PRIOR PRINTER'S NO. 1967 PRINTER'S NO. 3225
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 REPORTED FROM COMMITTEE ON INSURANCE, HOUSE OF
REPRESENTATIVES, AS AMENDED, MARCH 11, 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.
19910H1670B3225 - 2 -
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
19910H1670B3225 - 3 -
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
19910H1670B3225 - 4 -
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
19910H1670B3225 - 5 -
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
19910H1670B3225 - 6 -
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
19910H1670B3225 - 7 -
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
19910H1670B3225 - 8 -
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 (4) (5) Any other form of security acceptable to the <--
14 Insurance 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
19910H1670B3225 - 9 -
1 reinsurer.
2 (f) The NOTWITHSTANDING THE PROVISIONS OF THIS SECTION, THE <--
3 Insurance Department may promulgate one or more regulations to
4 limit or prohibit, PROHIBIT OR AUTHORIZE the credit which a <--
5 domestic insurer may take as an admitted asset or as a reduction
6 in liability with respect to reinsurance ceded on any financial
7 statements 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,
19910H1670B3225 - 10 -
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 a national association of <--
13 insurance commissioners THE NATIONAL ASSOCIATION OF INSURANCE <--
14 COMMISSIONERS a statement which shall exhibit its financial
15 condition on the thirty-first day of December of the previous
16 year, and its business of that year and shall, within thirty
17 days after requested by the Insurance Commissioner, [render]
18 file with the Insurance Commissioner and with a national <--
19 association of insurance commissioners THE NATIONAL ASSOCIATION <--
20 OF INSURANCE COMMISSIONERS such additional statement or
21 statements concerning its affairs and financial condition as the
22 Insurance Commissioner may, in his discretion, require. The
23 Insurance Commissioner shall [furnish to each of the insurance
24 companies, associations, and exchanges blanks, in such form as
25 he may adopt, for their statement] require each insurance
26 company, association, and exchange to report its financial
27 condition on the annual statement convention blanks, in such
28 form as adopted by a national association of insurance <--
29 commissioners THE NATIONAL ASSOCIATION OF INSURANCE <--
30 COMMISSIONERS and shall, upon written request, furnish such
19910H1670B3225 - 11 -
1 blanks for their convenience; and [he] may make such changes,
2 from time to time, in the form of the same as shall seem [to
3 him] best adapted to elicit from them a true exhibit of their
4 financial condition.
5 (b) Insurance companies of foreign governments, doing
6 business in this Commonwealth, shall be required to return only
7 the business done in the United States, and the assets held by
8 and for them within the United States for the protection of
9 policyholders therein.
10 (c) In the absence of actual malice, members of a national <--
11 association of insurance commissioners, its THE NATIONAL <--
12 ASSOCIATION OF INSURANCE COMMISSIONERS, THEIR duly authorized
13 committees, subcommittees, and task forces, its THEIR delegates <--
14 and employes, and all others charged with the responsibility of
15 collecting, reviewing, analyzing and disseminating the
16 information developed from the filing of the annual statement
17 convention blanks shall be acting as agents of the Insurance
18 Commissioner under the authority of this act and shall not be
19 subject to civil liability for libel, slander or any other cause
20 of action by virtue of their collection, review, and analysis or
21 dissemination of the data and information collected from the
22 filings required hereunder.
23 (d) All financial analysis ratios and examination synopses
24 concerning insurance companies that are submitted to the
25 Insurance Department by a national association of insurance <--
26 commissioners' information system THE NATIONAL ASSOCIATION OF <--
27 INSURANCE COMMISSIONERS' INSURANCE REGULATORY INFORMATION SYSTEM
28 are confidential and may not be disclosed by the Insurance
29 Department.
30 (e) (1) Any company, association, or exchange, which
19910H1670B3225 - 12 -
1 neglects to make and file its annual statement, or other
2 statements that may be required, in the form or within the time
3 herein provided shall forfeit a sum not to exceed [one hundred
4 dollars ($100)] two hundred dollars ($200) for each day during
5 which such neglect continues, and, upon notice by the
6 commissioner, its authority to do new business shall cease while
7 such default continues.
8 (2) For wilfully making a false annual or other statement
9 required by law, an insurance company, association or exchange,
10 and the persons making oath to or subscribing the same, shall
11 severally be punished by a fine of not less than [five hundred
12 dollars ($500) nor more than five thousand dollars ($5,000)] one
13 thousand dollars ($1,000) nor more than ten thousand dollars
14 ($10,000). A person who wilfully makes oath to such false
15 statement shall be guilty of perjury.
16 (3) The Insurance Commissioner may suspend, revoke or refuse
17 to renew the certificate of authority of any insurer failing to
18 file its annual statement when due.
19 Section 6. Section 322(d) of the act, amended October 4,
20 1978 (P.L.1009, No.216), is amended to read:
21 Section 322. Amendment of Charter.--* * *
22 (d) A mutual insurance company, other than life or title,
23 shall be permitted to amend its charter to include any or all of
24 the kinds of insurance included in section 202, subdivisions (b)
25 and (c), if its total assets less net liability for losses, for
26 expenses and for unearned premium reserve [for those premiums
27 received on nonassessable policies] are not less than the
28 minimum [premiums] surplus specified in section 206 (e) for the
29 incorporation of new companies, without the necessity of
30 obtaining or of holding any application or of issuing any policy
19910H1670B3225 - 13 -
1 as specified in section 206 (e) for the incorporation of new
2 companies.
3 * * *
4 Section 7. The act is amended by adding a section to read:
5 Section 322.1. Contributions to Surplus.--(a) Any director,
6 officer, person, corporation or other entity may advance to a
7 domestic stock insurance company or mutual life insurance
8 company, in exchange for a surplus note, any sum or sums of
9 money necessary for the purpose of its business or to enable it
10 to comply with any of the requirements of law. If, as a result
11 of such advance, the director, officer, person, corporation or
12 other entity is presumed to secure control, as that term is
13 defined in Article XII of this act, the advance can only be made
14 after the director, officer, person, corporation or other entity
15 provides a filing to the Insurance Commissioner in accordance
16 with the provisions of Article XII of this act.
17 (b) The surplus note and interest thereon shall not be a
18 liability or claim against the company or any of its assets,
19 except as specified in this section. Payments of principal
20 and/or interest can only be made from the unassigned surplus of
21 the insurer and must be subordinated to payment of all other
22 liabilities of the insurer. If unassigned surplus is
23 insufficient and the insurer is unable to make payments of
24 principal and/or interest in a given year, the interest earned
25 for that year will be forfeited and cannot be paid in subsequent
26 years unless the insurer establishes unpaid interest as a
27 liability in each annual and quarterly statement filed with the
28 Insurance Commissioner.
29 (c) No commissions, promotion expenses or finders fees shall
30 be paid in connection with the advance of such money to the
19910H1670B3225 - 14 -
1 company.
2 (d) Such company shall, prior to any transaction, provide
3 the Insurance Commissioner with such evidence as he may, by
4 regulation, prescribe concerning the receipt of any such advance
5 or the making of any payments, whether of principal or interest,
6 on account thereof.
7 Section 8. Sections 337.6 and 337.7 of the act are repealed.
8 SECTION 9. THE ACT IS AMENDED BY ADDING A SECTION TO READ: <--
9 SECTION 357. REDOMESTICATION.--(A) ANY INSURER WHICH IS
10 ORGANIZED UNDER THE LAWS OF ANY OTHER STATE AND IS ADMITTED TO
11 DO BUSINESS IN THIS COMMONWEALTH FOR THE PURPOSE OF WRITING
12 INSURANCE MAY BECOME A DOMESTIC INSURER BY COMPLYING WITH ALL OF
13 THE REQUIREMENTS OF LAW RELATIVE TO THE ORGANIZATION AND
14 LICENSING OF A DOMESTIC INSURER OF THE SAME TYPE AND BY
15 DESIGNATING ITS PRINCIPAL PLACE OF BUSINESS AT A PLACE IN THIS
16 COMMONWEALTH. SAID DOMESTIC INSURER WILL BE ENTITLED TO A LIKE
17 CERTIFICATE OF AUTHORITY TO TRANSACT BUSINESS IN THIS
18 COMMONWEALTH, AND SHALL BE SUBJECT TO THE AUTHORITY AND
19 JURISDICTION OF THIS COMMONWEALTH.
20 (B) ANY DOMESTIC INSURER MAY, UPON THE APPROVAL OF THE
21 INSURANCE COMMISSIONER TRANSFER ITS DOMICILE TO ANY OTHER STATE
22 IN WHICH IT IS ADMITTED TO TRANSACT THE BUSINESS OF INSURANCE,
23 AND UPON SUCH A TRANSFER SHALL CEASE TO BE A DOMESTIC INSURER,
24 AND SHALL BE ADMITTED TO THIS COMMONWEALTH IF QUALIFIED AS A
25 FOREIGN INSURER. THE INSURANCE COMMISSIONER SHALL APPROVE ANY
26 SUCH PROPOSED TRANSFER UNLESS HE SHALL DETERMINE SUCH TRANSFER
27 IS NOT IN THE INTEREST OF ALL THE POLICYHOLDERS.
28 (C) THE CERTIFICATE OF AUTHORITY, AGENTS APPOINTMENTS AND
29 LICENSES, RATES AND OTHER ITEMS WHICH THE INSURANCE COMMISSIONER
30 ALLOWS, IN HIS DISCRETION, WHICH ARE IN EXISTENCE AT THE TIME
19910H1670B3225 - 15 -
1 ANY INSURER LICENSED TO TRANSACT THE BUSINESS OF INSURANCE IN
2 THIS COMMONWEALTH TRANSFERS ITS CORPORATE DOMICILE TO THIS OR
3 ANY OTHER STATE BY MERGER, CONSOLIDATION OR ANY OTHER LAWFUL
4 METHOD SHALL CONTINUE IN FULL FORCE AND EFFECT UPON SUCH
5 TRANSFER IF SUCH INSURER REMAINS DULY QUALIFIED TO TRANSACT THE
6 BUSINESS OF INSURANCE IN THIS COMMONWEALTH. ALL OUTSTANDING
7 POLICIES OF ANY TRANSFERRING INSURER SHALL REMAIN IN FULL FORCE
8 AND EFFECT AND NEED NOT BE ENDORSED AS TO THE NEW NAME OF THE
9 COMPANY OR ITS NEW LOCATION UNLESS SO ORDERED BY THE INSURANCE
10 COMMISSIONER. EVERY TRANSFERRING INSURER SHALL FILE NEW POLICY
11 FORMS WITH THE INSURANCE COMMISSIONER ON OR BEFORE THE EFFECTIVE
12 DATE OF THE TRANSFER, BUT MAY USE EXISTING POLICY FORMS WITH
13 APPROPRIATE ENDORSEMENTS IF ALLOWED BY, AND UNDER SUCH
14 CONDITIONS AS APPROVED BY THE INSURANCE COMMISSIONER. HOWEVER,
15 EVERY SUCH TRANSFERRING INSURER SHALL NOTIFY THE INSURANCE
16 COMMISSIONER OF THE DETAILS OF THE PROPOSED TRANSFER, AND SHALL
17 FILE PROMPTLY, ANY RESULTING AMENDMENTS TO CORPORATE DOCUMENTS
18 FILED OR REQUIRED TO BE FILED WITH THE INSURANCE COMMISSIONER.
19 Section 9 10. Sections 404.1, 404.2(10) and (17) and 406(f) <--
20 of the act, amended or added June 11, 1986 (P.L.226, No.64), are
21 amended to read:
22 Section 404.1. Investment Regulations.--(a) Any domestic
23 company may invest its funds as provided in this act and not
24 otherwise. Notwithstanding the provisions of this act, the
25 Insurance Commissioner may, after notice and hearing, order a
26 domestic company to limit or withdraw from certain investments,
27 or discontinue certain investment practices, to the extent that
28 the commissioner finds that such investments or investment
29 practices endanger the solvency of the company. The investments
30 of a foreign company shall be as permitted by the investment
19910H1670B3225 - 16 -
1 laws of its state of domicile if such laws are substantially
2 similar to that provided by this act.
3 (b) No investment or loan (except loans on life policies) or
4 an investment practice shall be made or engaged in by any
5 domestic company unless the same has been authorized or ratified
6 by the board of directors or by a committee thereof charged with
7 the duty of supervising investments and loans. No such company
8 shall subscribe to or participate in any underwriting of the
9 purchase or sale of securities or property or enter into any
10 agreement to withhold from sale any of its property, but the
11 disposition of its property shall be at all times within the
12 control of the board of directors. Any agreement or contract
13 providing for the lawful disposition of property, wherein such
14 disposition may be determined at the option of a third person at
15 some specified future price or condition or specified time or
16 upon demand, shall be construed to be within the control of the
17 board of directors. Nothing contained in this section shall
18 prevent the board of directors of any such company from
19 depositing any of its securities with a committee appointed for
20 the purpose of protecting the interest of security holders or
21 with authorities of any state or country where it is necessary
22 to do so in order to secure permission to transact its
23 appropriate business therein; and nothing contained in this
24 section shall prevent the board of directors of such company
25 from depositing securities as collateral for the securing of any
26 bond required for the business of the company.
27 (c) Any domestic company subject to the provisions of this
28 act is required to have a formal investment plan which shall be
29 updated on an annual basis as authorized by the board of
30 directors. The investment plan shall include, at a minimum, a
19910H1670B3225 - 17 -
1 description of the investment strategy of the company designed
2 to provide for liquidity and diversity of the investment
3 portfolio. The investment plan, and such other information as
4 the Insurance Department may require in order to determine the
5 impact of the investment plan on the solvency of the company,
6 shall be made available to the Insurance Department during the
7 course of a financial condition examination conducted in
8 accordance with the laws pertaining to the conduct of
9 examinations.
10 Section 404.2. Investment.--Subject to the provisions of
11 sections 405.2 and 406.1, the assets of any life insurance
12 company organized under the laws of this Commonwealth shall be
13 invested in the following classes of investment, provided the
14 value of which, as determined for annual statement purposes, but
15 in no event in excess of cost, shall not exceed the specified
16 percentage of such company's assets as of the thirty-first day
17 of December next preceding the date of investment:
18 * * *
19 (10) Equity interests:
20 (i) Investments (other than investments provided for in
21 section 406, clauses (11) and (13) of this section 404.2 and
22 investments in subsidiaries as provided for in section 405.2(c))
23 in common stocks, limited partnership interests, trust
24 certificates (except equipment trust certificates described in
25 clause (5)) or other equity interests (other than preferred
26 stocks) of corporations, joint-stock associations, business
27 trusts, business partnerships and business joint ventures
28 incorporated, organized or existing under the laws of the United
29 States, or of any state, district or territory thereof.
30 (ii) Stocks or shares of any regulated investment company
19910H1670B3225 - 18 -
1 which is registered as an investment company under the Federal
2 Investment Company Act of 1940 (54 Stat 789, 15 U.S.C. §§ 80a-1
3 to 80a-52, 107), as, from time to time, amended, and which has
4 no preferred stock, bonds, loans or any other outstanding
5 securities having preference or priority as to the assets or
6 earnings over its common stock at the date of purchase.
7 (iii) Investments under this clause shall not exceed twenty-
8 five per centum (25%) of such company's admitted assets, and no
9 investment in any single corporation or entity contemplated by
10 this clause shall exceed five per centum (5%) of such company's
11 admitted assets.
12 (iv) Limited partnership interests under this clause shall
13 not exceed ten per centum (10%) of the company's admitted assets
14 in the aggregate. A company may not invest more than ten per
15 centum (10%) of its capital and surplus in any one such limited
16 partnership.
17 * * *
18 (17) (i) Investments shall be valued in accordance with the <--
19 published valuation standards of [the National Association of
20 Insurance Commissioners.] a national association of insurance
21 commissioners. Securities investments as to which [the National
22 Association of Insurance Commissioners] a national association
23 of insurance commissioners has not published valuation standards
24 in its valuation of securities manual or its successor
25 publication shall be valued as follows:
26 (A) Any investment by any insurer that is not valued by
27 [Standards] standards published by [the National Association of
28 Insurance Commissioners] a national association of insurance
29 commissioners shall, at the time of acquisition, be submitted to
30 [the National Association of Insurance Commissioners] a national
19910H1670B3225 - 19 -
1 association of insurance commissioners for evaluation.
2 (17) (I) INVESTMENTS SHALL BE VALUED IN ACCORDANCE WITH THE <--
3 PUBLISHED VALUATION STANDARDS OF THE NATIONAL ASSOCIATION OF
4 INSURANCE COMMISSIONERS. SECURITIES INVESTMENTS AS TO WHICH THE
5 NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS HAS NOT
6 PUBLISHED VALUATION STANDARDS IN ITS VALUATION OF SECURITIES
7 MANUAL OR ITS SUCCESSOR PUBLICATION SHALL BE VALUED AS FOLLOWS:
8 (A) ANY INVESTMENT BY ANY INSURER THAT IS NOT VALUED BY
9 STANDARDS PUBLISHED BY THE NATIONAL ASSOCIATION OF INSURANCE
10 COMMISSIONERS SHALL, AT THE TIME OF ACQUISITION, BE SUBMITTED TO
11 THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS FOR
12 EVALUATION.
13 (B) Other securities investments shall be valued in
14 accordance with regulations promulgated by the Insurance
15 Commissioner pursuant to subclause (iv) of this clause.
16 (ii) Other investments, including real property, shall be
17 valued in accordance with regulations promulgated by the
18 Insurance Commissioner pursuant to subclause (iv) of this
19 clause, but in no event shall such other investments be valued
20 at more than their purchase price. Purchase price for real
21 property includes capitalized permanent improvements, less
22 depreciation spread evenly over the life of the property or, at
23 the option of the company, less depreciation computed on any
24 basis permitted under the Internal Revenue Code of 1954 (68A
25 Stat. 3, 26 U.S.C. § 1 et seq.) and regulations thereunder. Such
26 investments that have been affected by [permanent declines] an
27 impairment, other than a temporary decline, in value shall be
28 valued at not more than their market value.
29 (iii) Any investment, including real property, not purchased
30 by a company but acquired in satisfaction of a debt or
19910H1670B3225 - 20 -
1 otherwise, shall be valued in accordance with the [applicable
2 procedures for that type of investment contained in this
3 section. For purposes of applying the valuation procedures, the
4 purchase price shall be deemed to be the market value at the
5 time the investment is acquired or, in the case of any
6 investment acquired in satisfaction of debt, the amount of the
7 debt (including interest, taxes and expenses), whichever amount
8 is less.] accounting procedures and practices developed by a <--
9 national association of insurance commissioners THE NATIONAL <--
10 ASSOCIATION OF INSURANCE COMMISSIONERS as required by the law
11 relating to the filing of annual financial statement blanks.
12 (iv) The Insurance Commissioner may promulgate rules and
13 regulations for determining and calculating values to be used in
14 financial statements submitted to the Insurance Department for
15 investments not subject [published National Association of <--
16 Insurance Commissioners'] to valuation standards published by a
17 national association of insurance commissioners. INVESTMENTS NOT <--
18 SUBJECT TO PUBLISHED NATIONAL ASSOCIATION OF INSURANCE
19 COMMISSIONERS' VALUATION STANDARDS.
20 Section 406. Real Estate Which May Be Purchased, Held or
21 Conveyed.--Subject to the provisions of section four hundred
22 six, point one, it shall be lawful for any life insurance
23 company, organized under the laws of this Commonwealth, directly
24 or indirectly, alone or together with one or more persons or
25 entities, to purchase, receive, hold and convey, real estate or
26 any interest therein:
27 * * *
28 (f) Purchased, leased or owned for residential, business,
29 commercial or industrial use, or for development, improvement,
30 maintenance or construction and maintenance. [Provided that
19910H1670B3225 - 21 -
1 investments] The aggregate cost of investments in unimproved
2 real estate under this subsection (f) shall not, however, exceed
3 the lesser of ten per centum (10%) of the company's admitted
4 assets or forty-five per centum (45%) of its capital and
5 surplus. Investments under this subsection (f), including
6 investments in limited partnership interests or other entities
7 where said entities are engaged primarily in holding real estate
8 or interests therein under this subsection and corporations
9 which are engaged primarily in holding real estate or interests
10 therein as defined in this subsection and the majority of whose
11 voting securities are owned directly or indirectly through one
12 or more intermediaries, shall not exceed twenty-five per centum
13 (25%) of such company's admitted assets.
14 Section 10 11. Section 419 of the act, amended July 28, 1959 <--
15 (P.L.580, No.189), is amended to read:
16 Section 419. Certain Companies Heretofore Organized May Come
17 within Provisions of Act.--Every company incorporated or
18 reincorporated under the act of April twenty-eighth, one
19 thousand nine hundred and three (Pamphlet Laws, three hundred
20 twenty-nine), entitled "An act to provide for the incorporation
21 and regulation of corporations for the purpose of making
22 insurance upon the health of individuals, and against personal
23 injury and disablement and death therein; limiting the amount
24 for which such corporations may issue policies, and providing
25 the manner in which certain existing corporations may become
26 reincorporated under this act," or under the act of April
27 twentieth, one thousand nine hundred twenty-seven (Pamphlet
28 Laws, three hundred seventeen), entitled "An act authorizing
29 certain existing beneficial or protective societies, heretofore
30 incorporated, to reincorporate for the purpose of making
19910H1670B3225 - 22 -
1 insurance upon the health of individuals and against personal
2 injury and disablement and death; regulating such corporations
3 and limiting the amount for which corporations may issue
4 policies; and imposing a tax on gross premiums of companies
5 reincorporated under the provisions of this act," or under the
6 act of June twenty-fourth, one thousand nine hundred thirty-nine
7 (Pamphlet Laws, six hundred eighty-six), entitled "An act
8 authorizing certain existing beneficial or protective societies,
9 heretofore incorporated, to reincorporate as limited life
10 insurance companies for the purpose of making insurance upon the
11 health of individuals and against personal injury and
12 disablement and death; regulating such corporations and limiting
13 the amount for which such corporations may issue policies," or
14 under any subsequent act, authorizing certain existing
15 incorporated beneficial or protective societies to
16 reincorporate, or to merge and reincorporate as limited life
17 insurance companies, or under the act of July 15, 1957 (P.L.
18 929), entitled "An act authorizing the incorporation of limited
19 life insurance companies for the purpose of issuing insurance
20 upon the health of individuals and against personal injury and
21 disablement and death, including endowment insurance; regulating
22 such companies and limiting the amounts for which such companies
23 may issue policies," [having in the case of a stock company a
24 capital of not less than three hundred thousand dollars
25 ($300,000), and a surplus at least equal to fifty per centum of
26 the capital, or having, in the case of a mutual company,
27 insurance in force in an aggregate amount of not less than one
28 million dollars ($1,000,000), on not less than four hundred
29 persons and a surplus of not less than two hundred thousand
30 dollars ($200,000),] may, notwithstanding any limitation to the
19910H1670B3225 - 23 -
1 contrary, established by any act of Assembly or by the
2 provisions of its charter, issue policies insuring the lives of
3 persons, and every insurance appertaining thereto, may grant and
4 dispose of annuities, and may insure against personal injury,
5 disablement or death resulting from traveling or general
6 accidents, and against disablement resulting from sickness, and
7 every insurance appertaining thereto, as specified in
8 subdivision (a) [clause one (1)] clauses one (1) and two (2) of
9 section two hundred and two (202) of this act[.], if such
10 company has and maintains the capital and surplus required of
11 stock and mutual insurers under sections 206 and 206.2 of this
12 act.
13 Section 11 12. Section 516 of the act is amended to read: <--
14 Section 516. Capital of Foreign Companies.--Stock fire,
15 stock marine, and stock fire and marine insurance companies, of
16 other States and foreign governments, to be licensed to do, in
17 this Commonwealth, any one of the classes of business mentioned
18 in section two hundred and two (202), subdivision (b) of this
19 act, must have a paid up and safely invested capital and
20 surplus, if a company of any other State, or a deposit in the
21 United States, if a company of a foreign government, of not less
22 than [two hundred thousand dollars ($200,000); and, if to do all
23 of the classes of business mentioned in section two hundred and
24 two (202), subdivision (b) of this act, a paid up capital or
25 deposit of not less than four hundred thousand dollars
26 ($400,000)] that required of domestic insurers to be authorized
27 to transact the class or classes of business.
28 Section 12 13. Sections 518B, 518C(a)(7), 518D(b) and (c) <--
29 and 519(e) of the act, amended or added December 22, 1989
30 (P.L.755, No.106), are amended to read:
19910H1670B3225 - 24 -
1 Section 518B. Investment Regulations.--(a) Any domestic
2 company may invest its funds in sound investments as provided in
3 this act and not otherwise. Notwithstanding the provisions of
4 this act, the Insurance Commissioner may, after notice and
5 hearing, order a domestic company to limit or withdraw from
6 certain investments, or discontinue certain investment
7 practices, to the extent that the Insurance Commissioner finds
8 that such investments or investment practices are unsound or may
9 endanger the solvency of the company. The investments of a
10 foreign company shall be as permitted by the investment laws of
11 its state of domicile if such laws are substantially similar to
12 that provided by this act. No investment or loan or an
13 investment practice shall be made or engaged in by any domestic
14 company unless the same has been authorized or ratified by the
15 board of directors or by a committee thereof charged with the
16 duty of supervising investments and loans. No such company shall
17 subscribe to or participate in any underwriting of the purchase
18 or sale of securities or property or enter into any agreement to
19 withhold from sale any of its property, but the disposition of
20 its property shall be at all times within the control of the
21 board of directors. Any agreement or contract providing for the
22 lawful disposition of property wherein such disposition may be
23 determined at the option of a third person at some specified
24 future price or condition or specified time or upon demand shall
25 be construed to be within the control of the board of directors.
26 Nothing contained in this section shall prevent the board of
27 directors of any such company from depositing any of its
28 securities with a committee appointed for the purpose of
29 protecting the interest of security holders or with authorities
30 of any state or country where it is necessary to do so in order
19910H1670B3225 - 25 -
1 to secure permission to transact its appropriate business
2 therein; and nothing contained in this section shall prevent the
3 board of directors of such company from depositing securities as
4 collateral for the securing of any bond required for the
5 business of the company.
6 (b) Any domestic company subject to the provisions of this
7 act is required to have a formal investment plan which shall be
8 updated on an annual basis as authorized by the board of
9 directors. The investment plan shall include, at a minimum, a
10 description of the investment strategy of the company designed
11 to provide for liquidity and diversity of the investment
12 portfolio. The investment plan, and such other information as
13 the Insurance Department may require in order to determine the
14 impact of the investment plan on the solvency of the company,
15 shall be made available to the Insurance Department during the
16 course of a financial condition examination conducted in
17 accordance with the laws pertaining to the conduct of
18 examinations.
19 Section 518C. Eligible Investments.--(a) Every domestic
20 stock fire, stock marine or stock fire and marine insurance
21 company shall invest and keep invested all its funds in sound
22 investments enumerated below, except such cash as may be
23 required in the transaction of its business. Such investments
24 shall include:
25 * * *
26 (7) Tangible personal property or fixtures or interest
27 therein, however evidenced, as an investment for the production
28 of income. Investments under this subsection shall not exceed
29 fifteen per centum (15%) of the company's admitted assets.
30 * * *
19910H1670B3225 - 26 -
1 Section 518D. Valuation of Investments.--* * *
2 (b) Other investments, including real property, shall be
3 valued in accordance with regulations promulgated by the
4 Insurance Commissioner pursuant to subsection (d) of this
5 section, but in no event shall such other investments be valued
6 at more than their purchase price. Purchase price for real
7 property includes capitalized permanent improvements, less
8 depreciation spread evenly over the life of the property or, at
9 the option of the company, less depreciation computed on any
10 basis permitted under the United States Internal Revenue Code of
11 1954 (68A Stat. 3, 26 U.S.C. § 1 et seq.) and regulations
12 thereunder. Such investments that have been affected by
13 [permanent declines] an impairment, other than a temporary
14 decline, in value shall be valued at not more than their market
15 value.
16 (c) Any investment, including real property, not purchased
17 by a company but acquired in satisfaction of a debt or otherwise
18 shall be valued in accordance with the [applicable procedures
19 for that type of investment contained in this section. For
20 purposes of applying the valuation procedures, the purchase
21 price shall be deemed to be the market value at the time the
22 investment is acquired or in the case of any investment acquired
23 in satisfaction of debt, the amount of the debt, including
24 interest, taxes and expenses, whichever amount is less.]
25 accounting procedures and practices developed by a national <--
26 association of insurance commissioners THE NATIONAL ASSOCIATION <--
27 OF INSURANCE COMMISSIONERS as required by the law relating to
28 the filing of annual financial statement blanks.
29 * * *
30 Section 519. Real Estate Which May Be Acquired, Held, and
19910H1670B3225 - 27 -
1 Conveyed.--A domestic stock fire, stock marine, or stock fire
2 and marine insurance company may, directly or indirectly, alone
3 or in combination with one or more other persons or entities
4 (except that no domestic stock fire, stock marine, or stock fire
5 and marine insurance company may participate in a general
6 partnership), acquire by purchase, lease or otherwise or
7 receive, hold, or convey real estate, or any interest therein:
8 * * *
9 (e) As an investment for the production of income or capital
10 appreciation, or so acquired for development, improvement,
11 maintenance or construction and maintenance for such investment
12 purposes. Provided that the aggregate cost of investments in
13 unimproved real estate under this clause (e) shall not exceed
14 the lesser of ten per centum (10%) of the company's admitted
15 assets or forty-five per centum (45%) of its capital and
16 surplus.
17 Section 13 14. The act is amended by adding a section to <--
18 read:
19 Section 519.1. Additional Investment Authority for
20 Subsidiaries.--(a) As used in this section the following words
21 and phrases shall have the meanings given to them in this
22 subsection:
23 "Insurance company" or "insurer" includes any company,
24 association or exchange authorized to conduct an insurance
25 business in the jurisdiction of its domicile.
26 "NAIC" MEANS THE NATIONAL ASSOCIATION OF INSURANCE <--
27 COMMISSIONERS.
28 "Owner" or "holder" of securities of a specified person is
29 one who owns any security of such person, including common
30 stock, preferred stock, debt obligations and any other security
19910H1670B3225 - 28 -
1 convertible into or evidencing the right to acquire any of the
2 foregoing.
3 "Person" is an individual, corporation, partnership,
4 association, joint-stock company, business trust, unincorporated
5 organization, any similar entity or any combination of the
6 foregoing acting in concert.
7 "Subsidiary" shall mean only a corporation in which another
8 person owns or holds, with the power to vote directly or through
9 one or more intermediaries, a majority of the outstanding voting
10 securities. A person whose business consists primarily of real
11 property and interests therein shall not be deemed a subsidiary
12 for the purposes of determining the volume limitations set forth
13 in clause (1) of subsection (c) of this section. A person which
14 is controlled by another person solely as a result of the
15 temporary assumption of control by the owner of securities upon
16 the happening of a prescribed event of default shall not be
17 deemed a subsidiary or affiliate for purposes of this section,
18 if such securities are disposed of within five (5) years from
19 the date of acquisition, unless such period is extended by the
20 Insurance Commissioner to enable the owner to dispose of such
21 securities in a reasonable and orderly manner.
22 "Voting security" means stock of any class or any ownership
23 interest having the power to elect the directors, trustees or
24 management of a person, other than securities having such power
25 only by reason of the happening of a contingency.
26 (b) Any domestic stock fire, stock marine or stock fire and
27 marine insurance company, either by itself or in cooperation
28 with one or more persons, may, in addition to any authority to
29 acquire or hold securities in corporations provided for
30 elsewhere in this act, organize or acquire one or more
19910H1670B3225 - 29 -
1 subsidiaries. Such subsidiaries may conduct any kind of business
2 or businesses, and their authority to do so shall not be limited
3 by reason of the fact that they are subsidiaries of a domestic
4 stock fire, stock marine or stock fire and marine insurance
5 company. No domestic stock fire, stock marine or stock fire and
6 marine insurance company shall be deemed to be authorized to
7 participate in or to form a general partnership with any other
8 person.
9 (c) (1) At no time shall a domestic stock fire, stock
10 marine or stock fire and marine insurance company make an
11 investment in any subsidiary which will bring the aggregate
12 value of its investments, as determined for annual statement
13 purposes but not in excess of cost, in all subsidiaries under
14 this subsection to an amount in excess of twenty-five per centum
15 (25%) of its total admitted assets as of the immediately
16 preceding thirty-first day of December. In determining the
17 amount of investments of any domestic stock fire, stock marine
18 or stock fire and marine insurance company in subsidiaries for
19 purposes of this subsection, there shall be included investments
20 made directly by such insurance company and, if such investment
21 is made by another subsidiary, then to the extent that funds for
22 such investments are provided by the insurance company for such
23 purpose.
24 (2) The limitations set forth in clause (1) of this
25 subsection shall not apply to investments in any subsidiary
26 which is:
27 (i) An insurance company.
28 (ii) A holding company to the extent its business consists
29 of the holding of the stock of, or otherwise controlling, its
30 own subsidiaries.
19910H1670B3225 - 30 -
1 (iii) A corporation whose business primarily consists of
2 direct or indirect ownership, operation or management of assets
3 authorized as investments pursuant to sections 518C and 519.
4 (iv) A company engaged in any combination of the activities
5 described in subclauses (i), (ii) and (iii) of this clause.
6 Investments made pursuant to subclause (i) shall not be
7 restricted in amount provided that after such investment, as
8 calculated for NAIC annual statement purposes, the insurer's <--
9 surplus will be reasonable in relation to the insurer's
10 outstanding liabilities and adequate to its financial needs.
11 Investments made pursuant to subclause (ii), or to the extent
12 applicable in this subclause, shall in addition not be subject
13 to any limitations on the amount of a domestic stock fire, stock
14 marine or stock fire and marine insurance company's assets
15 provided for under any other provision of this act and which
16 might otherwise be applicable: Provided, however, That such
17 stock fire, stock marine or stock fire and marine insurance
18 company's investments, to the extent that such stock fire, stock
19 marine or stock fire and marine insurance company provided the
20 funds therefor, in each of the subsidiaries of such holding
21 company shall be subject to the limitations, if any, applicable
22 to such investment as if the holding company's interest in each
23 such subsidiary were instead owned directly by the stock fire,
24 stock marine or stock fire and marine insurance company.
25 Investments made pursuant to subclause (iii), or, to the extent
26 applicable, this subclause, shall be counted in determining the
27 limitations contained in applicable subsections of sections 518C
28 and 519: Provided, however, That the value as calculated for
29 annual statement purposes, but not in excess of the cost
30 thereof, of such investment shall include only funds provided by
19910H1670B3225 - 31 -
1 the insurance company therefor. Investments made in other
2 subsidiaries of such stock fire, stock marine or stock fire and
3 marine insurance company by any subsidiary described in
4 subclauses (i), (ii), (iii) and this subclause or by a person
5 whose business primarily consists of direct or indirect
6 ownership, operation or management of real property and interest
7 therein under section 519 shall be deemed investments made by
8 the insurance company only to the extent the funds for such
9 investment were provided by such insurance company.
10 (d) No restrictions, prohibitions or limitations contained
11 in this act otherwise applicable to investments of domestic
12 stock fire, stock marine or stock fire and marine insurers shall
13 be applicable to investments in common stock, preferred stock,
14 debt obligations or other securities of subsidiaries made
15 pursuant to subsection (c) of this section; nor shall the
16 additional investment authority granted by said subsection (c)
17 have the effect of restricting, prohibiting or limiting the
18 rights of a domestic stock fire, stock marine or stock fire and
19 marine insurer to make investments permitted under any other
20 section of this act.
21 (e) Whether any investment made pursuant to subsection (c)
22 of this section meets, at any time thereafter, the applicable
23 requirements thereof is to be determined when such investment is
24 made, taking into account the then outstanding principal balance
25 on all previous investments in debt obligations and the value,
26 but not in excess of the cost thereof, of all previous
27 investments in equity securities as calculated for annual
28 statement purposes. In calculating the amount of such
29 investments, there shall be included, as determined for NAIC <--
30 annual statement purposes:
19910H1670B3225 - 32 -
1 (1) Total net moneys or other consideration expended and
2 obligations assumed in the acquisition or formation of a
3 subsidiary, including all organizational expenses and
4 contributions to capital and surplus of such subsidiary whether
5 or not represented by the purchase of capital stock or issuance
6 of other securities.
7 (2) All amounts expended by the domestic stock fire, stock
8 marine or stock fire and marine insurance company in acquiring
9 additional common stock, preferred stock, debt obligations, and <--
10 other securities and all contributions to the capital or
11 surplus, or a subsidiary subsequent to its acquisition or
12 formation.
13 (f) If a domestic stock fire, stock marine or stock fire and
14 marine insurer ceases to own, directly or indirectly through one
15 or more intermediaries, a majority of the voting securities of a
16 subsidiary held pursuant to subsection (c) of this section, it
17 shall dispose of any investment therein made pursuant to such
18 subsection within five (5) years from the time of the cessation
19 of control or within such further time as the commissioner may
20 prescribe, unless, at any time after such investment shall have
21 been made, such investment shall have met the requirements for
22 investment under any other section of this act.
23 Section 14 15. Section 601 of the act is amended to read: <--
24 Section 601. Financial Requirements of Foreign Companies.--
25 Stock casualty insurance companies of other States and foreign
26 governments, organized to transact any of the classes of
27 insurance mentioned in subdivision (c), section two hundred and
28 two (202) of this act, in order to be licensed to do business in
29 this Commonwealth, must have a paid up and safely invested
30 capital and surplus, if a company of another State, or a deposit
19910H1670B3225 - 33 -
1 in the United States, if a company of a foreign government, of
2 at least the amount required in this act for [Pennsylvania]
3 domestic companies. [Nothing contained in this act shall prevent
4 any foreign stock life insurance company now engaged in the
5 business of accident and sickness or liability insurance, or
6 both, from continuing the same, if the amount of its paid up
7 capital shall be equal to the amount required of a domestic
8 company to transact the business of life insurance, and at least
9 fifty thousand dollars for each of the other classes of
10 insurance undertaken.]
11 Section 15 16. The act is amended by adding a section to <--
12 read:
13 Section 755. Investment Plan.--Any title insurance company
14 subject to the provisions of this act is required to have a
15 formal investment plan which shall be updated on an annual basis
16 as authorized by the board of directors. The investment plan
17 shall include, at a minimum, a description of the investment
18 strategy of the company designed to provide for liquidity and
19 diversity of the investment portfolio. The investment plan, and
20 such other information as the Insurance Department may require
21 in order to determine the impact of the investment plan on the
22 solvency of the company, shall be made available to the
23 Insurance Department during the course of a financial condition
24 examination conducted in accordance with the laws pertaining to
25 the conduct of examinations.
26 Section 16 17. Section 1004(d) of the act, amended June 24, <--
27 1939 (P.L.683, No.318), is amended to read:
28 Section 1004. Declaration To Be Filed with Insurance
29 Commissioner; Contents.--Such subscribers, so contracting among
30 themselves, shall, through their attorney, file with the
19910H1670B3225 - 34 -
1 Insurance Commissioner of this Commonwealth a declaration
2 verified by the oath of such attorney, setting forth:
3 * * *
4 (d) A copy of the form of power of attorney, or other
5 authority of such attorney, under which such insurance is to be
6 effected or exchanged, and which shall provide that the
7 liability of the subscribers, exchanging contracts of indemnity,
8 shall make provision for contingent liability, equal to not less
9 than one additional annual premium or deposit charged: Provided,
10 however, That where an exchange has a surplus equal to the
11 [minimum] capital and surplus required of a stock insurance
12 company transacting the same kind or kinds of business, its
13 power of attorney need not provide for such contingent liability
14 of subscribers, and such exchange, so long as it maintains such
15 surplus, may issue to its subscribers policies or contracts
16 without contingent liability.
17 * * *
18 Section 17 18. Article XI of the act is repealed. <--
19 Section 18 19. The act is amended by adding articles to <--
20 read:
21 ARTICLE XI.
22 BROKER CONTROLLED PROPERTY AND CASUALTY INSURERS.
23 Section 1101. Definitions.--As used in this article the
24 following words and phrases shall have the meanings given to
25 them in this section:
26 "Broker." A person, copartnership or corporation, not an
27 officer or agent of the company, association or exchange
28 interested, who or which, for compensation, acts or aids in any
29 manner in obtaining insurance for a person other than himself or
30 itself. An attorney-in-fact authorized by and acting for the
19910H1670B3225 - 35 -
1 subscribers of a reciprocal insurer or inter-insurance exchange
2 under powers of attorney shall not be considered a broker for
3 the purposes of this article.
4 "Commissioner." The Insurance Commissioner of the
5 Commonwealth.
6 "Control" or "controlled." The possession, direct or <--
7 indirect, of the power to direct or cause the direction of the
8 management and policies of a person, whether through the
9 ownership of voting securities, by contract other than a
10 contract for goods or nonmanagement services or otherwise.
11 Control shall be presumed to exist if any person directly or
12 indirectly, owns, controls, holds with the power to vote or
13 holds proxies representing a majority of the outstanding voting
14 securities of any other person. No person shall be deemed to
15 control another person solely by reason of being an officer or
16 director of such other person. The Insurance Department may
17 determine upon application that any person does not or will not
18 upon the taking of some proposed action control another person.
19 The Insurance Commissioner may prospectively revoke or modify
20 this determination, after the notice and opportunity to be
21 heard; whenever in his judgment revocation or modification is
22 consistent with this article.
23 "CONTROL," "CONTROLLED," AND "CONTROLLING." THESE TERMS <--
24 SHALL HAVE THE MEANING ASCRIBED IN SECTION 1201.
25 "Department." The Insurance Department of the Commonwealth.
26 "Independent casualty actuary." A casualty actuary who is a
27 member in good standing of the American Academy of Actuaries and
28 who is not affiliated with, nor an employe, a principal, nor the
29 direct or indirect owner of, or in any way controlled by an
30 insurer or broker.
19910H1670B3225 - 36 -
1 "Licensed property or casualty insurer" or "insurer." Any
2 person, firm, association or corporation duly licensed to
3 transact a property or casualty insurance business in this
4 Commonwealth and which issues policies covered by the act of <--
5 November 25, 1970 (P.L.716, No.232), known as "The Pennsylvania
6 Insurance Guaranty Association Act." COMMONWEALTH. The <--
7 following, inter alia, are not deemed to be licensed property or
8 casualty insurers for the purposes of this article:
9 (1) All nonadmitted insurers.
10 (2) All risk retention groups as defined in the Superfund
11 Amendments and Reauthorization Act of 1986 (Public Law 99-499,
12 100 Stat. 1613) and Article XIII of this act.
13 (3) All residual market pools and joint underwriting
14 authorities or associations.
15 (4) All captive insurers, which shall include, but not be
16 limited to, insurance companies owned by another organization
17 whose exclusive purpose is to insure risks of the parent
18 organization and affiliated companies or, in the case of groups
19 and associations, insurance organizations owned by the insureds
20 whose exclusive purpose is to insure risks of member
21 organizations or group members and their affiliates.
22 "Reinsurance intermediary." Any person, firm, association or
23 corporation which acts as a broker in soliciting, negotiating or
24 procuring the making of any reinsurance contract or binder on
25 behalf of a ceding insurer, or acts as a broker in accepting any
26 reinsurance contract or binder on behalf of an assuming insurer.
27 "Violation." A finding by the Insurance Department of any
28 one or more of the following:
29 (1) The controlling broker did not materially comply with
30 section 1102.
19910H1670B3225 - 37 -
1 (2) The controlled insurer, with respect to business placed
2 by the controlling broker, engaged in a pattern of charging
3 premiums that were lower than those being charged by such
4 insurer or other insurers for similar risks written during the
5 same period and placed by noncontrolling brokers. When
6 determining whether premiums were lower than those prevailing in
7 the market, the Insurance Department shall take into
8 consideration applicable industry or actuarial standards at the
9 time the business was written.
10 (3) The controlling broker failed to maintain records
11 sufficient:
12 (i) to demonstrate that such broker's dealings with its
13 controlled insurer were fair and equitable and in compliance
14 with the provisions of Article XII; and
15 (ii) to accurately disclose the nature and details of its
16 transactions with the controlled insurer, including such
17 information as is necessary to support the charges or fees to
18 the respective parties.
19 (4) The controlled insurer, with respect to business placed
20 by the controlling broker, either failed to establish or <--
21 deviated from its underwriting procedures.
22 (5) The controlled insurer's capitalization at the time the
23 business was placed by the controlling broker and with respect
24 to such business was not in compliance with criteria established
25 by the Insurance Department or otherwise by the insurance laws
26 or regulations of this Commonwealth.
27 (6) The controlling broker or the controlled insurer failed
28 to substantially comply with the provisions of Article XII and
29 any rules and regulations relative thereto.
30 Section 1102. Limitation on Business Placed with Controlled
19910H1670B3225 - 38 -
1 Insurer.--(a) No broker which has control of a licensed
2 property or casualty insurer may directly or indirectly place
3 business with such insurer in any transaction in which such
4 broker, at the time the business is placed, is acting as such on
5 behalf of the insured for any compensation, commission or other
6 thing of value, unless the requirements of this section are met,
7 including all of the following:
8 (1) There is a written contract between the controlling
9 broker and the insurer which contract has been approved by the
10 board of directors of the insurer.
11 (2) The broker, prior to the effective date of the policy,
12 delivers written notice to the prospective insured disclosing
13 the relationship between that broker and the controlled insurer.
14 This disclosure, signed by the insured, shall be retained in the
15 underwriting file until the filing of the report on the
16 examination covering the period in which the coverage is in
17 effect. If, however, the business is placed through a subbroker
18 who is not a controlling broker, the controlling broker shall
19 retain in its records a signed commitment from the subbroker
20 that the subbroker is aware of the relationship between the
21 insurer and the broker and that the subbroker has or will notify
22 the insured.
23 (3) All funds collected for the account of the insurer by
24 the controlling broker are paid, net of commissions,
25 cancellations and other adjustments, to the insurer no less
26 often than quarterly.
27 (b) In addition to any other required loss reserve
28 certification, the controlled insurer shall annually on the
29 first day of April of each year, file with the department an
30 opinion of an independent casualty actuary reporting loss ratios
19910H1670B3225 - 39 -
1 for each line of business written and attesting to the adequacy
2 of loss reserves established for losses incurred and outstanding
3 as of year-end, including incurred but not reported, on business
4 placed by such broker.
5 (c) The controlled insurer shall annually report to the
6 department the amount of commissions paid to the broker, the
7 percentage such amount represents of the net premiums written
8 and comparable amounts and percentage paid to noncontrolling
9 brokers for placements of the same kinds of insurance.
10 (d) Every controlled insurer shall have an audit committee
11 of the board of directors composed of several directors. Prior
12 to approval of the annual financial statement, the audit
13 committee shall meet with management, the insurer's independent
14 certified public accountants, and an independent casualty
15 actuary to review the adequacy of the insurer's loss reserves.
16 (e) No reinsurance intermediary which has control of an
17 assuming insurer may directly or indirectly place business with
18 such insurer in any transaction in which such reinsurance
19 intermediary is acting as a broker on behalf of the ceding
20 insurer. No reinsurance intermediary which has control of a
21 ceding insurer may directly or indirectly accept business from
22 such insurer in any transaction in which the reinsurance
23 intermediary is acting as a broker on behalf of the assuming
24 insurer. The prohibitions in this subsection shall not apply to
25 a reinsurance intermediary which makes a full and complete
26 written disclosure to the parties of its relationship with the
27 assuming or ceding insurer prior to completion of the
28 transaction.
29 Section 1103. Liability of Controlling Broker in the Event <--
30 of Insolvency of Controlled Insurer PENALTIES.--(a) If the <--
19910H1670B3225 - 40 -
1 department has reason to believe that a controlling broker has
2 committed or is committing an act which could be determined to
3 be a violation, as defined in section 1101, it shall serve upon
4 the controlling broker a statement of the charges and notice of
5 a hearing to be conducted in accordance with 2 Pa.C.S. (relating
6 to administrative law and procedure) at a time not less than
7 thirty (30) days after the service of the notice and at a place
8 fixed in the notice.
9 (b) At this hearing, the department must establish that the
10 controlling broker committed the violation. The controlling
11 broker shall have an opportunity to be heard and to present
12 evidence rebutting the charges and to establish that the <--
13 insolvency of the controlled insurer arose out of events not
14 attributable to the violation. The decision, determination or
15 order of the department shall be subject to judicial review
16 pursuant to 2 Pa.C.S.
17 (c) Upon a finding that the controlling broker committed a <--
18 violation and the controlling broker failed to establish that
19 such violation did not substantially contribute to the
20 insolvency, the controlling broker shall reimburse the
21 Pennsylvania Insurance Guaranty Association or Pennsylvania Life
22 and Health Insurance Guaranty Association for all payments made
23 for losses, loss adjustment and administrative expenses on the
24 business placed by such broker in excess of gross earned
25 premiums and investment income earned on premiums and loss
26 reserves for such business.
27 (C) IF AN ORDER FOR LIQUIDATION OR REHABILITATION OF THE <--
28 CONTROLLED INSURER HAS BEEN ENTERED PURSUANT TO ARTICLE V OF
29 THIS ACT, AND THE LIQUIDATOR OR REHABILITATOR APPOINTED UNDER
30 THAT ORDER BELIEVES THAT THE CONTROLLING BROKER OR ANY OTHER
19910H1670B3225 - 41 -
1 PERSON SUBJECT TO THIS ARTICLE HAS NOT MATERIALLY COMPLIED WITH
2 THIS ARTICLE, OR ANY REGULATION OR ORDER PROMULGATED HEREUNDER,
3 AND THE INSURER SUFFERED ANY LOSS OR DAMAGE THEREFROM, THE
4 LIQUIDATOR OR REHABILITATOR MAY MAINTAIN A CIVIL ACTION FOR
5 RECOVERY OF DAMAGES OR OTHER APPROPRIATE SANCTIONS FOR THE
6 BENEFIT OF THE INSURER.
7 Section 1104. Other Penalties Applicable.--Nothing in this
8 article shall affect the right of the department to impose any
9 other penalties provided for in the insurance laws of this
10 Commonwealth.
11 Section 1105. Rights of Certain Parties not Affected.--
12 Nothing contained in this article is intended to or shall in any
13 manner alter or affect rights of policyholders, claimants,
14 creditors or other third parties.
15 ARTICLE XII.
16 INSURANCE HOLDING COMPANIES.
17 Section 1201. Definitions.--As used in this article the
18 following words and phrases shall have the meanings given to
19 them in this section:
20 "Affiliate." A person that directly or indirectly through
21 one or more intermediaries, controls or is controlled by, or is
22 under common control with, the person specified.
23 "Commissioner." The Insurance Commissioner of the
24 Commonwealth.
25 "Control," "controlling," "controlled by" and "under common
26 control with." The possession, direct or indirect, of the power
27 to direct or cause the direction of the management and policies
28 of a person, whether through the ownership of voting securities,
29 by contract other than a commercial contract for goods or
30 nonmanagement services, or otherwise, unless the power is the
19910H1670B3225 - 42 -
1 result of an official position with or corporate office held by
2 the person. Control shall be presumed to exist if any person,
3 directly or indirectly, owns, controls, holds with the power to
4 vote, or holds proxies representing, ten per centum (10%) or
5 more of the voting securities of any other person. This
6 presumption may be rebutted by a showing that control does not
7 exist in fact. The Insurance Department may determine, after
8 furnishing all persons in interest notice and opportunity to be
9 heard and making specific findings of fact to support such
10 determination, that control exists in fact, notwithstanding the
11 absence of a presumption to that effect.
12 "Department." The Insurance Department of the Commonwealth.
13 "Earned surplus." The portion of the surplus that represents <--
14 the net earnings, gains or profits, after deduction of all
15 losses, that have not been distributed to the shareholders as
16 dividends, or transferred to stated capital or capital surplus
17 or applied to other purposes permitted by law, but does not
18 include unrealized appreciation of assets.
19 "Insurance holding company system." Two or more affiliated
20 persons, one or more of which is an insurer.
21 "Insurer." Any company, association or exchange authorized
22 by the Insurance Commissioner to transact the business of
23 insurance in this Commonwealth except that the term shall not
24 include:
25 (1) the Commonwealth or any agency or instrumentality
26 thereof;
27 (2) agencies, authorities or instrumentalities of the United
28 States, its possessions and territories, the Commonwealth of
29 Puerto Rico, the District of Columbia or a state or political
30 subdivision;
19910H1670B3225 - 43 -
1 (3) fraternal benefit societies; or
2 (4) nonprofit medical and hospital service associations.
3 "NAIC." THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS. <--
4 "Person." An individual, a corporation, a partnership, an
5 association, a joint stock company, a trust, an unincorporated
6 organization, any similar entity or any combination of the
7 foregoing acting in concert. The term shall not include any
8 joint venture partnership exclusively engaged in owning,
9 managing, leasing or developing real or tangible personal
10 property.
11 "Security holder." One who owns any security of a specified
12 person, including common stock, preferred stock, debt
13 obligations and any other security convertible into or
14 evidencing the right to acquire any of the foregoing.
15 "Subsidiary." An affiliate of a specified person controlled
16 by another person directly or indirectly through one or more
17 intermediaries.
18 "Voting security." Includes any security convertible into or
19 evidencing a right to acquire a voting security.
20 Section 1202. Acquisition of Control of or Merger with
21 Domestic Insurer.--(a) (1) No person other than the issuer
22 shall make a tender offer for or a request or invitation for
23 tenders of, or enter into any agreement to exchange securities
24 or, seek to acquire, or acquire, in the open market or
25 otherwise, any voting security of a domestic insurer if, after
26 the consummation thereof, such person would, directly or
27 indirectly, or by conversion or by exercise of any right to
28 acquire, be in control of such insurer, and no person shall
29 enter into an agreement to merge with or otherwise to acquire
30 control of a domestic insurer or any person controlling a
19910H1670B3225 - 44 -
1 domestic insurer unless, at the time any such offer, request, or
2 invitation is made or any such agreement is entered into, or
3 prior to the acquisition of such securities if no offer or
4 agreement is involved, such person has filed with the department
5 and has sent to such insurer, a statement containing the
6 information required by this section and such offer, request,
7 invitation, agreement or acquisition has been approved by the
8 department in the manner hereinafter prescribed.
9 (2) For purposes of this section, a "domestic insurer" shall
10 include any person controlling a domestic insurer unless such
11 person as determined by the department is either directly or
12 through its affiliates primarily engaged in business other than
13 the business of insurance. Such person shall, however, file a
14 preacquisition notification with the department containing the
15 information set forth in section 1203(c)(2) thirty (30) days
16 prior to the proposed effective date of the acquisition. Failure
17 to file is subject to section 1203(e)(3). For purposes of this
18 section, "person" shall not include any securities broker
19 holding, in the usual and customary manner, less than twenty per
20 centum (20%) of the voting securities of an insurance company or
21 of any person which controls an insurance company.
22 (b) The statement to be filed with the department under this
23 section shall be made under oath or affirmation and shall
24 contain the following information:
25 (1) The name and address of each person by whom or on whose
26 behalf the merger or other acquisition of control referred to in
27 subsection (a) is to be effected, hereinafter called "acquiring
28 party," and
29 (i) if such person is an individual, his principal
30 occupation and all offices and positions held during the past
19910H1670B3225 - 45 -
1 five years, and any conviction of crimes other than minor
2 traffic violations during the past ten years; or
3 (ii) if such person is not an individual, a report of the
4 nature of its business operations during the past five years or
5 for such lesser period as the person and any predecessors
6 thereof shall have been in existence; an informative description
7 of the business intended to be done by the person and the
8 person's subsidiaries; and a list of all individuals who are or
9 who have been selected to become directors or executive officers
10 of the person, or who perform or will perform functions
11 appropriate to those positions. This list shall include for each
12 individual the information required by subparagraph (i).
13 (2) The source, nature and amount of the consideration used
14 or to be used in effecting the merger or other acquisition of
15 control, a description of any transaction wherein funds were or
16 are to be obtained for any such purpose, including any pledge of
17 the insurer's stock, or the stock of any of its subsidiaries or
18 controlling affiliates, and the identity of persons furnishing
19 such consideration, provided, however, that where a source of
20 such consideration is a loan made in the lender's ordinary
21 course of business, the identity of the lender shall remain
22 confidential, if the person filing such statement so requests.
23 (3) Fully audited financial information as to the earnings
24 and financial condition of each acquiring party for the
25 preceding five fiscal years of each such acquiring party, or for
26 such lesser period as such acquiring party and any predecessors
27 thereof shall have been in existence, and similar unaudited
28 information as of a date not earlier than ninety (90) days prior
29 to the filing of the statement.
30 (4) Any plans or proposals which each acquiring party may
19910H1670B3225 - 46 -
1 have to liquidate such insurer, to sell its assets or merge or
2 consolidate it with any person, or to make any other material
3 change in its business or corporate structure or management.
4 (5) The number of shares of any security referred to in
5 subsection (a) which each acquiring party proposes to acquire,
6 and the terms of the offer, request, invitation, agreement or
7 acquisition referred to in subsection (a), and a statement as to
8 the method by which the fairness of the proposal was arrived.
9 (6) The amount of each class of any security referred to in
10 subsection (a) which is beneficially owned or concerning which
11 there is a right to acquire beneficial ownership by each
12 acquiring party.
13 (7) A full description of any contracts, arrangements or
14 understandings with respect to any security referred to in
15 subsection (a) in which any acquiring party is involved,
16 including, but not limited to, transfer of any of the
17 securities, joint ventures, loan or option arrangements, puts or
18 calls, guarantees of loans, guarantees against loss or
19 guarantees of profits, division of losses or profits, or the
20 giving or withholding of proxies. Such description shall
21 identify the persons with whom such contracts, arrangements or
22 understandings have been entered into.
23 (8) A description of the purchase of any security referred
24 to in subsection (a) during the twelve calendar months preceding
25 the filing of the statement, by any acquiring party, including
26 the dates of purchase, names of the purchasers and consideration
27 paid or agreed to be paid therefor.
28 (9) A description of any recommendations to purchase any
29 security referred to in subsection (a) made during the twelve
30 calendar months preceding the filing of the statement, by any
19910H1670B3225 - 47 -
1 acquiring party, or by anyone based upon interviews or at the
2 suggestion of such acquiring party.
3 (10) Copies of all tender offers for, requests, or
4 invitations for tenders of, exchange offers for, and agreements
5 to acquire or exchange any securities referred to in subsection
6 (a) and, if distributed, of additional soliciting material
7 relating thereto.
8 (11) The term of any agreement, contract or understanding
9 made with or proposed to be made with any broker-dealer as to
10 solicitation of securities referred to in subsection (a) for
11 tender and the amount of any fees, commissions or other
12 compensation to be paid to broker-dealers with regard thereto.
13 (12) Such additional information as the department may by
14 rule or regulation prescribe as necessary or appropriate for the
15 protection of policyholders of the insurer or in the public
16 interest.
17 (c) If the person required to file the statement referred to
18 in subsection (a) is a partnership, limited partnership,
19 syndicate or other group, the department may require that the
20 information called for by subsection (b)(1) through (12) shall
21 be given with respect to each partner of such partnership or
22 limited partnership, each member of such syndicate or group and
23 each person who controls such partner or member. If any such
24 partner, member or person is a corporation, or the person
25 required to file the statement referred to in subsection (a) is
26 a corporation, the department may require that the information
27 called for by subsection (b)(1) through (12) shall be given with
28 respect to such corporation, each officer and director of such
29 corporation, and each person who is directly or indirectly the
30 beneficial owner of more than ten per centum (10%) of the
19910H1670B3225 - 48 -
1 outstanding voting securities of such corporation.
2 (d) If any material change occurs in the facts set forth in
3 the statement filed with the department and sent to such insurer
4 pursuant to this section, an amendment setting forth such
5 change, together with copies of all documents and other material
6 relevant to such change, shall be filed with the department and
7 sent to such insurer within two (2) business days after the
8 person learns of such change.
9 (e) If any offer, request, invitation, agreement or
10 acquisition referred to in subsection (a) is proposed to be made
11 by means of a registration statement under the Securities Act of
12 1933 (48 Stat. 74, 15 U.S.C. § 77a et seq.), or in circumstances
13 requiring the disclosure of similar information under the
14 Securities Exchange Act of 1934 (48 Stat. 881, 15 U.S.C. § 78a
15 et seq.), or under a State law requiring similar registration or
16 disclosure, the person required to file the statement referred
17 to in subsection (a) may utilize such documents in furnishing
18 the information called for by that statement.
19 (f) (1) The department shall approve any merger or other
20 acquisition of control referred to in subsection (a) unless it
21 finds any of the following:
22 (i) After the change of control, the domestic insurer
23 referred to in subsection (a) would not be able to satisfy the
24 requirements for the issuance of a license to write the line or
25 lines of insurance for which it is presently licensed.
26 (ii) The effect of the merger or other acquisition of
27 control would be to substantially lessen competition in
28 insurance in this Commonwealth or tend to create a monopoly
29 therein. In applying the competitive standard in this
30 subparagraph:
19910H1670B3225 - 49 -
1 (A) the informational requirements of section 1203(c)(2) and
2 the standards of section 1203(d)(2) shall apply;
3 (B) the merger or other acquisition shall not be disapproved
4 if the department finds that any of the situations meeting the
5 criteria provided by section 1203(d)(3) exist; and
6 (C) the department may condition the approval of the merger
7 or other acquisition on the removal of the basis of disapproval
8 within a specified period of time.
9 (iii) The financial condition of any acquiring party is such
10 as might jeopardize the financial stability of the insurer or
11 prejudice the interest of its policyholders.
12 (iv) The plans or proposals which the acquiring party has to
13 liquidate the insurer, sell its assets or consolidate or merge
14 it with any person, or to make any other material change in its
15 business or corporate structure or management, are unfair and
16 unreasonable to policyholders of the insurer and not in the
17 public interest.
18 (v) The competence, experience and integrity of those
19 persons who would control the operation of the insurer are such
20 that it would not be in the interest of policyholders of the
21 insurer and of the public to permit the merger or other
22 acquisition of control.
23 (vi) The acquisition is likely to be hazardous or
24 prejudicial to the insurance buying public.
25 (2) If the merger or other acquisition of control is
26 approved, the department shall so notify the person filing the
27 statement and the insurer whose stock is proposed to be
28 acquired, and such a determination is hereafter referred to as
29 an approving determination. Notice shall also be given by the
30 department of any determination which is not an approving
19910H1670B3225 - 50 -
1 determination. If an approving determination is made by the
2 department, and not otherwise, the proposed offer and
3 acquisition may thereafter be made and consummated on the terms
4 and conditions and in the manner described in the statement and
5 subject to such conditions as may be prescribed by the
6 department as hereinafter provided. An approving determination
7 by the department shall be deemed to extend to offers or
8 acquisitions made pursuant thereto within one year following the
9 date of determination. The department may, as a condition of its
10 approving determination, require the inclusion in any offer of
11 provisions requiring the offer to remain open a specified
12 minimum length of time, permitting withdrawal of shares
13 deposited prior to the time the offeror becomes bound to
14 consummate the acquisition, and requiring pro rata acceptance of
15 any shares deposited pursuant to the offer. The department shall
16 hold a hearing before making the determination required by this
17 subsection if, within ten (10) days following the filing with
18 the department of the statement, written request for the holding
19 of such hearing is made either by the person proposing to make
20 the acquisition, by the insurer whose stock is proposed to be
21 acquired, or, if such issuer is not an insurer, by the insurance
22 company controlled by such issuer. Otherwise the department
23 shall determine in its discretion whether such a hearing shall
24 be held. Thirty (30) days' notice of any such hearing shall be
25 given to the person proposing to make the acquisition, to the
26 issuer whose stock is proposed to be acquired and, if such
27 issuer is not an insurer, to the insurance company controlled by
28 such issuer. Notice of any such hearing shall also be given to
29 such other persons, if any, as the department may determine.
30 (3) The department may retain at the acquiring person's
19910H1670B3225 - 51 -
1 expense any attorneys, actuaries, accountants and other experts
2 not otherwise a part of the department's staff as may be
3 reasonably necessary to assist the department in reviewing the
4 proposed acquisition of control.
5 (g) The provisions of this section shall not apply to any
6 offer, request, invitation, agreement or acquisition which the
7 department by order shall exempt therefrom as:
8 (1) not having been made or entered into for the purpose and
9 not having the effect of changing or influencing the control of
10 a domestic insurer; or
11 (2) as otherwise not comprehended within the purposes of
12 this section.
13 (h) The following shall constitute a violation of this
14 section:
15 (1) the failure to file any statement, amendment or other
16 material required to be filed pursuant to subsection (a) or (b);
17 or
18 (2) the effectuation or any attempt to effectuate an
19 acquisition of control of, or merger with, a domestic insurer
20 unless the department has given its approval thereto.
21 Section 1203. Acquisitions Involving Insurers not Otherwise
22 Covered.--(a) As used in this section the following words and
23 phrases shall have the meanings given to them in this
24 subsection:
25 "Acquisition." Any agreement, arrangement or activity the
26 consummation of which results in a person acquiring, directly or
27 indirectly, the control of another person and includes, but is
28 not limited to, the acquisition of voting securities, the
29 acquisition of assets, bulk reinsurance and mergers.
30 "Involved insurer." Includes an insurer which either
19910H1670B3225 - 52 -
1 acquires or is acquired, is affiliated with an acquirer or
2 acquired or is the result of a merger.
3 (b) (1) Except as exempted in paragraph (2), this section
4 applies to any acquisition in which there is a change in control
5 of an insurer authorized to do business in this Commonwealth.
6 (2) This section shall not apply to any of the following:
7 (i) An acquisition subject to approval or disapproval by the
8 department pursuant to section 1202.
9 (ii) A purchase of securities solely for investment purposes
10 so long as such securities are not used by voting or otherwise
11 to cause or attempt to cause the substantial lessening of
12 competition in any insurance market in this Commonwealth. If a
13 purchase of securities results in a presumption of control as
14 described in the definition of "control" in section 1101, it is
15 not solely for investment purposes unless the insurance
16 department of the insurer's state of domicile accepts a
17 disclaimer of control or affirmatively finds that control does
18 not exist and such disclaimer action or affirmative finding is
19 communicated by the domiciliary insurance department to the
20 Insurance Department of the Commonwealth.
21 (iii) The acquisition of a person by another person when
22 both persons are neither directly nor through affiliates
23 primarily engaged in the business of insurance, if
24 preacquisition notification is filed with the department in
25 accordance with subsection (c)(2) thirty (30) days prior to the
26 proposed effective date of the acquisition. However, such
27 preacquisition notification is not required for exclusion from
28 this section if the acquisition would otherwise be excluded from
29 this section by this paragraph.
30 (iv) The acquisition of already affiliated persons.
19910H1670B3225 - 53 -
1 (v) An acquisition if, as an immediate result of the
2 acquisition:
3 (A) in no market would the combined market share of the
4 involved insurers exceed five per centum (5%) of the total
5 market;
6 (B) there would be no increase in any market share; or
7 (C) in no market would:
8 (I) the combined market share of the involved insurers
9 exceeds twelve per centum (12%) of the total market; and
10 (II) the market share increases by more than two per centum
11 (2%) of the total market.
12 For the purpose of this subparagraph, a market means direct
13 written insurance premium in this Commonwealth for a line of
14 business as contained in the annual statement required to be
15 filed by insurers licensed to do business in this Commonwealth.
16 (vi) An acquisition for which a preacquisition notification
17 would be required pursuant to this section due solely to the
18 resulting effect on the ocean marine insurance line of business.
19 (vii) An acquisition of an insurer whose domiciliary
20 insurance department affirmatively finds that such insurer is in
21 failing condition; there is a lack of feasible alternative to
22 improving such condition; the public benefits of improving such
23 insurer's condition through the acquisition exceed the public
24 benefits that would arise from not lessening competition; and
25 such findings are communicated by the domiciliary insurance
26 department to the Insurance Department of the Commonwealth.
27 (3) Sections 1210(b) and (c) and 1212 1209(B) AND (C) AND <--
28 1211 shall not apply to acquisitions provided for in this
29 subsection.
30 (c) (1) An acquisition covered by subsection (b) may be
19910H1670B3225 - 54 -
1 subject to an order pursuant to subsection (e) unless the
2 acquiring person files a preacquisition notification and the
3 waiting period has expired. The acquired person may file a
4 preacquisition notification. The department shall give
5 confidential treatment to information submitted under this
6 subsection in the same manner provided in section 1208 1207. <--
7 (2) The preacquisition notification shall be in such form
8 and contain such information as prescribed by a national <--
9 association of insurance commissioners THE NAIC relating to <--
10 those markets which, under subsection (b)(2)(v), cause the
11 acquisition not to be exempted from the provisions of this
12 section. The department may require such additional material and
13 information as it deems necessary to determine whether the
14 proposed acquisition, if consummated, would violate the
15 competitive standard of subsection (d). The required information
16 may include an opinion of an economist as to the competitive
17 impact of the acquisition in this Commonwealth accompanied by a
18 summary of the education and experience of such person
19 indicating his or her ability to render an informed opinion.
20 (3) The waiting period required shall begin on the date of
21 receipt by the department of a preacquisition notification and
22 shall end on the earlier of the thirtieth day after the date of
23 such receipt, or termination of the waiting period by the
24 department. Prior to the end of the waiting period, the
25 department on a one-time basis may require the submission of
26 additional needed information relevant to the proposed
27 acquisition, in which event the waiting period shall end on the
28 earlier of the thirtieth day after receipt of such additional
29 information by the department or termination of the waiting
30 period by the department.
19910H1670B3225 - 55 -
1 (d) (1) The department may enter an order under subsection
2 (e)(1) with respect to an acquisition if there is substantial
3 evidence that the effect of the acquisition may be substantially
4 to lessen competition in any line of insurance in this
5 Commonwealth or tend to create a monopoly therein or if the
6 insurer fails to file adequate information in compliance with
7 subsection (c).
8 (2) In determining whether a proposed acquisition would
9 violate the competitive standard of paragraph (1), the
10 department shall consider the following:
11 (i) Any acquisition covered under subsection (b) involving
12 two or more insurers competing in the same market is prima facie
13 evidence of violation of the competitive standards as follows:
14 (A) if the market is highly concentrated and the involved
15 insurers possess the following shares of the market:
16 Insurer A Insurer B
17 4% 4% or more
18 10% 2% or more
19 15% 1% or more; or
20 (B) if the market is not highly concentrated and the
21 involved insurers possess the following shares of the market:
22 Insurer A Insurer B
23 5% 5% or more
24 10% 4% or more
25 15% 3% or more
26 19% 1% or more.
27 A highly concentrated market is one in which the share of the
28 four largest insurers is seventy-five per centum (75%) or more
29 of the market. Percentages not shown in the tables are
30 interpolated proportionately to the percentages that are shown.
19910H1670B3225 - 56 -
1 If more than two insurers are involved, exceeding the total of
2 the two columns in the table is prima facie evidence of
3 violation of the competitive standard in paragraph (1). For the
4 purpose of this subparagraph, the insurer with the largest share
5 of the market shall be deemed to be insurer A.
6 (ii) There is a significant trend toward increased
7 concentration when the aggregate market share of any grouping of
8 the largest insurers in the market, from the two largest to the
9 eight largest, has increased by seven per centum (7%) or more of
10 the market over a period of time extending from any base year
11 five to ten years prior to the acquisition up to the time of the
12 acquisition. Any acquisition or merger covered under subsection
13 (b) involving two or more insurers competing in the same market
14 is prima facie evidence of violation of the competitive standard
15 in paragraph (1) if:
16 (A) there is a significant trend toward increased
17 concentration in the market;
18 (B) one of the insurers involved is one of the insurers in a
19 grouping of such large insurers showing the requisite increase
20 in the market share; and
21 (C) another involved insurer's market is two per centum (2%)
22 or more.
23 (iii) For the purposes of this paragraph:
24 (A) The term "insurer" includes any company or group of
25 companies under common management, ownership or control.
26 (B) The term "market" means the relevant product and
27 geographical markets. In determining the relevant product and
28 geographical markets, the department shall give due
29 consideration to, among other things, the definitions or
30 guidelines, if any, promulgated by a national association of <--
19910H1670B3225 - 57 -
1 insurance commissioners THE NAIC and to information, if any, <--
2 submitted by parties to the acquisition. In the absence of
3 sufficient information to the contrary, the relevant product
4 market is assumed to be the direct written insurance premium for
5 a line of business, such line being that used in the annual
6 statement required to be filed by insurers doing business in
7 this Commonwealth and the relevant geographical market is
8 assumed to be this Commonwealth.
9 (C) The burden of showing prima facie evidence of violation
10 of the competitive standard rests upon the commissioner.
11 (iv) Even though an acquisition is not prima facie violative
12 of the competitive standard under subparagraphs (i) and (ii),
13 the department may establish the requisite anticompetitive
14 effect based upon other substantial evidence. Even though an
15 acquisition is prima facie violative of the competitive standard
16 under subparagraphs (i) and (ii), a party may establish the
17 absence of the requisite anticompetitive effect based upon other
18 substantial evidence. Relevant factors in making a determination
19 under this paragraph include, but are not limited to, the
20 following: market shares, volatility of ranking of market
21 leaders, number of competitors, concentration, trend of
22 concentration in the industry and ease of entry and exit into
23 the market.
24 (3) An order may not be entered under subsection (e)(1) if:
25 (i) the acquisition will yield substantial economies of
26 scale or economies in resource utilization that cannot be
27 feasibly achieved in any other way, and the public benefits
28 which would arise from such economies exceed the public benefits
29 which would arise from not lessening competition; or
30 (ii) the acquisition will substantially increase the
19910H1670B3225 - 58 -
1 availability of insurance, and the public benefits of such
2 increase exceed the public benefits which would arise from not
3 lessening competition.
4 (e) (1) (i) If an acquisition violates the standards of
5 this section, the department may enter an order:
6 (A) requiring an involved insurer to cease and desist from
7 doing business in this Commonwealth with respect to the line or
8 lines of insurance involved in the violation; or
9 (B) denying the application of an acquired or acquiring
10 insurer for a license to do business in this Commonwealth.
11 (ii) Such an order shall be issued in compliance with 2
12 Pa.C.S. (relating to administrative law and procedure).
13 (iii) An order pursuant to this paragraph shall not apply if
14 the acquisition is not consummated.
15 (2) Any person who violates a cease and desist order of the
16 department under paragraph (1) and while such order is in
17 effect, may, after notice and hearing and upon order of the
18 department, be subject at the discretion of the department to
19 either or both of the following:
20 (i) A civil penalty of not more than ten thousand dollars
21 ($10,000) for every day of violation.
22 (ii) Suspension or revocation of such person's license.
23 (3) Any insurer or other person who fails to make any filing
24 required by this section and who also fails to demonstrate a
25 good faith effort to comply with any such filing requirement
26 shall be subject to a civil penalty not to exceed fifty thousand
27 dollars ($50,000).
28 Section 1204. Registration of Insurers.--(a) (1) Every
29 insurer which is authorized to do business in this Commonwealth
30 and which is a member of an insurance holding company system
19910H1670B3225 - 59 -
1 shall register with the department, except a foreign insurer
2 subject to registration requirements and standards adopted by
3 statute or regulation in the jurisdiction of its domicile which
4 are substantially similar to those contained in sections 1204
5 and 1205(a)(1) and (2), (b) and (d). Each registered insurer
6 shall keep current the information required to be disclosed in
7 its registration statement by reporting all material changes or
8 additions within fifteen (15) days after the end of the month in
9 which it learns of each such change or addition.
10 (2) Any insurer which is subject to registration under this
11 section shall register within fifteen (15) days after it becomes
12 subject to registration, and annually thereafter by the thirty-
13 first day of March of each year for the previous calendar year,
14 unless the department for good cause shown extends the time for
15 registration, and then within such extended time. The department
16 may require any insurer authorized to do business in this
17 Commonwealth which is a member of a holding company system, and
18 which is not subject to registration under this section, to
19 furnish a copy of the registration statement, the summary
20 specified in subsection (c) or other information filed by such
21 insurance company with the insurance regulatory authority of its
22 domiciliary jurisdiction.
23 (b) Every insurer subject to registration shall file the
24 registration statement on a form prescribed by a national <--
25 association of insurance commissioners THE NAIC, which shall <--
26 contain all of the following current information:
27 (1) The capital structure, general financial condition,
28 ownership and management of the insurer and any person
29 controlling the insurer.
30 (2) The identity and relationship of every member of the
19910H1670B3225 - 60 -
1 insurance holding company system.
2 (3) All of the following agreements in force and
3 transactions currently outstanding or which have occurred during
4 the last calendar year between such insurer and its affiliates:
5 (i) Loans and other investments, and the purchase, sale or
6 exchange of securities of an affiliate by the insurer or of the
7 insurer by an affiliate.
8 (ii) Purchases, sales or exchange of assets.
9 (iii) Transactions not in the ordinary course of business.
10 (iv) Guarantees or undertakings for the benefit of an
11 affiliate which result in an actual contingent exposure of the
12 insurer's assets to liability, other than insurance contracts
13 entered into in the ordinary course of the insurer's business.
14 (v) All management agreements, service contracts and all
15 cost-sharing arrangements.
16 (vi) Reinsurance agreements.
17 (vii) Dividends and other distributions to shareholders.
18 (viii) Consolidated tax allocation agreements.
19 (4) Any pledge of the insurer's stock, including stock of
20 any subsidiary or controlling affiliate, for a loan made to any
21 member of the insurance holding company system.
22 (5) Any other matters concerning transactions between
23 registered insurers and any affiliates as may be included from
24 time to time in any registration forms adopted or approved by
25 the department.
26 (c) All registration statements shall contain a summary
27 outlining all items in the current registration statement
28 representing changes from the prior registration statement.
29 (d) No information need be disclosed on the registration
30 statement filed pursuant to subsection (b) if such information
19910H1670B3225 - 61 -
1 is not material for the purposes of this section. Unless the
2 department by rule, regulation or order provides otherwise;
3 sales, purchases, exchanges, loans or extensions of credit,
4 investments, or guarantees involving one-half of one per centum
5 (0.5%) or less of an insurer's admitted assets as of the thirty-
6 first day of December next preceding shall not be deemed
7 material for purposes of this section.
8 (e) Subject to section 1205(b), each registered insurer
9 shall report to the department all dividends and other
10 distributions to shareholders within fifteen (15) business days
11 following the declaration thereof.
12 (f) Any person within an insurance holding company system
13 subject to registration shall be required to provide complete
14 and accurate information to an insurer, where such information
15 is reasonably necessary to enable the insurer to comply with the
16 provisions of this article.
17 (g) The department shall terminate the registration of any
18 insurer which demonstrates that it no longer is a member of an
19 insurance holding company system.
20 (h) The department may require or allow two or more
21 affiliated insurers subject to registration hereunder to file a
22 consolidated registration statement.
23 (i) The department may allow an insurer which is authorized
24 to do business in this Commonwealth and which is part of an
25 insurance holding company system to register on behalf of any
26 affiliated insurer which is required to register under
27 subsection (a) and to file all information and material required
28 to be filed under this section.
29 (j) The provisions of this section shall not apply to any
30 insurer, information or transaction if and to the extent that
19910H1670B3225 - 62 -
1 the department by rule, regulation or order shall exempt the
2 same from the provisions of this section.
3 (k) Any person may file with the department a disclaimer of
4 affiliation with any authorized insurer or such a disclaimer may
5 be filed by such insurer or any member of an insurance holding
6 company system. The disclaimer shall fully disclose all material
7 relationships and bases for affiliation between such person and
8 such insurer as well as the basis for disclaiming such
9 affiliation. After a disclaimer has been filed, the insurer
10 shall be relieved of any duty to register or report under this
11 section which may arise out of the insurer's relationship with
12 such person unless and until the department disallows such a
13 disclaimer. The department shall disallow such a disclaimer only
14 after furnishing all parties in interest with notice and
15 opportunity to be heard and after making specific findings of
16 fact to support such disallowance.
17 (l) The failure to file a registration statement or any
18 summary of the registration statement thereto required by this
19 section within the time specified for such filing shall be a
20 violation of this section.
21 Section 1205. Standards and Management of an Insurer within
22 a Holding Company System.--(a) (1) Transactions within a
23 holding company system to which an insurer subject to
24 registration is a party shall be subject to all of the following
25 standards:
26 (i) The terms shall be fair and reasonable.
27 (ii) Charges or fees for services performed shall be
28 reasonable.
29 (iii) Expenses incurred and payment received shall be
30 allocated to the insurer in conformity with customary insurance
19910H1670B3225 - 63 -
1 accounting practices consistently applied and all cost-sharing
2 or expense allocation arrangements must be formalized in writing
3 and authorized by the board of directors of the domestic
4 insurer.
5 (iv) The books, accounts and records of each party to all
6 such transactions shall be so maintained as to clearly and
7 accurately disclose the nature and details of the transactions,
8 including such accounting information as is necessary to support
9 the reasonableness of the charges or fees to the respective
10 parties.
11 (v) The insurer's surplus as regards policyholders following
12 any dividends or distributions to shareholder affiliates shall
13 be reasonable in relation to the insurer's outstanding
14 liabilities and adequate to its financial needs.
15 (2) The following transactions involving a domestic insurer
16 and any person in its holding company system may not be entered
17 into unless the insurer has notified the department in writing
18 of its intention to enter into such transaction at least thirty
19 (30) days prior thereto, or such shorter period as the
20 department may permit and the department has not disapproved it
21 within such period:
22 (i) Sales, purchases, exchanges, loans or extensions of
23 credit, guarantees or investments, including assets to be
24 received by the domestic insurer as contributions to its
25 surplus, provided THAT, AS OF THE THIRTY-FIRST DAY OF DECEMBER <--
26 NEXT PRECEDING, such transactions are equal to or exceed:
27 (A) with respect to nonlife insurers, the lesser of five per
28 centum (5%) of the insurer's admitted assets or thirty-five per
29 centum (35%) of surplus as regards policyholders;
30 (B) with respect to life insurers, three per centum (3%) of
19910H1670B3225 - 64 -
1 the insurer's admitted assets, each as of the thirty-first day <--
2 of December next preceding.
3 (ii) Loans or extensions of credit to any person who is not
4 an affiliate, where the insurer makes such loans or extensions
5 of credit with the agreement or understanding that the proceeds
6 of such transactions, in whole or in substantial part, are to be
7 used to make loans or extensions of credit to, to purchase
8 assets of, or to make investments in, any affiliate of the
9 insurer making such loans or extensions of credit provided THAT, <--
10 AS OF THE THIRTY-FIRST DAY OF DECEMBER NEXT PRECEDING, such
11 transactions are equal to or exceed:
12 (A) with respect to nonlife insurers, the lesser of five per
13 centum (5%) of the insurer's admitted assets or thirty-five per
14 centum (35%) of surplus as regards policyholders;
15 (B) with respect to life insurers, three per centum (3%) of
16 the insurer's admitted assets, each as of the thirty-first day <--
17 of December next preceding.
18 (iii) For domestic insurers which have experienced a decline
19 in policyholder surplus in an amount of ten per centum (10%) or
20 more for two consecutive years and net loss from operations in
21 both those years, reinsurance agreements or modifications
22 thereto in which the reinsurance premium or a change in the
23 insurer's liabilities equals or exceeds five per centum (5%) of
24 the insurer's surplus as regards policyholders, as of the
25 thirty-first day of December next preceding, including those
26 agreements which may require as consideration the transfer of
27 assets from an insurer to a nonaffiliate, if an agreement or
28 understanding exists between the insurer and nonaffiliate that
29 any portion of such assets will be transferred to one or more
30 affiliates of the insurer. Nothing in this paragraph shall
19910H1670B3225 - 65 -
1 affect or limit the requirements and applicability of section 3
2 of the act of July 31, 1968 (P.L.941, No.288), entitled "An act
3 providing for reporting to the Insurance Commissioner by
4 domestic insurance companies, associations, or exchanges, of
5 certain conveyances of interests in the assets of such
6 companies, associations, or exchanges."
7 (iv) Any material transactions, specified by regulation,
8 which the department determines may adversely affect the
9 interests of the insurer's policyholders.
10 Nothing in this paragraph shall be deemed to authorize or permit
11 any transactions which, in the case of an insurer not a member
12 of the same holding company system, would be otherwise contrary
13 to law.
14 (3) A domestic insurer may not enter into transactions which
15 are part of a plan or series of like transactions with persons
16 within the holding company system if the purpose of those
17 separate transactions is to avoid the statutory threshold amount
18 and thus avoid the review that would occur otherwise. If the
19 department determines that such separate transactions were
20 entered into over any twelve-month period for such purpose, it
21 may exercise its authority under section 1211 1210. <--
22 (4) The department, in reviewing transactions pursuant to
23 paragraph (2), shall consider whether the transactions comply
24 with the standards set forth in paragraph (1) and whether they
25 may adversely affect the interests of policyholders. The
26 department may retain at the insurer's expense any attorneys,
27 actuaries, accountants and other experts not otherwise a part of
28 the department's staff as may be reasonably necessary to assist
29 the department in reviewing the transaction.
30 (5) The department shall be notified within thirty (30) days
19910H1670B3225 - 66 -
1 of any investment of the domestic insurer in any one corporation
2 if the total investment in such corporation by the insurance
3 holding company system exceeds ten per centum (10%) of such
4 corporations' voting securities.
5 (b) (1) No domestic insurer shall pay any extraordinary
6 dividend to its stockholders without prior approval of the <--
7 commissioner. UNTIL: <--
8 (I) THIRTY (30) DAYS AFTER THE COMMISSIONER HAS RECEIVED
9 WRITTEN NOTICE FROM THE INSURER OF THE DECLARATION OF THE
10 DIVIDEND AND HAS NOT WITHIN SUCH PERIOD DISAPPROVED THE PAYMENT;
11 OR
12 (II) THE COMMISSIONER SHALL HAVE APPROVED THE PAYMENT WITHIN
13 SUCH THIRTY-DAY PERIOD.
14 (2) For purposes of this subsection, an extraordinary
15 dividend is any dividend or other distribution which, together
16 with other dividends and distributions made within the preceding
17 twelve (12) months, exceeds the lesser GREATER of: <--
18 (i) ten per centum (10%) of such insurer's earned surplus as <--
19 regards policyholders as shown on its last annual statement on
20 file with the commissioner; or
21 (ii) the net gain from operations after dividends to
22 policyholders and Federal income taxes and before realized gains
23 or losses, of such insurer,if such insurer is a life insurer, or
24 the net investment income earned, excluding net realized capital
25 gains or losses, if such insurer is not a life insurer, for the
26 period covered by such statement, but shall not include pro rata
27 distributions of any class of the insurer's own securities.
28 (c) (1) Notwithstanding the control of a domestic insurer
29 by any person, the officers and directors of the insurer shall
30 not thereby be relieved of any obligation or liability to which
19910H1670B3225 - 67 -
1 they would otherwise be subject by law, and the insurer shall be
2 managed so as to assure its separate operating identity
3 consistent with this article.
4 (2) Nothing herein shall preclude a domestic insurer from
5 having or sharing a common management or cooperative or joint
6 use of personnel, property or services with one or more other
7 persons under arrangements meeting the standards of subsection
8 (a)(1).
9 (3) Not less than one-third of the directors of a domestic
10 insurer, and not less than one-third of the members of each
11 committee of the board of directors of any domestic insurer
12 shall be persons who are not officers or employes of such
13 insurer or of any entity controlling, controlled by, or under
14 common control with such insurer and who are not beneficial
15 owners of a controlling interest in the voting stock of such
16 insurer or any such entity. At least one such person must be
17 included in any quorum for the transaction of business at any
18 meeting of the board of directors or any committee thereof.
19 (4) The board of directors of a domestic insurer shall
20 establish one or more committees comprised solely of directors
21 who are not officers or employes of the insurer or of any entity
22 controlling, controlled by, or under common control with the
23 insurer and who are not beneficial owners of a controlling
24 interest in the voting stock of the insurer or any such entity.
25 The committee or committees shall have responsibility for
26 recommending the selection of independent certified public
27 accountants, reviewing the insurer's financial condition, the
28 scope and results of the independent audit and any internal
29 audit, nominating candidates for director for election by
30 shareholders or policyholders, evaluating the performance of
19910H1670B3225 - 68 -
1 officers deemed to be principal officers of the insurer and
2 recommending to the board of directors the selection and
3 compensation of the principal officers.
4 (5) The provisions of paragraphs (3) and (4) shall not apply
5 to a domestic insurer if the person controlling such insurer is
6 an insurer or a publicly held corporation having a board of
7 directors and committees thereof which already meet the
8 requirements of paragraphs (3) and (4).
9 (d) For purposes of this article, in determining whether an
10 insurer's surplus as regards policyholders is reasonable in
11 relation to the insurer's outstanding liabilities and adequate
12 to its financial needs, the following factors, among others,
13 shall be considered:
14 (1) The size of the insurer as measured by its assets,
15 capital and surplus, reserves, premium writings, insurance in
16 force and other appropriate criteria.
17 (2) The extent to which the insurer's business is
18 diversified among the several lines of insurance.
19 (3) The number and size of risks insured in each line of
20 business.
21 (4) The extent of the geographical dispersion of the
22 insurer's insured risks.
23 (5) The nature and extent of the insurer's reinsurance
24 program.
25 (6) The quality, diversification and liquidity of the
26 insurer's investment portfolio.
27 (7) The recent past and projected future trend in the size
28 of the insurer's investment portfolio.
29 (8) The surplus as regards policyholders maintained by other
30 comparable insurers.
19910H1670B3225 - 69 -
1 (9) The adequacy of the insurer's reserves.
2 (10) The quality and liquidity of investments in affiliates.
3 The department may treat any such investment as a disallowed
4 asset for purposes of determining the adequacy of surplus as
5 regards policyholders whenever in its judgment such investment
6 so warrants.
7 Section 1206. Regulations to restrict pyramiding.--The <--
8 commissioner may adopt regulations designed to prevent an
9 insurer from pyramiding subsidiaries to a degree that, in the
10 judgment of the commissioner, would be materially adverse to the
11 interests of policyholders, subscribers and the people of this
12 Commonwealth.
13 Section 1207 1206. Examination.--(a) Subject to the <--
14 limitation contained in this section and in addition to the
15 powers which the department has under law relating to the
16 examination of insurers, the department shall also have the
17 power to order any insurer registered under section 1204 to
18 produce such records, books or other information papers in the
19 possession of the insurer or its affiliates as are reasonably
20 necessary to ascertain the financial condition of such insurer
21 or to determine compliance with this article. In the event an
22 insurer fails to comply with such order, the department shall
23 have the power to examine affiliates to obtain this information.
24 (b) The department may retain at the registered insurer's
25 expense such attorneys, actuaries, accountants and other experts
26 not otherwise a part of the department's staff as shall be
27 reasonably necessary to assist in the conduct of the examination
28 under subsection (a). Any persons so retained shall be under the
29 direction and control of the commissioner and shall act in a
30 purely advisory capacity.
19910H1670B3225 - 70 -
1 (c) Each registered insurer producing for examination
2 records, books and papers pursuant to subsection (a) shall be
3 liable for and shall pay the expense of such examination as
4 provided for in Article IX of the act of May 17, 1921 (P.L.789,
5 No.285), known as "The Insurance Department Act of one thousand
6 nine hundred and twenty-one."
7 Section 1208 1207. Confidential Treatment.--All information, <--
8 documents and copies thereof obtained by or disclosed to the
9 department or any other person in the course of an examination
10 or investigation made pursuant to section 1207 1206 and all <--
11 information reported pursuant to sections 1204 and 1205 shall be
12 given confidential treatment and shall not be subject to
13 subpoena and shall not be made public by the department or any
14 other person, except to insurance departments of other states,
15 without the prior written consent of the insurer to which it
16 pertains unless the department, after giving the insurer and its
17 affiliates who would be affected thereby, notice and opportunity
18 to be heard, determines that the interest of policyholders,
19 shareholders or the public will be served by the publication
20 thereof, in which event it may publish all or any part thereof
21 in such manner as he may deem appropriate.
22 Section 1209 1208. Rules and Regulations.--The department <--
23 may, in the manner provided by law, promulgate the rules and
24 regulations, and may issue such orders as are necessary to carry
25 out this article.
26 Section 1210 1209. Injunctions and Certain Prohibitions.-- <--
27 (a) Whenever it appears to the department that any insurer or
28 any director, officer, employe or agent thereof has committed or
29 is about to commit a violation of this article or of any rule,
30 regulation or order issued by the department hereunder, the
19910H1670B3225 - 71 -
1 department may apply to the Commonwealth Court for an order
2 enjoining such insurer or such director, officer, employe or
3 agent thereof from violating or continuing to violate this
4 article or any such rule, regulation or order, and for such
5 other equitable relief as the nature of the case and the
6 interest of the insurer's policyholders, creditors and
7 shareholders or the public may require.
8 (b) No security which is the subject of any agreement or
9 arrangement regarding acquisition, or which is acquired or to be
10 acquired, in contravention of the provisions of this article or
11 of any rule, regulation or order issued by the department
12 hereunder may be voted at any shareholder's meeting, or may be
13 counted for quorum purposes, and any action of shareholders
14 requiring the affirmative vote of a percentage of shares may be
15 taken as though such securities were not issued and outstanding;
16 but no action taken at any such meeting shall be invalidated by
17 the voting of such securities, unless the action would
18 materially affect control of the insurer or unless the courts of
19 this Commonwealth have so ordered. If an insurer or the
20 department has reason to believe that any security of the
21 insurer has been or is about to be acquired in contravention of
22 the provisions of this article or of any rule, regulation or
23 order issued by the department hereunder, the insurer or the
24 department may apply to the Commonwealth Court to enjoin any
25 offer, request, invitation, agreement or acquisition made in
26 contravention of section 1202, or any rule, regulation or order
27 issued by the department thereunder to enjoin the voting of any
28 security so acquired, to void any vote of such security already
29 cast at any meeting of shareholders and for such other equitable
30 relief as the nature of the case and the interest of the
19910H1670B3225 - 72 -
1 insurer's policyholders, creditors and shareholders or the
2 public may require.
3 (c) In any case where a person has acquired or is proposing
4 to acquire any voting securities in violation of this article or
5 any rule, regulation or order issued by the department
6 hereunder, the Commonwealth Court may, on such notice as the
7 court deems appropriate, upon the application of the insurer or
8 the department seize or sequester any voting securities of the
9 insurer owned directly or indirectly by such person, and issue
10 such order with respect thereto as may be appropriate to
11 effectuate the provisions of this article.
12 (d) Notwithstanding any other provisions of law, for the
13 purposes of this article, the situs of the ownership of the
14 securities of domestic insurers shall be deemed to be in this
15 Commonwealth.
16 Section 1211 1210. Sanctions.--(a) Any insurer failing, <--
17 without just cause, to file any registration statement as
18 required in this article shall be required, after notice and
19 hearing, to pay a penalty not to exceed five hundred ($500)
20 dollars for each day's delay. The maximum penalty under this
21 section is twenty-five thousand ($25,000) dollars. The
22 department may reduce the penalty if the insurer demonstrates to
23 the department that the imposition of the penalty would
24 constitute a financial hardship to the insurer.
25 (b) Every director or officer of an insurance holding
26 company system who knowingly violates, participates in, or
27 assents to, or who knowingly shall permit any of the officers or
28 agents of the insurer to engage in transactions or make
29 investments which have not been properly reported or submitted
30 pursuant to section 1204(a) or 1205(a)(2) and (b), or which
19910H1670B3225 - 73 -
1 violate this article shall pay, in their individual capacity, a
2 civil forfeiture of not more than twenty-five thousand ($25,000)
3 dollars per violation, after notice and hearing before the
4 department. In determining the amount of the civil forfeiture,
5 the department shall take into account the appropriateness of
6 the forfeiture with respect to the gravity of the violation, the
7 history of previous violations, and such other matters as
8 justice may require.
9 (c) Whenever it appears to the department that any insurer
10 subject to this article or any director, officer, employe or
11 agent thereof has engaged in any transaction or entered into a
12 contract which is subject to section 1205 and which would not
13 have been approved had such approval been requested, the
14 department may order the insurer to cease and desist immediately
15 any further activity under the transaction or contract. After
16 notice and hearing the department may also order the insurer to
17 void any such contracts and restore the status quo if such
18 action is in the best interest of the policyholders, creditors
19 or the public.
20 (d) Whenever it appears to the department that any insurer
21 or any director, officer, employe or agent thereof has committed
22 a wilful violation of this article, the department may cause
23 criminal proceedings to be instituted in the common pleas court
24 for the county in which the principal office of the insurer is
25 located or if such insurer has no such office in this State,
26 then in any other court having jurisdiction against such insurer
27 or the responsible director, officer, employe or agent thereof.
28 Any insurer which wilfully violates this article may be fined
29 not more than one hundred thousand ($100,000) dollars. Any
30 individual who wilfully violates this article may be fined in
19910H1670B3225 - 74 -
1 his individual capacity not more than fifty thousand ($50,000)
2 dollars or be imprisoned for not more than one to three years,
3 or both.
4 (e) Any officer, director or employe of an insurance holding
5 company system who wilfully and knowingly subscribes to or makes
6 or causes to be made any false statements or false reports or
7 false filings with the intent to deceive the department in the
8 performance of its duties under this article shall, upon
9 conviction, be sentenced to pay a fine of one hundred thousand
10 ($100,000) dollars or to imprisonment for not more than three
11 years, or both. Any fines imposed shall be paid by the officer,
12 director or employe in his individual capacity.
13 Section 1212 1211. Receivership.--Whenever it appears to the <--
14 department that any person has committed a violation of this
15 article which so impairs the financial condition of a domestic
16 insurer as to threaten insolvency or make the further
17 transaction of business by it hazardous to its policyholders,
18 creditors, shareholders or the public, the department may
19 proceed, in the manner provided by law, to take possession of
20 the property of such domestic insurer and to conduct the
21 business thereof.
22 Section 1213 1212. Recovery.--(a) If an order for <--
23 liquidation or rehabilitation of a domestic insurer has been
24 entered, the statutory liquidator appointed under such order
25 shall have a right to recover on behalf of the insurer:
26 (i) from any parent corporation or holding company or person
27 or affiliate who otherwise controlled the insurer, the amount of
28 distributions, other than the distributions of shares of the
29 same class of stock, paid by the insurer on its capital stock;
30 or
19910H1670B3225 - 75 -
1 (ii) any payment in the form of a bonus, termination
2 settlement or extraordinary lump sum salary adjustment made by
3 the insurer or its subsidiaries to a director, officer or
4 employe, where the distribution or payment pursuant to this
5 subsection is made at any time during the one year preceding the
6 petition for liquidation, conservation or rehabilitation, as the
7 case may be, subject to the limitations of subsections (b), (c)
8 and (d).
9 (b) No such distribution shall be recoverable if the parent
10 or affiliate shows that when paid such distribution was lawful
11 and reasonable, and that the insurer did not know and could not
12 reasonably have known that such distribution might adversely
13 affect the ability of the insurer to fulfill its contractual
14 obligations.
15 (c) Any person who was a parent corporation or holding
16 company or a person who otherwise controlled the insurer or
17 affiliate at the time such distributions were paid shall be
18 liable up to the amount of distributions or payments under
19 subsection (a) such person received. Any person who otherwise
20 controlled the insurer at the time such distributions were
21 declared shall be liable up to the amount of distributions he
22 would have received if they had been paid immediately. If two or
23 more persons are liable with respect to the same distributions,
24 they shall be jointly and severally liable.
25 (d) The maximum amount recoverable under this section shall
26 be the amount needed in excess of all other available assets of
27 the impaired or insolvent insurer to pay the contractual
28 obligations of the impaired or insolvent insurer and to
29 reimburse any guaranty funds.
30 (e) To the extent that any person liable under subsection
19910H1670B3225 - 76 -
1 (c) of this section is insolvent or otherwise fails to pay
2 claims due from it pursuant to that subsection, its parent
3 corporation or holding company or person who otherwise
4 controlled it at the time the distribution was paid, shall be
5 jointly and severally liable for any resulting deficiency in the
6 amount recovered from such parent corporation or holding company
7 or person who otherwise controlled it.
8 Section 1214 1213. Revocation, Suspension or Nonrenewal of <--
9 Insurer's License.--Whenever it appears to the department that
10 any person has committed a violation of this article which makes
11 the continued operation of an insurer contrary to the interests
12 of policyholders or the public, the department may, after giving
13 notice and an opportunity to be heard, determine to suspend,
14 revoke or refuse to renew such insurer's license or authority to
15 do business in this Commonwealth for such period as it finds is
16 required for the protection of policyholders or the public. Any
17 such determination shall be accompanied by specific findings of
18 fact and conclusions of law.
19 ARTICLE XIII.
20 RISK RETENTION.
21 Section 1301. Statement of Purpose.--The purpose of this
22 article is to regulate the formation and operation of risk
23 retention groups and purchasing groups in this Commonwealth
24 formed pursuant to the Risk Retention Amendments of 1986 (Public
25 Law 99-563, 100 Stat. 3170) to the extent permitted by such law.
26 Section 1302. Definitions.--As used in this article the
27 following words and phrases shall have the meanings given to
28 them in this section:
29 "Actuary." An individual who has demonstrated to the <--
30 satisfaction of the department that the individual has the
19910H1670B3225 - 77 -
1 educational background necessary for the practice of actuarial
2 science.
3 "Admitted insurer." An insurer with a valid certificate of
4 authority to do insurance business in this Commonwealth.
5 "Commissioner." The Insurance Commissioner of the
6 Commonwealth.
7 "Completed operations liability." Liability arising out of
8 the installation, maintenance or repair of any product at a site
9 which is not owned or controlled by:
10 (1) any person who performs that work; or
11 (2) any person who hires an independent contractor to
12 perform that work;
13 but shall include liability for activities which are completed
14 or abandoned before the date of the occurrence giving rise to
15 the liability.
16 "Department." The Insurance Department of the Commonwealth.
17 "Doing business." Those acts which constitute the doing of
18 insurance business in this Commonwealth as set forth in section
19 208(b) of the act of May 17, 1921 (P.L.789, No.285), known as
20 "The Insurance Department Act of one thousand nine hundred and
21 twenty-one," except that risk retention groups and purchasing
22 groups are not doing business when responding to a request for
23 coverage received directly from a Pennsylvania resident and not
24 as a result of solicitation.
25 "Domicile." For purposes of determining the state in which a
26 purchasing group is domiciled, the term means the following:
27 (1) For a corporation, the state in which the purchasing
28 group is incorporated.
29 (2) For an unincorporated entity, the state of its principal
30 place of business.
19910H1670B3225 - 78 -
1 "Eligible surplus lines insurer." A nonadmitted insurer
2 doing business in this Commonwealth in conformance with Article
3 XIV.
4 "Hazardous financial condition." A condition in which, based
5 on its present or reasonably anticipated financial condition, a
6 risk retention group, although not yet financially impaired or
7 insolvent, is unlikely to be able:
8 (1) to meet obligations to policyholders with respect to
9 known claims and reasonably anticipated claims; or
10 (2) to pay other obligations in the normal course of
11 business.
12 "Insurance." Primary insurance, excess insurance,
13 reinsurance, surplus lines insurance and any other arrangement
14 for shifting and distributing risk which is determined to be
15 insurance under the laws of this Commonwealth.
16 "Liability."
17 (1) The term means legal liability for damages (including
18 costs of defense, legal costs and fees and other claims
19 expenses) because of injuries to other persons, damage to their
20 property, or other damage or loss to such other persons
21 resulting from or arising out of:
22 (i) any business (whether profit or nonprofit), trade,
23 product, services (including professional services), premises or
24 operations; or
25 (ii) any activity of any state or local government, or any
26 agency or political subdivision thereof.
27 (2) The term does not include personal risk liability and an
28 employer's liability with respect to its employes other than
29 legal liability under the Employers' Liability Act (45 U.S.C. §
30 51 et seq.).
19910H1670B3225 - 79 -
1 "Nonadmitted insurer." An insurer that does not have a
2 certificate of authority to do insurance business in this
3 Commonwealth. The term includes insurance exchanges authorized
4 under laws of various states.
5 "Personal risk liability." A liability for damages because
6 of injury to any person, damage to property or other loss or
7 damage resulting from any personal, familial or household
8 responsibilities or activities, rather than from
9 responsibilities or activities referred to in the definition of
10 "liability."
11 "Plan of operation or a feasibility study." An analysis
12 which presents the expected activities and results of a risk
13 retention group, including, at a minimum, all of the following:
14 (1) Information sufficient to verify that its members are
15 engaged in businesses or activities similar or related with
16 respect to the liability to which such members are exposed by
17 virtue of any related, similar or common business, trade,
18 product, services, premises or operations.
19 (2) For each state in which it intends to operate, the
20 coverages, deductibles, coverage limits, rates and rating
21 classification systems for each kind of liability insurance the
22 group intends to offer.
23 (3) Historical and expected loss experience of the proposed
24 members and national experience of similar exposures to the
25 extent that this experience is reasonably available.
26 (4) Pro forma financial statements and projections.
27 (5) Appropriate opinions by a qualified, independent
28 casualty actuary, including a determination of minimum premium
29 or participation levels required to commence operations and to
30 prevent a hazardous financial condition.
19910H1670B3225 - 80 -
1 (6) Identification of management, underwriting and claims
2 procedures, marketing methods, managerial oversight methods,
3 investment policies and reinsurance agreements.
4 (7) The states in which the risk retention group intends to
5 operate or is currently operating.
6 (8) Such other matters as may be prescribed by the
7 department for liability insurance companies authorized by the
8 insurance laws of the state in which the risk retention group is
9 chartered.
10 "Product liability." Liability for damages because of any
11 personal injury, death, emotional harm, consequential economic
12 damage or property damage (including damages resulting from the
13 loss of use of property) arising out of the manufacture, design,
14 importation, distribution, packaging, labeling, lease or sale of
15 a product. The term does not include the liability of any person
16 for these damages if the product involved was in the possession
17 of such a person when the incident giving rise to the claim
18 occurred.
19 "Purchasing group." Any group which:
20 (1) has as one of its purposes the purchase of liability
21 insurance on a group basis;
22 (2) purchases such insurance only for its group members and
23 only to cover their similar or related liability exposure, as
24 described in paragraph (3);
25 (3) is composed of members whose businesses or activities
26 are similar or related with respect to the liability to which
27 members are exposed by virtue of any related, similar or common
28 business, trade, product, services, premises or operations; and
29 (4) is domiciled in any state.
30 "Risk retention group." Any corporation or other limited
19910H1670B3225 - 81 -
1 liability association:
2 (1) whose primary activity consists of assuming and
3 spreading all, or any portion, of the liability exposure of its
4 group members;
5 (2) which is organized for the primary purpose of conducting
6 the activity described under paragraph (1);
7 (3) which:
8 (i) is chartered and licensed as an insurance company to
9 write liability insurance and authorized to engage in the
10 business of insurance under the laws of any state; or
11 (ii) before January 1, 1985, was chartered or licensed and
12 authorized to engage in the business of insurance under the laws
13 of Bermuda or the Cayman Islands and, before such date, had
14 certified to the insurance department of at least one state that
15 it satisfied the capitalization requirements of such state,
16 except that any such group shall be considered to be a risk
17 retention group only if it has been engaged in business
18 continuously since such date and only for the purpose of
19 continuing to provide insurance to cover product liability or
20 completed operations liability, as such terms were defined in
21 the Product Liability Risk Retention Act of 1981 (Public Law 97-
22 45, 95 Stat. 949), before the date of the enactment of the Risk
23 Retention Amendments of 1986 (Public Law 99-563, 100 Stat.
24 3170);
25 (4) which does not exclude any person from membership in the
26 group solely to provide for members of such a group a
27 competitive advantage over such a person;
28 (5) which:
29 (i) has as its owners only persons who comprise the
30 membership of the risk retention group and who are provided
19910H1670B3225 - 82 -
1 insurance by such group; or
2 (ii) has as its sole owner an organization which has as its
3 members only persons who comprise the membership of the risk
4 retention group and which organization has as its owners only
5 persons who comprise the membership of the risk retention group
6 and who are provided insurance by the risk retention group;
7 (6) whose members are engaged in businesses or activities
8 similar or related with respect to the liability of which such
9 members are exposed by virtue of any related, similar or common
10 business trade, product, services, premises or operations;
11 (7) whose activities do not include the provision of
12 insurance other than:
13 (i) liability insurance for assuming and spreading all or
14 any portion of the liability of its group members; and
15 (ii) reinsurance with respect to the liability of any other
16 risk retention group (or any members of such other risk
17 retention group) which is engaged in businesses or activities so
18 that the group or member meets the requirement described in
19 paragraph (6) for membership in the risk retention group which
20 provides such reinsurance; and
21 (8) the name of which includes the phrase "Risk Retention
22 Group."
23 "State." Any state of the United States or the District of
24 Columbia.
25 Section 1303. Risk Retention Groups Chartered in this
26 Commonwealth.--(a) A domestic risk retention group shall,
27 pursuant to this act and the act of May 17, 1921 (P.L.789,
28 No.285), known as "The Insurance Department Act of one thousand
29 nine hundred and twenty-one," be chartered and licensed as a
30 domestic fire or casualty insurance company to write only
19910H1670B3225 - 83 -
1 liability insurance pursuant to this article and, except as
2 provided elsewhere in this article, shall comply with all the
3 laws, rules, regulations and requirements applicable to such
4 insurers chartered and licensed in this Commonwealth and with
5 section 1304 to the extent that such requirements are not a
6 limitation of laws, rules, regulations or requirements of this
7 Commonwealth.
8 (b) Before it may offer insurance in any state, each
9 domestic risk retention group shall also submit for approval to
10 the department a plan of operation or a feasibility study. In
11 the event of any subsequent material change in any item of the
12 plan of operation or feasibility study, the risk retention group
13 shall submit an appropriate revision within ten (10) days of any
14 such change. The group shall not offer any additional kinds of
15 liability insurance in this Commonwealth or in any other state
16 until a revision of such plan or study is approved by the
17 department.
18 (c) The provisions of subsection (b), relating to the
19 submission of a plan of operation or feasibility study, shall
20 not apply with respect to any kind or classification of
21 liability insurance which:
22 (1) was defined in the Product Liability Risk Retention Act
23 of 1981 (Public Law 97-45, 95 Stat. 949), before October 27,
24 1986; and
25 (2) was offered before such date by any risk retention group
26 which had been chartered and operating for not less than three
27 years before such date.
28 (d) At the time of filing its application for charter, the
29 risk retention group shall provide to the department in summary
30 form the following information:
19910H1670B3225 - 84 -
1 (1) The identity of the initial members of the group.
2 (2) The identity of those individuals who organized the
3 group or who will provide administrative services or otherwise
4 influence or control the activities of the group.
5 (3) The amount and nature of initial capitalization.
6 (4) The coverages to be afforded.
7 (5) The states in which the group intends to operate.
8 Section 1304. Risk Retention Groups not Chartered in this
9 Commonwealth.--(a) A risk retention group chartered and
10 licensed in a state other than this Commonwealth and seeking to
11 do business as a risk retention group in this Commonwealth shall
12 comply with the laws of this Commonwealth, as provided in this
13 section.
14 (b) Before doing business in this Commonwealth, a risk
15 retention group shall submit to the department all of the
16 following:
17 (1) A statement identifying the state or states in which the
18 risk retention group is chartered and licensed as an insurance
19 company to write liability insurance, the charter date, its
20 principal place of business and such other information,
21 including information on its membership, as the department may
22 require to verify that the risk retention group is qualified
23 under the definition of "risk retention group" in section 1302.
24 (2) A copy of its plan of operations or a feasibility study
25 and copies of all revisions of such plan or study submitted to
26 the state in which the risk retention group is chartered and
27 licensed, provided that the provision relating to the submission
28 of a plan of operation or a feasibility study shall not apply
29 with respect to any kind or classification of liability
30 insurance which:
19910H1670B3225 - 85 -
1 (i) was defined in the Product Liability Risk Retention Act
2 of 1981 (Public Law 97-45, 95 Stat. 949 et seq.) before October
3 27, 1986; and
4 (ii) was offered before such date by any risk retention
5 group which had been chartered and was operating for not less
6 than three years before such date.
7 (3) A copy of the most recent annual statement as described
8 in subsection (d)(1).
9 (4) (i) A statement of registration for which a filing fee
10 shall be imposed, which statement appoints the department as its
11 agent for the purpose of receiving service of legal documents or
12 process.
13 (ii) The appointment of the department shall be accompanied
14 by written designation of the name and address of the officer,
15 agent or other person to whom such process shall be forwarded by
16 the department or its deputy on behalf of such risk retention
17 group. In the event such designation is changed, a new
18 certificate of designation shall be filed with the department
19 within ten (10) days of such change.
20 (iii) Service of process upon a risk retention group
21 pursuant to this paragraph shall be made by serving the
22 department, or any deputy thereof or any salaried employe of the
23 department whom the department designates for such purpose, with
24 two copies thereof and the payment of a fee to be published by
25 notice in the Pennsylvania Bulletin. The department shall
26 forward a copy of such process by registered or certified mail
27 to the risk retention group at the address given in its written
28 certificate of designation and shall keep a record of all
29 process so served upon him. Service of process so made shall be
30 deemed made within the territorial jurisdiction of any court in
19910H1670B3225 - 86 -
1 this Commonwealth.
2 (c) The risk retention group shall submit a copy of any
3 revision to its plan of operation or feasibility study required
4 by section 1303(b) at the same time that such revision is
5 submitted to the department of its chartering state.
6 (d) Any risk retention group doing business in this
7 Commonwealth shall submit annually to the department, on or
8 before March 1, all of the following:
9 (1) A copy of the group's financial statement submitted to
10 the state in which the risk retention group is chartered and
11 licensed, which shall be certified by an independent public
12 accountant and shall contain a statement of opinion on loss and
13 loss adjustment expense reserves made by an actuary A MEMBER OF <--
14 THE AMERICAN ACADEMY OF ACTUARIES or a qualified loss reserve
15 specialist.
16 (2) A copy of the most recent examination of the risk
17 retention group as certified by the department or public
18 official conducting the examination.
19 (3) Upon request by the department, a copy of any
20 information or document pertaining to any outside audit
21 performed with respect to the risk retention group.
22 (4) Such information as may be required to verify its
23 continuing qualification as a risk retention group, as defined
24 in section 1302.
25 (e) If a risk retention group is found to be in a hazardous
26 financial condition by any court of competent jurisdiction, the
27 risk retention group shall submit a copy of the court order to
28 the department within ten (10) days of the date of the order.
29 (f) A risk retention group shall be liable for a fine of two
30 hundred ($200) dollars per day of delinquency for either of the
19910H1670B3225 - 87 -
1 following:
2 (1) Failure to file the annual statement as provided by law
3 on the first day of March, except that, for good cause shown,
4 the department may grant, after written request, a reasonable
5 extension of time within which such statement may be filed.
6 (2) Failure to submit to the department a copy of the order
7 of a court of competent jurisdiction finding the risk retention
8 group to be in a hazardous financial condition or financially
9 impaired within ten (10) days of the date of such order.
10 (g) (1) Each risk retention group shall be liable for the
11 payment of premium taxes and taxes on premiums of direct
12 business for risks resident or located within this Commonwealth
13 and shall report to the department the gross direct premiums,
14 less returns thereon, written for risks resident or located
15 within this Commonwealth. Such risk retention group shall be
16 subject to taxation and any applicable fines and penalties
17 related thereto on the same basis as a foreign admitted insurer,
18 pursuant to section 902 of the act of March 4, 1971 (P.L.6,
19 No.2), known as the "Tax Reform Code of 1971."
20 (2) To the extent that licensed agents, brokers or surplus
21 lines agents with Pennsylvania licenses are utilized pursuant to
22 section 1305 1314, they shall report to the department the <--
23 premiums for direct business for risks resident or located
24 within this Commonwealth which such licensees have placed with
25 or on behalf of a risk retention group not chartered and
26 licensed in this Commonwealth.
27 (h) Any risk retention group and its agents and
28 representatives shall comply with the act of July 22, 1974
29 (P.L.589, No.205), known as the "Unfair Insurance Practices
30 Act," insofar as its provisions apply to unfair claims practices
19910H1670B3225 - 88 -
1 and deceptive, false or fraudulent practices. However, if the
2 department seeks an injunction regarding such conduct, the
3 injunction must be obtained from a court of competent
4 jurisdiction.
5 (i) Any risk retention group shall submit to an examination
6 by the Insurance Department of the Commonwealth to determine its
7 financial condition if the department of the jurisdiction in
8 which the group is chartered and licensed has not initiated an
9 examination or does not initiate an examination within sixty
10 (60) days after a request by the Insurance Commissioner of the
11 Commonwealth. Any such examination shall be coordinated with
12 other jurisdictions to the extent feasible in order to avoid
13 unjustified repetition and shall be conducted in an expeditious
14 manner and in accordance with an examination handbook approved <--
15 by a national association of insurance commissioners. THE <--
16 NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS' EXAMINATION
17 HANDBOOK.
18 (j) The terms of any insurance policy issued by such risk
19 retention group shall not provide or be construed to provide
20 insurance policy coverage prohibited generally by state statute
21 or declared unlawful by the highest court of the state whose law
22 applies to such policy.
23 (k) A risk retention group doing business in this
24 Commonwealth shall comply with a lawful order issued in a
25 voluntary dissolution proceeding or in a delinquency proceeding
26 commenced by a state insurance department if there has been a
27 finding of hazardous financial condition or financial impairment
28 after an examination under subsection (i).
29 (l) Any risk retention groups doing business in this
30 Commonwealth prior to the enactment of this article shall,
19910H1670B3225 - 89 -
1 within thirty (30) days after the effective date of this
2 article, comply with the provisions of this section.
3 (m) A risk retention group which violates any provision of
4 this article shall be subject to fines and penalties applicable
5 to admitted insurers generally, including revocation of its
6 right to do business in this Commonwealth.
7 Section 1305. Notice and Prohibited Acts.--(a) Every
8 application form for insurance from a risk retention group and
9 every policy issued by a risk retention group shall contain, in
10 ten-point type on the front page and the declaration page, the
11 following notice:
12 NOTICE
13 This policy is issued by your risk retention group. Your
14 risk retention group may not be subject to all of the
15 insurance laws and regulations of your state. State
16 insurance insolvency guaranty funds are not available for
17 your risk retention group.
18 (b) The following acts by a risk retention group are hereby
19 prohibited:
20 (1) The solicitation or sale of insurance by a risk
21 retention group to any person who is not eligible for membership
22 in such group.
23 (2) The solicitation or sale of insurance by, or operation
24 of, a risk retention group that has been found by a court of
25 competent jurisdiction to be in a hazardous financial condition
26 or financially impaired.
27 (c) No risk retention groups shall be allowed to do business
28 in this Commonwealth if an insurance company is directly or
29 indirectly a member or owner of such risk retention group, other
30 than in the case of a risk retention group all of whose members
19910H1670B3225 - 90 -
1 are insurance companies.
2 Section 1306. Guaranty Funds and Compulsory Associations.--
3 (a) No risk retention group shall be required or permitted to
4 join or contribute financially to any insurance insolvency
5 guaranty fund, or similar mechanism, in this Commonwealth, nor
6 shall any risk retention group, or its insureds or claimants
7 against its insureds, receive any benefit from any such fund for
8 claims arising under the insurance policies issued by such risk
9 retention group.
10 (b) When a purchasing group obtains insurance covering its
11 members' risks from an insurer not admitted in this Commonwealth
12 or from a risk retention group, no such risks, wherever resident
13 or located, shall be covered by any insurance guaranty fund or
14 similar mechanism in this Commonwealth.
15 (c) When a purchasing group obtains insurance covering its
16 members' risks from an admitted insurer, only covered claims as
17 defined in the act of November 25, 1970 (P.L.716, No.232), known
18 as "The Pennsylvania Insurance Guaranty Association Act," shall
19 be covered by the State guaranty fund.
20 (d) The department may require risk retention groups not
21 chartered in this Commonwealth to participate, and may exempt
22 domestic risk retention groups from participation, in any
23 mechanism established or authorized under the laws of this
24 Commonwealth for the equitable apportionment among insurers of
25 liability insurance losses and expenses incurred on policies
26 written through such mechanism; and such risk retention groups
27 shall submit sufficient information to the department to enable
28 the department to apportion on a nondiscriminatory basis the
29 risk retention group's proportionate share of such losses and
30 expenses.
19910H1670B3225 - 91 -
1 Section 1307. Countersignatures not Required.--A policy of
2 insurance issued by a risk retention group to any member of that
3 group or by an insurer to a purchasing group or any member of a
4 purchasing group shall not be required to be countersigned by an
5 insurance agent or broker residing in this Commonwealth.
6 Section 1308. Exemption.--(a) A purchasing group and its
7 insurer or insurers shall be subject to all applicable laws of
8 this Commonwealth, except that the purchasing group and its
9 insurer or insurers shall be exempt, in regard to liability
10 insurance for the purchasing group, from any law that would do
11 any of the following:
12 (1) Prohibit the establishment of a purchasing group.
13 (2) Make it unlawful for an insurer to provide or offer to
14 provide insurance on a basis providing, to a purchasing group or
15 its members, advantages, based on their loss and expense
16 experience, not afforded to other persons with respect to rates,
17 policy forms, coverages or other matters.
18 (3) Prohibit a purchasing group or its members from
19 purchasing insurance on a group basis described in paragraph
20 (2).
21 (4) Prohibit a purchasing group from obtaining insurance on
22 a group basis because the group has not been in existence for a
23 minimum period of time or because any member has not belonged to
24 the group for a minimum period of time.
25 (5) Require that a purchasing group must have a minimum
26 number of members, common ownership or affiliation, or a certain
27 legal form.
28 (6) Require that a certain percentage of a purchasing group
29 must obtain insurance on a group basis.
30 (7) Otherwise discriminate against a purchasing group or any
19910H1670B3225 - 92 -
1 of its members.
2 (b) An insurer shall be exempt from any laws of this
3 Commonwealth which prohibits providing or offering to provide,
4 to a purchasing group or its members, advantages, based on their
5 loss and expense experience, not afforded to other persons with
6 respect to rates, policy forms, coverages or other matters.
7 Section 1309. Notice and Registration Requirements.--(a) A
8 purchasing group which intends to do business in this
9 Commonwealth shall, prior to doing such business, furnish notice
10 to the department which notice shall do all of the following:
11 (1) Identify the state in which the group is domiciled.
12 (2) Identify the principal place of business of the group.
13 (3) Identify all other states in which the group intends to
14 do business or is doing business.
15 (4) Specify the kinds and classifications of liability
16 insurance which the purchasing group intends to purchase.
17 (5) Specify the method by which, and the person or persons,
18 if any, through whom, insurance will be offered to its members
19 whose risks are resident or located in this Commonwealth.
20 (6) Identify the names and chartering jurisdictions of the
21 insurance company or companies from which the group intends to
22 purchase its insurance.
23 (7) Confirm that the insurer from which the purchasing group
24 intends to purchase insurance has filed with the department,
25 pursuant to section 354, and all other provisions of insurance
26 laws, rules and regulations governing policy form and rate
27 standards, the rates and forms it intends to use to provide
28 coverage for the risks resident in this Commonwealth.
29 (8) Provide such other information as may be required by the
30 department to verify that the purchasing group is qualified
19910H1670B3225 - 93 -
1 under the definition of "purchasing group" in section 1302.
2 (b) A purchasing group shall notify the department within
3 ten (10) days as to any subsequent changes in any of the items
4 set forth in subsection (a).
5 (c) Each purchasing group which is required to give notice
6 pursuant to subsection (a) shall also furnish such information
7 as may be required by the department to do any of the following:
8 (1) Verify that the entity qualifies as a purchasing group.
9 (2) Determine the location of the purchasing group.
10 (3) Determine appropriate tax treatment.
11 (d) (1) The purchasing group shall submit a statement of
12 registration, for which a filing fee shall be imposed, which
13 designates the department as its agent solely for the purpose of
14 receiving service of legal documents or process.
15 (2) The designation of the department shall be accompanied
16 by written designation of the name and address of the officer,
17 agent or other person to whom such process shall be forwarded by
18 the department or its deputy on behalf of such purchasing group.
19 In the event such designation is changed, a new certificate of
20 designation shall be filed with the department within ten (10)
21 days of such change.
22 (3) Service of process upon a purchasing group pursuant to
23 this subsection shall be made by serving the department, any
24 deputy thereof or any salaried employe of the department whom
25 the department designates for such purpose with two copies
26 thereof and the payment of a fee to be published by notice in
27 the Pennsylvania Bulletin. The department shall forward a copy
28 of such process by registered or certified mail to the
29 purchasing group at the address given in its written certificate
30 of designation, and shall keep a record of all process so served
19910H1670B3225 - 94 -
1 upon him. Service of process so made shall be deemed made within
2 the territorial jurisdiction of any court in this Commonwealth.
3 (4) Such requirements shall not apply in the case of a
4 purchasing group which only purchases insurance that was
5 authorized under the Products Liability Risk Retention Act of
6 1981 (Public Law 97-45, 95 Stat. 949); and
7 (i) which in any state of the United States:
8 (A) was domiciled before April 1, 1986; and
9 (B) is domiciled on and after October 27, 1986; and
10 (ii) which:
11 (A) before October 27, 1986, purchased insurance from an
12 insurance company licensed in any state;
13 (B) since October 27, 1986, purchased its insurance from an
14 insurance company licensed in any state;
15 (C) was a purchasing group under the requirements of the
16 Product Liability Risk Retention Act of 1981 before October 27,
17 1986; and
18 (D) does not purchase insurance that was not authorized for
19 purposes of an exemption under that article, as in effect before
20 October 27, 1986.
21 (e) Any purchasing group which was doing business in this
22 Commonwealth prior to the enactment of this act shall, within
23 thirty (30) days after the effective date of this article,
24 furnish notice to the department pursuant to the provisions of
25 subsection (a) and furnish such information as may be required
26 pursuant to subsections (b), (c) and (d).
27 Section 1310. Restrictions on Insurance Purchased by
28 Purchasing Groups.--(a) A purchasing group may purchase
29 liability insurance for its members who are residents of this
30 Commonwealth only from:
19910H1670B3225 - 95 -
1 (1) a risk retention group chartered and licensed in this
2 Commonwealth;
3 (2) an admitted insurer;
4 (3) a risk retention group not chartered and licensed in
5 this Commonwealth which has complied with section 1303; or
6 (4) an eligible surplus lines insurer if the liability
7 insurance is obtained through surplus lines agents acting
8 pursuant to Article XIV.
9 (b) The terms of any liability insurance policy obtained by
10 a purchasing group shall not provide or be construed to provide
11 insurance coverage prohibited generally by state statute or
12 declared unlawful by the highest court of the state whose law
13 applies to such policy. If the laws of this Commonwealth apply
14 to an insurance policy obtained by a purchasing group, the terms
15 of that policy shall not provide or be construed to provide
16 insurance coverage prohibited generally by state statute or
17 declared unlawful by the highest court of this Commonwealth
18 which has construed such coverage.
19 (c) A purchasing group which obtains liability insurance
20 from a nonadmitted insurer that is an eligible surplus lines
21 insurer in this Commonwealth or from a risk retention group
22 shall inform each of the members of such purchasing group which
23 has a risk resident or located in this Commonwealth that such
24 risk is not protected by an insurance insolvency guaranty fund
25 in this Commonwealth, and that such risk retention group or such
26 nonadmitted insurer may not be subject to all insurance laws and
27 regulations of this Commonwealth.
28 (d) No purchasing group may purchase insurance providing for
29 a deductible or self-insured retention applicable to the group
30 as a whole; however, coverage may provide for a deductible or
19910H1670B3225 - 96 -
1 self-insured retention applicable to individual members.
2 (e) Purchases of insurance by purchasing groups are subject
3 to the same standards regarding aggregate limits which are
4 applicable to all purchases of group insurance.
5 Section 1311. Insurance Company Interest in Purchasing
6 Groups Doing Business in this Commonwealth Prohibited.--No
7 insurer, or director, officer or employe of an insurer, may have
8 any interest in a purchasing group doing business in this
9 Commonwealth. Prohibited interest includes, but is not limited
10 to, soliciting members for the purchasing group, and belonging
11 to the purchasing group as a member, provided that nothing in
12 this section will prohibit a purchasing group composed entirely
13 of insurers, or directors, officers or employes of insurers, if
14 coverage is obtained from a company not related to the group
15 members.
16 Section 1312. Taxation of Premiums Paid by Purchasing
17 Groups.--(a) (1) Premiums paid for coverage obtained from
18 admitted insurers and risk retention groups doing business in
19 this Commonwealth shall be taxed on the same basis as premiums
20 paid to admitted insurers under section 902 of the act of March
21 4, 1971 (P.L.6, No.2), known as the "Tax Reform Code of 1971."
22 (2) Premiums paid for coverage obtained from a nonadmitted
23 insurer in compliance with this article shall be taxed at the
24 rate applicable to premiums paid to surplus lines insurers
25 pursuant to section 1421(a).
26 (b) (1) To the extent that the purchasing group or its
27 members pay premiums for coverage of risks resident or located
28 within this Commonwealth to admitted insurers or risk retention
29 groups doing business in this Commonwealth, the insurer or risk
30 retention group receiving those premiums is responsible for
19910H1670B3225 - 97 -
1 remitting the tax to the Department of Revenue.
2 (2) To the extent that the purchasing group or its members
3 pay premiums for coverage of risks resident or located within
4 this Commonwealth to a nonadmitted insurer, the surplus lines
5 agent who places the business shall collect and remit the taxes
6 for premiums.
7 (3) To the extent a surplus lines agent does not effect
8 coverage, the purchasing group shall collect and remit the tax
9 for coverage of risks resident or located in this Commonwealth.
10 To the extent the purchasing group does not remit the tax, the
11 purchasing group shall inform each member of the responsibility
12 for individual remittance of the tax.
13 Section 1313. Administrative and Procedural Authority
14 Regarding Risk Retention Groups and Purchasing Groups.--The
15 department is authorized to make use of any of the powers
16 established under the insurance laws of this Commonwealth to
17 enforce the laws of this Commonwealth not specifically preempted
18 by the Risk Retention Amendments of 1986 (Public Law 99-563, 100
19 Stat. 3170), including the department's administrative authority
20 to investigate, issue subpoenas, conduct depositions and
21 hearings, issue orders, impose penalties and seek injunctive
22 relief. With regard to any investigation, administrative
23 proceedings or litigation, the department may rely on the
24 procedural laws of this Commonwealth. The injunctive authority
25 of the department in regard to risk retention groups is
26 restricted by the requirement that any injunction be issued by a
27 court of competent jurisdiction.
28 Section 1314. Duty of Agent or Broker to Obtain License.--
29 (a) (1) No person, firm, association or corporation shall act
30 or aid in any manner in soliciting, negotiating or procuring
19910H1670B3225 - 98 -
1 liability insurance in this Commonwealth for a risk retention
2 group unless such person, firm, association or corporation is
3 licensed either as an insurance agent in accordance with section
4 603 of the act of May 17, 1921 (P.L.789, No.285), known as "The
5 Insurance Department Act of one thousand nine hundred and
6 twenty-one," or as an insurance broker in accordance with
7 section 622 of "The Insurance Department Act of one thousand
8 nine hundred and twenty-one."
9 (2) No person, firm, association or corporation shall act or
10 aid in any manner in negotiating or procuring liability
11 insurance in this Commonwealth for a purchasing group or for any
12 of its members from an admitted insurer or a risk retention
13 group unless such person, firm, association or corporation is
14 licensed either as an insurance agent in accordance with section
15 603 of "The Insurance Department Act of one thousand nine
16 hundred and twenty-one," or as an insurance broker in accordance
17 with section 622 of "The Insurance Department Act of one
18 thousand nine hundred and twenty-one."
19 (b) (1) No person, firm, association or corporation shall
20 act or aid in any manner in negotiating or procuring liability
21 insurance from a nonadmitted insurer on behalf of a purchasing
22 group unless such person, firm, association or corporation is
23 licensed as a surplus lines agent in accordance with section
24 1415.
25 (2) Notwithstanding the provisions of section 1415, a
26 nonresident of this Commonwealth who acts in this Commonwealth
27 solely on behalf of a purchasing group in obtaining liability
28 insurance with a nonadmitted insurer is exempt from the
29 requirements of maintaining an office in this Commonwealth in
30 order to obtain a surplus lines agent's license for the limited
19910H1670B3225 - 99 -
1 purpose of effecting coverage for such purchasing group.
2 (c) Every person, firm, association or corporation licensed
3 pursuant to the provisions of this section shall inform each
4 prospective insured of the provisions of the notice required by
5 section 1305(a) in the case of a risk retention group and by
6 section 1310(c) in the case of a purchasing group.
7 (d) This section shall not apply to officers or salaried
8 employes of any risk retention group or purchasing group who do
9 not solicit, negotiate or place risks.
10 Section 1315. Financial Responsibility.--(a) Whenever,
11 pursuant to the laws of this Commonwealth or any local law, a
12 demonstration of financial responsibility is required as a
13 condition for obtaining a license or permit to undertake
14 specified activities, if any such requirement may be satisfied
15 only by obtaining insurance coverage from an admitted insurer or
16 nonadmitted insurer that qualifies as an eligible surplus lines
17 insurer, such requirement may not be satisfied by purchasing
18 insurance from a risk retention group not chartered and licensed
19 in this Commonwealth or through a purchasing group which has
20 purchased coverage from a risk retention group not chartered and
21 licensed in this Commonwealth.
22 (b) Any risk retention group and any insurer who transacts
23 the business of insurance in this Commonwealth with a purchasing
24 group or its members shall not be exempt from the policy form or
25 coverage requirements of 75 Pa.C.S. Ch. 17 (relating to
26 financial responsibility).
27 Section 1316. Order of United States District Court.--An
28 order issued by any district court of the United States
29 enjoining a risk retention group from soliciting or selling
30 insurance, or operating in any state, or in all states or in any
19910H1670B3225 - 100 -
1 territory or possession of the United States, upon a finding
2 that such a group is in a hazardous financial or financially
3 impaired condition shall be enforceable in the courts of this
4 Commonwealth.
5 ARTICLE XIV.
6 SURPLUS LINES.
7 Section 1401. Purpose.--The purpose of this article is to
8 protect the public interest by:
9 (1) Protecting persons seeking insurance in this
10 Commonwealth.
11 (2) Permitting surplus lines insurance to be placed with
12 reputable and financially sound nonadmitted insurers and
13 exported from this Commonwealth pursuant to this article.
14 (3) Establishing a system of regulation which will permit
15 orderly access to surplus lines insurance in this Commonwealth
16 and encouraging insurers to make new and innovative types of
17 insurance available to consumers in this Commonwealth.
18 (4) Protecting revenues of this Commonwealth.
19 Section 1402. Definitions.--As used in this article the
20 following words and phrases shall have the meanings given to
21 them in this section:
22 "Admitted insurer." An insurer licensed to do an insurance
23 business in this Commonwealth.
24 "Capital." The term, as used in the financial requirements
25 of section 1405, means funds paid for stock or other evidence of
26 ownership.
27 "Commissioner." The Insurance Commissioner of the
28 Commonwealth.
29 "Department." The Insurance Department of the Commonwealth.
30 "Eligible surplus lines insurer." A nonadmitted insurer with
19910H1670B3225 - 101 -
1 which a surplus lines licensee may place surplus lines insurance
2 under section 1404.
3 "Export." To place surplus lines insurance with either a
4 nonadmitted insurer or an eligible surplus lines insurer in
5 accordance with this article.
6 "Independently procured insurance." Any insurance which a
7 resident of this Commonwealth directly negotiates, WITH AND <--
8 purchases, continues or renews from either a nonadmitted insurer <--
9 or an eligible surplus lines insurer without securing the <--
10 services of an insurance agent, broker or surplus lines
11 licensee, whether the agent or broker holds a resident or
12 nonresident license issued by the department.
13 "Kind of insurance." One of the types of insurance required
14 to be reported in the annual statement which must be filed with
15 the department by admitted insurers.
16 "Nonadmitted insurer." An insurer not authorized and not
17 licensed to do an insurance business in this Commonwealth. The
18 term includes insurance exchanges as authorized under the laws
19 of various states.
20 "Producing broker." The broker dealing directly with the
21 party seeking insurance.
22 "Purchasing group." An entity formed to purchase liability
23 insurance under the Risk Retention Amendments of 1986 (Public
24 Law 99-563, 100 Stat. 3170).
25 "Risk retention group." An insurer organized to do business
26 under the Risk Retention Amendments of 1986 (Public Law 99-563,
27 100 Stat. 3170).
28 "Surplus." The term, as used in the financial requirements
29 of section 1405, means funds over and above liabilities and
30 capital of the company for the protection of its policyholders.
19910H1670B3225 - 102 -
1 "Surplus lines insurance." Any insurance of risks resident,
2 located or to be performed in this Commonwealth, permitted to be
3 placed through a surplus lines licensee with a nonadmitted
4 insurer eligible to accept such insurance, other than
5 reinsurance, wet marine and transportation insurance,
6 independently procured insurance, life and health insurance and
7 annuities and coverage obtained from risk retention groups under
8 the Risk Retention Amendments of 1986 (Public Law 99-563, 100
9 Stat. 3170).
10 "Surplus lines licensee." An individual, partnership or
11 corporation licensed under section 1415 to place surplus lines
12 insurance with nonadmitted insurers eligible to accept such
13 insurance.
14 "Wet marine and transportation insurance." Any of the
15 following:
16 (1) Insurance upon vessels, crafts or hulls and of interests
17 therein or with relation thereto.
18 (2) Insurance of marine builder's risks, marine war risks
19 and contracts of marine protection and indemnity insurance.
20 (3) Insurance of freights and disbursements pertaining to a
21 subject of insurance coming within this definition.
22 (4) Insurance of personal property and interest therein, in
23 the course of exportation from or importation into any country,
24 or in the course of transportation coastwise or on inland
25 waters, including transportation by land, water or air from
26 point of origin to final destination, in connection with any and
27 all risks or periods PERILS of navigation, transit or <--
28 transportation, and while being prepared for and while awaiting
29 shipment, and during any delays, transshipment or reshipment
30 incident thereto.
19910H1670B3225 - 103 -
1 Section 1403. Acting for or Aiding Nonadmitted Insurers.--
2 (a) No person in this Commonwealth shall directly or indirectly
3 act as agent for, or otherwise represent or aid on behalf of
4 another, any nonadmitted insurer in the solicitation,
5 negotiation, procurement or effectuation of insurance, or
6 renewals thereof, or forwarding of applications, or delivery of
7 policies or contracts or inspection of risks, or fixing of
8 rates, or investigation or adjustment of claims or losses, or
9 collection or forwarding of premiums, or in any other manner
10 represent or assist such insurer in the transaction of
11 insurance.
12 (b) If the nonadmitted insurer is not an eligible surplus
13 lines insurer and fails to pay a claim or loss within the
14 provisions of the insurance contract, a person who assisted or
15 in any manner aided, directly or indirectly, in the procurement
16 of the insurance contract shall be liable to the insured for the
17 full amount payable under the provisions of the insurance
18 contract.
19 (c) This section does not apply to any of the following:
20 (1) Surplus lines insurance if it is effected and written
21 pursuant to this article.
22 (2) Insurance effected with a nonadmitted insurer pursuant
23 to sections 1406 and 1410.
24 (3) Transactions for which a certificate of authority to do
25 business is not required of an insurer under the insurance laws
26 of this Commonwealth.
27 (4) Reinsurance.
28 (5) Wet marine and transportation insurance.
29 (6) Transactions subsequent to issuance of a policy not
30 covering domestic risks at time of issuance and lawfully
19910H1670B3225 - 104 -
1 solicited, written or delivered outside of this Commonwealth.
2 (7) Transactions involving risk retention groups chartered
3 and licensed outside of this Commonwealth.
4 Section 1404. Placement of Surplus Lines Insurance.--
5 Insurance may be procured through a surplus lines licensee from
6 nonadmitted insurers if the following requirements are met:
7 (1) Each insurer is an eligible surplus lines insurer.
8 (2) The placement satisfies the criteria set forth in at
9 least one of the following subparagraphs:
10 (i) The full amount or kind of insurance cannot be obtained
11 from admitted insurers. Such full amount or kind of insurance,
12 or any portion thereof, may be procured from eligible surplus
13 lines insurers, provided that a diligent search is made among
14 the admitted insurers who are writing the particular kind of <--
15 insurance in this Commonwealth., IN THIS COMMONWEALTH, COVERAGE <--
16 COMPARABLE TO THE COVERAGE BEING SOUGHT.
17 (ii) The full amount or kind of insurance cannot be obtained
18 from any admitted insurers because no such insurers are writing
19 that kind of insurance. COVERAGE COMPARABLE TO THE COVERAGE <--
20 BEING SOUGHT.
21 (iii) The kind of insurance sought to be obtained from
22 admitted insurers requires a unique form of coverage not
23 available in the admitted market.
24 (3) The policy or contract form used by the insurer does not
25 differ materially from policies or contracts customarily used by
26 admitted insurers for the kind of insurance involved. Coverage
27 may be placed in an eligible surplus lines insurer using a
28 unique form or policy designed for the kind of insurance if a
29 copy of such form is filed with the department by the surplus
30 lines licensee desiring to use it simultaneously with the
19910H1670B3225 - 105 -
1 affidavit required by section 1409.
2 (4) All other requirements of this article are met.
3 Section 1405. Requirements for Eligible Surplus Lines
4 Insurers.--(a) No surplus lines licensee shall place any
5 coverage with a nonadmitted insurer unless, at the time of
6 placement, such nonadmitted insurer:
7 (1) Is of good repute and financial integrity.
8 (2) Qualifies under any of the following subparagraphs:
9 (i) Has policyholder surplus equal to or greater than two
10 times the minimum capital and surplus required to be fully
11 licensed in this Commonwealth. Two years from the effective date
12 of this article is granted to allow those nonadmitted insurers
13 which are eligible surplus lines insurers on the effective date
14 of this article to achieve this capital and surplus requirement.
15 If an alien insurer, as defined by the act of December 10, 1974
16 (P.L.804, No.266), referred to as the Alien Insurer
17 Domestication Law, it shall maintain in the United States an
18 irrevocable trust fund in either a national bank or a member of
19 the Federal Reserve System, in an amount not less than that
20 currently required by a national association of insurance <--
21 commissioners THE NATIONAL ASSOCIATION OF INSURANCE <--
22 COMMISSIONERS' NONADMITTED INSURERS INFORMATION OFFICE for the
23 protection of all of its policyholders in the United States, and
24 such trust fund consists of cash, securities, letters of credit
25 or investments of substantially the same character and quality
26 as those which are eligible investments for admitted insurers
27 authorized to write like kinds of insurance in this
28 Commonwealth. Such trust fund will be in addition to the capital
29 and surplus required in this subparagraph and shall have an
30 expiration date which at no time shall be less than five years.
19910H1670B3225 - 106 -
1 (ii) Is any LLOYD'S OR OTHER SIMILAR unincorporated group of <--
2 alien individual insurers that maintains a trust fund of not
3 less than fifty million ($50,000,000) dollars as security to the
4 full amount thereof for all policyholders and creditors in the
5 United States of each member of the group. Such trust funds
6 shall likewise comply with the terms and conditions established
7 in subparagraph (i) for alien insurers.
8 (iii) Is an insurance exchange created by the laws of
9 individual states that maintains capital and surplus, or the
10 substantial equivalent thereof, of not less than fifteen million
11 ($15,000,000) dollars in the aggregate. For insurance exchanges
12 which maintain funds for the protection of all insurance
13 exchange policyholders, each individual syndicate shall maintain
14 minimum capital and surplus, or the substantial equivalent
15 thereof, of not less than one million five hundred thousand
16 ($1,500,000) dollars. In the event the insurance exchange does
17 not maintain funds for the protection of all insurance exchange
18 policyholders, each individual syndicate shall meet the minimum
19 capital and surplus requirements of subparagraph (i).
20 (3) Has provided to the department a copy of its current
21 annual financial statement certified by such insurer, such
22 statement to be provided no more than thirty (30) days after the
23 date required for filing an annual financial statement in its
24 domiciliary jurisdiction and which is either:
25 (i) certified by the regulatory authority in the domicile of
26 the insurer; or
27 (ii) certified by an accounting or auditing firm licensed in
28 the jurisdiction of the insurer's domicile.
29 In the case of an insurance exchange, the statement may be an
30 aggregate statement of all underwriting syndicates operating
19910H1670B3225 - 107 -
1 during the period reported.
2 (b) In addition to meeting the requirements in subsection
3 (a), a nonadmitted insurer shall be an eligible surplus lines
4 insurer if it appears on the most recent list of eligible
5 surplus lines insurers published by the department from time to
6 time but at least semiannually. Nothing in this section shall
7 require the department to place or maintain the name of any
8 nonadmitted insurer on the list of eligible surplus lines
9 insurers.
10 Section 1406. Other Nonadmitted Insurers.--Only that
11 portion, not to exceed twenty-five per centum (25%), of any risk
12 eligible for export for which the full amount of coverage is not
13 procurable from either admitted insurers or eligible surplus
14 lines insurers may be placed with any other nonadmitted insurer
15 which does not appear on the list of eligible surplus lines
16 insurers published by the department pursuant to section 1405(b)
17 but nonetheless meets the requirements set forth in section
18 1405(a) and any regulations of the department. The surplus lines
19 licensee seeking to provide coverage through a nonadmitted
20 insurer which is not an eligible surplus lines insurer shall
21 make a filing specifying the amount and percentage of each risk
22 along with a full explanation of why the risk could not be
23 placed with admitted or eligible surplus lines insurers and
24 naming the nonadmitted insurer with which placement is intended.
25 At the time of presenting a quotation to the insured, the
26 surplus lines licensee shall present to the insured, or to the
27 producing broker, written notice that a portion of the insurance
28 will be placed with such nonadmitted insurer.
29 Section 1407. Withdrawal of Eligibility from a Surplus Lines
30 Insurer.--If at any time the department has reason to believe
19910H1670B3225 - 108 -
1 that an eligible surplus lines insurer:
2 (1) is in unsound financial condition;
3 (2) is no longer eligible under section 1405;
4 (3) has wilfully violated the laws of this Commonwealth; or
5 (4) does not make reasonably prompt payment of just losses
6 and claims in this Commonwealth or elsewhere;
7 the department may declare it ineligible. The department shall
8 promptly mail notice of all such declarations to each surplus
9 lines licensee and, in the event the department's action is
10 based upon paragraph (4), the notice shall be issued at least
11 thirty (30) days prior to the effective date of the withdrawal
12 of eligibility.
13 Section 1408. Surplus Lines Licensee's Duty to Notify
14 Insured.--At the time of presenting a quotation to the insured,
15 the surplus lines licensee shall present to the insured, or to
16 the producing broker, written notice that the insurance, or a
17 portion thereof, involves placement with nonadmitted insurers.
18 The licensee shall, either directly or through the producing
19 broker, give notice to the insured that:
20 (1) the insurer with which the licensee places the insurance
21 is not licensed by the Pennsylvania Insurance Department and is
22 subject to its limited regulation; and
23 (2) in the event of the insolvency of an eligible surplus
24 lines insurer, losses will not be paid by the Pennsylvania
25 Insurance Guaranty Association.
26 Section 1409. Declarations.--(a) In the case of each
27 placement of insurance in accordance with this article:
28 (1) Within thirty (30) days after the surplus lines licensee
29 has placed insurance with an eligible surplus lines insurer, the
30 producing broker must execute and forward to the surplus lines
19910H1670B3225 - 109 -
1 licensee a written statement, in a form prescribed by the
2 department, declaring that:
3 (i) A diligent effort to procure the desired coverage from
4 admitted insurers was made.
5 (ii) The insured was expressly advised, in writing, prior to
6 placement of the insurance that:
7 (A) the insurer with whom the insurance is to be placed is
8 not admitted to transact business in this Commonwealth and is
9 subject to limited regulation by the department; and
10 (B) in the event of the insolvency of the insurer, losses
11 will not be paid by the Pennsylvania Insurance Guaranty
12 Association.
13 This written declaration shall be open to public inspection.
14 (2) Within forty-five (45) days after insurance has been
15 placed in an eligible surplus lines insurer, the surplus lines
16 licensee shall file with the department a written declaration of
17 his lack of knowledge of how the coverage could have been
18 procured from admitted insurers. The surplus lines licensee
19 shall simultaneously file the written declaration of the
20 producing broker, as set forth in paragraph (1).
21 (3) In a particular transaction where the producing broker
22 and surplus lines licensee are one in the same entity, he shall
23 execute both declarations.
24 (b) Subsection (a) shall not apply to any insurance which
25 has been placed continuously with an eligible surplus lines
26 insurer for a period of at least three consecutive years
27 immediately preceding the current placement. However, within
28 forty-five (45) days after insurance has been placed with an
29 eligible surplus lines insurer, the surplus lines licensee shall
30 file with the department his written declaration on a form
19910H1670B3225 - 110 -
1 prescribed by the department.
2 Section 1410. Exempt Risks.--(a) The diligent search
3 requirements of section 1404(2), the reporting requirements of
4 section 1409(a) and the twenty-five per centum (25%) limitation
5 of section 1406 are not applicable to placements of insurance
6 with nonadmitted insurers for risks of an insured which meets at
7 least three of the following requirements:
8 (1) The insured employs a full-time risk manager or
9 contracts for services from a qualified risk management service.
10 (2) The insured has gross sales in excess of one hundred
11 million ($100,000,000) dollars.
12 (3) The insured regularly employs in excess of 250 full-time
13 employes.
14 (4) The insured has assets in excess of one hundred million
15 ($100,000,000) dollars.
16 (5) The insured has insurance premiums for property and
17 casualty insurance, excluding employe benefits, in excess of two
18 hundred fifty thousand ($250,000) dollars.
19 (6) The insured is seeking insurance for risks resident,
20 located or to be performed in one or more states other than this
21 Commonwealth, and the portion of the total risk ascribable to
22 states other than this Commonwealth exceeds fifty per centum
23 (50%).
24 (b) (1) The diligent search requirement of section 1404(2)
25 and the reporting requirements of section 1409(a) are not
26 applicable to placements of insurance with eligible surplus
27 lines insurers for:
28 (i) Risks of members of a purchasing group established under
29 the Risk Retention Amendments of 1986 (Public Law 99-563, 100
30 Stat. 3170) if all of the insured members of the purchasing
19910H1670B3225 - 111 -
1 group are covered under its group policy or if the members are
2 additional named insureds under the group's policy.
3 (ii) Risks of members of a risk retention group established
4 under the Risk Retention Amendments of 1986.
5 (2) Within forty-five (45) days after insurance has been
6 placed with an eligible surplus lines insurer for members of a
7 purchasing group or risk retention groups by a surplus lines
8 licensee, the licensee shall file with the department his
9 written declaration, reporting the transaction on a form
10 prescribed by the department.
11 Section 1411. Surplus Lines Advisory Organizations.--(a) A
12 surplus lines advisory organization of surplus lines licensees
13 may be formed to:
14 (1) Facilitate and encourage compliance by its members with
15 the laws of this Commonwealth and the rules and regulations of
16 the department relative to surplus lines insurance.
17 (2) Provide means for the examination, which shall remain
18 confidential, of all surplus lines coverages written by its
19 members to determine whether such coverages comply with such
20 laws and regulations.
21 (3) Communicate with organizations of admitted insurers with
22 respect to the proper use of the surplus lines market.
23 (4) Receive and disseminate to its members information
24 relative to surplus lines insurance.
25 (b) The functions of the organization shall in no way
26 supplant or delegate current regulatory authority of the
27 department to administer the provisions of this article.
28 (c) Each such advisory organization shall file with the
29 department for approval:
30 (1) A copy of its constitution, its articles of agreement or
19910H1670B3225 - 112 -
1 association or its certificate of incorporation.
2 (2) A copy of its bylaws, rules and regulations governing
3 its activities.
4 (3) A current list of its members.
5 (4) The name and address of a resident of this Commonwealth
6 upon whom notices or orders of the department or processes
7 issued at its direction may be served.
8 (5) An agreement that the department may examine such
9 advisory organization in accordance with the provisions of this
10 section.
11 (d) The department shall, at least once every four years,
12 make or cause to be made an examination of each such advisory
13 organization. The reasonable cost of any such examination shall
14 be paid by the advisory organization upon presentation to it by
15 the department of a detailed account of each cost. The officers,
16 managers, agents and employes of such advisory organization may
17 be examined at any time, under oath, and shall exhibit all
18 books, records, accounts, documents or agreements governing its
19 method of operation. The department shall furnish two copies of
20 the examination report to the advisory organization examined and
21 shall notify such organization that it may, within twenty (20)
22 days thereof, request a hearing on the report or on any facts or
23 recommendations therein. If the department finds such advisory
24 organization or any member thereof to be in violation of this
25 article, it may issue a cease and desist order requiring the
26 discontinuance of such violation and may impose any other
27 penalties as set forth in this article.
28 (e) The department may contract with a surplus lines
29 advisory organization to render advice and assistance in
30 carrying out the purposes of this article. The services
19910H1670B3225 - 113 -
1 performed by the advisory organization pursuant to such contract
2 may be funded by a stamping fee assessed on each surplus lines
3 policyholder whose policy is submitted to the advisory
4 organization. The stamping fee shall be established by the board
5 of governors of the advisory organization, from time to time,
6 and shall be subject to approval by the department.
7 (f) The advisory organization may submit reports and make
8 recommendations to the department regarding the financial
9 condition of any eligible surplus lines insurer. These reports
10 and recommendations shall not be considered to be public
11 information or subject to any Federal or State freedom of
12 information law. There shall be no liability on the part of, nor
13 shall any cause of action of any nature be sustained against,
14 eligible surplus lines insurers, the advisory organization or
15 its members, agents, employes or directors, or the department or
16 authorized representatives of the department, for statements and
17 any reports or recommendations made by them in good faith under
18 this section.
19 (g) By order of the department, a surplus lines licensee may
20 be compelled to join an advisory organization as a condition of
21 continued licensure under this article.
22 Section 1412. Evidence of Insurance.--(a) Upon placing
23 surplus lines insurance, the surplus lines licensee shall
24 deliver to the insured or the producing broker the contract of
25 insurance. If the contract of insurance is not immediately
26 available, a cover note, binder or other evidence of insurance
27 shall be delivered by the surplus lines licensee to the insured
28 or the producing broker and shall, at a minimum, show the
29 description and location of the subject of insurance, coverages,
30 including any material limitations other than those in standard
19910H1670B3225 - 114 -
1 forms, the premium and rate charged and taxes to be collected
2 from the insured, the name and address of the insured and the
3 eligible surplus lines insurer and other nonadmitted insurer
4 involved under section 1406 and proportion of the risk assumed
5 by each, and the name of the surplus lines licensee.
6 (b) No surplus lines licensee shall bind or provide evidence
7 of insurance unless he has authority from the eligible surplus
8 lines insurer or other nonadmitted insurer to bind the risk or
9 has received information from the insurer in the regular course
10 of business that it has assumed the risk.
11 (c) If, after delivery of any such evidence of insurance,
12 there is any change in the identity of the eligible surplus
13 lines insurer, or the proportion of the risk assumed by any
14 nonadmitted insurer, or any other material change in coverage as
15 stated in the surplus lines licensee's original evidence of
16 insurance, or any other material change as to the insurance
17 coverage so evidenced, the surplus lines licensee shall promptly
18 issue and deliver to the insured or to the original producing
19 broker an appropriate substitute for, or endorsement of, the
20 original document accurately showing the current status of the
21 coverage and the insurer responsible thereunder.
22 (d) Every evidence of insurance negotiated, placed or
23 procured under the provisions of this article issued by the
24 surplus lines licensee shall bear the name of the licensee and
25 the following legend in 10-point type: "The insurer which has
26 issued this insurance is not licensed by the Pennsylvania
27 Insurance Department and is subject to limited regulation. This
28 insurance is NOT covered by the Pennsylvania Insurance Guaranty
29 Association."
30 Section 1413. Valid Surplus Lines Insurance.--Contracts of
19910H1670B3225 - 115 -
1 insurance procured under this article shall be valid and
2 enforceable as to all parties. Nothing in this article shall be
3 interpreted to prevent an insured from enforcing his rights
4 under the terms and conditions of a contract of insurance
5 entered into in violation of this article.
6 Section 1414. Effect of Payment to Surplus Lines Licensee.--
7 A payment of premium to the producing broker or to a surplus
8 lines licensee acting for a person other than himself in
9 negotiating, continuing or reviewing any contract of insurance
10 under this article shall be deemed to be payment to the insurer,
11 whatever conditions or stipulations may be inserted in the
12 contract notwithstanding.
13 Section 1415. Licensing of Surplus Lines Licensee.--(a) No
14 agent or broker licensed by the department shall transact
15 surplus lines insurance with any nonadmitted insurer unless such
16 agent or broker possesses a valid surplus lines agent's license
17 issued by the department.
18 (b) The department shall issue a surplus lines agent's
19 license to any resident of this Commonwealth who is a qualified
20 holder of a current property and casualty broker's license, but
21 only when the broker has complied with the following:
22 (1) Remitted the license fee to the department.
23 (2) Submitted a properly completed license application on a
24 form supplied by the department.
25 (3) Passed a qualifying examination approved by the
26 department, except that all holders of a license prior to the
27 effective date of this article shall be deemed to have passed
28 such an examination.
29 (4) Filed with the department, and maintained concurrent
30 with the term of the license, in force and unimpaired, a bond in
19910H1670B3225 - 116 -
1 favor of the Commonwealth of Pennsylvania in the penal sum of at
2 least fifty thousand ($50,000) dollars, aggregate liability,
3 with corporate sureties approved by the department. The bond
4 shall be conditioned that the surplus lines licensee will
5 conduct business in accordance with the provisions of this
6 article and will promptly remit the taxes as provided by law. No
7 bond shall be terminated except for nonpayment of premiums.
8 Termination notice shall be given to the surplus lines licensee
9 and to the department at least thirty (30) days prior to the
10 termination date.
11 (c) Corporations and partnerships shall be eligible to be
12 resident surplus lines licensees, upon the following conditions:
13 (1) The corporation or partnership licensee shall list all
14 employes, including at least one active officer or partner, who
15 have satisfied the requirements of this article to become
16 surplus lines licensees.
17 (2) Only those employes resident in this Commonwealth
18 holding a certificate of eligibility may transact surplus lines
19 insurance.
20 (d) Each surplus lines license shall expire on the last day
21 of February of each year and shall be renewed before March 1 of
22 each year upon payment of the annual fee, in compliance with
23 other provisions of this section. Any surplus lines licensee who
24 fails to apply for renewal of a license before expiration of the
25 current license shall pay a penalty of two times the license fee
26 and be subject to other penalties as provided by law before his
27 license will be renewed.
28 Section 1416. Surplus Lines Licensees May Accept Business
29 from Brokers.--A surplus lines licensee may originate surplus
30 lines insurance or accept such insurance from any broker duly
19910H1670B3225 - 117 -
1 licensed as to the kind or kinds of insurance involved, and the
2 surplus lines licensee may compensate such broker therefor.
3 Section 1417. Compliance with Law by Two or More Surplus
4 Lines Licensees.--(a) When two or more surplus lines licensees
5 are involved in a transaction subject to this article, the
6 surplus lines licensee dealing directly with or closest to the
7 insured is responsible for compliance with sections 1404, 1408,
8 1409, 1412, 1419 and 1421.
9 (b) This provision shall not serve to relieve any surplus
10 lines licensee involved in any transaction subject to this
11 article from compliance with any other section of this article.
12 Section 1418. Surplus Lines Licensee with Binding
13 Authority.--Any surplus lines licensee who is granted binding or
14 underwriting authority by an eligible surplus lines insurer
15 shall be subject to regulations and rules promulgated, from time
16 to time, by the department.
17 Section 1419. Records of Surplus Lines Licensee.--(a) Each
18 surplus lines licensee shall keep in its office in this
19 Commonwealth a full and true record of each surplus lines
20 insurance contract placed by or through it, including a copy of
21 the policy, certificate, cover note or other evidence of
22 insurance, showing such of the following items as may be
23 applicable:
24 (1) Amount of the insurance and perils insured.
25 (2) Brief description of the risk insured and its location.
26 (3) Gross premium charged.
27 (4) Any return premium paid.
28 (5) Rate of premium charged for each risk insured.
29 (6) Effective date and terms of the contract.
30 (7) Name and address of the insured.
19910H1670B3225 - 118 -
1 (8) Name and address of the eligible surplus lines insurer
2 and any nonadmitted insured involved pursuant to section 1406.
3 (9) Amount of tax and other sums to be collected from the
4 insured.
5 (10) Identity of the producing broker, any confirming
6 correspondence from the insurer or its representative and the
7 application.
8 (11) A copy of the written notice required by section 1408.
9 (b) The record of each contract shall be kept open at all
10 reasonable times to examination by the department without notice
11 for a period of not less than five years following termination
12 of the contract.
13 Section 1420. Monthly Reports.--Within thirty (30) days
14 following the end of each month, each surplus lines licensee
15 shall file with the department, on forms prescribed by the
16 department, a verified report in duplicate of all surplus lines
17 insurance transacted during the preceding month.
18 Section 1421. Surplus Lines Tax.--(a) There is hereby
19 levied a tax of three per centum (3%) on all premiums charged
20 for insurance which is placed with either an eligible surplus
21 lines insurer (other than a risk retention group) or other
22 nonadmitted insurer in accordance with this article, such taxes
23 to be based on the gross premiums charged less any return
24 premiums. This tax shall be in addition to the full amount of
25 the gross premium charged by the insurer for the insurance. The
26 tax on any unearned portion of the premium shall be returned to
27 the insured.
28 (b) Neither the surplus lines licensee, nor the producing
29 broker, shall pay directly or indirectly such tax or any portion
30 thereof, either as an inducement to the insured to purchase the
19910H1670B3225 - 119 -
1 insurance or for any other reason.
2 (c) The surplus lines licensee shall collect from the
3 insured or the producing broker the amount of the tax at the
4 time of delivery of the initial policy, cover note or other
5 evidence of insurance or at such time thereafter as is
6 reasonably consistent with normal credit terms customary in the
7 business. Each surplus lines licensee shall, on or before
8 January 31 of each year, file with the Department of Revenue a
9 report of all transactions involving the placement of insurance
10 with either an eligible surplus lines insurer or other
11 nonadmitted insurers during the previous calendar year. The
12 report shall set forth the name of the insured, identification
13 of the insurer, the type of insurance, gross premiums charged
14 less any return premiums allowed and the tax due as provided in
15 this section. The remittance for the taxes due shall accompany
16 this report. Such report shall be made on forms prescribed and
17 furnished by the Department of Revenue. A copy of the report
18 shall be filed with the commissioner by the surplus lines
19 licensee.
20 (d) In the event that a placement of insurance involves
21 subjects of insurance resident, located or to be performed in
22 one or more states other than this Commonwealth, then the
23 premium taxes provided for in this section shall be levied only
24 on that portion of the premium reasonably ascribable to that
25 portion of the risk situated in this Commonwealth.
26 (e) With respect to insurance placed with or issued by a
27 risk retention group which is an eligible surplus lines insurer,
28 there is hereby levied a tax of two per centum (2%) on all
29 premiums charged for risks resident, located or to be performed
30 in this Commonwealth. The risk retention group shall be
19910H1670B3225 - 120 -
1 responsible for the payment of the taxes levied in this article
2 in accordance with procedures set forth in Article XIII.
3 (f) The settlement and resettlement of taxes imposed by this
4 article, including the granting of extensions of time to file
5 reports and the rights of the taxpayers to present and prosecute
6 a petition for resettlement, a petition for review or an appeal
7 to court or to file a petition for refund and the imposition of
8 interest and penalties, shall be governed by the provisions of
9 the act of March 4, 1971 (P.L.6, No.2), known as the "Tax Reform
10 Code of 1971," as approved in the case of capital stock and
11 franchise taxes.
12 Section 1422. Tax on Independently Procured Insurance.--The
13 tax provided by section 1421(a) is imposed upon an insured who
14 INDEPENDENTLY procures insurance on a subject of insurance <--
15 resident, located or to be performed in this Commonwealth from a
16 nonadmitted insurer or continues or renews such insurance, other <--
17 than insurance procured through a surplus lines licensee in
18 accordance with this article INDEPENDENTLY PROCURED INSURANCE. <--
19 The insured shall, within thirty (30) days after the date when
20 such insurance was INDEPENDENTLY procured, continued or renewed, <--
21 report such transaction on forms prescribed by the Department of
22 Revenue. This report shall set forth the information required of
23 surplus lines licensees as required in section 1421(c). The tax
24 of three per centum (3%) shall be paid on the date the report is
25 due as provided in this section. If the independently procured
26 insurance covers risks resident, located or to be performed in
27 one or more states other than this Commonwealth, the premium
28 taxes shall be prorated in accordance with provisions in section
29 1421(d). A copy of such report shall be filed with the
30 commissioner by the insured.
19910H1670B3225 - 121 -
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
19910H1670B3225 - 122 -
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.
19910H1670B3225 - 123 -
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.
19910H1670B3225 - 124 -
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.
19910H1670B3225 - 125 -
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)(ii) 1503(B)(2)(III) relating to interest limitations <--
15 and 1503(c)(1)(ii) relating to limitations with respect to any
16 one individual, any one participant and any one contract holder.
17 The 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
19910H1670B3225 - 126 -
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
19910H1670B3225 - 127 -
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
19910H1670B3225 - 128 -
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
19910H1670B3225 - 129 -
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
19910H1670B3225 - 130 -
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 1509 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
19910H1670B3225 - 131 -
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
19910H1670B3225 - 132 -
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;
19910H1670B3225 - 133 -
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
19910H1670B3225 - 134 -
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 (4) (2), if the <--
19 insureds had a right under law or the terminated policy to
20 convert coverage to individual coverage or to continue an
21 individual policy in force until a specified age or for a
22 specified time, during which the insurer had no right
23 unilaterally to make changes in any provision of the policy or
24 had a right only to 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
19910H1670B3225 - 135 -
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
19910H1670B3225 - 136 -
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
19910H1670B3225 - 137 -
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
19910H1670B3225 - 138 -
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
19910H1670B3225 - 139 -
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
19910H1670B3225 - 140 -
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
19910H1670B3225 - 141 -
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
19910H1670B3225 - 142 -
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
19910H1670B3225 - 143 -
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
19910H1670B3225 - 144 -
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)
19910H1670B3225 - 145 -
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 act 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
19910H1670B3225 - 146 -
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
19910H1670B3225 - 147 -
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 a national association of insurance <--
7 commissioners financial statements as required by the Insurance
8 Department and listings of companies not included in the ratios
9 developed by a national association of insurance commissioners,
10 THE BOARD OF DIRECTORS THE NATIONAL ASSOCIATION OF INSURANCE <--
11 COMMISSIONERS' (NAIC) INSURANCE REGULATORY INFORMATION SYSTEM
12 (IRIS) RATIOS AND LISTING OF COMPANIES NOT INCLUDED IN THE
13 RATIOS DEVELOPED BY THE NATIONAL ASSOCIATION OF INSURANCE
14 COMMISSIONERS, and the board may use the information contained
15 therein in carrying out its duties and responsibilities under
16 this section. Such report and the information contained therein
17 shall be kept confidential by the board of directors until such
18 time as made public by the commissioner or other lawful
19 authority.
20 (b) The commissioner may seek the advice and recommendations
21 of the board of directors concerning any matter affecting his
22 duties and responsibilities regarding the financial condition of
23 member insurers and companies seeking admission to transact
24 insurance business in this Commonwealth.
25 (c) The board of directors may, upon majority vote, make
26 reports and recommendations to the commissioner upon any matter
27 germane to the solvency, liquidation, rehabilitation or
28 conservation of any member insurer or germane to the solvency of
29 any company seeking to do an insurance business in this
30 Commonwealth. Such reports and recommendations shall not be
19910H1670B3225 - 148 -
1 considered public documents.
2 (d) It shall be the duty of the board of directors, upon
3 majority vote, to notify the commissioner of any information
4 indicating any member insurer may be an impaired or insolvent
5 insurer.
6 (e) (1) The board of directors may, upon majority vote,
7 request that the commissioner order an examination of any member
8 insurer which the board in good faith believes may be an
9 impaired or insolvent insurer. Within thirty (30) days of the
10 receipt of such request, the commissioner shall begin such
11 examination. The examination may be conducted AS A NATIONAL <--
12 ASSOCIATION OF INSURANCE COMMISSIONERS EXAMINATION OR MAY BE
13 CONDUCTED by such persons as the commissioner designates. The
14 cost of such examination shall be paid by the association and
15 the examination report shall be treated as are other examination
16 reports. In no event shall such examination report be released
17 to the board of directors prior to its release to the public,
18 but this shall not preclude the commissioner from complying with
19 subsection (a).
20 (2) The commissioner shall notify the board of directors
21 when the examination is completed. The request for an
22 examination shall be kept on file by the commissioner but it
23 shall not be open to public inspection prior to the release of
24 the examination report to the public.
25 (f) The board of directors may, upon majority vote, make
26 recommendations to the commissioner for the detection and
27 prevention of insurer insolvencies.
28 (g) The board of directors shall, at the conclusion of any
29 insurer insolvency in which the association was obligated to pay
30 covered claims, prepare a report to the commissioner containing
19910H1670B3225 - 149 -
1 such information as it may have in its possession bearing on the
2 history and causes of such insolvency. The board shall cooperate
3 with the boards of directors of guaranty associations in other
4 states in preparing a report on the history and causes of
5 insolvency of a particular insurer, and may adopt by reference
6 any report prepared by such other associations.
7 Section 1511. Credits for Assessments Paid.--(a) A member
8 insurer may offset against its premium tax liability to this
9 Commonwealth an assessment described in section 1508(h) CLASS B <--
10 ASSESSMENTS DESCRIBED IN SECTION 1507 to the extent of twenty
11 per centum (20%) of the amount of such assessment for each of
12 the five (5) calendar years following the year in which such
13 assessment was paid. In the event a member insurer should cease
14 doing business, all uncredited assessments may be credited
15 against its premium tax liability for the year it ceases doing
16 business. Tax credits shall not be taken when an insurer has <--
17 elected to include such assessments pursuant to a ratefiling as
18 provided in section 1507(g).
19 (b) Any sums which are acquired by refund, pursuant to
20 section 1508(f) 1507(F), from the association by member <--
21 insurers, and which have theretofore been offset against premium
22 taxes as provided in subsection (a), shall be paid by such
23 insurers to this Commonwealth in such manner as the tax
24 authorities may require. The association shall notify the
25 commissioner that such refunds have been made.
26 (C) NO OFFSET AGAINST PREMIUM TAX LIABILITY SHALL BE <--
27 PERMITTED TO THE EXTENT THAT A MEMBER INSURER'S RATES OR
28 POLICYHOLDER DIVIDENDS HAVE BEEN ADJUSTED AS PERMITTED IN
29 SECTION 1507(G).
30 Section 1512. Miscellaneous Provisions.--(a) Nothing in
19910H1670B3225 - 150 -
1 this article shall be construed to reduce the liability for
2 unpaid assessments of the insureds of an impaired or insolvent
3 insurer operating under a plan with assessment liability.
4 (b) Records shall be kept of all negotiations and meetings
5 in which the association or its representatives are involved to
6 discuss the activities of the association in carrying out its
7 powers and duties under section 1506. Records of such
8 negotiations or meetings shall be made public only upon the
9 termination of a liquidation, rehabilitation or conservation
10 proceeding involving the impaired or insolvent insurer, upon the
11 termination of the impairment or insolvency of the insurer, or
12 upon the order of a court of competent jurisdiction. Nothing in
13 this subsection shall limit the duty of the association to
14 render a report of its activities under section 1513.
15 (c) For the purpose of carrying out its obligations under
16 this article, the association shall be deemed to be a creditor
17 of the impaired or insolvent insurer to the extent of assets
18 attributable to covered policies reduced by any amounts to which
19 the association is entitled as subrogee pursuant to section
20 1506. Assets of the impaired or insolvent insurer attributable
21 to covered policies shall be used to continue all covered
22 policies and pay all contractual obligations of the impaired or
23 insolvent insurer as required by this article. Assets
24 attributable to covered policies, as used in this subsection,
25 are that proportion of the assets which the reserves that should
26 have been established for such policies bear to the reserves
27 that should have been established for all policies of insurance
28 written by the impaired or insolvent insurer.
29 (d) (1) Prior to the termination of any liquidation,
30 rehabilitation or conservation proceeding, the court may take
19910H1670B3225 - 151 -
1 into consideration the contributions of the respective parties,
2 including the association, the shareholders and policyowners of
3 the insolvent insurer, and any other party with a bona fide
4 interest, in making an equitable distribution of the ownership
5 rights of such insolvent insurer. In such a determination,
6 consideration shall be given to the welfare of the policyholders
7 of the continuing or successor insurer.
8 (2) No distribution to stockholders, if any, of an impaired
9 or insolvent insurer shall be made until and unless the total
10 amount of valid claims of the association with interest thereon
11 for funds expended in carrying out its powers and duties under
12 section 1506 with respect to such insurer have been fully
13 recovered by the association.
14 (e) (1) If an order for liquidation or rehabilitation of an
15 insurer domiciled in this Commonwealth has been entered, the
16 receiver appointed under such order shall have a right to
17 recover on behalf of the insurer, from any affiliate that
18 controlled it, the amount of distributions, other than stock
19 dividends paid by the insurer on its capital stock, made at any
20 time during the five (5) years preceding the petition for
21 liquidation or rehabilitation subject to the limitations of
22 paragraphs (2) to (4).
23 (2) No such distribution shall be recoverable if the insurer
24 shows that when paid the distribution was lawful and reasonable,
25 and that the insurer did not know and could not reasonably have
26 known that the distribution might adversely affect the ability
27 of the insurer to fulfill its contractual obligations.
28 (3) Any person who was an affiliate that controlled the
29 insurer at the time the distributions were paid shall be liable
30 up to the amount of distributions he received. Any person who
19910H1670B3225 - 152 -
1 was an affiliate that controlled the insurer at the time the
2 distributions were declared, shall be liable up to the amount of
3 distributions he would have received if they had been paid
4 immediately. If two or more persons are liable with respect to
5 the same distributions, they shall be jointly and severally
6 liable.
7 (4) The maximum amount recoverable under this subsection
8 shall be the amount needed in excess of all other available
9 assets of the insolvent insurer to pay the contractual
10 obligations of the insolvent insurer.
11 (5) If any person liable under paragraph (3) is insolvent,
12 all its affiliates that controlled it at the time distribution
13 was paid, shall be jointly and severally liable for any
14 resulting deficiency in the amount recovered from the insolvent
15 affiliate.
16 Section 1513. Examination of the Association and Annual
17 Report.--The association shall be subject to examination and
18 regulation by the commissioner. The board of directors shall
19 submit to the commissioner each year, not later than one hundred
20 twenty (120) days after the association's fiscal year, a
21 financial report in a form approved by the commissioner and a
22 report of its activities during the preceding fiscal year.
23 Section 1514. Tax Exemptions.--The association shall be
24 exempt from payment of all fees and all taxes levied by this
25 Commonwealth or any of its subdivisions, except taxes levied on
26 real property.
27 Section 1515. Immunity.--There shall be no liability on the
28 part of and no cause of action of any nature shall arise against
29 any member insurer or its agents or employes, the association or
30 its agents or employes, members of the board of directors, or
19910H1670B3225 - 153 -
1 the commissioner or his representatives, for any action or
2 omission by them taken in good faith in the performance of their <--
3 powers and duties under this article. Such immunity shall extend
4 to the participation in any organization of one or more other
5 state associations of similar purposes and to any such
6 organization and its agents or employes.
7 Section 1516. Stay of Proceedings and Reopening Default
8 Judgments.--All proceedings in which the insolvent insurer is a
9 party in any court in this Commonwealth shall be stayed sixty
10 (60) days from the date an order of liquidation, rehabilitation
11 or conservation is final to permit proper legal action by the
12 association on any matters germane to its powers or duties. As
13 to judgment under any decision, order, verdict or finding based
14 on default, the association may apply to have such judgment set
15 aside by the same court that made such judgment and shall be
16 permitted to defend against such suit on the merits.
17 Section 1517. Prohibited Advertisement or Insurance Guaranty
18 Association Act in Insurance Sales.--(a) No person, including
19 an insurer, agent or affiliate of an insurer shall make,
20 publish, disseminate, circulate, or place before the public, or
21 cause directly or indirectly, to be made, published,
22 disseminated, circulated or placed before the public, in any
23 newspaper, magazine or other publication, or in the form of a
24 notice, circular, pamphlet, letter or poster, or over any radio
25 station or television station, or in any other way, any
26 advertisement, announcement or statement, written or oral, which
27 uses the existence of the association for the purpose of sales,
28 solicitation or inducement to purchase any form of insurance
29 covered by this article. Provided, however, that this section
30 shall not apply to the association or any other entity which
19910H1670B3225 - 154 -
1 does not sell or solicit insurance.
2 (b) Within one hundred eighty (180) days of the effective
3 date of this article, the association shall prepare a summary
4 document describing the general purposes and current limitations
5 of the article and complying with subsection (c). This document
6 should be submitted to the commissioner for approval. Sixty (60)
7 days after receiving such approval, no insurer may deliver a
8 policy or contract described in section 1503(b)(1) to a
9 policyholder or contract holder, unless the document is
10 delivered to the policyholder or contract holder prior to or at
11 the time of delivery of the policy or contract except if
12 subsection (d) applies. The document should also be available
13 upon request by a policyholder. The distribution, delivery or
14 contents or interpretation of this document shall not mean that
15 either the policy or the contract or the holder thereof would be
16 covered in the event of the impairment or insolvency of a member
17 insurer. The description document shall be revised by the
18 association as amendments to the article may require. Failure to
19 receive this document does not give the policyholder, contract
20 holder, certificate holder or insured any greater rights than
21 those stated in this article.
22 (c) The document prepared under subsection (b) shall contain
23 a clear and conspicuous disclaimer on its face. The commissioner
24 shall promulgate a regulation establishing the form and content
25 of the disclaimer. The disclaimer shall:
26 (1) State the name and address of the association and
27 department.
28 (2) Prominently warn the policyholder or contract holder
29 that the association may not cover the policy or, if coverage is
30 available, it will be subject to substantial limitations and
19910H1670B3225 - 155 -
1 exclusions and conditioned on continued residence in this
2 Commonwealth.
3 (3) State that the insurer and its agents are prohibited by
4 law from using the existence of the association for the purpose
5 of sales, solicitation or inducement to purchase any form of
6 insurance.
7 (4) Emphasize that the policyholder or contract holder
8 should not rely on coverage under the association when selecting
9 an insurer.
10 (5) Provide other information as directed by the
11 commissioner.
12 (d) No insurer or agent may deliver a policy or contract
13 described in section 1503(b)(1) and excluded under section
14 1503(b)(2) from coverage under this article unless the insurer
15 or agent, prior to or at the time of delivery, gives the
16 policyholder or contract holder a separate written notice which
17 clearly and conspicuously discloses that the policy or contract
18 is not covered by the association. The commissioner shall by
19 regulation specify the form and content of the notice.
20 Section 1518. Prospective Application.--This article shall
21 not apply to any insurer which is insolvent or unable to fulfill <--
22 its contractual obligations on WAS DECLARED INSOLVENT BEFORE the <--
23 effective date of this article.
24 Section 19 20. The following acts and parts of acts are <--
25 repealed:
26 Act of January 24, 1966 (1965 P.L.1509, No.531), referred to
27 as the Surplus Lines Insurance Law.
28 Act of November 26, 1978 (P.L.1188, No.280), known as the
29 Life and Health Insurance Guaranty Association Act.
30 Section 20. This act shall take effect in 120 days. <--
19910H1670B3225 - 156 -
1 SECTION 21. NOTWITHSTANDING THE REPEAL IN SECTION 20, ANY <--
2 INSURER DECLARED INSOLVENT BY A COURT OF COMPETENT JURISDICTION
3 PRIOR TO THE EFFECTIVE DATE OF THIS ACT SHALL BE GOVERNED BY THE
4 ACT OF NOVEMBER 26, 1978 (P.L.1188, NO.280), KNOWN AS THE LIFE
5 AND HEALTH INSURANCE GUARANTY ASSOCIATION ACT.
6 SECTION 22. THIS ACT SHALL TAKE EFFECT AS FOLLOWS:
7 (1) THE ADDITION OF ARTICLE XV OF THE ACT SHALL TAKE
8 EFFECT IMMEDIATELY.
9 (2) THE REMAINDER OF THIS ACT SHALL TAKE EFFECT IN 120
10 DAYS.
F10L40DGS/19910H1670B3225 - 157 -