PA 15-144—SB 983
Insurance and Real Estate Committee
AN ACT CONCERNING THE INSURANCE DEPARTMENT'S FINANCIAL REGULATORY OVERSIGHT OF INSURANCE COMPANIES
SUMMARY: This act makes several changes in the insurance statutes. It:
1. requires the insurance commissioner, after completing a financial examination of an insurer, HMO, or similar entity, to give a final report of the examination to the entity's board of directors, who must review it;
2. allows the commissioner to extend the due date for insurers and HMOs to file their quarterly and annual financial statements under certain circumstances;
3. prohibits anyone from making public confidential examination workpapers and related information but allows the commissioner to disclose the information to other insurance regulatory officials, law enforcement officials, and government agencies that agree to keep it confidential;
4. specifies that the insurance regulatory official with principal oversight of a reinsurer's required trust may authorize a reduction in the required trusteed surplus;
5. expands the grounds under which the commissioner may determine someone to be in control of an insurance company under the holding company statutes;
6. expands the types of material transactions that a member company of a holding company system may enter into only with the commissioner's approval; and
7. allows the commissioner to order an HMO to turn over books and records necessary for her to conduct a financial examination of the company, which she is authorized by law to conduct, and requires the HMO to pay for the examination (§ 9).
EFFECTIVE DATE: July 1, 2015
§1 – FINAL FINANCIAL EXAMINATION REPORTS
The act establishes requirements concerning final financial examination reports. By law, the insurance commissioner may conduct financial examinations of insurers, HMOs, and similar entities doing business in Connecticut. Existing law sets a timeframe for the (1) commissioner to distribute draft reports to examined entities, (2) entities to reply, and (3) commissioner to prepare and adopt a final report.
The act requires the commissioner to provide the final, adopted examination report, or a summary of it, to the examined entity, along with any of her or the examiner's recommendations or written statements. It requires the entity's board of director's secretary to give a copy to each director and certify to the commissioner in writing that this has occurred.
The act also requires the examined entity's chief executive officer or chief financial officer, within 120 days after receiving the report or summary, to present it to the board of directors at a regular or special meeting.
§ 2 – DUE DATE FOR FINANCIAL STATEMENTS
The act allows the commissioner to extend the due date for the quarterly and annual financial statements insurers and HMOs must file with her. By law, an entity that files a statement after its due date must pay $175 for every day it is late.
The act allows the commissioner to extend a statement's due date (thus postponing or waiving the late fees):
1. if the entity cannot file the statement because the governor of its home state proclaimed a state of emergency that prevents the entity from filing it;
2. if the entity's home state insurance regulatory official has allowed the entity to file it late; or
3. for a domestic entity, for good cause shown.
§ 3 – FINANCIAL EXAMINATION WORKPAPER CONFIDENTIALITY
The act strengthens the confidentiality provisions relating to financial examination workpapers, financial analyses, and operating and financial condition reports concerning an insurer, HMO, or fraternal benefit society. Under prior law, these items were confidential unless (1) otherwise a matter of public record or (2) the commissioner deemed it in the public interest to make them publicly available.
The act instead makes these items confidential and not subject to subpoena. It prohibits anyone, including the commissioner, from making the items public but allows her to give the National Association of Insurance Commissioners (NAIC) access to them if the NAIC agrees in writing to keep them confidential.
It also allows the commissioner to share the items, their content, or any matter relating to them, with insurance regulatory officials, law enforcement officials, and federal government agencies if the recipient agrees in writing to keep the information confidential.
§ 4 – AUTHORIZING REDUCTIONS IN TRUSTEED ACCOUNTS
The law specifies an accounting procedure for insurers transferring all or part of their insurance or reinsurance risk written to another insurer or reinsurer. Under this procedure, the ceding insurer may treat amounts due from reinsurers as assets or reductions from liability based on the reinsurer's status. By law, a credit for reinsurance is allowed when the reinsurer maintains a trust in a qualified U. S. financial institution. In the case of a single reinsurer, the trust must cover at least the reinsurer's U. S. reinsurance liabilities and a surplus of at least $20 million; but the commissioner may, in certain circumstances, reduce the surplus amount for a trust over which she has principal regulatory oversight.
The act specifies that whoever the insurance regulatory official with principal oversight of a trust is, he or she may authorize a reduction in the trusteed surplus.
§§ 5 - 7 – DETERMINING CONTROL OF A COMPANY
The act expands the grounds under which the commissioner may find that a person has control over an insurance company.
The law grants the commissioner the authority to (1) supervise the activities of insurance companies doing business in Connecticut that are affiliated with an insurance holding company system (a group of affiliated companies), (2) review the acquisition of control over the management of domestic insurance companies, and (3) provide standards for the supervision and review.
By law, “control” generally means having, directly or indirectly, the power to direct the management of a company. Control is presumed to exist when a person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, 10% or more of the voting securities of another. This presumption may be rebutted by a showing that control does not in fact exist.
Under prior law, the commissioner could determine, after giving interested people notice and an opportunity to be heard, that control does in fact exist even if there was no presumption. The act instead allows her to determine, after notice and hearing, that a person, directly or indirectly, alone or under an oral or written agreement, arrangement, or understanding, exercises such influence over the management or policies of an insurance company that it is necessary or in the public's interest and for protection of the company's policyholders that the person be deemed to be in control of the company.
By law, no one may enter into an agreement to merge or take control of a domestic insurer unless certain conditions are met, including obtaining the commissioner's approval. The act also prohibits entering into arrangements or understandings to merge or take control unless the same conditions are met.
§ 8 – HOLDING COMPANY MATERIAL TRANSACTIONS
The law specifies requirements for transactions within an insurance holding company system. Certain specified material transactions may not be entered into without the commissioner's approval, including reinsurance agreements, management agreements, service contracts, and cost-sharing arrangements. The act also requires that tax allocation agreements be submitted for the commissioner's approval.
With respect to reinsurance agreements, the law requires all reinsurance agreements or modifications to be submitted to the commissioner for approval, including those in which the reinsurance premiums or change in the insurance company's liabilities equals or exceeds 5% of the company's surplus. The act expands this to include any agreements in which the projected reinsurance premium or projected change in the company's liabilities in any of the next three years equals or exceeds 5% of the company's surplus.
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