Section 431:11-106 - Standards and management of an insurer within a holding company system(a)(1) Transactions within an insurance holding company system to which an insurer subject to registration is a party shall be subject to the following standards: (A) The terms shall be fair and reasonable;(B) Agreements for cost sharing services and management shall include provisions as required by rule adopted by the commissioner;(C) Charges or fees for services performed shall be reasonable;(D) Expenses incurred and payment received shall be allocated to the insurer in conformity with customary insurance accounting practices consistently applied;(E) The books, accounts, and records of each party to all transactions shall be maintained so as to clearly and accurately disclose the nature and details of the transactions including the accounting information necessary to support the reasonableness of the charges or fees to the respective parties; (F) The insurer's surplus as regards policyholders following any dividends or distributions to shareholder affiliates shall be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs;(G) If an insurer subject to this article is deemed by the commissioner to be hazardous to its policyholders, its creditors, or the general public under section 431:15-103.5 or in a condition that would be grounds for supervision, conservation, or a delinquency proceeding, then the commissioner may require the insurer to secure and maintain either a deposit, held by the commissioner, or a bond, as determined by the insurer at the insurer's discretion, for the protection of the insurer for the duration of the contract or agreement, or the existence of the condition for which the commissioner required the deposit or the bond. In determining whether a deposit or a bond is required, the commissioner should consider whether concerns exist with respect to the affiliated person's ability to fulfill the contract or agreement if the insurer were to be put into liquidation. Once the insurer is deemed to be in a hazardous financial condition or a condition that would be grounds for supervision, conservation, or a delinquency proceeding, and a deposit or bond is necessary, the commissioner may determine the amount of the deposit or bond, not to exceed the value of the contract or agreement in any one year, and whether the deposit or bond should be required for a single contract, multiple contracts, or a contract only with a specific person;
(H) All records and data of the insurer held by an affiliate shall be and shall remain the property of the insurer, shall be subject to control of the insurer, shall be identifiable, and shall be segregated or readily capable of segregation, at no additional cost to the insurer, from all other persons' records and data. This shall include all records and data that are otherwise the property of the insurer, in whatever form maintained, including but not limited to claims and claim files, policyholder lists, application files, litigation files, premium records, rate books, underwriting manuals, personnel records, financial records or similar records within the possession, custody, or control of the affiliate. At the request of the insurer, the affiliate shall provide that a receiver can obtain a complete set of all records of any type that pertain to the insurer's business; obtain access to the operating systems on which the data is maintained; obtain the software that runs those systems either through assumption of licensing agreements or otherwise; and restrict the use of the data by the affiliate if it is not operating the insurer's business. The affiliate shall provide a waiver of any landlord lien or other encumbrance to give the insurer access to all records and data in the event of the affiliate's default under a lease or other agreement; and (I) Premiums or other funds belonging to the insurer that are collected by or held by an affiliate shall be the exclusive property of the insurer and shall be subject to the control of the insurer. Any right of offset in the event an insurer is placed into receivership shall be subject to article 15; (2) The following transactions involving a domestic insurer and any person in its insurance holding company system, including amendments or modifications of affiliate agreements previously filed pursuant to this section, which are subject to any materiality standards found in subparagraphs (A) through (G), shall not be entered into unless the insurer has notified the commissioner in writing of its intention to enter into the transaction at least thirty days prior to the transaction, or a shorter period as the commissioner may permit, and the commissioner has not disapproved the transaction within that period; provided that the notice for amendments or modifications shall include the reasons for the change and the financial impact on the domestic insurer; provided further that informal notice shall be reported within thirty days after a termination of a previously filed agreement to the commissioner for determination of the type of filing required, if any: (A) Sales, purchases, exchanges, loans, extensions of credit, or investments; provided that the transactions are equal to or exceed: (i) With respect to nonlife insurers, the lesser of three per cent of the insurer's admitted assets or twenty-five per cent of surplus as regards policyholders as of the December 31 next preceding; or (ii) With respect to life insurers, three per cent of the insurer's admitted assets as of the December 31 next preceding;(B) Loans or extensions of credit to any person who is not an affiliate, where the insurer makes the loans or extensions of credit with the agreement or understanding that the proceeds of the transactions, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase assets of, or to make investments in, any affiliate of the insurer making the loans or extensions of credit; provided that the transactions are equal to or exceed:(i) With respect to nonlife insurers, the lesser of three per cent of the insurer's admitted assets or twenty-five per cent of surplus as regards policyholders as of the December 31 next preceding; or (ii) With respect to life insurers, three per cent of the insurer's admitted assets as of the December 31 next preceding;(C) Reinsurance agreements or modifications to reinsurance agreements, including: (i) All reinsurance pooling agreements; and (ii) Agreements in which the reinsurance premium or a change in the insurer's liabilities, or the projected reinsurance premium or a change in the insurer's liabilities in any of the next three years, equals or exceeds five per cent of the insurer's surplus as regards policyholders, as of the December 31 next preceding, including those agreements that may require as consideration the transfer of assets from an insurer to a nonaffiliate, if an agreement or understanding exists between the insurer and nonaffiliate that any portion of the assets will be transferred to one or more affiliates of the insurer;(D) All management agreements, service contracts, tax allocation agreements, guarantees, and all cost-sharing arrangements;(E) Guarantees when made by a domestic insurer; provided that a guarantee that is quantifiable as to amount shall not be subject to the notice requirements of this paragraph unless it exceeds the lesser of one-half of one per cent of the insurer's admitted assets or ten per cent of surplus as regards policyholders as of the December 31 next preceding. All guarantees that are not quantifiable as to amount are subject to the notice requirements of this paragraph;(F) Direct or indirect acquisitions or investments in a person that controls the insurer or in an affiliate of the insurer in an amount that, together with its present holdings in investments, exceeds two and one-half per cent of the insurer's surplus to policyholders. Direct or indirect acquisitions or investments in subsidiaries acquired pursuant to section 431:11-103, or in nonsubsidiary insurance affiliates that are subject to this article, are exempt from this requirement; and(G) Any material transactions, specified by rule, that the commissioner determines may adversely affect the interests of the insurer's policyholders. Nothing in this paragraph shall be deemed to authorize or permit any transactions that, in the case of an insurer not a member of the same insurance holding company system, would be otherwise contrary to law;
(3) A domestic insurer may not enter into transactions that are part of a plan or series of like transactions with persons within the insurance holding company system if the purpose of those separate transactions is to avoid the statutory threshold amount and thus avoid the review that would otherwise occur; provided that the commissioner determines that the separate transactions were entered into over any twelve-month period for that purpose, the commissioner may exercise the commissioner's authority under section 431:11-111;(4) The commissioner, in reviewing transactions pursuant to paragraph (2), shall consider whether the transactions comply with the standards set forth in paragraph (1) and whether the transactions may adversely affect the interests of policyholders; (5) The commissioner shall be notified within thirty days of any investment of the domestic insurer in any one corporation if the total investment in the corporation by the insurance holding company system exceeds ten per cent of the corporation's voting securities; and(6)(A) Any affiliate that is party to an agreement or contract with a domestic insurer that is subject to paragraph (2)(D) shall be subject to the jurisdiction of any supervision, seizure, conservatorship, or receivership proceedings against the insurer and to the authority of any supervisor, conservator, rehabilitator, or liquidator for the insurer appointed pursuant to article 15 for the purpose of interpreting, enforcing, and overseeing the affiliate's obligations under the agreement or contract to perform services for the insurer that: (i) Are an integral part of the insurer's operations, including but not limited to management, administrative, accounting, data processing, marketing, underwriting, claims handling, investment, or any other similar functions; or (ii) Are essential to the insurer's ability to fulfill its obligations under insurance policies; and (B) The commissioner may require that an agreement or contract pursuant to paragraph (2)(D) for the provision of services described in subparagraph (A) specify that the affiliate consents to the jurisdiction as set forth in this paragraph.(b)(1) No domestic insurer shall pay any extraordinary dividend or make any other extraordinary distribution to its shareholders until: (A) Thirty days after the commissioner has received notice of the declaration thereof and has not within the period disapproved the payment; or(B) The commissioner has approved the payment within the thirty-day period.(2) For purposes of this section, an extraordinary dividend or distribution includes any dividend or distribution of cash or other property, whose fair market value together with that of other dividends or distributions made within the preceding twelve months exceeds the lesser of: (A) Ten per cent of the insurer's surplus as regards policyholders as of the thirty-first day of December next preceding; or(B) The net gain from operations of a life insurer, or the net income, if the insurer is not a life insurer, not including realized capital gains, for the twelve-month period ending the thirty-first day of December next preceding. Extraordinary dividend or distribution shall not include pro rata distributions of any class of the insurer's own securities.
In determining whether a dividend or distribution is extraordinary, an insurer other than a life insurer may carry forward income from the previous two calendar years that has not already been paid out as dividends. This carry-forward shall be computed by taking the net income from the second and third preceding calendar years, not including realized capital gains, less dividends paid in the second and immediate preceding calendar years.
Notwithstanding any other provisions of law, an insurer may declare an extraordinary dividend or distribution that is conditional upon the commissioner's approval thereof, and the declaration shall confer no rights upon shareholders until the commissioner has either approved the payment of the dividend or distribution or has not disapproved the payment within the thirty-day period referred to above.
(c)(1) Notwithstanding the control of a domestic insurer by any person, the officers and directors of the insurer shall not thereby be relieved of any obligation or liability to which they would otherwise be subject to by law. The insurer shall be managed so as to assure its separate operating identity consistent with this article.(2) Nothing in this section shall preclude a domestic insurer from having or sharing a common management or cooperative or joint use of personnel, property, or services with one or more other persons under arrangements meeting the standards of subsection (a) (1).(3) At least one-third of the directors of a domestic insurer, and at least one-third of the members of each committee of the board of directors of any domestic insurer, shall be persons who are not officers or employees of the insurer or of any entity controlling, controlled by, or under common control with the insurer and who are not beneficial owners of a controlling interest in the voting stock of the insurer or entity. At least one such person shall be included in any quorum for the transaction of business at any meeting of the board of directors or any committee thereof.(4) The board of directors of a domestic insurer shall establish one or more committees composed solely of directors who are not officers or employees of the insurer or of any entity controlling, controlled by, or under common control with the insurer and who are not beneficial owners of a controlling interest in the voting stock of the insurer or any such entity. The committee or committees shall have responsibility for nominating candidates for director for election by shareholders or policyholders, evaluating the performance of officers deemed to be principal officers of the insurer, and recommending to the board of directors the selection and compensation of the principal officers.(5) Paragraphs (3) and (4) shall not apply to: (A) A domestic insurer if the person controlling the insurer, such as an insurer, a mutual insurance holding company, or a publicly held corporation, has a board of directors and committees thereof that meet the requirements of paragraphs (3) and (4) with respect to the controlling entity; or(B) A domestic insurance holding company system.(6) An insurer may make application to the commissioner for a waiver from the requirements of this subsection if the insurer's annual direct written and assumed premium, excluding premiums reinsured with the Federal Crop Insurance Corporation and National Flood Insurance Program, is less than $300,000,000. An insurer may also make application to the commissioner for a waiver from the requirements of this subsection based upon unique circumstances. The commissioner may consider various factors including but not limited to the type of business entity, volume of business written, availability of qualified board members, or the ownership or organizational structure of the entity.(d) For purposes of this article, in determining whether an insurer's surplus as regards policyholders is reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs, the following factors, among others, shall be considered: (1) The size of the insurer as measured by its assets, capital and surplus, reserves, premium writings, insurance in force, and other appropriate criteria;(2) The extent to which the insurer's business is diversified among the several lines of insurance;(3) The number and size of risks insured in each line of business;(4) The extent of the geographical dispersion of the insurer's insured risks;(5) The nature and extent of the insurer's reinsurance program;(6) The quality, diversification, and liquidity of the insurer's investment portfolio;(7) The recent past and projected future trend in the size of the insurer's investment portfolio;(8) The surplus as regards policyholders maintained by other comparable insurers;(9) The adequacy of the insurer's reserves; and(10) The quality and liquidity of investments in affiliates. The commissioner may treat any investment as a disallowed asset for purposes of determining the adequacy of surplus as regards policyholders whenever in the commissioner's judgment the investment so warrants.(e) In determining the adequacy and reasonableness of an insurer's surplus, no single factor is necessarily controlling, and the commissioner shall: (1) Consider the net effect of all of the factors, along with other factors bearing on the financial condition of the insurer;(2) In comparing the surplus maintained by other insurers, consider the extent to which each of these factors varies among insurers; and(3) In determining the quality and liquidity of investments in subsidiaries, consider the individual subsidiary and discount or disallow its valuation to the extent warranted by individual investments.Amended by L 2024, c 84,§ 3, eff. 6/21/2024.Amended by L 2014, c 234,§ 11, eff. 1/1/2016.Amended by L 2011, c 81, § 8, eff. 7/1/2011.L 1987, c 349, pt of §8; am L 1990, c 75, §1; am L 1993, c 321, §16; am L 2000, c 24, §10; am L 2010, c 116, §1(23) .