§431:11-106  Standards and management of an
insurer within a holding company system.



(a)  (1)  Transactions within a 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)  Charges or fees for services performed
shall be reasonable;



(C)  Expenses incurred and payment received
shall be allocated to the insurer in conformity with customary insurance
accounting practices consistently applied;



(D)  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; and



(E)  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.



(2)  The following transactions involving a domestic
insurer and any person in its holding company system may 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 thereto, or a shorter
period as the commissioner may permit, and the commissioner has not disapproved
it within that period:



(A)  Sales, purchases, exchanges, loans, or
extensions of credit, guarantees, 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 each as of the thirty-first day of
December next preceding; or



(ii)  With respect to life insurers, three per
cent of the insurer's admitted assets as of the thirty-first day of December
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 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 each as of the thirty-first day of
December next preceding; or



(ii)  With respect to life insurers, three per
cent of the insurer's admitted assets as of the thirty-first day of December
next preceding;



(C)  Reinsurance agreements or modifications
thereto in which the reinsurance premium or a change in the insurer's
liabilities equals or exceeds five per cent of the insurer's surplus as regards
policyholders, as of the thirty-first day of December next preceding, including
those agreements which 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, and all cost-sharing arrangements; and



(E)  Any material transactions, specified by
rule, which the commissioner determines may adversely affect the interests of
the insurer's policyholders.



Nothing in this section shall be deemed to
authorize or permit any transactions which, in the case of an insurer not a
member of the same holding company system, would be otherwise contrary to law.



(3)  A domestic insurer 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 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 subsection (a)(2), shall consider whether the transactions comply
with the standards set forth in subsection (a)(1) and whether they 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.



(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 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 herein 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).



(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. [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]