State Codes and Statutes
Statutes > Connecticut > Title38a > Chap698 > Sec38a-136Sec. 38a-136. (Formerly Sec. 38-39h). Requirements re transactions between insurance companies and affiliates. Extraordinary dividends or distributions. Prohibited transactions between domestic insurance companies and controlling persons. (a) Transactions within a holding company system to which an insurance company subject to registration under section 38a-135 is a party shall be subject to the following requirements: (1) The terms shall be fair and reasonable; (2) charges or fees for services performed shall be reasonable; (3) expenses incurred and payment received shall be allocated to the insurance company in conformity with customary insurance accounting practices consistently applied; (4) the books, accounts and records of each party shall be so maintained as to clearly and accurately disclose the precise nature and details of the transactions, including such accounting information as is necessary to support the reasonableness of the charges or fees to the respective parties; and (5) the insurance company's surplus shall be reasonable in relation to such company's outstanding liabilities and adequate to its financial needs.
(b) The following transactions involving a domestic insurance company and any person in its holding company system may not be entered into unless the insurance company has notified the commissioner in writing of its intention to enter into such transaction at least thirty days prior thereto, or such shorter period as the commissioner may permit, and the commissioner either has approved or not disapproved it within such period:
(1) Sales, purchases, exchanges, loans or extensions of credit, guarantee or investments provided such transactions are equal to or exceed: (A) With respect to nonlife insurance companies, the lesser of three per cent of the insurance company's admitted assets or twenty-five per cent of surplus; or (B) with respect to life insurance companies, three per cent of the insurance company's admitted assets; each as of the thirty-first day of December next preceding;
(2) Loans or extensions of credit to any person who is not an affiliate, where the insurance company makes such loans or extensions of credit with the agreement or understanding that the proceeds of such 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 insurance company making such loans or extensions of credit, provided such transactions are equal to or exceed: (A) With respect to nonlife insurance companies, the lesser of three per cent of the insurance company's admitted assets or twenty-five per cent of surplus; or (B) with respect to life insurance companies, three per cent of the insurance company's admitted assets; each as of the thirty-first day of December next preceding;
(3) Reinsurance agreements or modifications thereto in which the reinsurance premium or a change in the insurance company's liabilities equals or exceeds five per cent of the insurance company's surplus, as of the thirty-first day of December next preceding, including those agreements which may require as consideration the transfer of assets from an insurance company to a nonaffiliate, if an agreement or understanding exists between the insurance company and nonaffiliate that any portion of such assets will be transferred to one or more affiliates of the insurance company;
(4) All material management agreements, service contracts and cost-sharing arrangements; and
(5) Any material transactions, specified by regulation, which the commissioner determines may adversely affect the interests of the insurance company's policyholders. Nothing contained in this section shall be deemed to authorize or permit any transactions which, in the case of an insurance company not a member of the same holding company system, would be otherwise contrary to law.
(c) A domestic insurance company may not enter into transactions which are part of a plan or series of like transactions with persons within the 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. If the commissioner determines that such separate transactions were entered into over any twelve-month period for such purpose, the commissioner may exercise authority under section 38a-140.
(d) The commissioner, in reviewing transactions pursuant to subsection (b) of this section, shall consider whether the transactions comply with the standards set forth in subsection (a) of this section and whether they may adversely affect the interests of policyholders.
(e) Except as may be exempted pursuant to regulations adopted by the commissioner or otherwise waived by the commissioner, the commissioner shall be notified within thirty days of any material investment of the domestic insurance company in any one corporation if the total investment in such corporation by the insurance company holding company system exceeds ten per cent of such corporation's voting securities.
(f) No insurance company subject to registration under section 38a-135 shall pay any extraordinary dividend or make any other extraordinary distribution to its stockholders until the commissioner has approved such payment or until thirty days after the commissioner has received notice from such company of the declaration thereof within which period the commissioner has not disapproved such payment, whichever is sooner. For the purposes of this subsection, an extraordinary dividend or distribution is 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 greater of (1) ten per cent of such insurance company's surplus as of the thirty-first day of December last preceding, or (2) the net gain from operations of such insurance company, if such company is a life insurance company, or the net income, if such company is not a life insurance company, for the twelve-month period ending the thirty-first day of December last preceding, but shall not include pro rata distributions of any class of the insurance company's own securities. Notwithstanding any other provision of law, an insurance company may declare an extraordinary dividend or distribution which is conditional upon the commissioner's approval thereof, but such a declaration shall confer no rights upon stockholders until (1) the commissioner has approved the payment of such dividend or distribution or (2) thirty days have elapsed without the commissioner's disapproval thereof as provided in this subsection, whichever is sooner.
(g) For purposes of sections 38a-129 to 38a-140, inclusive, in determining whether an insurance company's surplus is reasonable in relation to the insurance company's outstanding liabilities and adequate to its financial needs, the following factors, in addition to others, shall be considered: (1) The size of the insurance company as measured by its assets, capital and surplus, reserves, premium writings, insurance in force and other appropriate criteria; (2) the extent to which the insurance company'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 nature of the geographical dispersion of the insurance company's insured risks; (5) the nature and extent of the insurance company's reinsurance program; (6) the quality, diversification and liquidity of the insurance company's investment portfolio; (7) the recent past and projected future trend in the size of the insurance company's surplus; (8) the surplus maintained by other comparable insurance companies; (9) the adequacy of the insurance company's reserves; (10) the quality of the company's earnings and the extent to which the reported earnings include extraordinary items; and (11) the quality and liquidity of investments in affiliates. The commissioner may discount any such investment or treat any such investment as a disallowed asset for purposes of determining the adequacy of surplus whenever in the commissioner's judgment such investment warrants.
(h) (1) Any domestic insurance company which is affiliated with an insurance holding company system shall report for informational purposes to the Insurance Commissioner all dividends and other distributions to securityholders within five business days following the declaration and at least ten days, commencing from the date of receipt by the Insurance Department, prior to payment thereof.
(2) No dividend or other distribution may be paid when the surplus of the insurance company is less than the surplus required by section 38a-72 for the kind or kinds of business authorized to be transacted by such company, nor when the payment of a dividend or other distribution would reduce its surplus to less than such amount.
(3) Except as otherwise provided by law, no dividend or other distribution exceeding an amount equal to an insurance company's earned surplus may be paid without the Insurance Commissioner's prior approval. For purposes of this subsection, "earned surplus" means "unassigned funds-surplus", as defined in the annual report of the insurance company which was most recently submitted pursuant to section 38a-53, reduced by twenty-five per cent of unrealized appreciation in value or revaluation of assets or unrealized profits on investments, as defined in such report.
(i) (1) Any domestic insurance company of which control has been acquired pursuant to section 38a-130 shall be required to submit to a financial examination and a market conduct examination within thirty days after such acquisition in accordance with procedures set forth by the examiner's handbook of the National Association of Insurance Commissioners and such regulations as the commissioner may adopt.
(2) No domestic insurance company of which control has been acquired pursuant to section 38a-130 shall, without the prior approval of the commissioner: (A) Pay or propose to pay any dividend during the period of two years from the date of acquisition of control of such insurance company; (B) acquire or enter into an agreement or understanding to acquire control, during the period of three years after the date of acquisition of control of such insurance company, of any other person or persons whose assets exceed twenty-five million dollars; (C) provide or propose to provide directly or indirectly, during the period of three years after the date of acquisition of control of such insurance company, any loans, advances, guarantees, pledges or other financial assistance; or (D) engage in any material transaction with any person during the period of three years after the date of acquisition of such insurance company. For purposes of this subsection, a "material transaction" shall include, but not be limited to, any transfer or encumbrance of assets not in the ordinary course of business which, together with all other transfers or encumbrances made within the preceding twelve months, exceeds in value the greater of (i) ten per cent of such insurance company's surplus as of the December thirty-first last preceding, or (ii) the net gain from operations of such insurance company, if such company is a life insurance company, or the net investment income of such company, if such company is not a life insurance company, for the twelve-month period ending the December thirty-first last preceding.
(3) The commissioner shall, upon a written request from the controlled domestic insurance company and, upon public hearing after notice to all interested parties, determine whether any limitations contained in subdivision (2) of this subsection shall be continued, or whether and on what conditions they may be waived. Such determination shall be predicated on the results of the examinations provided in subdivision (1) of this subsection and such further examinations, if any, the commissioner may require concerning the adequacy of the insurance company's reserves, the effect any proposed transaction will have on the insurance company's surplus, its cash flow needs and its ability to satisfy any reasonably anticipated obligations in the foreseeable future, and any other effect the proposed transaction would have on the financial stability or solvency of the insurance company and the quality and liquidity of its assets. All fees and expenses relating to such examinations shall be paid by the insurance company.
(4) Nothing in this subsection shall be interpreted to prohibit any transactions between a domestic insurance company and any of its subsidiaries in the ordinary course of business.
(1969, P.A. 444, S. 8; 1971, P.A. 368, S. 2; P.A. 85-16, S. 4, 6; P.A. 92-112, S. 19, 35; P.A. 93-57, S. 6, 7, 12; 93-239, S. 29; P.A. 00-30, S. 10, 14.)
History: 1971 act reduced basis of calculation of extraordinary dividend or distribution from 15% to 10% of surplus in Subsec. (c)(1); P.A. 85-16 added Subsec. (d) re transactions between domestic insurance company and controlling entity; Sec. 38-39h transferred to Sec. 38a-136 in 1991; P.A. 92-112 amended Subsec. (a) to change requirements governing transactions of insurance companies subject to registration within a holding company system, replaced former Subsec. (b) with new provisions re transactions of domestic insurance companies, prior notification to the commissioner of certain transactions and the commissioner's approval, added new Subsec. (c) prohibiting domestic insurance companies from entering into transactions which seek to avoid statutory review, added new Subsec. (d) re commissioner's authority to review transactions of domestic insurance companies, added new Subsec. (e) requiring notification to the commissioner of any material investment of domestic insurance companies in one corporation, relettered Subsec. (c) as (f), changing reference to "stockholders" to "securityholders", specifying determination of when a dividend or distribution is extraordinary and making technical corrections for statutory consistency, effective December 1, 1993, added new Subsec. (g) re factors of reasonableness concerning surplus, deleted parts of former Subsec. (d) and incorporated the remainder in new Subsec. (h) re financial examination and market conduct examination of any domestic insurance company which has been acquired subject to Sec. 38a-130, and made technical corrections for statutory consistency; P.A. 93-57 deleted changes to Subsec. (f) made by P.A. 92-112, effective December 1, 1993, and amended Subsec. (g) to include the quality of the insurance company's earnings and the extent to which such earnings are included as extraordinary items as a factor used to determine the reasonableness of surplus re outstanding liability and adequacy of financial needs, inserted new Subsec. (h) re required reporting of all dividends and other distributions, restrictions on dividends or other distributions paid in relation to the surplus requirements and commissioner's approval of certain transactions, relettered previously existing Subsec. (h) as (i) and made technical corrections for accuracy, effective October 1, 1993; P.A. 93-239 changed effective date of Subsec. (f), as amended by P.A. 92-112 and P.A. 93-57, from December 1, 1993, to October 1, 1993; P.A. 00-30 deleted references to "with respect to policyholders" and "as regards policyholders", and made technical changes for purposes of gender neutrality, effective January 1, 2001.
Annotation to former section 38-39h:
Cited. 184 C. 352.
