THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY CORMAN, BROWNE, STACK, EARLL, RAFFERTY, BAKER, FERLO, GORDNER, O'PAKE, WILLIAMS, WAUGH AND M. WHITE, FEBRUARY 19, 2009

SENATOR CORMAN, APPROPRIATIONS, RE-REPORTED AS AMENDED, MARCH 23, 2009   

AN ACT

Amending the act of May 17, 1921 (P.L.682, No.284), entitled "An

act relating to insurance; amending, revising, and

consolidating the law providing for the incorporation of

insurance companies, and the regulation, supervision, and

protection of home and foreign insurance companies, Lloyds

associations, reciprocal and inter-insurance exchanges, and

fire insurance rating bureaus, and the regulation and

supervision of insurance carried by such companies,

associations, and exchanges, including insurance carried by

the State Workmen's Insurance Fund; providing penalties; and

repealing existing laws," further providing for annual and

other reports; and providing for suitability of annuity

transactions.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Section 320 of the act of May 17, 1921 (P.L.682,

No.284), known as The Insurance Company Law of 1921, amended

December 18, 1992 (P.L.1519, No.178) and February 17, 1994

(P.L.92, No.9), is amended to read:

Section 320.  Annual and Other Reports; Penalties.--(a)  (1)

Every stock and mutual insurance company, association, and

exchange, doing business in this Commonwealth, shall annually,

on or before the first day of March, file in the office of the

Insurance Commissioner and with the National Association of

Insurance Commissioners a statement which shall exhibit its

financial condition on the thirty-first day of December of the

previous year, and its business of that year and shall, within

thirty days after requested by the Insurance Commissioner, file

with the Insurance Commissioner and with the National

Association of Insurance Commissioners such additional statement

or statements concerning its affairs and financial condition as

the Insurance Commissioner may, in his discretion, require. The

Insurance Commissioner shall require each insurance company

association and exchange to report its financial condition on

the statement convention blanks, in such form as adopted by the

National Association of Insurance Commissioners and shall, upon

written request, furnish such blanks for their convenience; and

may make such changes, from time to time, in the form of the

same as shall seem best adapted to elicit from them a true

exhibit of their financial condition.

(2)  Unless otherwise provided by law, regulation or order of

the Insurance Commissioner, each insurance company, association

and exchange shall adhere to the annual or quarterly statement

instructions and the accounting practices and procedures manuals

prescribed by the National Association of Insurance

Commissioners. The Insurance Commissioner may require each

insurance company, association and exchange to file in the

office of the Insurance Commissioner and with the National

Association of Insurance Commissioners financial statements on

diskettes or other electronic information storage devices

acceptable to the Insurance Commissioner.

(b)  Insurance companies of foreign governments, doing

business in this Commonwealth, shall be required to return only

the business done in the United States, and the assets held by

and for them within the United States for the protection of

policyholders therein.

(c)  In the absence of actual malice, members of the National

Association of Insurance Commissioners, their duly authorized

committees, subcommittees and task forces, their delegates and

employes and all others charged with the responsibility of

collecting, reviewing, analyzing and disseminating the

information developed from the filing of the annual statement

convention blanks shall be acting as agents of the Insurance

Commissioner under the authority of this act and shall not be

subject to civil liability for libel, slander or any other cause

of action by virtue of their collection, review and analysis or

dissemination of the data and information collected from the

filings required hereunder.

(d)  [All financial analysis ratios and examination synopses

concerning insurance companies that are submitted to the

Insurance Department by the National Association of Insurance

Commissioners' Insurance Regulatory Information System are

confidential and may not be disclosed by the Insurance

Department. Work products developed by Insurance Department

staff in conducting financial analyses of financial statements

filed pursuant to this section are confidential and shall not be

disclosed by the Insurance Department.](1)  The following

documents, materials or information shall be confidential by law

and privileged and shall not be subject to subpoena, discovery,

the act of February 14, 2008 (P.L.6, No. 3), known as the

"Right-to-Know Law," or admissible in evidence in any private

civil action:

(i)  All documents, materials or other information prepared

or provided by an insurance company, association or exchange

solely in support of the statement of actuarial opinion filed

under this section, including actuarial reports, work papers or

actuarial opinion summaries and any other material solely

prepared by the insurance company, association or exchange for

the purpose of providing it to the Insurance Department in

connection with actuarial reports, work papers or actuarial

opinion summaries.

(ii)  All financial analysis ratios, analyst team reports and

other financial analytical results concerning insurance

companies, associations and exchanges that are provided to the

Insurance Department by the National Association of Insurance

Commissioners.

(iii)  All additional work products, documents, materials or

information produced by, obtained by or provided to the

Insurance Department in the course of conducting financial

analyses of financial statements filed under this section.

(2)  The protections established under paragraph (1)(i) and

(iii) shall also apply to the materials, drafts or copies

thereof when in possession of the insurance company, association

or exchange if the materials or drafts were prepared solely for

the purpose of submitting the materials to the Insurance

Department. Any documents, materials or information that are

provided to the Insurance Department under paragraph (1)(i) or

(iii) and that would otherwise be available from original

sources shall not be construed as immune from discovery from the

original source and use in any private civil action merely

because they were provided to the Insurance Department. 

(3)  Neither the Insurance Commissioner nor any individual or

person who receives documents, materials or information while

acting under the authority of the Insurance Commissioner shall

be permitted or required to testify in any private civil action

concerning any confidential documents, materials or information

covered under this section.

(4)  No waiver of any applicable privilege or claim of

confidentiality in the documents, materials or information shall

occur as a result of disclosure to the Insurance Commissioner or

as a result of the Insurance Commissioner sharing information in

conformance with sections 201-A and 202-A of the act of May 17,

1921 (P.L. 789, No. 285), known as "The Insurance Department Act

of 1921."

(5)  The Insurance Commissioner may use the documents,

materials or other information obtained or created under this

section in furtherance of any regulatory or legal action brought

as part of the Insurance Commissioner’s official duties.

(e)  (1)  Any company, association, or exchange, which

neglects to make and file its annual statement, or other

statements that may be required, in the form or within the time

herein provided shall forfeit a sum not to exceed two hundred

dollars ($200) for each day during which such neglect continues,

and, upon notice by the commissioner, its authority to do new

business shall cease while such default continues.

(2)  For wilfully making a false annual or other statement

required by law, an insurance company, association or exchange,

and the persons making oath to or subscribing the same, shall

severally be punished by a fine of not less than one thousand

dollars ($1,000) nor more than ten thousand dollars ($10,000). A

person who wilfully makes oath to such false statement shall be

guilty of perjury.

(3)  The Insurance Commissioner may suspend, revoke or refuse

to renew the certificate of authority of any insurer failing to

file its annual statement when due.

Section 2.  The act is amended by adding an article to read:

ARTICLE IV-B

SUITABILITY OF ANNUITY TRANSACTIONS

Section 401-B.  Definitions.

The following words and phrases when used in this article

shall have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Annuity."  A fixed annuity or variable annuity that is

individually solicited, whether the product is classified as an

individual or group annuity.

"Commissioner."  The Insurance Commissioner of the

Commonwealth.

"General agent."  An insurance producer that provides

supervision on behalf of an insurer to an insurer's sales force

in a particular geographic region or territory.

"Independent agency."  A producer entity that does not

exclusively represent one insurance company.

"Insurance producer."  A person who sells, solicits or

negotiates contracts of insurance as defined in section 601-A of

the act of May 17, 1921 (P.L.789, No.285), known as The

Insurance Department Act of 1921.

"Insurer."  A life insurance company licensed or required to

be licensed under section 202 or a fraternal benefit society as

defined in section 2403.

"Recommendation."  Advice provided by an insurance producer,

or an insurer where no producer is involved, to an individual

consumer that results in a purchase or exchange of an annuity in

accordance with that advice.

Section 402-B.  Applicability and scope.

(a)  General rule.--This article shall apply to any

recommendation to purchase or exchange an annuity made to a

consumer by an insurance producer, or an insurer where no

producer is involved, that results in the purchase or exchange

recommended.

(b)  Exclusions.--Unless otherwise specifically included,

this article shall not apply to recommendations involving the

following:

(1)  Direct response solicitations where there is no

recommendation based on information collected from the

consumer pursuant to this article.

(2)  Annuity contracts used to fund:

(i)  An employee pension or welfare benefit plan that

is covered by the Employee Retirement Income Security Act

of 1974 (Public Law 93-406, 88 Stat. 829).

(ii)  A plan described by sections 401(a) or (k),

403(b), 408(k) or (p) of the Internal Revenue Code of

1986 (Public Law 99-514, 26 U.S.C. §§ 401(a) or (k),

403(b), 408(k) or (p)), when the plan, for purposes of

the Employee Retirement Income Security Act of 1974, is

established or maintained by an employer.

(iii)  A governmental or church plan defined in

section 414 of the Internal Revenue Code of 1986 or a

deferred compensation plan of a State or local government

or tax exempt organization under section 457 of the

Internal Revenue Code of 1986.

(iv)  A nonqualified deferred compensation

arrangement established or maintained by an employer or

plan sponsor.

(v)  Settlements of or assumptions of liabilities

associated with personal injury litigation or any dispute

or claim resolution process.

(vi)  Formal prepaid funeral contracts.

Section 403-B.  Duties of insurers and insurance producers.

(a)  General duties.--In making a recommendation to a

consumer for the purchase of an annuity or the exchange of an

annuity that results in another insurance transaction or series

of insurance transactions, the insurance producer, or the

insurer where no insurance producer is involved, shall have

reasonable grounds for believing that the recommendation is

suitable for the consumer on the basis of the facts disclosed by

the consumer as to the consumer's investments and other

insurance products and as to the consumer's financial situation

and needs.

(b)  Consumer information.--Prior to the execution of a

purchase or exchange of an annuity resulting from a

recommendation, an insurance producer, or an insurer where no

insurance producer is involved, shall make reasonable efforts to

obtain information concerning all of the following:

(1)  The consumer's financial status.

(2)  The consumer's tax status.

(3)  The consumer's investment objectives.

(4)  Other information used or considered to be

reasonable by the insurance producer, or the insurer where no

insurance producer is involved, in making recommendations to

the consumer.

(c)  Obligation limits.--

(1)  Neither an insurance producer nor an insurer where

no insurance producer is involved shall have any obligation

to a consumer under subsection (a) related to any

recommendation that is reasonable under all the circumstances

actually known to the insurer or insurance producer at the

time of the recommendation when a consumer:

(i)  Refuses to provide relevant information

requested by the insurer or insurance producer.

(ii)  Decides to enter into an insurance transaction

that is not based on a recommendation of the insurer or

insurance producer.

(iii)  Fails to provide complete or accurate

information.

(d)  Supervision of recommendations.--

(1)  An insurer shall assure that a system to supervise

recommendations that is reasonably designed to achieve

compliance with this article is established and maintained by

complying with paragraphs (3) and (4), or shall establish and

maintain such a system that includes at least the following:

(i)  Maintaining written procedures.

(ii)  Conducting periodic reviews of its records that

are reasonably designed to assist in detecting and

preventing violations of this article.

(2)  A general agent or independent agency shall adopt a

system established by an insurer to supervise recommendations

of its insurance producers that is reasonably designed to

achieve compliance with this article, or shall establish and

maintain a system that is reasonably designed to achieve

compliance with this article. The system must include at

least the following:

(i)  Maintaining written procedures.

(ii)  Conducting periodic reviews of records that are

reasonably designed to assist in detecting and preventing

violations of this article.

(3)  An insurer may contract with a third party,

including a general agent or independent agency, to establish

and maintain a system of supervision as required by paragraph

(1) with respect to insurance producers under contract with

or employed by the third party.

(4)  An insurer shall make reasonable inquiry to assure

that the third party contracting under paragraph (3) is

performing the functions required under paragraph (1) and

shall take such action as is reasonable under the

circumstances to enforce the contractual obligation to

perform the functions. An insurer may comply with its

obligation to make reasonable inquiry by doing both of the

following:

(i)  The insurer annually obtains, electronically or

otherwise,a certification from a third party senior

manager who has responsibility for the delegated

functions that the manager has a reasonable basis to

represent, and does represent, that the third party is

performing the required functions.

(ii)  The insurer, based on reasonable selection

criteria, periodically selects third parties contracting

under paragraph (3) for a review to determine whether the

third parties are performing the required functions. The

insurer shall perform procedures to conduct the review

that are reasonable under the circumstances.

(5)  An insurer that contracts with a third party under

paragraph (3) and that complies with the requirements to

supervise under paragraph (4) shall have fulfilled its

responsibilities under paragraph (1).

(6)  An insurer, general agent or independent agency is

not required to do either of the following:

(i)  Review or provide for review of all insurance

producer-solicited transactions.

(ii)  Include in its system of supervision an

insurance producer's recommendations to consumers of

products other than the annuities offered by the insurer,

general agent or independent agency.

(7)  A general agent or independent agency contracting

with an insurer pursuant to paragraph (3) shall promptly,

when requested by the insurer pursuant to paragraph (4), give

a certification as described in paragraph (4) or give a clear

statement that it is unable to meet the certification

criteria.

(8)  No person may provide a certification under

paragraph (4)(i) unless both the following conditions are

met:

(i)  The person is a senior manager with

responsibility for the delegated functions.

(ii)  The person has a reasonable basis for making

the certification.

(e)  Compliance with other rules.--Compliance with the

Financial Industry Regulatory Authority Conduct Rules pertaining

to suitability shall satisfy the requirements under this section

for the recommendation of annuities registered under the

Securities Act of 1933 (48 Stat. 74, 15 U.S.C. § 77a et seq.) or

rules and regulations adopted under the Securities Act of 1933.

Nothing in this subsection shall limit the commissioner's

ability to enforce the provisions of this article.

(f)  Internal audit and compliance procedures.--Nothing in

this article shall exonerateexempt an insurer from the internal

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audit and compliance procedure requirements under section 405-A.

Section 404-B.  Mitigation of responsibility.

(a)  Corrective actions.--The commissioner may order:

(1)  An insurer to take reasonably appropriate corrective

action for any consumer harmed by the insurer's or by its

insurance producer's violation of this article.

(2)  An insurance producer to take reasonably appropriate

corrective action for any consumer harmed by the insurance

producer's violation of this article.

(3)  A general agent or independent agency that employs

or contracts with an insurance producer to sell or solicit

the sale of annuities to consumers, to take reasonably

appropriate corrective action for any consumer harmed by the

insurance producer's violation of this article.

(b)  Reduction of penalty.--Any applicable penalty permitted

under section 406-B may be reduced or eliminated if corrective

action for the consumer was taken promptly after a violation was

discovered.

Section 405-B.  Recordkeeping.

An insurer, general agent, independent agency and insurance

producer shall maintain or be able to make available to the

commissioner records of the information collected from the

consumer and other information used in making the

recommendations that were the basis for insurance transactions

for five years after the insurance transaction is completed by

the insurer. An insurer is permitted but shall not be required

to maintain documentation on behalf of an insurance producer.

Section 406-B.  Enforcement.

(a)  Penalties and remedies.--Upon a determination by hearing

that this article has been violated, the commissioner may pursue

one or more of the following courses of action:

(1)  Issue an order requiring the person in violation to

cease and desist from engaging in the violation.

(2)  Suspend or revoke or refuse to issue or renew the

certificate or license of the person in violation.

(3)  Impose a civil penalty of not more than $5,000 for

each violation.

(4)  Impose any other penalty or remedy deemed

appropriate by the commissioner, including restitution.

(b)  Other remedies.--The enforcement remedies imposed under

this section are in addition to any other remedies or penalties

that may be imposed by any other applicable statute, including

the act of July 22, 1974 (P.L.589, No.205), known as the Unfair

Insurance Practices Act. Violations of this article are deemed

and defined by the commissioner to be an unfair method of

competition and an unfair or deceptive act or practice pursuant

to the Unfair Insurance Practices Act.

Section 407-B.  Private cause of action.

Nothing in this article shall be construed to create or imply

a private cause of action for a violation of this article.

Section 3.  This act shall take effect as follows:

(1)  The amendment of section 320 of the act shall take

effect immediately.

(2)  This section shall take effect immediately.

(3)  The remainder of this act shall take effect in 180

days.