable shall in no event exceed the lesser of:
29 (i) the contractual obligations for which the insurer is
30 liable or would have been liable if it were not an impaired or
19910H1670B4196 - 126 -
1 insolvent insurer; or
2 (ii) (A) With respect to any one life, regardless of the
3 number of policies or contracts, the following shall apply:
4 (I) Three hundred thousand ($300,000) dollars in life
5 insurance death benefits, but not more than one hundred thousand
6 ($100,000) dollars in net cash surrender and net cash withdrawal
7 values for life insurance.
8 (II) One hundred thousand ($100,000) dollars in health
9 insurance benefits, including any net cash surrender and net
10 cash withdrawal values.
11 (III) Three hundred thousand ($300,000) dollars in annuity
12 benefits, including one hundred thousand ($100,000) dollars in
13 net cash surrender and net cash withdrawal values.
14 (B) With respect to each individual participating in a
15 governmental retirement plan established under section 401,
16 403(b) or 457 of the Internal Revenue Code of 1986 covered by an
17 unallocated annuity contract or the beneficiaries of each such
18 individual if deceased, in the aggregate, three hundred thousand
19 ($300,000) dollars in annuity benefits, including one hundred
20 thousand ($100,000) dollars in net cash surrender and net cash
21 withdrawal values.
22 (C) With respect to any one contract holder covered by any
23 unallocated annuity contract not included in clause (B), five
24 million ($5,000,000) dollars in benefits, irrespective of the
25 number of such contracts held by that contract holder.
26 (2) The association shall not, however, be liable to expend
27 more than three hundred thousand ($300,000) dollars in the
28 aggregate with respect to any one individual under subparagraph
29 (ii)(A) and (B) of paragraph (1).
30 Section 1504. Creation of Association.--(a) There is hereby
19910H1670B4196 - 127 -
1 created a nonprofit, unincorporated association to be known as
2 the Pennsylvania Life and Health Insurance Guaranty Association.
3 All member insurers shall be and remain members of the
4 association as a condition of their authority to transact
5 insurance in this Commonwealth. The association shall perform
6 its functions under the plan of operation established and
7 approved under section 1508 and shall exercise its powers
8 through a board of directors established under section 1505. For
9 purposes of administration and assessment the association shall
10 maintain two accounts:
11 (1) The life insurance and annuity account which includes
12 the following subaccounts:
13 (i) Life insurance account.
14 (ii) Annuity account.
15 (iii) Unallocated annuity account which shall include
16 contracts qualified under section 403(b) of the Internal Revenue
17 Code of 1986.
18 (2) The health insurance account.
19 (b) The association shall come under the immediate
20 supervision of the commissioner and shall be subject to the
21 applicable provisions of the insurance laws of this
22 Commonwealth. Meetings or records of the association may be
23 opened to the public upon majority vote of the board of
24 directors of the association.
25 Section 1505. Board of Directors.--(a) The board of
26 directors of the association shall consist of not less than five
27 (5) nor more than nine (9) member insurers serving terms as
28 established in the plan of operation. The members of the board
29 shall be selected by member insurers subject to the approval of
30 the commissioner. Vacancies on the board shall be filled for the
19910H1670B4196 - 128 -
1 remaining period of the term by a majority vote of the remaining
2 board members, subject to the approval of the commissioner. To
3 select the initial board of directors, and initially organize
4 the association, the commissioner shall give notice to all
5 member insurers of the time and place of the organizational
6 meeting. In determining voting rights at the organizational
7 meeting, each member insurer shall be entitled to one (1) vote
8 in person or by proxy. If the board of directors is not selected
9 within sixty (60) days after notice of the organizational
10 meeting, the commissioner may appoint the initial members.
11 (b) In approving selections or in appointing members to the
12 board, the commissioner shall consider, among other things,
13 whether all member insurers are fairly represented.
14 (c) Members of the board may be reimbursed from the assets
15 of the association for expenses incurred by them as members of
16 the board of directors but members of the board shall not
17 otherwise be compensated by the association for their services.
18 Section 1506. Powers and Duties of Association.--(a) If a
19 member insurer is an impaired domestic insurer, the association
20 may, in its discretion, and subject to any conditions imposed by
21 the association that do not impair the contractual obligations
22 of the impaired insurer, that are approved by the commissioner,
23 and that are, except in cases of court-ordered conservation or
24 rehabilitation, also approved by the impaired insurer:
25 (1) guarantee, assume or reinsure, or cause to be
26 guaranteed, assumed or reinsured, any or all of the policies or
27 contracts of the impaired insurer;
28 (2) provide such moneys, pledges, notes, guarantees or other
29 means as are proper to effectuate paragraph (1) and assure
30 payment of the contractual obligations of the impaired insurer
19910H1670B4196 - 129 -
1 pending action under paragraph (1); or
2 (3) loan money to the impaired insurer.
3 (b) (1) If a member insurer is an impaired insurer, whether
4 domestic, foreign or alien, and the insurer is not paying claims
5 timely; then subject to the preconditions specified in paragraph
6 (2), the association shall, in its discretion, either:
7 (i) take any of the actions specified in subsection (a),
8 subject to the conditions therein; or
9 (ii) provide substitute benefits in lieu of the contractual
10 obligations of the impaired insurer solely for health claims,
11 periodic annuity benefit payments, death benefits, supplemental
12 benefits, and cash withdrawals for policy or contract owners who
13 petition therefor under claims of emergency or hardship in
14 accordance with standards proposed by the association and
15 approved by the commissioner.
16 (2) The association shall be subject to the requirements of
17 paragraph (1) only if:
18 (i) the laws of its state of domicile provide that until all
19 payments of or on account of the impaired insurer's contractual
20 obligations by all guaranty associations, along with all
21 expenses thereof and interest on all such payments and expenses,
22 shall have been repaid to the guaranty associations or a plan of
23 repayment by the impaired insurer shall have been approved by
24 the guaranty associations:
25 (A) the delinquency proceeding shall not be dismissed;
26 (B) neither the impaired insurer nor its assets shall be
27 returned to the control of its shareholders or private
28 management;
29 (C) it shall not be permitted to solicit or accept new
30 business or have any suspended or revoked license restored;
19910H1670B4196 - 130 -
1 (ii) in the case where the impaired insurer is a domestic
2 insurer, it has been placed under an order of rehabilitation by
3 a court of competent jurisdiction in this Commonwealth; or
4 (iii) in the case where the impaired insurer is a foreign or
5 alien insurer, it has been prohibited from soliciting or
6 accepting new business in this Commonwealth, its certificate of
7 authority has been suspended or revoked in this Commonwealth,
8 and a petition for rehabilitation or liquidation has been filed
9 in a court of competent jurisdiction in its state of domicile by
10 the commissioner of the state.
11 (c) If a member insurer is an insolvent insurer, the
12 association shall, in its discretion, either:
13 (1) guarantee, assume or reinsure, or cause to be
14 guaranteed, assumed or reinsured, the policies or contracts of
15 the insolvent insurer;
16 (2) assure payment of the contractual obligations of the
17 insolvent insurer, and provide such moneys, pledges, guarantees
18 or other means as are reasonably necessary to discharge such
19 duties; or
20 (3) with respect only to life and health insurance policies,
21 provide benefits and coverages in accordance with subsection
22 (d).
23 (d) (1) When proceeding under subsection (b)(1)(ii) or
24 (c)(3), the association shall, with respect to only life and
25 health insurance policies, do all of the following:
26 (i) Assure payment of benefits for premiums identical to the
27 premiums and benefits (except for terms of conversion and
28 renewability) that would have been payable under the policies of
29 the insolvent insurer, for claims incurred as follows:
30 (A) With respect to group policies, not later than the
19910H1670B4196 - 131 -
1 earlier of the next renewal date under such policies or
2 contracts or forty-five (45) days, but in no event less than
3 thirty (30) days, after the date on which the association
4 becomes obligated with respect to such policies.
5 (B) With respect to individual policies, not later than the
6 earlier of the next renewal date (if any) under such policies or
7 one year, but in no event less than thirty (30) days, from the
8 date on which the association becomes obligated with respect to
9 such policies.
10 (ii) Make diligent efforts to provide all known insureds or
11 group policyholders with respect to group policies thirty (30)
12 days notice of the termination of the benefits provided.
13 (iii) With respect to individual policies, make available to
14 each known insured, or owner if other than the insured, and with
15 respect to an individual formerly insured under a group policy
16 who is not eligible for replacement group coverage, make
17 available substitute coverage on an individual basis in
18 accordance with the provisions of paragraph (2), if the insureds
19 had a right under law or the terminated policy to convert
20 coverage to individual coverage or to continue an individual
21 policy in force until a specified age or for a specified time,
22 during which the insurer had no right unilaterally to make
23 changes in any provision of the policy or had a right only to
24 make changes in premium by class.
25 (2) (i) In providing the substitute coverage required under
26 paragraph (1)(iii), the association may offer either to reissue
27 the terminated coverage or to issue an alternative policy.
28 (ii) Alternative or reissued policies shall be offered
29 without requiring evidence of insurability, and shall not
30 provide for any waiting period or exclusion that would not have
19910H1670B4196 - 132 -
1 applied under the terminated policy.
2 (iii) The association may reinsure any alternative or
3 reissued policy.
4 (3) (i) Alternative policies adopted by the association
5 shall be subject to the approval of the commissioner. The
6 association may adopt alternative policies of various types for
7 future issuance without regard to any particular impairment or
8 insolvency.
9 (ii) Alternative policies shall contain at least the minimum
10 statutory provisions required in this Commonwealth and provide
11 benefits that shall not be unreasonable in relation to the
12 premium charged. The association shall set the premium in
13 accordance with a table of rates which it shall adopt. The
14 premium shall reflect the amount of insurance to be provided and
15 the age and class of risk of each insured, but shall not reflect
16 any changes in the health of the insured after the original
17 policy was last underwritten.
18 (iii) Any alternative policy issued by the association shall
19 provide coverage of a type similar to that of the policy issued
20 by the impaired or insolvent insurer, as determined by the
21 association.
22 (4) If the association elects to reissue terminated coverage
23 at a premium rate different from that charged under the
24 terminated policy, the premium shall be set by the association
25 in accordance with the amount of insurance provided and the age
26 and class of risk, subject to approval of the commissioner or by
27 a court of competent jurisdiction.
28 (5) The association's obligations with respect to coverage
29 under any policy of the impaired or insolvent insurer or under
30 any reissued or alternative policy shall cease on the date such
19910H1670B4196 - 133 -
1 coverage or policy is replaced by another similar policy by the
2 policyholder, the insured or the association.
3 (e) When proceeding under subsection (b)(1)(ii) or (c) with
4 respect to any policy or contract carrying guaranteed minimum
5 interest rates, the association shall assure the payment or
6 crediting of a rate of interest consistent with section
7 1503(b)(2)(iii).
8 (f) Nonpayment of premiums within thirty-one (31) days after
9 the date required under the terms of any guaranteed, assumed,
10 alternative or reissued policy or contract or substitute
11 coverage shall terminate the association's obligations under
12 such policy or coverage under this article with respect to such
13 policy or coverage, except with respect to any claims incurred
14 or any net cash surrender value which may be due in accordance
15 with the provisions of this article.
16 (g) Premiums due for coverage after entry of an order of
17 liquidation of an insolvent insurer shall belong to and be
18 payable at the direction of the association, and the association
19 shall be liable for unearned premiums due to policy or contract
20 owners arising after the entry of such order.
21 (h) The protection provided by this article shall not apply
22 where any guaranty protection is provided to residents of this
23 Commonwealth by the laws of the domiciliary state or
24 jurisdiction of the impaired or insolvent insurer other than
25 this Commonwealth.
26 (i) In carrying out its duties under subsections (b) and (c)
27 and subject to approval by the court, the association may do the
28 following:
29 (1) Impose permanent policy or contract liens in connection
30 with any guarantee, assumption or reinsurance agreement, if the
19910H1670B4196 - 134 -
1 association finds that the amounts which can be assessed under
2 this article are less than the amounts needed to assure full and
3 prompt performance of the association's duties under this act,
4 or that the economic or financial conditions as they affect
5 member insurers are sufficiently adverse to render the
6 imposition of such permanent policy or contract liens, to be in
7 the public interest.
8 (2) Impose temporary moratoriums or liens on payments of
9 cash values and policy loans, or any other right to withdraw
10 funds held in conjunction with policies or contracts, in
11 addition to any contractual provisions for deferral of cash or
12 policy loan value.
13 (j) If the association fails to act within a reasonable
14 period of time as provided in subsections (b)(1)(ii), (c) and
15 (d) the commissioner shall have the powers and duties of the
16 association under this article with respect to impaired or
17 insolvent insurers.
18 (k) The association may render assistance and advice to the
19 commissioner, upon his request, concerning rehabilitation,
20 payment of claims, continuance of coverage, or the performance
21 of other contractual obligations of any impaired or insolvent
22 insurer.
23 (l) The association shall have standing to appear before any
24 court in this Commonwealth with jurisdiction over an impaired or
25 insolvent insurer concerning which the association is or may
26 become obligated under this article. Such standing shall extend
27 to all matters germane to the powers and duties of the
28 association, including, but not limited to, proposals for
29 reinsuring, modifying or guaranteeing the policies or contracts
30 of the impaired or insolvent insurer and the determination of
19910H1670B4196 - 135 -
1 the policies or contracts and contractual obligations. The
2 association shall also have the right to appear or intervene
3 before a court in another state with jurisdiction over an
4 impaired or insolvent insurer for which the association is or
5 may become obligated or with jurisdiction over a third party
6 against whom the association may have rights through subrogation
7 of the insurer's policyholders.
8 (m) (1) Any person receiving benefits under this article
9 shall be deemed to have assigned the rights under, and any
10 causes of action relating to, the covered policy or contract to
11 the association to the extent of the benefits received because
12 of this article, whether the benefits are payments of or on
13 account of contractual obligations, continuation of coverage or
14 provision of substitute or alternative coverages. The
15 association may require an assignment to it of such rights and
16 cause of action by any payee, policy or contract owner,
17 beneficiary, insured or annuitant as a condition precedent to
18 the receipt of any rights or benefits conferred by this article
19 upon such person.
20 (2) The subrogation rights of the association under this
21 subsection shall have the same priority against the assets of
22 the impaired or insolvent insurer as that possessed by the
23 person entitled to receive benefits under this article.
24 (3) In addition to paragraphs (1) and (2), the association
25 shall have all common law rights of subrogation and any other
26 equitable or legal remedy which would have been available to the
27 impaired or insolvent insurer or holder of a policy or contract
28 with respect to such policy or contracts.
29 (n) The association may do the following:
30 (1) Enter into such contracts as are necessary or proper to
19910H1670B4196 - 136 -
1 carry out the provisions and purposes of this article.
2 (2) Sue or be sued, including taking any legal actions
3 necessary or proper to recover any unpaid assessments under
4 section 1507 and to settle claims or potential claims against
5 it.
6 (3) Borrow money to effect the purposes of this article; any
7 notes or other evidence of indebtedness of the association not
8 in default shall be legal investments for domestic insurers and
9 may be carried as admitted assets.
10 (4) Employ or retain such persons as are necessary to handle
11 the financial transactions of the association, and to perform
12 such other functions as become necessary or proper under this
13 article.
14 (5) Take such legal action as may be necessary to avoid
15 payment of improper claims.
16 (6) Exercise, for the purposes of this article and to the
17 extent approved by the commissioner, the powers of a domestic
18 life or health insurer, but in no case may the association issue
19 insurance policies or annuity contracts other than those issued
20 to perform its obligations under this article.
21 (o) The association may join an organization of one or more
22 other state associations of similar purposes, to further the
23 purposes and administer the powers and duties of the
24 association.
25 Section 1507. Assessments.--(a) For the purpose of
26 providing the funds necessary to carry out the powers and duties
27 of the association, the board of directors shall assess the
28 member insurers, separately for each account, at such time and
29 for such amounts as the board finds necessary. Assessments shall
30 be due not less than thirty (30) days after prior written notice
19910H1670B4196 - 137 -
1 to the member insurers and shall accrue interest at eight per
2 centum (8%) per annum on and after the due date.
3 (b) There shall be two assessments, as follows:
4 (1) Class A assessments shall be made for the purpose of
5 meeting administrative and legal costs and other expenses and
6 examinations conducted under the authority of section 1510(e).
7 Class A assessments may be made whether or not related to a
8 particular impaired or insolvent insurer.
9 (2) Class B assessments shall be made to the extent
10 necessary to carry out the powers and duties of the association
11 under section 1506 with regard to an impaired or an insolvent
12 insurer.
13 (c) (1) The amount of any Class A assessment shall be
14 determined by the board and may be made on a pro rata or non-pro
15 rata basis. If pro rata, the board may provide that it be
16 credited against future Class B assessments. A non-pro rata
17 assessment shall not exceed two hundred ($200) dollars per
18 member insurer in any one calendar year. The amount of any Class
19 B assessment shall be allocated for assessment purposes among
20 the accounts pursuant to an allocation formula which may be
21 based on the premiums or reserves of the impaired or insolvent
22 insurer or any other standard deemed by the board in its sole
23 discretion as being fair and reasonable under the circumstances.
24 (2) Class B assessments against member insurers for each
25 account and subaccount shall be in the proportion that the
26 premiums received on business in this Commonwealth by each
27 assessed member insurer for policies or contracts covered by
28 each account for the three (3) most recent calendar years for
29 which information is available preceding the year in which the
30 insurer became impaired or insolvent, as the case may be, bears
19910H1670B4196 - 138 -
1 to such premiums received on business in this Commonwealth for
2 such calendar years by all assessed member insurers.
3 (3) Assessments for funds to meet the requirements of the
4 association with respect to an impaired or insolvent insurer
5 shall not be made until necessary to implement the purposes of
6 this article. Classification of assessments under subsection (b)
7 and computation of assessments under this subsection shall be
8 made with a reasonable degree of accuracy, recognizing that
9 exact determinations may not always be possible.
10 (d) The association may abate or defer, in whole or in part,
11 the assessment of a member insurer if, in the opinion of the
12 board, payment of the assessment would endanger the ability of
13 the member insurer to fulfill its contractual obligations. In
14 the event an assessment against a member insurer is abated, or
15 deferred in whole or in part, the amount by which such
16 assessment is abated or deferred may be assessed against the
17 other member insurers in a manner consistent with the basis for
18 assessments set forth in this section.
19 (e) (1) The total of all assessments upon a member insurer
20 for the life and annuity account and for each subaccount
21 thereunder shall not in any one (1) calendar year exceed two per
22 centum (2%) and for the health account shall not in any one (1)
23 calendar year exceed two per centum (2%) of such insurer's
24 average premiums received in this Commonwealth on the policies
25 and contracts covered by the account during the three (3)
26 calendar years preceding the year in which the insurer became an
27 impaired or insolvent insurer. If the maximum assessment,
28 together with the other assets of the association in any
29 account, does not provide in any one (1) year in either account
30 an amount sufficient to carry out the responsibilities of the
19910H1670B4196 - 139 -
1 association, the necessary additional funds shall be assessed as
2 soon thereafter as permitted by this article.
3 (2) The board may provide in the plan of operation a method
4 of allocating funds among claims, whether relating to one or
5 more impaired or insolvent insurers, when the maximum assessment
6 will be insufficient to cover anticipated claims.
7 (3) If a one per centum (1%) assessment for any subaccount
8 of the life and annuity account in any one (1) year does not
9 provide an amount sufficient to carry out the responsibilities
10 of the association, then pursuant to subsection (c)(2), the
11 board shall access all subaccounts of the life and annuity
12 account for the necessary additional amount, subject to the
13 maximum stated in subsection (e)(1).
14 (f) The board may, by an equitable method as established in
15 the plan of operation, refund to member insurers, in proportion
16 to the contribution of each insurer to that account, the amount
17 by which the assets of the account exceed the amount the board
18 finds is necessary to carry out during the coming year the
19 obligations of the association with regard to that account,
20 including assets accruing from assignment, subrogation, net
21 realized gains and income from investments. A reasonable amount
22 may be retained in any account to provide funds for the
23 continuing expenses of the association and for future losses.
24 (g) It shall be proper for any member insurer, in
25 determining its premium rates and policyowner dividends as to
26 any kind of insurance within the scope of this article, to
27 consider the amount reasonably necessary to meet its assessment
28 obligations under this article, provided that such insurer has
29 not elected to take tax credits as provided in section 1511(a).
30 (h) The association shall issue to each insurer paying an
19910H1670B4196 - 140 -
1 assessment under this article, other than class A assessment, a
2 certificate of contribution, in a form prescribed by the
3 commissioner, for the amount of the assessment so paid. All
4 outstanding certificates shall be of equal dignity and priority
5 without reference to amounts or dates of issue. A certificate of
6 contribution may be shown by the insurer in its financial
7 statement as an asset in such form and for such amount, if any,
8 and period of time as the commissioner may approve.
9 Section 1508. Plan of Operation.--(a) (1) The association
10 shall submit to the commissioner a plan of operation and any
11 amendments thereto necessary or suitable to assure the fair,
12 reasonable and equitable administration of the association. The
13 plan of operation and any amendments thereto shall become
14 effective upon the commissioner's written approval or unless he
15 has not disapproved it within thirty (30) days.
16 (2) If the association fails to submit a suitable plan of
17 operation within one hundred twenty (120) days following the
18 effective date of this article or if at any time thereafter the
19 association fails to submit suitable amendments to the plan, the
20 commissioner shall, after notice and hearing, adopt and
21 promulgate such reasonable rules as are necessary or advisable
22 to effectuate the provisions of this article. Such rules shall
23 continue in force until modified by the commissioner or
24 superseded by a plan submitted by the association and approved
25 by the commissioner.
26 (b) All member insurers shall comply with the plan of
27 operation.
28 (c) The plan of operation shall, in addition to requirements
29 enumerated elsewhere in this article, contain the following:
30 (1) Establish procedures for handling the assets of the
19910H1670B4196 - 141 -
1 association.
2 (2) Establish the amount and method of reimbursing members
3 of the board of directors under section 1505.
4 (3) Establish regular places and times for meetings,
5 including telephone conference calls of the board of directors.
6 (4) Establish procedures for records to be kept of all
7 financial transactions of the association, its agents, and the
8 board of directors.
9 (5) Establish the procedures whereby selections for the
10 board of directors will be made and submitted to the
11 commissioner.
12 (6) Establish any additional procedures for assessments
13 under section 1507.
14 (7) Contain additional provisions necessary or proper for
15 the execution of the powers and duties of the association.
16 (d) The plan of operation may provide that any or all powers
17 and duties of the association, except those under sections
18 1506(n)(3) and 1507, are delegated to a corporation, association
19 or other organization which performs or will perform functions
20 similar to those of this association, or its equivalent, in two
21 or more states. Such a corporation, association or organization
22 shall be reimbursed for any payments made on behalf of the
23 association and shall be paid for its performance of any
24 function of the association. A delegation under this subsection
25 shall take effect only with the approval of both the board of
26 directors and the commissioner, and may be made only to a
27 corporation, association or organization which extends
28 protection not substantially less favorable and effective than
29 that provided by this article.
30 Section 1509. Powers and Duties of the Commissioner.--(a)
19910H1670B4196 - 142 -
1 In addition to the powers and duties enumerated elsewhere in
2 this article, the commissioner shall:
3 (1) Upon request of the board of directors, provide the
4 association with a statement of the premiums in this and any
5 other appropriate states for each member insurer.
6 (2) When an impairment is declared and the amount of the
7 impairment is determined, serve a demand upon the impaired
8 insurer to make good the impairment within a reasonable time;
9 notice to the impaired insurer shall constitute notice to its
10 shareholders, if any; the failure of the insurer to promptly
11 comply with such demand shall not excuse the association from
12 the performance of its powers and duties under this article.
13 (3) In any liquidation or rehabilitation proceeding
14 involving a domestic insurer, be appointed as the liquidator or
15 rehabilitator.
16 (b) The commissioner may suspend or revoke, after notice and
17 hearing, the certificate of authority to transact insurance in
18 this Commonwealth of any member insurer which fails to pay an
19 assessment when due or fails to comply with the plan of
20 operation. As an alternative, the commissioner may levy a
21 forfeiture on any member insurer which fails to pay an
22 assessment when due. Such forfeiture shall not exceed five per
23 centum (5%) of the unpaid assessment per month, but no
24 forfeiture shall be less than one hundred ($100) dollars per
25 month.
26 (c) Any action of the board of directors or the association
27 may be appealed to the commissioner by any member insurer if
28 such appeal is taken within sixty (60) days of the final action
29 being appealed. If a member company is appealing an assessment,
30 the amount assessed shall be paid to the association and
19910H1670B4196 - 143 -
1 available to meet association obligations during the pendency of
2 an appeal. If the appeal on the assessment is upheld, the amount
3 paid in error or excess shall be returned to the member company.
4 Any final action or order of the commissioner shall be subject
5 to judicial review in a court of competent jurisdiction.
6 (d) The liquidator, rehabilitator or conservator of any
7 impaired insurer may notify all interested persons of the effect
8 of this article.
9 Section 1510. Prevention of Insolvencies.--(a) To aid in
10 the detection and prevention of insurer insolvencies or
11 impairments, it shall be the duty of the commissioner:
12 (1) To notify the commissioners of all the other states,
13 territories of the United States and the District of Columbia
14 when he takes any of the following actions against a member
15 insurer:
16 (i) revocation of license;
17 (ii) suspension of license; or
18 (iii) makes any formal order that such company restrict its
19 premium writing, obtain additional contributions to surplus,
20 withdraw from the Commonwealth, reinsure all or any part of its
21 business, or increase capital, surplus or any other account for
22 the security of policyholders or creditors.
23 This notice shall be mailed to all commissioners within thirty
24 (30) days following the action taken or the date on which such
25 action occurs.
26 (2) To report to the board of directors when he has taken
27 any of the actions set forth in paragraph (1) or has received a
28 report from any other commissioner indicating that any such
29 action has been taken in another state. Such report to the board
30 of directors shall contain all significant details of the action
19910H1670B4196 - 144 -
1 taken or the report received from another commissioner.
2 (3) To report to the board of directors when he has
3 reasonable cause to believe from any examination, whether
4 completed or in process, of any member company that such company
5 may be an impaired or insolvent insurer.
6 (4) To furnish to the board of directors the National
7 Association of Insurance Commissioners' (NAIC) Insurance
8 Regulatory Information System (IRIS) ratios and listing of
9 companies not included in the ratios developed by the National
10 Association of Insurance Commissioners, and the board may use
11 the information contained therein in carrying out its duties and
12 responsibilities under this section. Such report and the
13 information contained therein shall be kept confidential by the
14 board of directors until such time as made public by the
15 commissioner or other lawful authority.
16 (b) The commissioner may seek the advice and recommendations
17 of the board of directors concerning any matter affecting his
18 duties and responsibilities regarding the financial condition of
19 member insurers and companies seeking admission to transact
20 insurance business in this Commonwealth.
21 (c) The board of directors may, upon majority vote, make
22 reports and recommendations to the commissioner upon any matter
23 germane to the solvency, liquidation, rehabilitation or
24 conservation of any member insurer or germane to the solvency of
25 any company seeking to do an insurance business in this
26 Commonwealth. Such reports and recommendations shall not be
27 considered public documents.
28 (d) It shall be the duty of the board of directors, upon
29 majority vote, to notify the commissioner of any information
30 indicating any member insurer may be an impaired or insolvent
19910H1670B4196 - 145 -
1 insurer.
2 (e) (1) The board of directors may, upon majority vote,
3 request that the commissioner order an examination of any member
4 insurer which the board in good faith believes may be an
5 impaired or insolvent insurer. Within thirty (30) days of the
6 receipt of such request, the commissioner shall begin such
7 examination. The examination may be conducted as a National
8 Association of Insurance Commissioners examination or may be
9 conducted by such persons as the commissioner designates. The
10 cost of such examination shall be paid by the association and
11 the examination report shall be treated as are other examination
12 reports. In no event shall such examination report be released
13 to the board of directors prior to its release to the public,
14 but this shall not preclude the commissioner from complying with
15 subsection (a).
16 (2) The commissioner shall notify the board of directors
17 when the examination is completed. The request for an
18 examination shall be kept on file by the commissioner but it
19 shall not be open to public inspection prior to the release of
20 the examination report to the public.
21 (f) The board of directors may, upon majority vote, make
22 recommendations to the commissioner for the detection and
23 prevention of insurer insolvencies.
24 (g) The board of directors shall, at the conclusion of any
25 insurer insolvency in which the association was obligated to pay
26 covered claims, prepare a report to the commissioner containing
27 such information as it may have in its possession bearing on the
28 history and causes of such insolvency. The board shall cooperate
29 with the boards of directors of guaranty associations in other
30 states in preparing a report on the history and causes of
19910H1670B4196 - 146 -
1 insolvency of a particular insurer, and may adopt by reference
2 any report prepared by such other associations.
3 Section 1511. Credits for Assessments Paid.--(a) A member
4 insurer may offset against its premium tax liability to this
5 Commonwealth Class B A PROPORTIONATE PART OF THE assessments <--
6 described in section 1507 to the extent of twenty per centum
7 (20%) of the amount of such assessment for each of the five (5)
8 calendar years following the year in which such assessment was
9 paid. In the event a member insurer should cease doing business,
10 all uncredited assessments may be credited against its premium
11 tax liability for the year it ceases doing business.
12 (B) THE PROPORTIONATE PART OF AN ASSESSMENT WHICH MAY BE <--
13 OFFSET AGAINST A MEMBER COMPANY'S PREMIUM TAX LIABILITY TO THE
14 COMMONWEALTH SHALL BE DETERMINED ACCORDING TO A FRACTION OF
15 WHICH THE DENOMINATOR IS THE TOTAL PREMIUMS RECEIVED BY THE
16 COMPANY DURING THE CALENDAR YEAR IMMEDIATELY PRECEDING THE YEAR
17 IN WHICH THE ASSESSMENT IS PAID AND THE NUMERATOR IS THAT
18 PORTION OF THE PREMIUMS RECEIVED DURING SUCH YEAR ON ACCOUNT OF
19 POLICIES OF LIFE OR HEALTH AND ACCIDENT INSURANCE IN WHICH THE
20 PREMIUM RATES ARE GUARANTEED DURING THE CONTINUANCE OF THE
21 RESPECTIVE POLICIES WITHOUT A RIGHT EXERCISABLE BY THE COMPANY
22 TO INCREASE SAID PREMIUM RATES.
23 (b) (C) Any sums which are acquired by refund, pursuant to <--
24 section 1507(f), from the association by member insurers, and
25 which have theretofore been offset against premium taxes as
26 provided in subsection (a) THIS SECTION AND ARE NOT THEN NEEDED <--
27 FOR THE PURPOSES OF THIS ACT, shall be paid by such insurers to
28 this Commonwealth in such manner as the tax authorities may
29 require. The association shall notify the commissioner that such
30 refunds have been made.
19910H1670B4196 - 147 -
1 (c) (D) No offset against premium tax liability shall be <--
2 permitted to the extent that a member insurer's rates or
3 policyholder dividends have been adjusted as permitted in
4 section 1507(g) 1507. <--
5 Section 1512. Miscellaneous Provisions.--(a) Nothing in
6 this article shall be construed to reduce the liability for
7 unpaid assessments of the insureds of an impaired or insolvent
8 insurer operating under a plan with assessment liability.
9 (b) Records shall be kept of all negotiations and meetings
10 in which the association or its representatives are involved to
11 discuss the activities of the association in carrying out its
12 powers and duties under section 1506. Records of such
13 negotiations or meetings shall be made public only upon the
14 termination of a liquidation, rehabilitation or conservation
15 proceeding involving the impaired or insolvent insurer, upon the
16 termination of the impairment or insolvency of the insurer, or
17 upon the order of a court of competent jurisdiction. Nothing in
18 this subsection shall limit the duty of the association to
19 render a report of its activities under section 1513.
20 (c) For the purpose of carrying out its obligations under
21 this article, the association shall be deemed to be a creditor
22 of the impaired or insolvent insurer to the extent of assets
23 attributable to covered policies reduced by any amounts to which
24 the association is entitled as subrogee pursuant to section
25 1506. Assets of the impaired or insolvent insurer attributable
26 to covered policies shall be used to continue all covered
27 policies and pay all contractual obligations of the impaired or
28 insolvent insurer as required by this article. Assets
29 attributable to covered policies, as used in this subsection,
30 are that proportion of the assets which the reserves that should
19910H1670B4196 - 148 -
1 have been established for such policies bear to the reserves
2 that should have been established for all policies of insurance
3 written by the impaired or insolvent insurer.
4 (d) (1) Prior to the termination of any liquidation,
5 rehabilitation or conservation proceeding, the court may take
6 into consideration the contributions of the respective parties,
7 including the association, the shareholders and policyowners of
8 the insolvent insurer, and any other party with a bona fide
9 interest, in making an equitable distribution of the ownership
10 rights of such insolvent insurer. In such a determination,
11 consideration shall be given to the welfare of the policyholders
12 of the continuing or successor insurer.
13 (2) No distribution to stockholders, if any, of an impaired
14 or insolvent insurer shall be made until and unless the total
15 amount of valid claims of the association with interest thereon
16 for funds expended in carrying out its powers and duties under
17 section 1506 with respect to such insurer have been fully
18 recovered by the association.
19 (e) (1) If an order for liquidation or rehabilitation of an
20 insurer domiciled in this Commonwealth has been entered, the
21 receiver appointed under such order shall have a right to
22 recover on behalf of the insurer, from any affiliate that
23 controlled it, the amount of distributions, other than stock
24 dividends paid by the insurer on its capital stock, made at any
25 time during the five (5) years preceding the petition for
26 liquidation or rehabilitation subject to the limitations of
27 paragraphs (2) to (4).
28 (2) No such distribution shall be recoverable if the insurer
29 shows that when paid the distribution was lawful and reasonable,
30 and that the insurer did not know and could not reasonably have
19910H1670B4196 - 149 -
1 known that the distribution might adversely affect the ability
2 of the insurer to fulfill its contractual obligations.
3 (3) Any person who was an affiliate that controlled the
4 insurer at the time the distributions were paid shall be liable
5 up to the amount of distributions he received. Any person who
6 was an affiliate that controlled the insurer at the time the
7 distributions were declared, shall be liable up to the amount of
8 distributions he would have received if they had been paid
9 immediately. If two or more persons are liable with respect to
10 the same distributions, they shall be jointly and severally
11 liable.
12 (4) The maximum amount recoverable under this subsection
13 shall be the amount needed in excess of all other available
14 assets of the insolvent insurer to pay the contractual
15 obligations of the insolvent insurer.
16 (5) If any person liable under paragraph (3) is insolvent,
17 all its affiliates that controlled it at the time distribution
18 was paid, shall be jointly and severally liable for any
19 resulting deficiency in the amount recovered from the insolvent
20 affiliate.
21 Section 1513. Examination of the Association and Annual
22 Report.--The association shall be subject to examination and
23 regulation by the commissioner. The board of directors shall
24 submit to the commissioner each year, not later than one hundred
25 twenty (120) days after the association's fiscal year, a
26 financial report in a form approved by the commissioner and a
27 report of its activities during the preceding fiscal year.
28 Section 1514. Tax Exemptions.--The association shall be
29 exempt from payment of all fees and all taxes levied by this
30 Commonwealth or any of its subdivisions, except taxes levied on
19910H1670B4196 - 150 -
1 real property.
2 Section 1515. Immunity.--There shall be no liability on the
3 part of and no cause of action of any nature shall arise against
4 any member insurer or its agents or employes, the association or
5 its agents or employes, members of the board of directors, or
6 the commissioner or his representatives, for any action or
7 omission by them in the performance of their powers and duties
8 under this article. Such immunity shall extend to the
9 participation in any organization of one or more other state
10 associations of similar purposes and to any such organization
11 and its agents or employes.
12 Section 1516. Stay of Proceedings and Reopening Default
13 Judgments.--All proceedings in which the insolvent insurer is a
14 party in any court in this Commonwealth shall be stayed sixty
15 (60) days from the date an order of liquidation, rehabilitation
16 or conservation is final to permit proper legal action by the
17 association on any matters germane to its powers or duties. As
18 to judgment under any decision, order, verdict or finding based
19 on default, the association may apply to have such judgment set
20 aside by the same court that made such judgment and shall be
21 permitted to defend against such suit on the merits.
22 Section 1517. Prohibited Advertisement or Insurance Guaranty
23 Association Act in Insurance Sales.--(a) No person, including
24 an insurer, agent or affiliate of an insurer shall make,
25 publish, disseminate, circulate, or place before the public, or
26 cause directly or indirectly, to be made, published,
27 disseminated, circulated or placed before the public, in any
28 newspaper, magazine or other publication, or in the form of a
29 notice, circular, pamphlet, letter or poster, or over any radio
30 station or television station, or in any other way, any
19910H1670B4196 - 151 -
1 advertisement, announcement or statement, written or oral, which
2 uses the existence of the association for the purpose of sales,
3 solicitation or inducement to purchase any form of insurance
4 covered by this article. Provided, however, that this section
5 shall not apply to the association or any other entity which
6 does not sell or solicit insurance.
7 (b) Within one hundred eighty (180) days of the effective
8 date of this article, the association shall prepare a summary
9 document describing the general purposes and current limitations
10 of the article and complying with subsection (c). This document
11 should be submitted to the commissioner for approval. Sixty (60)
12 days after receiving such approval, no insurer may deliver a
13 policy or contract described in section 1503(b)(1) to a
14 policyholder or contract holder, unless the document is
15 delivered to the policyholder or contract holder prior to or at
16 the time of delivery of the policy or contract except if
17 subsection (d) applies. The document should also be available
18 upon request by a policyholder. The distribution, delivery or
19 contents or interpretation of this document shall not mean that
20 either the policy or the contract or the holder thereof would be
21 covered in the event of the impairment or insolvency of a member
22 insurer. The description document shall be revised by the
23 association as amendments to the article may require. Failure to
24 receive this document does not give the policyholder, contract
25 holder, certificate holder or insured any greater rights than
26 those stated in this article.
27 (c) The document prepared under subsection (b) shall contain
28 a clear and conspicuous disclaimer on its face. The commissioner
29 shall promulgate a regulation establishing the form and content
30 of the disclaimer. The disclaimer shall:
19910H1670B4196 - 152 -
1 (1) State the name and address of the association and
2 department.
3 (2) Prominently warn the policyholder or contract holder
4 that the association may not cover the policy or, if coverage is
5 available, it will be subject to substantial limitations and
6 exclusions and conditioned on continued residence in this
7 Commonwealth.
8 (3) State that the insurer and its agents are prohibited by
9 law from using the existence of the association for the purpose
10 of sales, solicitation or inducement to purchase any form of
11 insurance.
12 (4) Emphasize that the policyholder or contract holder
13 should not rely on coverage under the association when selecting
14 an insurer.
15 (5) Provide other information as directed by the
16 commissioner.
17 (d) No insurer or agent may deliver a policy or contract
18 described in section 1503(b)(1) and excluded under section
19 1503(b)(2) from coverage under this article unless the insurer
20 or agent, prior to or at the time of delivery, gives the
21 policyholder or contract holder a separate written notice which
22 clearly and conspicuously discloses that the policy or contract
23 is not covered by the association. The commissioner shall by
24 regulation specify the form and content of the notice.
25 Section 1518. Prospective Application.--This article shall
26 not apply to any insurer which was declared insolvent before the
27 effective date of this article.
28 Section 20. The following acts and parts of acts are
29 repealed:
30 Act of January 24, 1966 (1965 P.L.1509, No.531), referred to
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1 as the Surplus Lines Insurance Law.
2 Act of November 26, 1978 (P.L.1188, No.280), known as the
3 Life and Health Insurance Guaranty Association Act.
4 Section 21. Notwithstanding the repeal in section 20, any
5 insurer declared insolvent by a court of competent jurisdiction
6 prior to the effective date of this act shall be governed by the
7 act of November 26, 1978 (P.L.1188, No.280), known as the Life
8 and Health Insurance Guaranty Association Act.
9 Section 22. This act shall take effect as follows:
10 (1) The addition of Article XV of the act shall take
11 effect immediately.
12 (2) The remainder of this act shall take effect in 120
13 days.
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