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

(a)  (1)  Transactions within a holding company systemto which an insurer subject to registration is a party shall be subject to thefollowing standards:

(A)  The terms shall be fair and reasonable;

(B)  Charges or fees for services performedshall be reasonable;

(C)  Expenses incurred and payment receivedshall be allocated to the insurer in conformity with customary insuranceaccounting practices consistently applied;

(D)  The books, accounts, and records of eachparty to all transactions shall be maintained so as to clearly and accuratelydisclose the nature and details of the transactions including the accountinginformation necessary to support the reasonableness of the charges or fees tothe respective parties; and

(E)  The insurer's surplus as regardspolicyholders following any dividends or distributions to shareholderaffiliates shall be reasonable in relation to the insurer's outstandingliabilities and adequate to its financial needs.

(2)  The following transactions involving a domesticinsurer and any person in its holding company system may not be entered intounless the insurer has notified the commissioner in writing of its intention toenter into the transaction at least thirty days prior thereto, or a shorterperiod as the commissioner may permit, and the commissioner has not disapprovedit within that period:

(A)  Sales, purchases, exchanges, loans, orextensions of credit, guarantees, or investments; provided that thetransactions are equal to or exceed:

(i)  With respect to nonlife insurers, thelesser of three per cent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders each as of the thirty-first day ofDecember next preceding; or

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

(B)  Loans or extensions of credit to anyperson who is not an affiliate, where the insurer makes the loans or extensionsof credit with the agreement or understanding that the proceeds of thetransactions, in whole or in substantial part, are to be used to make loans orextensions of credit to, to purchase assets of, or to make investments in, anyaffiliate of the insurer making the loans or extensions of credit provided thetransactions are equal to or exceed:

(i)  With respect to nonlife insurers, thelesser of three per cent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders each as of the thirty-first day ofDecember next preceding; or

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

(C)  Reinsurance agreements or modificationsthereto in which the reinsurance premium or a change in the insurer'sliabilities equals or exceeds five per cent of the insurer's surplus as regardspolicyholders, as of the thirty-first day of December next preceding, includingthose agreements which may require as consideration the transfer of assets froman insurer to a nonaffiliate, if an agreement or understanding exists betweenthe insurer and nonaffiliate that any portion of the assets will be transferredto one or more affiliates of the insurer;

(D)  All management agreements, servicecontracts, and all cost-sharing arrangements; and

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

Nothing in this section shall be deemed toauthorize or permit any transactions which, in the case of an insurer not amember 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 theholding company system, if the purpose of those separate transactions is toavoid the statutory threshold amount and thus avoid the review that wouldotherwise occur.  If the commissioner determines that the separate transactionswere entered into over any twelve-month period for that purpose, thecommissioner may exercise the commissioner's authority under section431:11-111.

(4)  The commissioner, in reviewing transactionspursuant to subsection (a)(2), shall consider whether the transactions complywith the standards set forth in subsection (a)(1) and whether they mayadversely affect the interests of policyholders.

(5)  The commissioner shall be notified within thirtydays of any investment of the domestic insurer in any one corporation if thetotal investment in the corporation by the insurance holding company systemexceeds ten per cent of the corporation's voting securities.

(b)  (1)  No domestic insurer shall pay anyextraordinary dividend or make any other extraordinary distribution to itsshareholders until:

(A)  Thirty days after the commissioner hasreceived notice of the declaration thereof and has not within the perioddisapproved the payment; or

(B)  The commissioner has approved the paymentwithin the thirty-day period.

(2)  For purposes of this section, an extraordinarydividend or distribution includes any dividend or distribution of cash or otherproperty, whose fair market value together with that of other dividends ordistributions made within the preceding twelve months exceeds the lesser of:

(A)  Ten per cent of the insurer's surplus asregards policyholders as of the thirty-first day of December next preceding; or

(B)  The net gain from operations of a lifeinsurer, or the net income, if the insurer is not a life insurer, not includingrealized capital gains, for the twelve-month period ending the thirty-first dayof December next preceding.

Extraordinary dividend or distribution shallnot include pro rata distributions of any class of the insurer's ownsecurities.

In determining whether a dividend ordistribution is extraordinary, an insurer other than a life insurer may carryforward income from the previous two calendar years that has not already beenpaid out as dividends.  This carry-forward shall be computed by taking the netincome from the second and third preceding calendar years, not includingrealized capital gains, less dividends paid in the second and immediatepreceding calendar years.

Notwithstanding any other provisions oflaw, an insurer may declare an extraordinary dividend or distribution that isconditional upon the commissioner's approval thereof, and the declaration shallconfer no rights upon shareholders until the commissioner has either approvedthe payment of the dividend or distribution or has not disapproved the paymentwithin the thirty-day period referred to above.

(c)  (1)  Notwithstanding the control of a domesticinsurer by any person, the officers and directors of the insurer shall notthereby be relieved of any obligation or liability which they would otherwisebe subject to by law.  The insurer shall be managed so as to assure itsseparate operating identity consistent with this article.

(2)  Nothing herein shall preclude a domestic insurerfrom having or sharing a common management or cooperative or joint use ofpersonnel, property, or services with one or more other persons underarrangements meeting the standards of subsection (a)(1).

(d)  For purposes of this article, indetermining whether an insurer's surplus as regards policyholders is reasonablein relation to the insurer's outstanding liabilities and adequate to itsfinancial needs, the following factors, among others, shall be considered:

(1)  The size of the insurer as measured by itsassets, capital and surplus, reserves, premium writings, insurance in force,and other appropriate criteria;

(2)  The extent to which the insurer's business isdiversified among the several lines of insurance;

(3)  The number and size of risks insured in each lineof business;

(4)  The extent of the geographical dispersion of theinsurer's insured risks;

(5)  The nature and extent of the insurer'sreinsurance program;

(6)  The quality, diversification, and liquidity of theinsurer's investment portfolio;

(7)  The recent past and projected future trend in thesize of the insurer's investment portfolio;

(8)  The surplus as regards policyholders maintainedby other comparable insurers;

(9)  The adequacy of the insurer's reserves; and

(10)  The quality and liquidity of investments inaffiliates.  The commissioner may treat any investment as a disallowed assetfor purposes of determining the adequacy of surplus as regards policyholderswhenever in the commissioner's judgment the investment so warrants.

(e)  In determining the adequacy andreasonableness of an

insurer's surplus, no single factor is necessarilycontrolling,

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 otherinsurers, consider the extent to which each of these factors varies amonginsurers; and

(3)  In determining the quality and liquidity ofinvestments in subsidiaries, consider the individual subsidiary and discount ordisallow its valuation to the extent warranted by individual investments. [L1987, c 349, pt of §8; am L 1990, c 75, §1; am L 1993, c 321, §16; am L 2000, c24, §10]