Insurance department act of 1921, the omnibus amendments




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INSURANCE DEPARTMENT ACT OF 1921, THE - OMNIBUS AMENDMENTS

Act of Dec. 18, 1992, P.L. 1519, No. 178

Cl. 40

Session of 1992

No. 1992-178

 

 

HB 1670



 

 

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 the purposes of incorporation, for capital stock, surplus, investments and other financial requirements, for reinsurance and for certain annual reports; providing for business transacted with broker-controlled property and casualty insurers and for insurance holding companies; implementing the Risk Retention Amendments of 1986; providing for regulation by the Insurance Department of risk retention groups and purchasing groups doing business in this Commonwealth; further providing for the taxation of risk retention groups and purchasing groups; providing for the regulation of the placing of insurance on risks located in this Commonwealth with insurers not licensed to transact insurance business in this Commonwealth; providing for a life and health insurance guaranty association; providing for certain fees and for civil and criminal penalties; and making repeals.

 

The General Assembly of the Commonwealth of Pennsylvania hereby enacts as follows:



Section 1.   Section 202 of the act of May 17, 1921 (P.L.682, No.284), known as The Insurance Company Law of 1921, is amended by adding a subsection to read:

Section 202.   Purposes for Which Companies May Be Incorporated; Underwriting Powers.--* * *



(h)   (1)   No domestic stock fire, stock marine, stock fire and marine, or stock casualty insurance company shall issue a policy containing an aggregate limit on any one risk in an amount exceeding ten per centum (10%) of its capital and surplus, unless it shall be protected in excess of that amount by reinsurance or collateral. This collateral may be in the form of:

(i)   Cash.

(ii)   Securities listed by the Securities Valuation Office of the National Association of Insurance Commissioners and qualifying as admitted assets.

(iii)   (A)   Clean, irrevocable, unconditional letters of credit and credit agreements issued or confirmed by a qualified United States financial institution 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 insurance company on or before the filing date of its annual statement.

(B)   Letters of credit agreements 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 collateral until their expiration, extension, renewal, modification or amendment, whichever first occurs.

(iv)   Any other form of collateral acceptable to the Insurance Commissioner.

(2)   The term "qualified Untied States financial institution" when used in this subsection 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 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 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.

Section 2.   Section 206(d) and (e) of the act, amended or added July 2, 1953 (P.L.331, No.74), November 27, 1968 (P.L.1118, No.349), July 9, 1976 (P.L.948, No.184) and June 19, 1981 (P.L.94, No.33), are amended to read:

Section 206.   Minimum Capital Stock and Financial Requirements To Do Business.--* * *

(d)   Companies organized under this act to insure lives on the mutual plan must have applications for insurance, to the amount of one million dollars ($1,000,000), by not less than four hundred persons. Companies organized under this act to insure lives on the mutual plan must also have a guarantee capital, before commencing business, of not less than [five hundred thousand dollars ($500,000)] two million dollars ($2,000,000) , and shall maintain unimpaired a policyholders' surplus of [two hundred fifty thousand dollars ($250,000)] one million dollars ($1,000,000) out of guarantee capital, surplus, or any combination thereof.

(e)   Mutual companies, other than mutual life companies and other than title insurance companies, [hereafter organized under this act, and existing mutual companies which determine to add] which seek a certificate of authority to transact a line or lines of insurance business shall comply with the following conditions:

(1)   Each such company shall hold bona fide applications for at least twenty (20) policies, to be issued promptly and simultaneously to at least twenty (20) policyholders or members upon not less than two hundred (200) separate risks, each within the maximum single risk described herein, upon the granting of the certificate of authority to do business.

(2)   The "maximum single risk" shall not exceed three times the average risk or one percentum (1%) of the total insurance applied for, whichever is the greater.

(3)   It shall have collected at least an annual cash premium upon each of such applications, which premium shall be held in cash [or securities in which such insurance companies are authorized to invest.] in an interest-bearing account established in the name of the insurance company at financial institutions located in this Commonwealth. In the case of companies organized for any of the purposes mentioned in paragraphs (1) or (2) or (3) of subdivision (b) of section two hundred two of this act, the [said cash premiums, together with any] sum or sums of money [which may be] advanced under section eight hundred nine of this act, shall amount to not less than twenty-five thousand dollars ($25,000) for the purpose mentioned in each numbered paragraph of subdivision (b). If organized for all of the purposes mentioned in paragraphs (1), (2) and (3) of subdivision (b) of section two hundred two of this act, the [said cash premiums, together with any] sum or sums of money [which may be] advanced under section eight hundred nine of this act[,] shall amount to not less than fifty thousand dollars ($50,000). In the case of companies organized for any one of the purposes mentioned in subdivision (c) of said section two hundred two, except paragraphs (1), (4), (11) and (14), the [said cash premiums collected, together with any] sum or sums of money advanced under the said section eight hundred nine[,] shall amount to not less than ten thousand dollars ($10,000) for the purpose mentioned in each numbered paragraph of said subdivision (c). In the case of companies authorized to issue non-assessable policies of insurance for the purposes mentioned in clause (11) or clause (14), subdivision (c) of section two hundred and two (202) of the act, the [said cash premiums collected, together with any] sum or sums of money advanced under the said section eight hundred nine[,] shall amount to not less than seven hundred fifty thousand dollars ($750,000). For the purpose mentioned in either numbered paragraph (1) or (4) of said subdivision (c), such amount shall be not less than twenty-five thousand dollars ($25,000): Provided, That in no event shall a company be organized for any of the purposes mentioned in said subdivision (c) unless the [amount collected as premiums, together with the] sum or sums of money advanced under said section eight hundred nine[,] shall amount to not less than fifty thousand dollars ($50,000); nor shall a company be organized for all of the purposes mentioned in said subdivision (c) except paragraph (11) or (14) unless the [cash premiums so collected and the] sum or sums of money so advanced shall amount to not less than three hundred fifty thousand dollars ($350,000).

(4)   In the case of companies hereafter organized [under this act] for the purposes mentioned in subdivisions (b) and (c) of section two hundred two of this act, each such company shall meet the requirements of paragraphs (1) and (2) of subdivision (e) of this section, and the required sum of [the cash premiums collected and] money advanced under said section eight hundred nine shall not be less than the aggregate of the sums required under paragraph (3) of subdivision (e) of this section for the purposes for which the company is to be incorporated.

(5)   For the purpose of transacting employer's liability and workmen's compensation insurance, the application shall cover not less than five thousand (5,000) employes, each such employe being considered a separate risk for determining the maximum single risk.

(6)   Each company writing non-assessable policies shall maintain unimpaired so much of its surplus as is equal to the minimum capital required for stock companies authorized to transact the same class or classes of insurance; each company writing assessable policies shall maintain unimpaired fifty per centum (50%) of its required surplus.

* * *


Section 3.   The act is amended by adding a section to read:

Section 206.2.   Additional Capital and Surplus.--(a)   In addition to the minimum capital and surplus required for an insurance company to qualify for authority to transact one or more of the classes of insurance set out in section 202 of this act, the Insurance Commissioner shall have the authority to require additional capital and surplus based upon the nature, type and volume of insurance a company is transacting or proposes to transact.

(b)   Whenever the Insurance Commissioner believes, from evidence satisfactory to him, that an insurance company has failed to meet the capital and surplus required by this section, the Insurance Commissioner may, in his discretion:

(1)   disapprove an insurance company's request for a certificate of authority, or amendment thereto; or

(2)   otherwise restrict, as provided by law, a company's authority to transact business within this Commonwealth.

Before the Insurance Commissioner shall take any action as above set forth, he shall give written notice to the company stating specifically the nature of the proposed action and within thirty (30) days from the date of mailing of such notice to the company, such company may make written application to the Insurance Commissioner for a hearing thereon, and such hearing shall be held within thirty (30) days after receipt of such application.

Section 4.   Section 319.1 of the act, added December 3, 1975 (P.L.474, No.139), is amended to read:



Section 319.1.   Reinsurance Credits.-- (a)   Unless an unlicensed reinsurer is qualified 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 reinsurers are those meeting the conditions for reinsurers specified by the commissioner, in his discretion, and included on a list of qualified 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 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 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 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.

[(a)   Reserve Credit for Liability Assumed.--] (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 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.

[(b)   Payment by the Assuming 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.

(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 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 5.   Section 320 of the act, amended June 20, 1947 (P.L.683, No.295), is amended to read:



Section 320.   Annual and Other Reports; Penalties.-- (a)   Every stock and mutual insurance company, association, and exchange, doing business in this Commonwealth, shall annually, on or before the first day of March, file in the office of the Insurance Commissioner and with the National Association of Insurance Commissioners a statement which shall exhibit its financial condition on the thirty-first day of December of the previous year, and its business of that year and shall, within thirty days after requested by the Insurance Commissioner, [render] file with the Insurance Commissioner and with the National Association of Insurance Commissioners such additional statement or statements concerning its affairs and financial condition as the Insurance Commissioner may, in his discretion, require. The Insurance Commissioner shall [furnish to each of the insurance companies, associations, and exchanges blanks, in such form as he may adopt, for their statement] require each insurance company association and exchange to report its financial condition on the annual statement convention blanks, in such form as adopted by the National Association of Insurance Commissioners and shall, upon written request, furnish such blanks for their convenience ; and [he] may make such changes, from time to time, in the form of the same as shall seem [to him] best adapted to elicit from them a true exhibit of their financial condition.

(b)   Insurance companies of foreign governments, doing business in this Commonwealth, shall be required to return only the business done in the United States, and the assets held by and for them within the United States for the protection of policyholders therein.

(c)   In the absence of actual malice, members of the National Association of Insurance Commissioners, their duly authorized committees, subcommittees and task forces, their delegates and employes and all others charged with the responsibility of collecting, reviewing, analyzing and disseminating the information developed from the filing of the annual statement convention blanks shall be acting as agents of the Insurance Commissioner under the authority of this act and shall not be subject to civil liability for libel, slander or any other cause of action by virtue of their collection, review and analysis or dissemination of the data and information collected from the filings required hereunder.

(d)   All financial analysis ratios and examination synopses concerning insurance companies that are submitted to the Insurance Department by the National Association of Insurance Commissioners' Insurance Regulatory Information System are confidential and may not be disclosed by the Insurance Department.

(e)   (1)   Any company, association, or exchange, which neglects to make and file its annual statement, or other statements that may be required, in the form or within the time herein provided shall forfeit a sum not to exceed [one hundred dollars ($100)] two hundred dollars ($200) for each day during which such neglect continues, and, upon notice by the commissioner, its authority to do new business shall cease while such default continues.

(2)   For wilfully making a false annual or other statement required by law, an insurance company, association or exchange, and the persons making oath to or subscribing the same, shall severally be punished by a fine of not less than [five hundred dollars ($500) nor more than five thousand dollars ($5,000)] one thousand dollars ($1,000) nor more than ten thousand dollars ($10,000) . A person who wilfully makes oath to such false statement shall be guilty of perjury.

(3)   The Insurance Commissioner may suspend, revoke or refuse to renew the certificate of authority of any insurer failing to file its annual statement when due.

Section 6.   Section 322(d) of the act, amended October 4, 1978 (P.L.1009, No.216), is amended to read:

Section 322.   Amendment of Charter.--* * *

(d)   A mutual insurance company, other than life or title, shall be permitted to amend its charter to include any or all of the kinds of insurance included in section 202, subdivisions (b) and (c), if its total assets less net liability for losses , for expenses and for unearned premium reserve [for those premiums received on nonassessable policies] are not less than the minimum [premiums] surplus specified in section 206 (e) for the incorporation of new companies, without the necessity of obtaining or of holding any application or of issuing any policy as specified in section 206 (e) for the incorporation of new companies.

* * *

Section 7.   The act is amended by adding a section to read:



Section 322.1.   Contributions to Surplus.--(a)   Any director, officer, person, corporation or other entity may advance to a domestic stock insurance company or mutual life insurance company, in exchange for a surplus note, any sum or sums of money necessary for the purpose of its business or to enable it to comply with any of the requirements of law. If, as a result of such advance, the director, officer, person, corporation or other entity is presumed to secure control, as that term is defined in Article XII of this act, the advance can only be made after the director, officer, person, corporation or other entity provides a filing to the Insurance Commissioner in accordance with the provisions of Article XII of this act.

(b)   The surplus note and interest thereon shall not be a liability or claim against the company or any of its assets, except as specified in this section. Payments of principal and/or interest can only be made from the unassigned surplus of the insurer and must be subordinated to payment of all other liabilities of the insurer. If unassigned surplus is insufficient and the insurer is unable to make payments of principal and/or interest in a given year, the interest earned for that year will be forfeited and cannot be paid in subsequent years unless the insurer establishes unpaid interest as a liability in each annual and quarterly statement filed with the Insurance Commissioner.

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