Bill Text: PA HB2437 | 2011-2012 | Regular Session | Amended

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Bill Title: Further providing for reinsurance credits, for definitions, for acquisition of control of or merger or consolidation with domestic insurer, for acquisitions involving insurers not otherwise covered, for registration of insurers, for standards and management of an insurer within a holding company system and for examination; providing for supervisory colleges and for group-wide supervision for international insurance groups; further providing for confidential treatment, for rules and regulations, for injunctions and certain prohibitions and for sanctions.

Spectrum: Bipartisan Bill

Status: (Introduced - Dead) 2012-09-24 - Laid on the table [HB2437 Detail]

Download: Pennsylvania-2011-HB2437-Amended.html

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PRIOR PRINTER'S NO. 3658 PRINTER'S NO. 3731
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No. 2437 Session of2012
INTRODUCED BY MICOZZIE, DeLUCA, KILLION, TOBASH, D. COSTA, FABRIZIO, BOYD, GODSHALL, KOTIK, SONNEY, PASHINSKI, QUINN AND BARBIN, JUNE 5, 2012
AS REPORTED FROM COMMITTEE ON INSURANCE, HOUSE OF REPRESENTATIVES, AS AMENDED, JUNE 13, 2012
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 reinsurance
credits. credits, for definitions, for acquisition of control <--
of or merger or consolidation with domestic insurer, for
acquisitions involving insurers not otherwise covered, for
registration of insurers, for standards and management of an
insurer within a holding company system and for examination;
providing for supervisory colleges and for group-wide
supervision for international insurance groups; further
providing for confidential treatment, for rules and
regulations, for injunctions and certain prohibitions and for
sanctions.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 319.1 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), is amended to
read:
Section 319.1. Reinsurance Credits.--(a) Unless an
unlicensed reinsurer is qualified or certified to accept
reinsurance from insurers licensed in this Commonwealth, no
credit shall be allowed as an admitted asset or as a reduction
of liability relative to risks ceded by such licensed insurers.
Qualified or certified reinsurers are those meeting the
conditions for reinsurers specified by the commissioner, in his
discretion, and included on a list of qualified or certified
reinsurers published and periodically reviewed by said
commissioner.
(b) A reduction from liability for the reinsurance ceded by
a domestic insurer to an assuming insurer which is not a
qualified or certified reinsurer in accordance with this section
shall be allowed in an amount not exceeding the liabilities
carried by the ceding insurer and such reduction shall be in the
amount of funds held by or on behalf of the ceding insurer,
including funds held in trust for the ceding insurer, under a
reinsurance contract with such assuming insurer as security for
the payment of obligations thereunder, if such security is held
in the United States subject to withdrawal solely by and under
the exclusive control of the ceding insurer or, in the case of a
trust, held in a qualified United States financial institution,
as defined in subsection (g)(2). This security may be in the
form of:
(1) Cash.
(2) Securities listed by a securities valuation office of a
national association of insurance commissioners or any successor
thereto, including those exempted from filing under the Purposes
and Procedures Manual of the Securities Valuation Office of the
20120HB2437PN3731 - 2 -
National Association of Insurance Commissioners, and qualifying
as admitted assets.
(3) (i) Clean, irrevocable, unconditional and evergreen
letters of credit issued or confirmed by a qualified United
States financial institution, as defined in subsection (g)(1),
no later than the thirty-first day of December in respect of the
year for which filing is being made and in the possession of the
ceding [company] insurer on or before the filing date of its
annual statement.
(ii) Letters of credit meeting applicable standards of
issuer acceptability as of the dates of their issuance or
confirmation shall, notwithstanding the issuing or confirming
institution's subsequent failure to meet applicable standards of
issuer acceptability, continue to be acceptable as security
until their expiration, extension, renewal, modification or
amendment, whichever first occurs.
(4) Funds or letters of credit provided by a noninsurer
parent corporation of the ceding insurer, in lieu of the funds
to be withheld by the ceding insurer under a reinsurance
contract with such assuming insurer as security for payment of
obligations thereunder, if the following requirements are met:
(i) The funds or letters of credit are held subject to
withdrawal by and under the control of the ceding insurer.
(ii) The type, amount and form of the funds or letters of
credit receive the prior approval of the Insurance Commissioner.
(5) Any other form of security acceptable to the Insurance
Commissioner.
(c) No credit shall be allowed as an admitted asset or as a
deduction from liability, to any ceding company for reinsurance
unless the reinsurance is payable to such company or its
20120HB2437PN3731 - 3 -
statutory liquidator by the assuming company on the basis of the
liability of the ceding company under contract or contracts
reinsured without diminution because of insolvency of the ceding
company.
(d) No such credit shall be allowed for reinsurance unless
the reinsurance agreement provides that payment by the company
shall be made directly to the ceding company or to its
liquidator, receiver, or statutory successor.
(e) No credit shall be allowed as an admitted asset or as a
reduction in liability if the gross reserves established by the
ceding insurer do not include provision for the policy benefits
against which the ceding insurer is being indemnified by the
reinsurer.
(f) Notwithstanding the provisions of this section, the
Insurance Department may promulgate one or more regulations to
limit, prohibit or authorize the credit which a domestic insurer
may take as an admitted asset or as a reduction in liability
with respect to reinsurance ceded on any financial statements
filed with the Insurance Department.
(f.1) Credit for reinsurance ceded to a certified insurer is
allowed only for reinsurance contracts entered into or renewed
on or after the effective date of the certification of the
assuming insurer by the Insurance Commissioner.
(g) (1) The term "qualified United States financial
institution" when used in this section means an institution
which meets the following qualifications:
(i) Is organized or, in the case of a United States office
of a foreign banking organization, licensed under the laws of
the United States or any state thereof.
(ii) Is regulated, supervised and examined by United States
20120HB2437PN3731 - 4 -
Federal or state authorities having regulatory authority over
banks and trust companies.
(iii) Has been determined by either the Insurance
Commissioner or the Securities Valuation Office of the National
Association of Insurance Commissioners or a successor thereto to
meet such standards of financial condition and standing as are
considered necessary and appropriate to regulate the quality of
financial institutions whose letters of credit will be
acceptable to the Insurance Commissioner.
(2) The term "qualified United States financial institution"
also means, for the purposes of the provisions of this act
specifying those institutions that are eligible to act as a
fiduciary of a trust, an institution that meets the following
qualifications:
(i) Is organized or, in the case of a United States branch
or agency office of a foreign banking organization, licensed
under the laws of the United States or any state thereof and has
been granted authority to operate with fiduciary powers.
(ii) Is regulated, supervised and examined by Federal or
state authorities having regulatory authority over banks and
trust companies.
Section 2. This act shall take effect immediately. <--
Section 1.1. The definitions of "control" and "NAIC" in <--
section 1401 of the act, added December 18, 1992 (P.L.1519,
No.178), are amended and the section is amended by adding
definitions to read:
Section 1401. Definitions.--As used in this article, and for
the purposes of this article only, the following words and
phrases shall have the meanings given to them in this section:
* * *
20120HB2437PN3731 - 5 -
"Company action level event." As defined in section 501-A or
501-B of the act of May 17, 1921 (P.L.789, No.285), known as
"The Insurance Department Act of 1921."
"Control," "controlling," "controlled by" and "under common
control with." The possession, direct or indirect, of the power
to direct or cause the direction of the management and policies
of a person, whether through the ownership of voting securities,
by contract other than a commercial contract for goods or
nonmanagement services or otherwise, unless the power is the
result of an official position with or corporate office held by
the person. Control shall be presumed to exist if any person,
directly or indirectly, owns, controls, holds with the power to
vote or holds proxies representing ten per centum (10%) or more
of the [voting securities of any other person] votes that all
shareholders would be entitled to cast in the election of
directors. This presumption may be rebutted by a showing that
control does not exist in fact. The Insurance Department may
determine, after furnishing all persons in interest notice and
opportunity to be heard and making specific findings of fact to
support such determination, that control exists in fact,
notwithstanding the absence of a presumption to that effect or
that another person has control.
* * *
"Enterprise risk." An activity, circumstance, event or
series of events involving one or more affiliates of an insurer
that, if not remedied promptly, would likely have a material
adverse effect on the financial condition or liquidity of an
insurer or its insurance holding company system, including, but
not limited to, anything that would:
(1) trigger a company action level event for the insurer or
20120HB2437PN3731 - 6 -
(2) cause the insurer to be deemed to be in hazardous
financial condition under:
(i) Article V of the act of May 17, 1921 (P.L.789, No.285),
known as "The Insurance Department Act of 1921."
(ii) 31 Pa. Code Ch. 160 (relating to standards to define
insurers deemed to be in hazardous financial condition).
"IAIS." The International Association of Insurance
Supervisors or successor organization.
* * *
"NAIC." The National Association of Insurance Commissioners
or successor organization.
* * *
"SEC." The Securities and Exchange Commission of the United
States.
* * *
Section 2. Section 1402(a)(2), (b)(12), (f)(3), (h) and (j)
of the act, amended July 9, 2008 (P.L.885, No.62), are amended
and subsections (a), (b) and (f) are amended by adding
paragraphs to read:
Section 1402. Acquisition of Control of or Merger or
Consolidation with Domestic Insurer.--(a) * * *
(2) [For purposes of this section, a "domestic insurer"
shall include any person controlling a domestic insurer unless
such person as determined by the department is either directly
or through its affiliates primarily engaged in business other
than the business of insurance. Such person shall, however, file
a preacquisition notification with the department containing the
information set forth in section 1403(c)(2) thirty (30) days
prior to the proposed effective date of the acquisition. Failure
to file is subject to section 1403(e)(3). For purposes of this
20120HB2437PN3731 - 7 -
section, "person" shall not include any securities broker
holding, in the usual and customary manner, less than twenty per
centum (20%) of the voting securities of an insurance company or
of any person which controls an insurance company.] For purposes
of this section:
(i) "Domestic insurer" includes a person controlling a
domestic insurer unless the department determines that the
person is primarily engaged in business other than the business
of insurance either directly or through its affiliates.
(ii) "Person" does not include a securities broker who
holds, in the usual and customary manner, less than twenty per
centum (20%) of the voting securities of an insurer or of a
person that controls an insurer.
(3) A controlling person of a domestic insurer seeking to
divest its controlling interest in the insurer in any manner
shall file with the department, with a copy to the insurer, a
notice of the proposed divestiture at least thirty (30) days
prior to the cessation of control except that notice under this
paragraph is not required if a statement is filed under
paragraph (1). The notice must contain information sufficient
for the department to determine if the proposed divestiture
requires filing and approval under paragraph (1). Information
obtained by or disclosed to the department under this paragraph
shall be given confidential treatment as provided under section
1407.
(4) The acquiring person for transactions subject to this
section must file a preacquisition notification as required
under section 1403(c) or be subject to a penalty as provided
under section 1403(e)(3).
(5) A person seeking to rebut the presumption of control
20120HB2437PN3731 - 8 -
under this article shall file with the department, with a copy
to the insurer, a rebuttal filing containing information
sufficient for the department to determine whether control
exists in fact. The filing is not effective unless the
department finds that control does not exist or accepts a
disclaimer of control. Information obtained by or disclosed to
the department under this subsection must be given confidential
treatment as provided under section 1407.
(b) The statement to be filed with the department under this
section shall be made under oath or affirmation and shall
contain the following information:
* * *
(11.1) An agreement by the person required to file the
statement referred to in subsection (a) that it will provide the
annual enterprise risk report specified in section 1404(k.1) as
long as control exists.
(11.2) An acknowledgment by the person required to file the
statement referred to in subsection (a) that the person and the
subsidiaries within its control in the insurance holding company
system will provide information to the commissioner upon request
as necessary to evaluate enterprise risk to the insurer.
(12) Such additional information as the department may by
[rule or] regulation prescribe as necessary or appropriate for
the protection of policyholders of the insurer or in the public
interest.
* * *
(f) * * *
(2.1) If the proposed acquisition of control requires the
approval of more than one chief insurance regulatory official,
the public hearing under paragraph (2) may be held on a
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consolidated basis upon request of the person filing the
statement under subsection (a). He shall file the statement
under subsection (a) with the NAIC within five (5) days of
making the request for a public hearing. A chief insurance
regulatory official may opt out of a consolidated hearing, and
shall provide notice to the applicant of the decision to opt out
within ten (10) days of the receipt of the statement under
subsection (a). A hearing conducted on a consolidated basis must
be public and held in the United States before the chief
insurance regulatory officials of the states in which the
insurers are domiciled. The chief insurance regulatory officials
shall hear and receive evidence. A chief insurance regulatory
official may attend the hearing in person or participate using
telecommunication.
(3) The department may retain at the acquiring [person's]
party's expense any attorneys, actuaries, accountants and other
experts not otherwise a part of the department's staff as may be
reasonably necessary to assist the department in reviewing the
proposed acquisition of control.
* * *
(h) The following shall constitute a violation of this
section:
(1) the failure to file any statement, amendment or other
material required to be filed pursuant to subsection (a) or (b);
(2) the effectuation or any attempt to effectuate an
acquisition of control of or divestiture of or merger or
consolidation with a domestic insurer unless the department has
given its approval thereto; or
(3) a violation of section 819-A.
* * *
20120HB2437PN3731 - 10 -
(j) [As used in this section, the term "annual statement"
shall mean the annual report of the financial condition required
to be filed under 40 Pa.C.S. § 6331 (relating to reports and
examinations)] (Reserved).
Section 3. Section 1403(b)(2)(ii) and (vii) of the act,
amended July 9, 2008 (P.L.885, No.62), are amended to read:
Section 1403. Acquisitions Involving Insurers not Otherwise
Covered.--* * *
(b) * * *
(2) This section shall not apply to any of the following:
* * *
(ii) A purchase of securities solely for investment purposes
so long as such securities are not used by voting or otherwise
to cause or attempt to cause the substantial lessening of
competition in any insurance market in this Commonwealth. If a
purchase of securities results in a presumption of control as
described in the definition of "control" in section 1401, it is
not solely for investment purposes unless the [insurance
department of the insurer's state of] chief insurance regulatory
official in the jurisdiction of the insurer's domicile accepts a
disclaimer of control or affirmatively finds that control does
not exist and such disclaimer action or affirmative finding is
communicated by the domiciliary insurance [department to the
Insurance Department of the Commonwealth] regulator to the
department.
* * *
(vii) An acquisition of an insurer whose domiciliary
insurance [department] regulator affirmatively finds that such
insurer is in failing condition; there is a lack of feasible
alternative to improving such condition; the public benefits of
20120HB2437PN3731 - 11 -
improving such insurer's condition through the acquisition
exceed the public benefits that would arise from not lessening
competition; and such findings are communicated by the
domiciliary insurance [department to the Insurance Department of
the Commonwealth] regulator to the department.
* * *
Section 4. Section 1404(a)(2), (b) introductory paragraph,
(d), (j), (k) and (l) of the act, added December 18, 1992
(P.L.1519, No.178), are amended, subsection (b) is amended by
adding paragraphs and the section is amended by adding a
subsection to read:
Section 1404. Registration of Insurers.--(a) * * *
(2) Any insurer which is subject to registration under this
section shall register within fifteen (15) days after it becomes
subject to registration, and annually thereafter by the thirty-
first day of March of each year for the previous calendar year,
unless the department for good cause shown extends the time for
registration, and then within such extended time. The department
may require any insurer authorized to do business in this
Commonwealth which is a member of [a] an insurance holding
company system and which is not subject to registration under
this section to furnish a copy of the registration statement,
the summary specified in subsection (c) or other information
filed by such insurance company with the insurance regulatory
authority of its domiciliary jurisdiction.
(b) Every insurer subject to registration shall file the
registration statement with the department on a form and in a
format prescribed by the NAIC, which shall contain all of the
following current information:
* * *
20120HB2437PN3731 - 12 -
(4.1) If requested by the department, the insurer shall
include financial statements of an insurance holding company
system, including its affiliates. Financial statements may
include, but are not limited to:
(i) annual audited financial statements filed with the SEC
under the Securities Exchange Act of 1933 (48 Stat. 74, 15
U.S.C. § 77a et seq.); or
(ii) the Securities Exchange Act of 1934 (48 Stat. 881, 15
U.S.C. § 78a et seq.).
An insurer required to file financial statements under this
paragraph may satisfy the request by providing the department
with the most recent parent corporation financial statements
filed with the SEC.
(4.2) Statements that the insurer's board of directors
oversees corporate governance and internal controls and that the
insurer's officers or senior management have approved,
implemented and continue to maintain and monitor corporate
governance and internal control procedures.
* * *
(6) Other necessary or appropriate information as required
by the department by regulation.
* * *
(d) No information need be disclosed on the registration
statement filed pursuant to subsection (b) if such information
is not material for the purposes of this section. Unless the
department by [rule,] regulation or order provides otherwise,
sales, purchases, exchanges, loans or extensions of credit,
investments or guarantees involving one-half of one per centum
(0.5%) or less of an insurer's admitted assets as of the thirty-
first day of December next preceding shall not be deemed
20120HB2437PN3731 - 13 -
material for purposes of this section.
* * *
(j) The provisions of this section shall not apply to any
insurer, information or transaction if and to the extent that
the department by [rule,] regulation or order shall exempt the
same from the provisions of this section.
(k) Any person may file with the department a disclaimer of
affiliation with any authorized insurer or such a disclaimer may
be filed by such insurer or any member of an insurance holding
company system. The disclaimer shall fully disclose all material
relationships and bases for affiliation between such person and
such insurer as well as the basis for disclaiming such
affiliation. [After a disclaimer has been filed, the insurer
shall be relieved of any duty to register or report under this
section which may arise out of the insurer's relationship with
such person unless and until the department disallows such a
disclaimer. The department shall disallow such a disclaimer only
after furnishing all parties in interest with notice and
opportunity to be heard and after making specific findings of
fact to support such disallowance] A disclaimer of affiliation
is deemed granted unless the department notifies the filing
party the disclaimer is disallowed within thirty (30) days
following receipt of a complete disclaimer. In the event of
disallowance, the disclaiming party may request an
administrative hearing under the provisions of 2 Pa.C.S.
(relating to administrative law and procedure), which must be
granted. If the commissioner approves the disclaimer or if the
disclaimer is deemed approved, the disclaiming party is relieved
of the duty to register under this section.
(k.1) The ultimate controlling person of every insurer
20120HB2437PN3731 - 14 -
subject to registration shall also file an annual enterprise
risk report. The report must, to the best of the ultimate
controlling person's knowledge and belief, identify the material
risks within the insurance holding company system that could
pose enterprise risk to the insurer. The report must be filed
with the lead state regulator of the insurance holding company
system as determined by the procedures within the Financial
Analysis Handbook adopted by the NAIC. Beginning in 2014 and
every year thereafter, the report shall be filed by March 31 for
the previous calendar year.
(l) The failure to file a registration statement [or], any
summary of the registration statement [thereto] or enterprise
risk report required by this section within the time specified
for such filing shall be a violation of this section.
Section 5. Section 1405(a)(1), (2) and (3), (b)(1) and (c)
(5) of the act, amended February 17, 1994 (P.L.92, No.9),
December 20, 2000 (P.L.967, No.132) and July 9, 2008 (P.L.885,
No.62), are amended and subsection (a) is amended by adding a
paragraph to read:
Section 1405. Standards and Management of an Insurer within
[a] an Insurance Holding Company System.--(a) (1) Transactions
within [a] an insurance holding company system to which an
insurer subject to registration is a party shall be subject to
all of the following standards:
(i) The terms shall be fair and reasonable.
(ii) Charges or fees for services performed shall be
reasonable.
(iii) Expenses incurred and payment received shall be
allocated to the insurer in conformity with customary insurance
accounting practices consistently applied and all cost-sharing
20120HB2437PN3731 - 15 -
or expense allocation arrangements must be formalized in writing
and authorized by the board of directors of the domestic
insurer.
(iv) The books, accounts and records of each party to all
such transactions shall be so maintained as to clearly and
accurately disclose the 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.
(v) The insurer's surplus as regards policyholders after any
material transaction with an affiliate and after 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 insurance holding company system,
including an amendment or modification of affiliate agreements
previously filed under this section that are subject to
materiality standards contained in subparagraphs (i), (ii),
(iii), (iv) and (v), may not be entered into unless the insurer
has notified the department in writing of its intention to enter
into such transaction at least thirty (30) days prior thereto or
such shorter period as the department may permit and the
department has not disapproved it within such period:
(i) Sales, purchases, exchanges, loans or extensions of
credit, guarantees, investments, pledges of assets or assets to
be received by the domestic insurer as contributions to its
surplus, provided that, as of the thirty-first day of December
next preceding, such transactions are equal to or exceed the
lesser of [five per centum (5%)] three per centum (3%) of the
20120HB2437PN3731 - 16 -
insurer's admitted assets or twenty-five per centum (25%) of
surplus as regards policyholders.
(ii) Loans or extensions of credit to any person who is not
an affiliate, where the insurer 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 insurer
making such loans or extensions of credit provided that, as of
the thirty-first day of December next preceding, such
transactions are equal to or exceed the lesser of [five per
centum (5%)] three per centum (3%) of the insurer's admitted
assets or twenty-five per centum (25%) of surplus as regards
policyholders.
(iii) Reinsurance agreements or modifications thereto [where
either], including:
(A) [the reinsurance premium] agreements where the
reinsurance premium or the projected reinsurance premium in any
of the next three twelve-month periods equals or exceeds five
per centum (5%) of the insurer's surplus as regards
policyholders as of the thirty-first day of December next
preceding; [or]
(B) agreements where the change in the insurer's liabilities
or any transfer of assets required to fund the transaction in
any of the next three twelve-month periods equals or exceeds
twenty-five per centum (25%) 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
20120HB2437PN3731 - 17 -
the insurer and nonaffiliate that any portion of such assets
will be transferred to one or more affiliates of the insurer.
Nothing in this paragraph shall affect or limit the requirements
and applicability of section 3 of the act of July 31, 1968
(P.L.941, No.288), entitled "An act providing for reporting to
the Insurance Commissioner by domestic insurance companies,
associations, or exchanges, of certain conveyances of interests
in the assets of such companies, associations, or exchanges[.]";
or
(C) reinsurance pooling agreements.
(iv) Any material transactions, specified by regulation,
which the department determines may adversely affect the
interests of the insurer's policyholders.
(v) Management agreements, service contracts, tax allocation
agreements, guarantees and cost-sharing arrangements.
The notice for amendments or modifications must include the
reasons for the change and the financial impact on the domestic
insurer.
Nothing in this paragraph 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.
(2.1) Within thirty (30) days after termination of an
agreement previously filed in accordance with paragraph (2), a
domestic insurer shall provide notice of the termination to the
department.
(3) A domestic insurer may not enter into transactions which
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
20120HB2437PN3731 - 18 -
amount and thus avoid the review that would occur otherwise. If
the department determines that such separate transactions were
entered into over any twelve-month period for such purpose, it
may exercise its authority under section 1410.
* * *
(b) (1) No domestic insurer shall pay any extraordinary
dividend to its [stockholders] shareholders until:
(i) thirty (30) days after the commissioner has received
written notice from the insurer of the declaration of the
dividend and has not within such period disapproved the payment;
or
(ii) the commissioner shall have approved the payment within
such thirty-day period.
* * *
(c) * * *
(5) The provisions of paragraphs (3), (4) and (4.1) shall
not apply to a domestic insurer if the person controlling such
insurer is an insurer [or another business entity], an attorney
in fact for a reciprocal exchange, a mutual insurance holding
company or a publicly held corporation having a board of
directors and committees thereof which already meet the
requirements of paragraphs (3), (4) and (4.1).
* * *
Section 6. Section 1406 of the act, added December 18, 1992
(P.L.1519, No.178), is amended to read:
Section 1406. Examination.--(a) Subject to the limitation
contained in this section and in addition to the powers which
the department has under law relating to the examination of
insurers, the department shall also have the power to [order any
insurer registered under section 1404 to produce such records,
20120HB2437PN3731 - 19 -
books or other information papers in the possession of the
insurer or its affiliates as are reasonably necessary to
ascertain the financial condition of such insurer or to
determine compliance with this article. In the event an insurer
fails to comply with such order, the department shall have the
power to examine affiliates to obtain this information.] examine
an insurer registered under section 1404 and its affiliates to
ascertain the financial condition of the insurer, including the
enterprise risk to the insurer by:
(1) the ultimate controlling person;
(2) an entity or combination of entities within the
insurance holding company system; or
(3) the insurance holding company system on a consolidated
basis.
(a.1) The department may order an insurer registered under
section 1404 to produce records, books or other information
papers in the possession of the insurer or its affiliates as are
reasonably necessary to ascertain the financial condition of the
insurer or to determine compliance with this article.
(a.2) To ascertain the financial condition of the insurer,
including the enterprise risk to the insurer by:
(1) the ultimate controlling person;
(2) an entity or combination of entities within the
insurance holding company system; or
(3) the insurance holding company system on a consolidated
basis,
the department may order an insurer registered under section
1404 to produce information not in the possession of the insurer
if the insurer can obtain access to the information under a
contractual relationship, a statutory obligation or other
20120HB2437PN3731 - 20 -
method. If the insurer may not obtain the information requested
by the department, the insurer shall provide the department a
detailed explanation of the reason the insurer may not obtain
the information and the identity of the holder of information.
If the insurer fails to comply with this subsection or the
department determines that the detailed explanation is without
merit, the department may suspend or revoke the insurer's
license or require the insurer to pay an administrative penalty
of one thousand dollars ($1,000) per day until the information
is produced. The proceeding for suspension, revocation or
imposition of a penalty shall be conducted pursuant to 2 Pa.C.S.
(relating to administrative law and procedure).
(b) The department may retain at the registered insurer's
expense such attorneys, actuaries, accountants and other experts
not otherwise a part of the department's staff as shall be
reasonably necessary to assist in the conduct of the examination
under [subsection (a)] subsections (a), (a.1) and (a.2). Any
persons so retained shall be under the direction and control of
the [commissioner] department and shall act in a purely advisory
capacity.
(c) Each registered insurer producing for examination
records, books and papers pursuant to [subsection (a)]
subsections (a), (a.1) and (a.2) shall be liable for and shall
pay the expense of such examination as provided for in Article
IX of the act of May 17, 1921 (P.L.789, No.285), known as "The
Insurance Department Act of one thousand nine hundred and
twenty-one."
(d) If the insurer fails to comply with an order issued
under this section, the department has the power to examine the
insurer's affiliates to obtain the information necessary to
20120HB2437PN3731 - 21 -
determine an insurer's compliance with this section. The
department also has the power to:
(1) issue subpoenas;
(2) administer oaths; and
(3) examine under oath any person as to any matter pertinent
to determining compliance with this section.
Upon the failure or refusal of a person to obey a subpoena, the
department may petition a court of competent jurisdiction and,
upon proper showing, the court may enter an order compelling the
witness to appear and testify or produce documentary evidence.
Failure to obey the court order shall be punishable as contempt
of court. When subpoenaed, a person shall attend as a witness at
the place specified in the subpoena. Witnesses shall be paid the
same fees and mileage as are paid to witnesses in the courts of
this Commonwealth. Fees, mileage and expense necessarily
incurred in securing the attendance and testimony of witnesses
shall be itemized, charged against and paid by the person being
examined.
Section 7. The act is amended by adding sections to read:
Section 1406.1. Supervisory Colleges.--(a) A supervisory
college may be convened as a temporary or permanent forum for
communication and cooperation between the regulators charged
with the supervision of the insurer or its affiliates.
(b) The department may participate in a supervisory college
with other regulators charged with supervision of the insurer or
its affiliates, including international, Federal and other state
regulatory agencies, for any of the following reasons:
(1) To assess the enterprise risk, business strategy, legal,
regulatory and financial position, risk exposure, risk
management and governance processes of the insurer or its
20120HB2437PN3731 - 22 -
affiliates.
(2) As part of the examination of individual insurers in
accordance with section 1406.
(c) The department shall have the power to participate in a
supervisory college for a domestic insurer, registered under
section 1404, that is part of an insurance holding company
system with international operations in order to determine
compliance by the insurer with this article.
(d) The powers of the department regarding supervisory
colleges include, but are not limited to, the following:
(1) Initiating the establishment of a supervisory college.
(2) Clarifying the membership and participation of other
supervisors in the supervisory college.
(3) Clarifying the functions of the supervisory college and
the role of other regulators, including the establishment of a
group supervisor.
(4) Coordinating the ongoing activities of the supervisory
college, including planning meetings, supervisory activities and
processes for information sharing.
(5) Establishing a crisis management plan.
(e) The department may enter into agreements in accordance
with sections 1406.2, 1407 and Article II-A of the act of May
17, 1921 (P.L.789, No.285), known as "The Insurance Department
Act of 1921," to provide the basis for sharing information
between the department and other regulatory agencies. The
department may also enter into agreements to share information
and further coordinate the activities of the supervisory college
pursuant to this section. Nothing in this section shall delegate
to the supervisory college the authority of the department to
regulate or supervise the insurer or its affiliates within its
20120HB2437PN3731 - 23 -
jurisdiction.
(f) A registered insurer subject to this section shall be
liable for and shall pay the reasonable expenses of the
department's participation in a supervisory college, including
reasonable travel expenses.
Section 1406.2. Group-wide Supervision for International
Insurance Groups.--(a) (Reserved).
(b) The department is authorized to act as the group-wide
supervisor for any international insurance group where the
international insurance group's ultimate controlling person is
domiciled in Pennsylvania. However, the department may otherwise
acknowledge another jurisdiction as the group-wide supervisor
where the international insurance group:
(1) Does not have substantial insurance operations in the
United States.
(2) Has substantial insurance operations in the United
States, but not in Pennsylvania.
(3) Has substantial insurance operations in the United
States and Pennsylvania, but the department has determined
pursuant to the factors set forth in subsections (c)(1), (2),
(3), (4), (5), (6) and (7) and (f) that the other jurisdiction
is the appropriate group supervisor.
(c) In cooperation with other supervisors, the department
may determine that it is the appropriate group-wide supervisor
for an international insurance group with substantial operations
concentrated in Pennsylvania or in insurance operations
conducted by subsidiary insurance companies domiciled in
Pennsylvania, where the ultimate controlling person is domiciled
outside Pennsylvania, or it may acknowledge that another chief
insurance regulatory official is the appropriate group-wide
20120HB2437PN3731 - 24 -
supervisor for the international insurance group. The department
shall consider the following factors and the relative scale of
each when making a determination or acknowledgment under this
subsection:
(1) The location where the international insurance group is
based or the place of domicile of the ultimate controlling
person of the international insurance group.
(2) The locations of the international insurance group's
executive offices.
(3) The locations of origin of the insurance business of the
international insurance group.
(4) The locations of the assets and liabilities of the
international insurance group.
(5) The locations of the business operations and activities
of the international insurance group.
(6) Whether another chief insurance regulatory official is
acting or seeking to act as the lead group-wide supervisor under
a regulatory system that the department determines to be:
(i) substantially similar to that provided under the laws of
this Commonwealth; or
(ii) otherwise sufficient in terms of provision of group-
wide supervision, enterprise risk analysis and cooperation with
other chief regulatory officials.
(7) Whether a chief insurance regulatory official acting or
seeking to act as the lead group-wide supervisor provides the
department with reasonably reciprocal recognition and
cooperation.
(d) Pursuant to section 1406, the department is authorized
to collect from any insurer registered pursuant to section 1404
all information necessary to determine whether the department
20120HB2437PN3731 - 25 -
may act as the group-wide supervisor or if the department may
acknowledge another insurance regulatory official to act as the
group-wide supervisor. Prior to issuing a determination that an
international insurance group is subject to group-wide
supervision by the department, the department shall notify the
insurer registered pursuant to section 1404 and the ultimate
controlling person within the international insurance group. The
international insurance group shall have not less than thirty
(30) days to provide the department with additional information
pertinent to the pending determination. The department shall
publish in the Pennsylvania Bulletin and on its Internet website
the identity of international insurance groups that it has
determined are subject to its group-wide supervision.
(e) If the department is the group-wide supervisor for an
international insurance group, the department is authorized to
engage in conducting and coordinating any of the following
group-wide supervision activities:
(1) Assess the enterprise risks within the international
insurance group, pursuant to section 1406, to ensure that:
(i) The material financial condition and liquidity risks to
the members of the international insurance group which are
engaged in the business of insurance are identified by
management.
(ii) Reasonable and effective mitigation measures are in
place.
(2) Request, from any member of an international insurance
group subject to the department's supervision, information
necessary and appropriate to assess enterprise risk, including,
but not limited to, information about the members of the
international insurance group regarding:
20120HB2437PN3731 - 26 -
(i) Governance, risk assessment and management.
(ii) Capital adequacy.
(iii) Material intercompany transactions.
(3) Compel development and implementation of reasonable
measures designed to assure that the international insurance
group is able to timely recognize and mitigate material risks to
members that are engaged in the business of insurance.
(4) Communicate with other insurance regulatory officials
for members within the international insurance group and share
relevant information subject to the confidentiality provisions
of section 1407, through supervisory colleges as set forth in
section 1406.1 or otherwise.
(5) Enter into agreements with or obtain documentation from
any insurer registered under section 1404, any member of the
international insurance group and any other chief insurance
regulatory officials for members, providing the basis for or
otherwise clarifying the department's role as group supervisor,
including provisions for resolving disputes with other relevant
supervisory authorities. Such agreements or documentation shall
not serve as evidence in any proceeding that any insurer or
person within an insurance holding company system not
incorporated in this Commonwealth is doing business in this
Commonwealth or is otherwise subject to jurisdiction in this
Commonwealth.
(6) Other group-wide supervisory activities as considered
appropriate by the department.
(f) If the department acknowledges that a regulatory
official from a jurisdiction which is not accredited by the NAIC
is the group-wide supervisor, the department is authorized to
reasonably cooperate, through supervisory colleges or otherwise,
20120HB2437PN3731 - 27 -
with group supervision undertaken by the group-wide supervisor,
provided that:
(1) The department's cooperation is in compliance with the
laws of this Commonwealth.
(2) The regulator also recognizes and cooperates with the
department's activities as a group-wide supervisor for other
international insurance groups where applicable. Where such
recognition and cooperation is not reasonably reciprocal, the
department is authorized to refuse recognition and cooperation.
(g) The department is authorized to enter into agreements
with or obtain documentation from any insurer registered under
section 1404, any affiliate of the insurer and other regulatory
officials for members of the insurance group, which provide the
basis for or otherwise clarify a regulatory official's role as
group supervisor.
(h) The department may promulgate regulations necessary for
the administration of this section. In determining whether a
regulation should be promulgated, the department shall give due
consideration to model laws, model regulations and definitions
or guidelines pertaining to group-wide supervision, if any,
promulgated by the NAIC or other recognized insurance regulatory
bodies or associations.
(i) A registered insurer subject to this section shall be
liable for and shall pay the reasonable expenses of the
department's participation in the administration of this
section, including the engagement of attorneys, actuaries and
any other professionals and all reasonable travel expenses.
(j) As used in this section, the following words and phrases
shall have the meanings given to them in this subsection unless
the context clearly indicates otherwise:
20120HB2437PN3731 - 28 -
"Group-wide supervisor." The chief insurance regulatory
official authorized to engage in conducting and coordinating
group-wide supervision activities who is from the jurisdiction
determined or acknowledged by the department under subsection
(c) to have sufficient significant contacts with the
international insurance group.
"International insurance group." An insurance group
operating internationally that includes an insurer registered
under section 1404.
Section 8. Sections 1407, 1408 and 1409(a), (b) and (c) of
the act, added December 18, 1992 (P.L.1519, No.178), are amended
to read:
Section 1407. Confidential Treatment.--(a) All information,
documents, materials and copies thereof in the possession or
control of the department that are produced by, obtained by or
disclosed to the department or any other person in the course of
an examination or investigation made pursuant to section 1406 or
investigation made pursuant to section 1406.1 or 1406.2 and all
information reported pursuant to sections 1402(b)(11.1) and
(11.2), 1404 and 1405 shall be privileged and given confidential
treatment and shall not be:
(1) Subject to discovery or admissible in evidence in a
private civil action.
(2) [subject] Subject to subpoena [and shall not be].
(3) Subject to the act of February 14, 2008 (P.L.6, No.3),
known as the "Right-to-Know Law."
(4) [made] Made public by the department or any other
person, except to [insurance departments of other states,]
regulatory or law enforcement officials of other jurisdictions
or group supervisors or members of a supervisory college in
20120HB2437PN3731 - 29 -
accordance with subsection (c), without the prior written
consent of the insurer to which it pertains unless the
department, after giving the insurer and its affiliates who
would be affected thereby notice and opportunity to be heard,
determines that the interest of policyholders, shareholders or
the public will be served by the publication thereof, in which
event it may publish all or any part thereof in such manner as
[he] it may deem appropriate.
(b) The commissioner, department or any individual or person
who receives documents, materials or other information while
acting under the authority of the commissioner or department or
with whom such documents, materials or other information are
shared under this article shall not be permitted or required to
testify in any private civil action concerning any confidential
documents, materials or information covered under this section.
(c) In order to assist in the performance of its duties, the
department may do any of the following:
(1) Share confidential and privileged documents, materials
or other information covered under this section with regulatory
or law enforcement officials of this Commonwealth or other
jurisdictions, the IAIS, the NAIC and its affiliates and
subsidiaries, group supervisors and members of any supervisory
college under section 1406.1, provided that prior to receiving
the documents, materials or other information, the recipient
demonstrates by written statement the necessary authority and
intent to provide the same confidential treatment to the
information as required by this article. The department may only
share confidential and privileged documents, materials or
information reported under section 1404(k.1) with state
insurance regulators having statutes or regulations
20120HB2437PN3731 - 30 -
substantially similar to subsection (a) and who have agreed in
writing not to disclose such information.
(2) Receive and maintain as confidential any documents,
materials or other information from the IAIS or the NAIC and its
affiliates and subsidiaries or from regulatory and law
enforcement officials of this Commonwealth or other
jurisdictions in which the documents, materials or other
information are confidential by law in those jurisdictions.
Documents, materials or other information obtained under this
section shall be given confidential treatment, may not be
subject to subpoena and may not be made public by the
department, commissioner or any other person.
(d) The department shall enter into written agreements with
the IAIS or the NAIC governing the sharing and use of
information provided under this article, that include all of the
following:
(1) Specific procedures and protocols regarding the
confidentiality and security of information shared with the IAIS
or the NAIC and its affiliates and subsidiaries under this
article, including procedures and protocols for sharing by the
IAIS or the NAIC with other Federal, state, or international
regulators.
(2) Provisions specifying that ownership of information
shared with the IAIS or the NAIC and its affiliates and
subsidiaries under this article remains with the department and
that the use of the information by the IAIS or the NAIC is
subject to the approval of the department.
(3) A provision providing that the IAIS or the NAIC and its
affiliates and subsidiaries will, where permitted by law, give
prompt notice to the department and the insurer regarding any
20120HB2437PN3731 - 31 -
subpoena, request for disclosure or request for production of
the insurer's confidential information in the possession of the
IAIS or the NAIC under this article.
(4) A requirement that the IAIS or the NAIC and its
affiliates and subsidiaries will consent to intervention by an
insurer in any judicial or administrative action in which the
IAIS or the NAIC and its affiliates and subsidiaries may be
required to disclose confidential information about the insurer
that was shared with the IAIS or the NAIC and its affiliates and
subsidiaries under this article.
(e) The sharing of information by the department under this
article shall not constitute a delegation of regulatory
authority or rulemaking.
(f) The department is solely responsible for the
administration, execution and enforcement of the provisions of
this article.
(g) The sharing of information by the department as
authorized by subsection (c) shall not constitute a waiver of
any applicable privilege or claim of confidentiality in the
documents, materials or information.
(h) Documents, materials or other information in the
possession or control of the IAIS or the NAIC as provided under
this article shall:
(1) Be confidential and privileged.
(2) Not be subject to the act of February 14, 2008 (P.L.6,
No.3), known as the "Right-to-Know Law."
(3) Not be subject to subpoena.
(4) Not be subject to discovery or admissible in evidence in
any private civil action.
Section 1408. [Rules and] Regulations.--The department may,
20120HB2437PN3731 - 32 -
in the manner provided by law, promulgate the [rules and]
regulations, and may issue such orders as are necessary to carry
out this article.
Section 1409. Injunctions and Certain Prohibitions.--(a)
Whenever it appears to the department that any insurer or any
director, officer, employe or agent thereof has committed or is
about to commit a violation of this article or of any [rule,]
regulation or order issued by the department hereunder, the
department may apply to the Commonwealth Court for an order
enjoining such insurer or such director, officer, employe or
agent thereof from violating or continuing to violate this
article or any such [rule,] regulation or order, and for such
other equitable relief as the nature of the case and the
interest of the insurer's policyholders, creditors and
shareholders or the public may require.
(b) No security which is the subject of any agreement or
arrangement regarding acquisition, or which is acquired or to be
acquired, in contravention of the provisions of this article or
of any [rule,] regulation or order issued by the department
hereunder may be voted at any shareholder's meeting, or may be
counted for quorum purposes, and any action of shareholders
requiring the affirmative vote of a percentage of shares may be
taken as though such securities were not issued and outstanding,
but no action taken at any such meeting shall be invalidated by
the voting of such securities unless the action would materially
affect control of the insurer or unless the courts of this
Commonwealth have so ordered. If an insurer or the department
has reason to believe that any security of the insurer has been
or is about to be acquired in contravention of the provisions of
this article or of any [rule,] regulation or order issued by the
20120HB2437PN3731 - 33 -
department hereunder, the insurer or the department may apply to
the Commonwealth Court to enjoin any offer, request, invitation,
agreement or acquisition made in contravention of section 1402,
or any [rule,] regulation or order issued by the department
thereunder to enjoin the voting of any security so acquired, to
void any vote of such security already cast at any meeting of
shareholders and for such other equitable relief as the nature
of the case and the interest of the insurer's policyholders,
creditors and shareholders or the public may require.
(c) In any case where a person has acquired or is proposing
to acquire any voting securities in violation of this article or
any [rule,] regulation or order issued by the department
hereunder, the Commonwealth Court may, on such notice as the
court deems appropriate, upon the application of the insurer or
the department seize or sequester any voting securities of the
insurer owned directly or indirectly by such person and issue
such order with respect thereto as may be appropriate to
effectuate the provisions of this article.
* * *
Section 9. Section 1410(a) of the act, added December 18,
1992 (P.L.1519, No.178), is amended and the section is amended
by adding a subsection to read:
Section 1410. Sanctions.--(a) [Any insurer failing, without
just cause,] A person failing to file any registration statement
or any summary of the registration statement or enterprise risk
report as required [in] by this article or by regulation shall
be required[, after notice and hearing,] to pay a penalty not to
exceed [five hundred ($500)] two hundred ($200) dollars for each
day's delay. The maximum penalty under this section is twenty-
five thousand ($25,000) dollars. [The department may reduce the
20120HB2437PN3731 - 34 -
penalty if the insurer demonstrates to the department that the
imposition of the penalty would constitute a financial hardship
to the insurer.]
* * *
(f) Whenever it appears to the department that a person has
committed a violation of this article that prevents the full
understanding of the enterprise risk to the insurer by
affiliates or by the insurance holding company system, the
violation may serve as an independent basis for disapproving
dividends or distributions and for placing the insurer under an
order of supervision in accordance with section 511 of the act
of act of May 17, 1921 (P.L.789, No.285), known as "The
Insurance Department Act of 1921."
Section 10. This act shall take effect as follows:
(1) The addition of section 1404(k.1) of the act shall
take effect on January 1, 2013.
(2) The following provisions shall take effect
immediately:
(i) This section.
(ii) The amendment of section 319.1 of the act.
(3) The remainder of this act shall take effect in 60
days.
20120HB2437PN3731 - 35 -