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| Home > Statutes > Usa Arizona |
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USA Statutes : arizona
Title : Insurance
Chapter : FINANCIAL PROVISIONS AND PROCEDURES
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20-501 Eligible assets
In any determination of the financial condition of an insurer, the department shall
allow only those assets that are owned by the insurer and that consist of:
1. Cash in the possession of the insurer, or in transit under its control,
including the true balance of any deposit in a solvent bank or trust company.
2. Investments, securities, properties and loans acquired or held in accordance
with this title, and the following related items:
(a) Interest due or accrued on any bond or evidence of indebtedness that is not in
default and that is not valued on a basis including accrued interest.
(b) Declared and unpaid dividends on stock and shares, unless the amount has
otherwise been allowed as an asset.
(c) Interest due or accrued on a collateral loan in an amount that is not more than
one year's interest.
(d) Interest due or accrued on deposits in solvent banks and trust companies, and
interest due or accrued on other assets, if the director determines that the interest is
a collectible asset.
(e) Interest due or accrued on a mortgage loan, in an amount that is not more than
the amount, if any, of the excess of the value of the property less delinquent taxes on
the property over the unpaid principal, but in no event shall interest accrued for a
period of more than one hundred eighty days be allowed as an asset.
(f) Rent due or accrued on real property if the rent is not in arrears for more
than three months, and rent more than three months in arrears if the payment of the rent
is adequately secured by property held in the name of the tenant and conveyed to the
insurer as collateral.
(g) The unaccrued portion of taxes paid before the due date on real property.
3. Premium notes, policy loans and other policy assets and liens on policies and
certificates of life insurance and annuity contracts and accrued interest, in an amount
that is not more than the legal reserve and other policy liabilities carried on each
individual policy.
4. For a life insurer, the net amount of uncollected and deferred premiums and
annuity considerations.
5. Premiums in the course of collection not more than three months past due, less
commissions payable on the premiums. Premiums payable directly or indirectly by the
United States or by any of its instrumentalities are not subject to the three months past
due limitation.
6. Installment premiums allowed pursuant to the accounting practices and procedures
manual adopted by the national association of insurance commissioners.
7. Notes and like written obligations not past due, taken for premiums other than
life insurance premiums on policies permitted to be issued on such basis, to the extent
of the unearned premium reserves carried on the policies.
8. The full amount of reinsurance that is recoverable by a ceding insurer from a
solvent reinsurer and that is authorized under section 20-261.
9. Amounts receivable by an assuming insurer representing funds withheld by a
solvent ceding insurer under a reinsurance treaty.
10. Deposits or equities recoverable from underwriting associations, syndicates and
reinsurance funds, or from any suspended banking institution, to the extent the director
deems those funds are available for the payment of losses and claims and at values
determined by the director.
11. Deferred tax assets as allowed pursuant to the accounting practices and
procedures manual adopted by the national association of insurance commissioners.
12. Electronic data processing equipment, including operating system software, net
of accumulated depreciation, that is necessary for use in the business of the insurer.
The insurer shall depreciate the equipment over a period of not more than three years.
The admitted value of the equipment shall not be more than the amount allowed pursuant to
the accounting practices and procedures manual adopted by the national association of
insurance commissioners.
13. Goodwill as allowed pursuant to the accounting practices and procedures manual
adopted by the national association of insurance commissioners.
14. Other assets that are not inconsistent with this section and that the director
deems are available for the payment of losses and claims, at values determined by the
director.
20-502 Assets as deductions from liabilities
Assets may be allowed as deductions from corresponding liabilities, and liabilities
may be charged as deductions from assets, and deductions from assets may be charged as
liabilities, in accordance with the form of annual statement applicable to such insurer
as prescribed by the director, or otherwise in his discretion.
20-503 Assets not allowed as deductions from liabilities
In addition to assets impliedly excluded by section 20-501, the department shall not
allow the following as assets in any determination of the financial condition of an
insurer:
1. Advances to officers, other than policy loans, whether secured or not, and
advances to employees, agents and other persons on personal security only.
2. Stock of the insurer that is owned by the insurer or any equity in the stock,
any loans secured by the stock or any proportionate interest in the stock acquired or
held through the insurer's ownership of an interest in another firm, corporation or
business unit.
3. Furniture, fixtures, furnishings, safes, vehicles, libraries, stationery,
literature and supplies, except in the case of title insurers materials and plants as the
insurer is expressly authorized to invest in under chapter 6, article 9 of this title and
except, in the case of any insurer, personal property as the insurer is permitted to hold
pursuant to chapter 3, article 2 of this title, or that is acquired through foreclosure
of chattel mortgages acquired pursuant to section 20-555, or that is reasonably necessary
for the maintenance and operation of real estate lawfully acquired and held by the
insurer other than real estate the insurer uses for home office, branch office and
similar purposes.
4. The amount, if any, by which the aggregate book value of investments as carried
in the ledger assets of the insurer exceeds the aggregate value as determined under this
title.
20-504 Reporting assets not allowed
All assets not allowed and all other assets of doubtful value or character included
as assets in any statement by an insurer to the director, or in any examiner's report to
him, shall also be reported, to the extent of the value disallowed, as deductions from
the gross assets of the insurer except where the director permits a reserve to be carried
among the liabilities of the insurer in lieu of any such deduction.
20-505 Liabilities
In any determination of the financial condition of an insurer, capital stock and
liabilities to be charged against its assets shall include:
1. The amount of its capital stock outstanding, if any.
2. The amount, estimated consistent with the provisions of this title, necessary to
pay all of its unpaid losses and claims incurred on or prior to the date of statement,
whether reported or unreported, together with the expenses of adjustment or settlement
thereof.
3. With reference to life and disability insurance and annuity contracts:
(a) The amount of reserves on life insurance policies and annuity contracts in
force, including disability benefits for both active and disabled lives and accidental
death benefits, in or supplementary thereto, and disability insurance, valued according
to the tables of mortality, tables of morbidity, rates of interest, and methods adopted
pursuant to this title which are applicable thereto.
(b) Any additional reserves which may be required by the director consistent with
practice formulated or approved by the national association of insurance commissioners,
on account of such insurance.
4. With reference to insurance other than specified in paragraph 3 of this section,
and other than title insurance, the amount of reserves equal to the unearned portions of
the gross premiums charged on policies in force, computed in accordance with this
article.
5. Taxes, expenses and other obligations due or accrued at the date of the
statement.
20-506 Unearned premium reserve
A. With reference to insurance against loss or damage to property, except as
provided in section 20-507, and with reference to all general casualty insurance and
surety insurance, every insurer shall maintain an unearned premium reserve on all
policies in force.
B. The director may require that the reserves be equal to the unearned portions of
the gross premiums in force after deducting reinsurance in solvent insurers as computed
on each respective risk from the policy's date of issue. The portions of the gross
premiums in force, less reinsurance in solvent insurers to be held as a premium reserve,
shall be computed according to the accounting practices and procedures manual adopted by
the national association of insurance commissioners.
C. This section does not apply to title insurance. 20-507 Unearned premium reserve for marine insurance
With reference to marine insurance, premiums on trip risks not terminated shall be
deemed unearned, and the director may require the insurer to carry a reserve thereon
equal to one hundred per cent on trip risks written during the month ended as of the date
of statement.
20-508 Reserves for disability insurance
For all disability insurance policies the insurer, in addition to claim reserves,
shall maintain an active life reserve which shall place a sound value on its liabilities
under such policies and be not less than the amounts that are necessary to assure payment
of its policyholder obligations including reserves for unearned premiums.
20-509 Increase of inadequate reserves
A. If the director determines that an insurer's unearned premium reserve, however
computed, is inadequate, the director may require the insurer to compute the reserve or
any part of the reserve according to methods prescribed in this article.
B. If the loss experience of an insurer shows that its loss reserves, however
estimated, are inadequate, the director shall require the insurer to maintain loss
reserves in an increased amount as needed to make the loss reserves adequate.
C. If the insurer's anticipated losses, loss adjustment expenses, commissions and
other acquisition costs and maintenance costs are more than the recorded unearned premium
reserve and any future installment premiums on existing policies, the insurer shall
establish a premium deficiency reserve by recording an additional liability for the
deficiency according to the accounting practices and procedures manual adopted by the
national association of insurance commissioners.
20-510 Standard valuation law; definition
A. This section may be cited as the standard valuation law.
B. The director shall annually value, or cause to be valued, the reserves for all
outstanding life insurance policies and annuity and pure endowment contracts of every
life insurance company doing business in this state and may certify the amount of any of
these reserves, specifying the mortality table or tables, rate or rates of interest and
methods (net level premium method or other) used in the calculation of the reserves. In
calculating the reserves, the director may use group methods and may approximate averages
for fractions of a year or otherwise. The director may accept the insurer's calculation
of the reserves. In lieu of the valuation of the reserves required by this section of
any foreign or alien insurer, the director may accept any valuation made, or caused to be
made, by the insurance supervisory official of any state or other jurisdiction if the
valuation complies with the minimum standard provided by this section, and if the
official of that state or jurisdiction accepts as sufficient and valid for all legal
purposes the certificate of valuation of the director if the certificate states the
valuation to have been made in a specified manner according to which the aggregate
reserves would be at least as large as if they had been computed in the manner prescribed
by the law of that state or jurisdiction.
C. Beginning from and after December 31, 1996, every life insurance company doing
business in this state shall annually submit the opinion of a qualified actuary. The
opinion shall state whether the reserves and related actuarial items that are held in
support of the policies and contracts specified by the director are computed
appropriately, are based on assumptions that satisfy contractual provisions, are
consistent with prior reported amounts and comply with the applicable laws of this
state. The director shall define the specifics of this opinion and shall add any other
items to the scope of the opinion as the director deems necessary:
1. Unless exempted or pursuant to rule, every life insurance company shall annually
include in the opinion under this subsection an opinion of the same qualified actuary as
to whether, if considered in light of the assets held by the company with respect to the
reserves and related actuarial items, including but not limited to the investment
earnings on the assets and the considerations anticipated to be received and retained
under the policies and contracts, the reserves and related actuarial items held in
support of the policies and contracts specified by the director make adequate provision
for the company's obligations under the policies and contracts, including but not limited
to the benefits under and expenses associated with the policies and contracts. The
director may provide for a transition period for establishing any higher reserves that
the qualified actuary may deem necessary in order to render the opinion required by this
section. The following apply to each opinion required by this paragraph:
(a) The insurance company shall prepare a memorandum to support each actuarial
opinion. The memorandum shall be in a form and substance specified by the director.
(b) If the insurance company fails to provide a supporting memorandum on the
request of the director and in the period of time specified by rule or if the director
determines that the supporting memorandum does not meet the standards prescribed by rule
or is otherwise unacceptable, the director may engage a qualified actuary at the expense
of the insurance company to review the opinion and the basis for the opinion and to
prepare any supporting memorandum that the director requires.
2. The following apply to all opinions required by this subsection:
(a) The insurance company shall submit the opinion with the annual statement
reflecting the valuation of the reserves for each year ending on or after December 31,
1996.
(b) The opinion applies to all business in force, including individual and group
health insurance plans, and shall be in a form and substance that the director specifies.
(c) The opinion shall be based on standards that are adopted from time to time by
the actuarial standards board and on any other additional standards that the director
prescribes.
(d) If an opinion is required to be submitted by an alien or foreign company, the
director may accept the opinion that is filed by that company with the insurance
supervisory official of another state if the director determines that the opinion
reasonably meets the requirements applicable to a company domiciled in this state.
(e) The qualified actuary is not liable for damages to any person other than the
director and the insurance company for any act, error, omission, decision or conduct with
respect to the actuary's opinion, unless the actuary engaged in fraud or wilful
misconduct.
(f) The director shall define by rule what disciplinary actions the director may
take against an insurance company or qualified actuary.
(g) Any memorandum in support of an opinion and any other material that the
insurance company provides to the director are confidential, shall not be made public and
are not subject to subpoena. Any memorandum or other material may be made public or
subpoenaed for the purpose of defending an action seeking damages from any person
pursuant to any action that is required by this subsection or by rules adopted pursuant
to this subsection if the memorandum or other material may otherwise be released by the
director with the written consent of the company or on request of the American academy of
actuaries for the purpose of professional disciplinary proceedings if the academy sets
forth procedures that are satisfactory to the director for preserving the confidentiality
of the memorandum or other material. Any memorandum or other material is no
longer confidential after an insurance company cites any part of the memorandum in its
marketing or before a governmental agency other than the department or releases the
memorandum to the news media.
3. For the purposes of this subsection, "qualified actuary" means a member in good
standing of the American academy of actuaries who meets the requirements set forth by the
director.
D. Except as otherwise provided in subsections E, F and N of this section, the
minimum standard for the valuation of all policies and contracts that were issued before
the operative date of section 20-1231 is that provided by the laws in effect immediately
before January 1, 1955. Except as otherwise provided in subsections E, F and N of this
section, the minimum standard for the valuation of all policies and contracts that are
issued on or after January 1, 1955 is the commissioners reserve valuation methods defined
in subsections H, I, L and N of this section, three and one-half per cent interest or, in
the case of policies and contracts, other than annuity and pure endowment contracts, that
are issued on or after July 1, 1974, four per cent interest for those policies that are
issued before January 1, 1979, five and one-half per cent interest for single premium
life insurance policies and four and one-half per cent interest for all other policies
that are issued on and after January 1, 1979, and the following tables:
1. For all ordinary policies of life insurance that are issued on the standard
basis, excluding any disability and accidental death benefits in those policies, the
commissioners 1941 standard ordinary mortality table for those policies issued before the
operative date of section 20-1231, subsection F, paragraph 5, subdivision (b) and the
commissioners 1958 standard ordinary mortality table for those policies that are issued
on or after the operative date of section 20-1231, subsection F, paragraph 5, subdivision
(b) and before the operative date as provided in section 20-1231.01. If any category of
these policies is issued on female risks, modified net premiums and present values
referred to in this section may be calculated according to an age not more than six years
younger than the actual age of the insured. For policies that are issued on or after the
operative date of section 20-1231.01, the following tables may be used:
(a) The commissioners 1980 standard ordinary mortality table.
(b) At the election of the insurer for any one or more specified plans of life
insurance, the commissioners 1980 standard ordinary mortality table with ten year select
mortality factors.
(c) Any ordinary mortality table that is adopted after 1980 by the national
association of insurance commissioners and that is approved by the director for use in
determining the minimum standard of valuation for those policies.
2. For all industrial life insurance policies that are issued on the standard
basis, excluding any disability and accidental death benefits in those policies, the 1941
standard industrial mortality table for those policies that are issued before the
operative date of section 20-1231, subsection F, paragraph 5, subdivision (d) and for
those policies that are issued on or after the operative date of section 20-1231,
subsection F, paragraph 5, subdivision (d) the commissioners 1961 standard industrial
mortality table or any industrial mortality table that is adopted after 1980 by the
national association of insurance commissioners and that is approved by the director for
use in determining the minimum standard of valuation for those policies.
3. For individual annuity and pure endowment contracts, excluding any disability
and accidental death benefits in those policies, the 1937 standard annuity mortality
table or, at the option of the insurer, the annuity mortality table for 1949, ultimate,
or any modification of either of these tables that the director approves.
4. For group annuity and pure endowment contracts, excluding any disability and
accidental death benefits in those policies, the group annuity mortality table for 1951,
any modification of the group annuity mortality table that is approved by the director
or, at the option of the insurer, any of the tables or modifications of tables that are
specified for individual annuity and pure endowment contracts.
5. For total and permanent disability benefits in or supplementary to ordinary
policies or contracts:
(a) For policies or contracts that are issued on or after January 1, 1996, the
tables of period 2 disablement rates and the 1930 to 1950 termination rates of the 1952
disability study of the society of actuaries with due regard to the type of benefit or
any tables of disablement rates and termination rates, adopted after 1980 by the national
association of insurance commissioners, that are approved by the director for use in
determining the minimum standard of valuation for those policies.
(b) For policies or contracts that are issued on or after January 1, 1961 and
before January 1, 1966, either of the tables that are specified in subdivision (a) of
this paragraph, or at the option of the insurer, the class three disability table (1926).
(c) For policies or contracts that are issued before January 1, 1961, the class
three disability table (1926).
(d) For active lives, any table that is used pursuant to subdivision (a), (b) or
(c) of this paragraph shall be combined with a mortality table that is permitted for
calculating the reserves for life insurance policies.
6. For accidental death benefits in or supplementary to policies:
(a) For policies that are issued on or after January 1, 1966, the 1959 accidental
death benefits table or any accidental death benefits table that was adopted after 1980
by the national association of insurance commissioners and that the director approves for
use in determining the minimum standard of valuation for those policies.
(b) For policies that are issued on or after January 1, 1961 and before January 1,
1966, either table provided by subdivision (a) of this paragraph or, at the option of the
insurer, the intercompany double indemnity mortality table.
(c) For policies that are issued before January 1, 1961, the intercompany double
indemnity mortality table.
(d) A table that is permitted under subdivision (a), (b) or (c) of this paragraph
shall be combined with a mortality table that is permitted for calculating the reserves
for life insurance policies.
7. For group life insurance, life insurance issued on the substandard basis and
other special benefits, any tables that the director approves as sufficient with relation
to the benefits provided by those policies.
E. Except as provided in subsection F of this section, the minimum standard for the
valuation of all individual annuity and pure endowment contracts that are issued on or
after the operative date of this subsection and all annuities and pure endowments that
are purchased on or after the operative date of this subsection under group annuity and
pure endowment contracts shall be the commissioners reserve valuation methods defined in
subsections H and I of this section and the following tables and interest rates:
1. For individual annuity and pure endowment contracts that are issued before
January 1, 1979, excluding any disability and accidental death benefits in those
contracts, the 1971 individual annuity mortality table or any modification of the table
that the director approves, and six per cent interest for single premium immediate
annuity contracts, and four per cent interest for all other individual annuity and pure
endowment contracts.
2. For individual single premium immediate annuity contracts that are issued on or
after January 1, 1979, excluding any disability and accidental death benefits in those
contracts, the 1971 individual annuity mortality table or any individual annuity
mortality table that is adopted after 1980 by the national association of insurance
commissioners and that the director approves for use in determining the minimum standard
valuation for those contracts, or any modification of these tables that the director
approves, and seven and one-half per cent interest.
3. For individual annuity and pure endowment contracts that are issued on or after
January 1, 1979, other than single premium immediate annuity contracts and excluding any
disability and accidental death benefits in those contracts, the 1971 individual annuity
mortality table or any individual annuity mortality table that is adopted after 1980 by
the national association of insurance commissioners and that the director approves for
use in determining the minimum standard of valuation for those contracts, or any
modification of these tables that the director approves, and five and one-half per cent
interest for single premium deferred annuity and pure endowment contracts and four and
one-half per cent interest for all other individual annuity and pure endowment contracts.
4. For all annuities and pure endowments that are purchased before January 1, 1979
under group annuity and pure endowment contracts, excluding any disability and accidental
death benefits in those contracts, the 1971 group annuity mortality table, or any
modification of this table that the director approves, and six per cent interest.
5. For all annuities and pure endowments that are purchased on or after January 1,
1979 under group annuity and pure endowment contracts, excluding any disability and
accidental death benefits that are purchased under those contracts, the 1971 group
annuity mortality table or any group annuity mortality table that is adopted after 1980
by the national association of insurance commissioners and that the director approves for
use in determining the minimum standard of valuation for those annuities and pure
endowments, or any modification to these tables that the director approves, and seven and
one-half per cent interest.
F. After July 1, 1974, any insurer may file with the director a written notice of
its election to comply with subsection E of this section on a specified date before
January 1, 1979. The date specified by the insurer shall be the operative date of
subsection E of this section for that insurer if the insurer elects a different operative
date for individual annuity and pure endowment contracts from the date that is elected
for group annuity and pure endowment contracts. If an insurer does not make an election
pursuant to this subsection, the operative date of subsection I of this section shall be
January 1, 1979.
G. The minimum standard by calendar year of issue shall be computed as follows:
1. The interest rates that are used in determining the minimum standard for the
valuation of the following shall be the calendar year statutory valuation interest rates
as defined in this subsection:
(a) All life insurance policies that are issued in a particular calendar year on or
after the operative date of section 20-1231.01.
(b) All individual annuity and pure endowment contracts that are issued in a
particular calendar year on or after January 1, 1983.
(c) All annuities and pure endowments that are purchased in a particular calendar
year on or after January 1, 1983 under group annuity and pure endowment contracts.
(d) The net increase, if any, in a particular calendar year after January 1, 1983
in the amounts that are held under guaranteed interest contracts.
2. As used in this paragraph:
(a) R1 is the lesser of R and 0.09, R2 is the greater of R and 0.09, R is the
reference interest rate defined in this subsection and W is the weighting factor defined
in this subsection, the calendar year statutory valuation interest rates, or I, shall be
determined as follows and the results shall be rounded to the nearer one-quarter of one
per cent:
(i) For life insurance:
I = .03 + W(R1 - .03) + W/2 (R2 - .09).
(ii) For single premium immediate annuities and for annuity benefits involving life
contingencies arising from other annuities with cash settlement options and from
guaranteed interest contracts with cash settlement options:
I = .03 + W(R - .03).
(iii) Except pursuant to item (ii) of this subdivision, for other annuities with
cash settlement options and guaranteed interest contracts with cash settlement options
that are valued on an issue year basis, the formula for life insurance under item (i) of
this subdivision applies to annuities and guaranteed interest contracts with guarantee
durations of more than ten years and the formula for single premium immediate annuities
under item (ii) of this subdivision applies to annuities and guaranteed interest
contracts with guarantee durations of ten years or less.
(iv) For other annuities with no cash settlement options and guaranteed interest
contracts with no cash settlement options, the formula for single premium immediate
annuities under item (ii) of this subdivision applies.
(v) For other annuities with cash settlement options and guaranteed interest
contracts with cash settlement options that are valued on a change in fund basis, the
formula for single premium immediate annuities under item (ii) of this subdivision
applies.
(b) If the calendar year statutory valuation interest rate for any life insurance
policies issued in any calendar year determined without reference to this subdivision
differs from the corresponding actual rate for similar policies issued in the immediately
preceding calendar year by less than one-half of one per cent, the calendar year
statutory valuation interest rate for those life insurance policies shall be equal to the
corresponding actual rate for the immediately preceding calendar year. For the purposes
of this subdivision, the calendar year statutory valuation interest rate for life
insurance policies issued in a calendar year shall be determined for 1980 using the
reference interest rate defined in 1979 and shall be determined for each subsequent
calendar year regardless of the operative date of section 20-1231.01.
3. For the purposes of this subsection, the weighting factors are given in the
following tables:
(a) Weighting factors for life insurance:
Guarantee
Duration Weighting
(Years) Factors
Ten years or less .50
More than ten years, but less than 20 years .45
Twenty years or more .35
(b) For life insurance under subdivision (a) of this paragraph, the guarantee
duration is the maximum number of years the life insurance can remain in force on a basis
guaranteed in the policy or under options to convert to plans of life insurance with
premium rates or nonforfeiture values, or both, that are guaranteed in the original
policy.
(c) The weighting factor for single premium immediate annuities and for annuity
benefits involving life contingencies arising from other annuities with cash settlement
options and guaranteed interest contracts with cash settlement options: .80
(d) Except pursuant to subdivision (c) of this paragraph, weighting factors for
other annuities and for guaranteed interest contracts are as specified and in accordance
with this subdivision:
(i) For annuities and guaranteed interest contracts valued on an issue year basis:
Guarantee Weighting Factor
Duration for plan type
(Years) A B C
Five years or less .80 .60 .50
More than five years, but not more than ten years .75 .60 .50
More than ten years, but not more than twenty years .65 .50 .45
More than twenty years .45 .35 .35
(ii) For annuities and guaranteed interest contracts valued on a change in fund
basis, the factors listed in item (i) of this subdivision increased by
Plan type
A B C
.15 .25 .05
(iii) For annuities and guaranteed interest contracts valued on an issue year basis
other than those with no cash settlement options that do not guarantee interest on
considerations received more than one year after issue or purchase and for annuities and
guaranteed interest contracts valued on a change in fund basis that do not guarantee
interest rates on considerations received more than twelve months after the valuation
date, the factors shown in item (i) of this subdivision or derived in item (ii) of this
subdivision increased by
Plan type
A B C
.05 .05 .05
(iv) For other annuities with cash settlement options and guaranteed interest
contracts with cash settlement options, the guarantee duration is the number of years for
which the contract guarantees interest rates in excess of the calendar year statutory
valuation interest rate for life insurance policies with guarantee duration of more than
twenty years. For other annuities with no cash settlement options and for guaranteed
interest contracts with no cash settlement options, the guarantee duration is the number
of years from the date of issue or date of purchase to the date annuity benefits are
scheduled to begin.
(v) A company may elect to value guaranteed interest contracts with cash settlement
options and annuities with cash settlement options on either an issue year basis or on a
change in fund basis. Guaranteed interest contracts with no cash settlement options and
other annuities with no cash settlement options shall be valued on an issue year
basis. As used in this subsection, "issue year basis" means a valuation basis under
which the interest rate used to determine the minimum valuation standard for the entire
duration of the annuity or guaranteed interest contract is the calendar year valuation
interest rate for the year of issue or year of purchase of the annuity or guaranteed
interest contract and "change in fund basis" means a valuation basis under which the
interest rate used to determine the minimum valuation standard applicable to each change
in the fund held under the annuity or guaranteed interest contract is the calendar year
valuation interest rate for the year of the change in the fund.
4. "Plan type" as used in paragraph 3, subdivision (d) of this subsection means:
(a) Plan type A: A policyholder may withdraw funds at any time only with an
adjustment to reflect changes in interest rates or asset values since the insurance
company received the funds, without an adjustment but in installments over a period of
five years or more, as an immediate life annuity, or a policyholder may not withdraw
funds.
(b) Plan type B: Before the interest rate guarantee expires, a policyholder may
withdraw funds only with an adjustment to reflect changes in interest rates or asset
values since the insurance company received the funds, without an adjustment but in
installments over a period of five years or more, or a policyholder may not withdraw
funds. At the end of the interest rate guarantee, a policyholder may withdraw funds
without an adjustment in a single sum or in installments over a period of less than five
years.
(c) Plan type C: A policyholder may withdraw funds before the interest rate
guarantee expires in a single sum or in installments over a period of less than five
years either without an adjustment to reflect changes in interest rates or asset values
since the insurance company received the funds or subject only to a fixed surrender
charge that is stipulated in the contract as a percentage of the fund.
5. For the purposes of this subsection, "reference interest rate" means:
(a) For all life insurance, the lesser of the average over a period of thirty-six
months and the average over a period of twelve months, ending on June 30 of the calendar
year next preceding the year of issue, of the monthly average of the composite yield on
seasoned corporate bonds, as published by Moody's investors service, incorporated.
(b) For single premium immediate annuities and for annuity benefits involving life
contingencies arising from other annuities with cash settlement options and guaranteed
interest contracts with cash settlement options, the average over a period of twelve
months, ending on June 30 of the calendar year of issue or year of purchase, of the
monthly average of the composite yield on seasoned corporate bonds, as published by
Moody's investors service, incorporated.
(c) Except pursuant to subdivision (b) of this paragraph, for other annuities with
cash settlement options and guaranteed interest contracts with cash settlement options
that are valued on an issue year basis, with guarantee duration of more than ten years,
the lesser of the average over a period of thirty-six months and the average over a
period of twelve months, ending on June 30 of the calendar year of issue or purchase, of
the monthly average of the composite yield on seasoned corporate bonds, as published by
Moody's investors service, incorporated.
(d) Except pursuant to subdivision (b) of this paragraph, for other annuities with
cash settlement options and guaranteed interest contracts with cash settlement options
that are valued on a year of issue basis, with guaranteed duration of ten years or less,
the average over a period of twelve months, ending on June 30 of the calendar year of
issue or purchase, of the monthly average of the composite yield on seasoned corporate
bonds, as published by Moody's investors service, incorporated.
(e) For other annuities with no cash settlement options and guaranteed interest
contracts with no cash settlement options, the average over a period of twelve months,
ending on June 30 of the calendar year of issue or purchase, of the monthly average of
the composite yield on seasoned corporate bonds, as published by Moody's investors
service, incorporated.
(f) Except pursuant to subdivision (b) of this paragraph, for other annuities with
cash settlement options and guaranteed interest contracts with cash settlement options
that are valued on a change in fund basis, the average over a period of twelve months,
ending on June 30 of the calendar year of the change in the fund, of the monthly average
of the composite yield on seasoned corporate bonds, as published by Moody's investors
service, incorporated.
6. If Moody's investors service, incorporated no longer publishes the monthly
average of the composite yield on seasoned corporate bonds or if the national association
of insurance commissioners determines that the monthly average of the composite yield on
seasoned corporate bonds as published by Moody's investor service, incorporated is no
longer appropriate for the determination of the reference interest rate, an alternative
method for determination of the reference interest rate that the national association of
insurance commissioners adopts and the director approves may be substituted.
H. The reserve valuation method for life insurance and endowment benefits shall be
determined as follows:
1. Except as otherwise provided in subsections I, L and N of this section, reserves
according to the commissioners reserve valuation method, for the life insurance and
endowment benefits of policies providing for a uniform amount of insurance and requiring
the payment of uniform premiums, are the excess, if any, of the present value, at the
date of valuation, of the future guaranteed benefits provided for by those policies, over
the present value of any future modified net premiums. The modified net premiums for any
one policy shall be the uniform percentage of the respective contract premiums for the
benefits that the present value, at the date of issue of the policy, of all the modified
net premiums shall be equal to the sum of the then present value of the benefits provided
for by the policy and the excess of subdivision (a) over subdivision (b) of this
paragraph as follows:
(a) A net level annual premium equal to the present value, at the date of issue, of
the benefits provided for after the first policy year, divided by the present value, at
the date of issue, of an annuity of one per annum payable on the first and each
subsequent anniversary of the policy on which a premium falls due, provided however that
the net level annual premium shall not exceed the net level annual premium on the
nineteen year premium whole life plan for insurance of the same amount at an age one year
higher than the age at issue of such policy.
(b) A net one year term premium for the benefits that are provided for in the first
policy year.
2. Any life insurance policy that is issued on or after January 1, 1986 for which
the contract premium in the first policy year exceeds that of the second year and for
which no comparable additional benefit is provided in the first year for the excess and
that provides an endowment benefit or a cash surrender value or a combination thereof in
an amount greater than the excess premium, the reserve according to the commissioners
reserve valuation method as of any policy anniversary occurring on or before the assumed
ending date defined for the purposes of this paragraph as the first policy anniversary on
which the sum of any endowment benefit and any cash surrender value then available is
greater than the excess premium, except as otherwise provided in subsection L of this
section, shall be the greater of the reserve as of the policy anniversary calculated as
described in paragraph 1 of this subsection and the reserve as of the policy anniversary
calculated as described in that paragraph, but with:
(a) The value defined in paragraph 1, subdivision (a) of this subsection being
reduced by fifteen per cent of the amount of the excess first year premium.
(b) All present values of benefits and premiums being determined without reference
to premiums or benefits provided for by the policy after the assumed ending date.
(c) The policy being assumed to mature on the date as an endowment.
(d) The cash surrender value provided on the date being considered as an endowment
benefit.
In making the above comparison the mortality and interest bases stated in
subsections E and G of this section shall be used.
3. Reserves according to the commissioners reserve valuation method for:
(a) Life insurance policies providing for a varying amount of insurance or
requiring the payment of varying premiums.
(b) Group annuity and pure endowment contracts purchased under a retirement plan or
plan of deferred compensation that is established or maintained by an employer, including
a partnership or sole proprietorship, or by an employee organization, or by both, other
than a plan providing individual retirement accounts or individual retirement annuities
under section 408 of the internal revenue code, as amended.
(c) Disability and accidental death benefits in all policies and contracts.
(d) All other benefits, except life insurance and endowment benefits in life
insurance policies and benefits provided by all other annuity and pure endowment
contracts, shall be calculated by a method consistent with the principles of paragraphs 1
and 2 of this subsection.
I. The reserve valuation method for annuity and pure endowment benefits shall be
determined as follows:
1. This subsection applies to all annuity and pure endowment contracts other than
group annuity and pure endowment contracts purchased under a retirement plan or plan of
deferred compensation that is established or maintained by an employer, including a
partnership or sole proprietorship, or by an employee organization, or by both, other
than a plan providing individual retirement accounts or individual retirement annuities
under section 408 of the internal revenue code, as amended.
2. Reserves according to the commissioners annuity reserve method for benefits
under annuity or pure endowment contracts, excluding any disability and accidental death
benefits in those contracts, shall be the greatest of the respective excesses of the
present values, at the date of valuation, of the future guaranteed benefits, including
guaranteed nonforfeiture benefits that are provided for by the contracts at the end of
each respective contract year, over the present value, at the date of valuation, of any
future valuation considerations derived from future gross considerations, required by the
terms of the contract, that become payable before the end of the respective contract
year. The future guaranteed benefits shall be determined by using the mortality table,
if any, and the interest rate or rates specified in the contracts for determining
guaranteed benefits. The valuation considerations are the portions of the respective
gross considerations applied under the terms of the contracts to determine nonforfeiture
values.
J. A company's aggregate reserves for all life insurance policies, excluding
disability and accidental death benefits, that are issued on or after the operative date
of section 20-1231, shall not be less than the aggregate reserves calculated in
accordance with the methods set forth in subsections H, I, L and M of this section and
the mortality table or tables and rate or rates of interest used in calculating
nonforfeiture benefits for the policies. The aggregate reserves for all policies,
contracts and benefits shall not be less than the aggregate reserves determined by the
qualified actuary to be necessary to render the opinion required by subsection C of this
section.
K. Optional reserves may be calculated as follows:
1. At the option of the insurer, reserves for all policies and contracts that are
issued before the operative date of section 20-1231 may be calculated according to any
standards that produce greater aggregate reserves for all the policies and contracts than
the minimum reserves required by the laws in effect immediately before that date.
2. At the option of the insurer, reserves for any category of policies, contracts
or benefits that the director establishes and that are issued on or after the operative
date of section 20-1231 may be calculated according to any standards that produce greater
aggregate reserves for that category than those calculated according to the minimum
standard provided in this section, but the rate or rates of interest used for policies
and contracts, other than annuity and pure endowment contracts, shall not be higher than
the corresponding rate or rates of interest used in calculating any nonforfeiture
benefits provided for in the policy or contract.
3. An insurer that at any time has adopted any standard of valuation producing
greater aggregate reserves than those calculated according to the minimum standard
provided by this section, with the director's approval, may adopt any lower standard of
valuation, but not lower than the minimum provided by this section. For the purposes of
this section, the holding of additional reserves previously determined by a qualified
actuary to be necessary to render the opinion required by subsection C of this section
shall not be deemed to be the adoption of a higher standard of valuation.
L. Reserves when the valuation net premium exceeds the gross premium charged shall
be calculated as follows:
1. If in any contract year the gross premium charged by any life insurer on any
policy or contract is less than the valuation net premium for the policy or contract
calculated by the method used in calculating the reserve but using the minimum valuation
standards of mortality and rate of interest, the minimum reserve required for the policy
or contract shall be the greater of either the reserve calculated according to the
mortality table, rate of interest, and method actually used for the policy or contract,
or the reserve calculated by the method actually used for the policy or contract but
using the minimum valuation standards of mortality and rate of interest and replacing the
valuation net premium by the actual gross premium in each contract year for which the
valuation net premium exceeds the actual gross premium. The minimum valuation standards
of mortality and rate of interest referred to in this subsection are those standards
stated in subsections D and G of this section.
2. For any life insurance policy that is issued on or after January 1, 1986, for
which the gross premium in the first policy year exceeds that of the second year, for
which no comparable additional benefit is provided in the first year for that excess and
that provides an endowment benefit or a cash surrender value or a combination of
endowment benefit and cash surrender value in an amount greater than the excess premium,
this subsection applies as if the method actually used in calculating the reserve for the
policy was the method described in subsection H, paragraph 1 of this section. The
minimum reserve at each policy anniversary of a policy shall be the greater of the
minimum reserve calculated in accordance with subsection H of this section and the
minimum reserve calculated in accordance with this subsection.
M. If a plan of life insurance provides for future premium determination, the
amounts of which are to be determined by the insurer based on then estimates of future
experience, or if the minimum reserves of a plan of life insurance or annuity cannot be
determined by the methods described in subsections H, I and L of this section, the
reserves that are held under any plan must:
1. Be appropriate in relation to the benefits and the pattern of premiums for that
plan.
2. Be computed by a method that is consistent with the principles of this standard
valuation law.
N. The director shall adopt rules relating to the minimum standards applicable to
the valuation of health plans.
O. For the purposes of this section, "reserves" means reserve liabilities.
20-511 Valuation of bonds; limitation
A. All bonds or other evidences of debt having a fixed term and rate of interest
and held by any insurer may, if amply secured and not in default as to principal or
interest, be valued as follows:
1. If purchased at par, at the par value.
2. If purchased above or below par, on the basis of the purchase price adjusted so
as to bring the value to par at the earliest date callable at par or at maturity and so
as to yield in the meantime the effective rate of interest at which the purchase was
made, or in lieu of such method, according to such accepted method of valuation as is
approved by the director.
The purchase price shall in no case be taken at a higher figure than the actual market
value at the time of purchase, plus actual brokerage, transfer, postage or express
charges paid in the acquisition of the securities.
B. Unless otherwise provided by valuation established or approved by the national
association of insurance commissioners, no such security shall be carried at above the
call price for the entire issue during any period within which the security may be so
called.
C. The director has full discretion in determining the method of calculating values
of bonds as set forth in this section but shall not value bonds in a manner that is
inconsistent with the standards promulgated by the securities valuation office of the
national association of insurance commissioners.
20-512.01 Valuation of joint ventures, partnerships and limited liability companies
Joint ventures, partnerships and limited liability companies shall be valued based
on the underlying equity reported in the entity's financial statements pursuant to the
accounting practices and procedures manual adopted by the national association of
insurance commissioners.
20-512 Valuation of other securities
A. Securities, other than those referred to in section 20-511, held by an insurer
shall be valued, in the discretion of the director, at their market value, or at their
appraised value, at prices determined by the director as representing their fair market
value but shall not be valued in a manner that is inconsistent with the standards
promulgated by the securities valuation office of the national association of insurance
commissioners.
B. Preferred or guaranteed stocks or shares while paying full dividends may be
carried at a fixed value in lieu of market value, at the discretion of the director and
in accordance with such method of computation as the director may approve but shall not
be valued in a manner that is inconsistent with the standards promulgated by the
securities valuation office of the national association of insurance commissioners.
20-513 Valuation of real and personal property
A. Real property acquired pursuant to a mortgage loan or contract for sale, in the
absence of a recent appraisal deemed by the director to be reliable, shall not be valued
at an amount greater than the unpaid principal of the defaulted loan or contract at the
date of such acquisition, together with any taxes and expenses paid or incurred in
connection with such acquisition, and the cost of improvements thereafter made by the
insurer and any amounts thereafter paid by the insurer on assessments levied for
improvements in connection with the property.
B. Other real property held by an insurer shall be valued at market value as
determined by recent appraisal or cost plus capitalized improvements minus normal
depreciation, whichever is less. If valuation is based on an appraisal more than three
years old, the director may at his discretion call for and require a new appraisal in
order to determine fair value.
C. Personal property acquired pursuant to chattel mortgages made in accordance with
section 20-555 shall not be valued at an amount greater than the unpaid balance of
principal on the defaulted loan at the date of acquisition, together with taxes and
expenses incurred in connection with the acquisition, or the fair value of the property,
whichever amount is less.
20-514 Valuation of purchase money mortgages
Purchase money mortgages on real property referred to in subsection A of section
20-513 shall be valued in an amount not exceeding the acquisition cost of the real
property covered thereby or ninety per cent of the fair value of such real property,
whichever is less.
20-515 Valuation of assets held in separate accounts
Assets, unless otherwise approved by the director, allocated to a separate account
established pursuant to section 20-651 shall be valued at their market value on the date
of valuation, or if there is no readily available market, then as provided under the
terms of the contract or the rules or other written agreement applicable to such separate
account, provided that unless otherwise approved by the director, the portion if any of
the assets of such separate account equal to the company's reserve liability with regard
to the guaranteed benefits and funds referred to in subsection C of section 20-651 shall
be valued in accordance with the rules otherwise applicable to the company's assets.
20-516 Reserve standards
An insurer shall maintain reserves that place a sound value on its liabilities under
its policies, annuities and subscriber contracts. The reserves shall not be less than
the amount, estimated and consistent with the provisions of this title, necessary to
assure payment of the insurer's unpaid policyholder and contract holder obligations,
whether those obligations are reported or reported together with the expenses of
adjustment or settlement of the obligations.
20-517 Report of acquisitions and dispositions
A. Each insurer that is domiciled in this state shall file with the director a
report that discloses material acquisitions and dispositions of assets or material
nonrenewals, cancellations or revisions of ceded reinsurance agreements unless the
insurer has submitted the acquisitions and dispositions of assets or material
nonrenewals, cancellations or revisions of ceded reinsurance agreements to the director
for review, approval or information purposes pursuant to any other law or rule.
B. The insurer shall file the report within fifteen days after the end of the
calendar month in which any of the transactions listed in subsection A occur.
C. The insurer shall file a copy of the report, including any exhibits or other
attachments that are filed with the report, with the national association of insurance
commissioners.
D. All reports that are obtained by or disclosed to the director pursuant to this
section are confidential and are not subject to subpoena. The director, the national
association of insurance commissioners and any other person may disclose a report to the
insurance department of another state but may not make a report public without the prior
written consent of the insurer unless the director, after giving the insurer notice and
an opportunity to be heard, determines that the interests of the policyholders,
shareholders or public will be served by the publication of the report. If the director
determines that publication is in the interests of the policyholders, shareholders or
public, the director may publish part or all of the report in a manner that the director
deems appropriate.
20-518 Acquisitions and dispositions of assets
A. An acquisition or disposition of assets that is not material does not have to be
reported pursuant to section 20-517.
B. Asset acquisitions that are subject to section 20-517 and this section include
every purchase, lease, exchange, merger, consolidation, succession or other acquisition
other than the construction or development of real property by or for the reporting
insurer or the acquisition of materials for these purposes.
C. Asset dispositions that are subject to section 20-517 and this section include
every sale, lease, exchange, merger, consolidation, mortgage, hypothecation, assignment,
abandonment, destruction or other disposition.
D. A report of a material acquisition or disposition of assets pursuant to section
20-517 shall disclose the following information:
1. The date of the transaction.
2. The manner of acquisition or disposition.
3. A description of the assets involved.
4. The nature and amount of the consideration given or received.
5. The purpose of or reason for the transaction.
6. The manner by which the amount of consideration was determined.
7. The gain or loss that is recognized or realized as a result of the transaction.
8. The names of the persons from whom the assets were acquired or to whom the
assets were disposed.
E. An insurer shall report material acquisitions and dispositions on a
nonconsolidated basis unless the insurer is part of a consolidated group of insurers that
utilized a pooling arrangement or one hundred per cent reinsurance agreement that affects
the solvency and integrity of the insurer's reserves and the insurer ceded substantially
all of its direct and assumed business to the pool. An insurer is deemed to have ceded
substantially all of its direct and assumed business to a pool if the insurer has less
than one million dollars total direct plus assumed written premiums during a calendar
year that are not subject to a pooling arrangement and the net income of the business not
subject to the pooling arrangement represents less than five per cent of the insurer's
capital and surplus.
F. For the purposes of this section and section 20-517, a material acquisition,
including the aggregate of any series of acquisitions during any thirty day period, or a
material disposition, including the aggregate of any series of related dispositions
during any thirty day period, is one that is nonrecurring, that is not in the ordinary
course of business and that involves more than five per cent of the reporting insurer's
total admitted assets as reported in its most recent statutory statement that is filed
with the director.
20-519 Nonrenewals, cancellations or revisions of ceded reinsurance agreements
A. A nonrenewal, cancellation or revision of a ceded reinsurance agreement that is
not material does not have to be reported pursuant to section 20-517.
B. A report of a material nonrenewal, cancellation or revision of a ceded
reinsurance agreement shall be reported, regardless of which party initiated the
nonrenewal, cancellation or revision of ceded reinsurance, if one or more of the
following conditions exist:
1. The entire cession has not been renewed or has been cancelled or revised and
ceded indemnity and loss adjustment expense reserves after nonrenewal, cancellation or
revision represent less than fifty per cent of the comparable reserves that would have
been ceded if the nonrenewal, cancellation or revision had not occurred.
2. An authorized or accredited reinsurer has been replaced on an existing cession
by an unauthorized reinsurer.
3. The collateral requirements that were previously established for unauthorized
reinsurers have been reduced. For example, the requirement to collateralize incurred but
not reported claim reserves is waived with respect to one or more unauthorized reinsurers
newly participating in an existing cession.
C. For the purposes of subsection B, paragraph 2 or 3 of this section, an insurer
shall file a report if the result of the revision affects more than ten per cent of the
cession.
D. A report of a material nonrenewal, cancellation or revision of ceded reinsurance
agreement pursuant to section 20-517 shall disclose the following information:
1. The effective date of the nonrenewal, cancellation or revision.
2. A description of the transaction, including an identification of the transaction
initiator.
3. The purpose of or reason for the transaction.
4. The identity of the replacement reinsurers, if applicable.
E. An insurer shall report all material nonrenewals, cancellations or revisions of
ceded reinsurance agreements on a nonconsolidated basis unless the insurer is part of a
consolidated group of insurers that uses a pooling arrangement or one hundred per cent
reinsurance agreement that affects the solvency and integrity of the insurer's reserves
and the insurer ceded substantially all of its direct and assumed business to the
pool. An insurer is deemed to have ceded substantially all of its direct and assumed
business to a pool if the insurer has less than one million dollars total direct plus
assumed written premiums during a calendar year that are not subject to a pooling
arrangement and the net income of the business not subject to the pooling arrangement
represents less than five per cent of the insurer's capital and surplus.
F. For the purposes of this section and section 20-517, a material nonrenewal,
cancellation or revision is one that affects for property and casualty business,
including accident and health business that is written as property and casualty business,
more than fifty per cent of an insurer's ceded written premium, or for life, annuity and
accident and health business, more than fifty per cent of an insurer's total reserve
credit taken for business ceded, on an annualized basis as indicated in the insurer's
most recently filed statement. A filing is not required pursuant to this subsection if
the insurer's ceded written premium or the total reserve credit taken for business ceded
represents, on an annualized basis, less than ten per cent of the direct plus assumed
written premium or ten per cent of the statutory reserve requirement before any cession.
20-531 Scope of article
Except as to section 20-559, this article applies to domestic insurers only. This
article shall apply to domestic title insurers except as provided in article 9 of chapter
6 of this title.
20-532 Eligible investments
A. Insurers shall invest in or loan their funds on the security of, and shall hold
as assets, only eligible investments as prescribed in this article.
B. Any particular investment that was held by an insurer on January 1, 1955, that
was a legal investment at the time it was made and that the insurer was legally entitled
to possess immediately before January 1, 1955 is an eligible investment.
C. The eligibility of an investment shall be determined as of the date of its
making or acquisition.
D. Any investment limitation based on the amount of the insurer's assets or
particular funds shall relate to assets or funds as shown by the insurer's annual
statement as of the December 31 last preceding date of investment, unless the accounting
practices and procedures manual adopted by the national association of insurance
commissioners prescribes the use of a more current financial statement.
E. Any investment shall not be disqualified solely because it is held in a security
depository if the director has approved the depository. 20-533 Qualification of securities or property as eligible investments
A. No security or investment, other than real and personal property acquired
pursuant to section 20-556, shall be eligible for acquisition unless it is interest
bearing or interest accruing or dividend or income paying, is not then in default as to
principal or interest and the insurer is entitled to receive for its exclusive account
and benefit the interest or income accruing on the security or investment, except as
provided in subsection D of this section. Defaults in interest or income occurring
subsequent to acquisition of an investment shall not affect allowance thereof as an
asset.
B. No security or investment shall be eligible for purchase at a price above its
market value.
C. No provision of this article shall prohibit the acquisition by an insurer of
other or additional securities or property if received as a dividend or as a lawful
distribution of assets, or if acquired pursuant to a lawful and bona fide agreement of
bulk reinsurance, merger or consolidation. Any investment so acquired through bulk
reinsurance, merger or consolidation, which is not otherwise eligible under this article,
is subject to the following conditions:
1. The investment qualifies as an asset under the insurance laws of the
jurisdiction of the insurer from which the investment was acquired.
2. The insurer shall dispose of the investment within three years after the date of
acquisition unless within the period the security has attained the necessary standard of
eligibility pursuant to this article.
D. An insurer may invest any of its monies in debt securities which are not
interest bearing or interest accruing if, after giving effect to the acquisition of the
debt security, the aggregate cost of the securities, other than investments acquired
pursuant to subsection C of this section, does not exceed ten per cent of the insurer's
total assets.
20-534 Approval of investment
No investment or loan shall be made by an insurer unless it has been authorized or
approved by the insurer's board of directors or by a committee authorized thereby and
charged with the duty of supervising or making such investment or loan. The minutes of
any such committee shall be recorded and regular reports of the committee shall be
submitted to the board of directors. This section does not apply to loans made by a life
insurer on policies or annuity contracts.
20-535 Limitation on percentage of assets invested with single person; exception
An insurer shall not, except with the consent of the director, have at any one time
any combination of investments in or loans upon the security of the obligations, property
or securities of any one person, institution, corporation or municipal corporation,
aggregating any amount exceeding ten per cent of the insurer's assets. This restriction
shall not apply to investments in or loans upon the security of general obligations of
the United States or any state of the United States or include policy loans made under
section 20-550.
20-536.01 Separate accounts
A. Except as may be provided with respect to reserves for guaranteed benefits
referred to in section 20-651, subsection C, amounts allocated to any separate account
established pursuant to section 20-651 and accumulations thereon may be invested and
reinvested in any class of investments, having due regard for the kind of investments
permitted and the qualitative requirements prescribed by the laws of this state governing
the investments of life insurance companies, but without regard to the quantitative
restrictions or limitations applicable to those investments, provided that separate
account investments shall not be acquired through bulk reinsurance, merger or
consolidation unless acquired with the specific consent of the director, and shall not
include the investments described in section 20-556, paragraph 1. Notwithstanding any
other law, section 20-549 applies to and governs investments in each separate account
based on the value of its assets. The investments in such separate account or accounts
shall not be taken into account in applying the investment limitations otherwise
applicable to the investments of the company.
B. Investments in separate accounts shall be kept unencumbered and otherwise
unimpaired. No sale, exchange or other transfer of assets may be made by a company
between any of its separate accounts or between any other investment account and one or
more of its separate accounts unless, in case of a transfer into a separate account, such
transfer is made solely to establish the account or to support the operation of the
contracts with respect to the separate account to which the transfer is made, and unless
such transfer, whether into or from a separate account, is made by a transfer of cash, or
by a transfer of securities having a readily determinable market value, provided that
such transfer of securities is approved by the director. The director may approve other
transfers among such accounts if, in the director's opinion, such transfers would not be
inequitable.
C. Notwithstanding any other law, if approved by the director investments in
separate accounts may be pledged as collateral to secure the commitment of a third party
to pay in full the obligations of the life insurance company to contract holders of the
separate account or separate accounts if the life insurance company becomes insolvent as
defined in section 20-611 or is subject to an order of liquidation pursuant to sections
20-616 and 20-621 or if the investments in the separate account or separate accounts are
not adequate to discharge the life insurance company's obligations to the contract
holders under contracts that are supported by the separate account or separate
accounts. The director shall issue an order after a hearing. The order shall establish
criteria for the third parties who are eligible to provide credit enhancement for a
separate account or separate accounts and to accept assets that are pledged pursuant to
this subsection, except that the director may approve any specific transaction regardless
of the criteria set forth in the order.
D. Notwithstanding any other law and except as may be provided with respect to
reserves for guaranteed benefits under section 20-651, subsection C, amounts that are
allocated to any separate account established for variable life contracts, variable
annuity contracts and guaranteed investment contracts pursuant to section 20-651, and
accumulations on the accounts, may be invested or reinvested in any class of investments
permitted under this article subject to the qualitative, but without regard to the
quantitative, restrictions or limitations prescribed by the laws of this state. Separate
account investments shall not be acquired by bulk reinsurance, merger or consolidation
unless the director specifically consents and shall not include investments described in
section 20-556, paragraph 1. Section 20-549 applies to and governs investments in each
separate account unless the director prescribes standards by order after hearing to allow
investments in each separate account to exceed the limits prescribed in section 20-549.
20-536 Investments; type; limitations
A. Every insurer may invest and maintain invested funds in cash and in the
securities and investments described in this article without limitation unless a
limitation for the securities and investments is otherwise prescribed in this article.
B. Except with the director's consent, an insurer shall not have invested at any
one time more than twenty per cent of its assets in the classes of securities described
in any one of the following sections of this article:
1. Section 20-546, exclusive of common stocks of public utilities and common stocks
acquired under section 20-481.01.
2. Section 20-557.
C. Except with the director's consent, an insurer shall not have invested at any
one time more than ten per cent of its assets in the classes of securities described in
any one of the following sections of this article:
1. Section 20-548.
2. Section 20-547.
3. Section 20-543.
4. Section 20-555.
5. Section 20-552.
20-537 Investment of funds in United States obligations; accounting
A. An insurer may invest any of its funds in:
1. Bonds or other evidences of indebtedness of the United States or any of its
agencies or instrumentalities when such obligations are guaranteed as to principal and
interest by the United States or any agency or instrumentality of the United States.
2. Bonds or other evidences of indebtedness which are guaranteed as to principal
and interest by the United States or by any agency or instrumentality of the United
States.
3. Bonds, debentures or other obligations issued by the federal land banks, the
federal intermediate credit banks or the banks for cooperatives and the federal farm
credit banks consolidated systemwide bonds.
B. This title does not prohibit the acquisition by an insurer licensed in this
state of United States government securities, the purchase of which is permitted by
statute, in accordance with the federal reserve system program of book entry accounting.
20-538 Securities of states, territories, counties, municipalities, school districts, political subdivisions, public districts or civil divisions thereof
An insurer may invest any of its funds in bonds or other evidences of indebtedness
not in default as to principal or interest, which are valid and legally authorized
securities or obligations issued, assumed, or guaranteed by the state of ARIZONA or any
counties, municipalities, school districts, or political subdivisions of any type
organized pursuant to the Constitution or statutes of the state of ARIZONA, or issued,
assumed, or guaranteed by any other state or territory of the United States or by any
counties, incorporated cities, towns, villages, municipalities, school districts, public
districts of any type organized pursuant to statute or constitution in other states or
territories where any of the foregoing political subdivisions are so designated, or by a
political subdivision thereof, or by any civil division or public instrumentality of one
or more of the foregoing, if, by statutory or other legal requirements applicable
thereto, such obligations are or may become payable, as to both principal and interest,
from taxes levied or required to be levied upon all taxable property or all taxable
income within the jurisdiction of such governmental unit. No investment authorized by
this section shall include any security issued by any such governmental unit if any
default on any other security issued by such governmental unit has occurred within five
years of such investment.
20-539 Federally guaranteed loans
An insurer may invest any of its funds in loans guaranteed as to principal and
interest by the United States or by any agency or instrumentality thereof, to the extent
of such guaranty.
20-540 Governmental revenue bonds and obligations; limitation; definitions
A. An insurer may invest in bonds, notes or evidences of indebtedness of any state,
any political subdivision of a state or any political subdivision of the United States
that are payable from revenues or earnings specifically pledged for the payment of the
principal and interest on such obligations, and for which a sinking fund or reserve fund
has been established and is being maintained, but only if no default in payment of
principal or interest on the obligations to be purchased has occurred within five years
of the date of the investment, or if such obligations were issued less than five years
prior to the date of investment, no default in payment of principal or interest has
occurred on the obligations to be purchased nor on any other obligations of the issuer
within five years of such investment.
B. An insurer shall not invest directly or indirectly in any medium grade or lower
grade obligation pursuant to this section if after giving effect to that investment the
aggregate amount of all medium grade and lower grade obligations held by the insurer
exceeds twenty per cent of its admitted assets and if both of the following apply:
1. No more than ten per cent of the insurer's admitted assets consist of
obligations that are rated as class 4, 5 or 6 by the securities valuation office of the
national association of insurance commissioners.
2. No more than one per cent of the insurer's admitted assets consist of
obligations that are rated as class 5 or 6 by the securities valuation office of the
national association of insurance commissioners.
C. For purposes of this section:
1. "Lower grade obligation" means any bond, note or evidence of indebtedness that
is rated as class 4, 5 or 6 by the securities valuation office of the national
association of insurance commissioners.
2. "Medium grade obligation" means any bond, note or evidence of indebtedness that
is rated as class 3 by the securities valuation office of the national association of
insurance commissioners.
20-541 Improvement district obligations
An insurer may invest in bonds, notes or evidences of indebtedness issued by any
local improvement district in this or any other state to finance local improvements
authorized by law, if the principal and interest of such obligations is payable from
assessments on real property within such local improvement district. No such investment
shall be made unless the face value of all such obligations, and similar obligations
outstanding do not exceed fifty per cent of the market value of the real property and
improvements upon which the bonds or the assessments for the payment of principal and
interest thereon are liens inferior only to the liens for general ad valorem property
taxes. No such investment shall be made unless no default in payment of principal or
interest on the obligations to be purchased has occurred within five years of the date of
investment therein, or if such obligations were issued less than five years prior to the
date of investment, no default in payment of principal or interest has occurred on the
obligations to be purchased or on any other obligation of the issuer within five years of
such investment.
20-543 Acceptances and bills of exchange
An insurer may invest in bank and bankers' acceptances and other bills of exchange
of the kind and maturity made eligible pursuant to law for purchase in the open market by
federal reserve banks.
20-544 Corporate obligations
An insurer may invest in bonds, debentures, notes, commercial paper and other
evidences of indebtedness issued, assumed or guaranteed by any solvent institution
created or existing under the laws of the United States or of any state, district or
territory of the United States, which are not in default as to principal or interest and
which have received an investment grade rating approved by the director. The director
shall by order after a hearing prescribe the investment grade rating and the recognized
rating agencies for the purposes of this section. Private placement obligations
which have not received an investment grade rating may be eligible for investment if the
issuer has comparable outstanding obligations which have received an investment grade
rating approved by the director. The director shall prescribe standards by order after a
hearing by which obligations of issuers which have not received an investment grade
rating may be eligible for investment.
20-545 Preferred, guaranteed or preference stock
An insurer may invest in preferred, guaranteed or preference stocks or shares of any
solvent institution created or existing under the laws of the United States or of any
state, district or territory of the United States if those preferred, preference or
guaranteed stocks or shares have received an investment grade rating as approved by the
director. The director shall by order after a hearing prescribe the investment grade
ratings and the recognized rating agencies for the purposes of this section. Preferred,
guaranteed or preference stocks which have not received an investment grade rating may be
eligible for investment if the issuer has issued comparable preferred, guaranteed or
preference stocks which have received an investment grade rating approved by the
director. The director shall prescribe standards by order after a hearing by which
preferred, guaranteed or preference stocks which have not received an investment grade
rating may be eligible for investment.
20-546 Common stocks
An insurer may invest in nonassessable, except for taxes or wages, common stocks or
shares of any solvent institution, created or existing under the laws of the United
States or of any state, district or territory of the United States.
20-547 Equipment trust certificates
An insurer may invest in equipment trust obligations or certificates which in the
opinion of the director are adequately secured, or other instruments so secured and
evidencing an interest in transportation equipment, wholly or in part within the United
States, which carry the right to receive determined portions of rental, purchase or other
fixed obligatory payments to be made for the use or purchase of the transportation
equipment.
20-548 Obligations of receivers or trustees
An insurer may invest in certificates, notes or other obligations issued by trustees
or receivers of any institution created or existing under the laws of the United States
or of any state, district or territory thereof, which, or the assets of which, are being
administered under the direction of any court having jurisdiction, if such obligation in
the opinion of the director is adequately secured as to principal and interest.
20-549 Investments not otherwise authorized; limitations; appraisal; cost
A. An insurer may make loans or investments not otherwise qualifying or permitted
under this article in an amount not exceeding in the aggregate ten per cent of the
insurer's assets, and not exceeding two per cent of such assets as to any one such loan,
investment or category of investment, except that such loan or investment shall not be
represented by any item described in section 20-503.
B. The insurer shall fulfill the requirements of section 20-534 and shall maintain
sufficient information so that the director can reasonably ascertain the market value of
the loan or investment. The director may employ appraisers or other experts to assist in
determining the value of the loans or investments. The insurer shall pay the cost
incurred for any appraisal.
20-550 Policy loans
A life insurer may lend to its policyholder upon pledge of the policy as collateral
security a sum not exceeding the applicable cash surrender value specified in the policy.
20-551 Investments or deposits in financial institutions
A. An insurer may invest or deposit any of its funds in share, checking or savings
accounts, in certificates of deposit or in any other deposit or account in solvent banks
or in foreign branches of such banks, credit unions or savings and loan associations
which are insured by an agency of the federal government. Branches of foreign banks
located in the United States are deemed banks for the purposes of this subsection as long
as they are in compliance with applicable state and federal banking laws and regulations.
B. An insurer may invest in obligations issued, assumed or guaranteed by those
multinational development banks in which the United States is a member nation, including
the international bank for reconstruction and development, the African development bank,
the Asian development bank and the Inter-American development bank.
C. An insurer may invest or deposit its funds in any deposit, account or obligation
of a foreign bank that has been determined by the securities valuation office of the
national association of insurance commissioners to meet the credit standards for issuing
letters of credit in support of the liability of a reinsurer to a ceding insurer or has
demonstrated to the director that it meets or exceeds both the following standards:
1. Is domiciled in a country with a sovereign debt rating of "Aaa" or "AAA" for its
long-term debt or P1 or A1 for its short-term debt by Moody's investors service or
standard and poor or an equivalent rating by any other nationally recognized statistical
rating organization.
2. Either of the following:
(a) For investment issues with maturities in excess of three hundred sixty-five
days, has a long-term debt service rating of "Aa" by Moody's investor service or "AA" by
standard and poor or an equivalent rating by any other nationally recognized statistical
rating organization.
(b) For investment issues with maturities of three hundred sixty-five days or less,
has a short-term debt service rating of P1 or A1 by Moody's investors service or standard
and poor or an equivalent rating by any other nationally recognized statistical rating
organization.
D. An insurer may invest or deposit its funds in any deposit, account or obligation
of a solvent foreign bank that does not meet the requirements of subsection C of this
section, if the amount of the investments or deposits do not exceed one hundred five per
cent of the insurer's obligations to policyholders in the foreign country as denominated
in the currency of the foreign country and the investments or deposits in the aggregate
do not exceed ten per cent of the insurer's surplus as regards policyholders.
E. An investment or deposit made pursuant to subsections C and D of this section
shall also be applied to the limitation of the amount of an insurer's assets that may be
invested pursuant to section 20-552.
20-552 Foreign securities
An insurer may make investments in securities of or in a foreign country possessing
characteristics and of a quality similar to those required pursuant to this article for
investments in the United States.
20-553 Mortgages on real estate; definitions
A. An insurer may invest any of its funds in bonds, notes or other evidences of
indebtedness that are secured by first mortgages or deeds of trust on improved,
unencumbered real property located in the United States, or that are secured by first
mortgages or deeds of trust on leasehold estates having an unexpired term of not less
than twenty-one years, inclusive of the term that may be provided by an enforceable
option of renewal, in improved, unencumbered real property located in the United States.
B. Real property shall not be deemed to be encumbered within the meaning of this
section by reason of the existence of instruments reserving mineral, oil or timber
rights, rights-of-way, sewer rights, rights in walls, nor by reason of any liens for
taxes or assessments not delinquent, nor by reason of building restrictions or other
restrictive covenants, nor when such real property is subject to lease under which rents
or profits are reserved to the owner, if in any event the security for the loan is a
first lien on the real property and if there is no condition or right of reentry or
forfeiture under which, in the case of real property other than leaseholds, the lien can
be cut off, subordinated or otherwise disturbed, or under which, in the case of
leaseholds, the insurer is unable to continue the lease in force for the duration of the
loan.
C. No mortgage loan or loans made or acquired by an insurer on any one property
shall, at the time of investment by the insurer, exceed eighty per cent of the value of
the real property or leasehold securing the loan, except that the loan or loans may equal
the amount of any guaranty by the United States or any agency or instrumentality of the
United States.
D. An insurer shall not make or acquire a mortgage loan or loans except after an
appraisal made by a qualified appraiser for the purpose of the investment.
E. An insurer may invest any of its funds in an undivided interest or participation
in any bond, note or other evidence of indebtedness secured by a first mortgage or deed
of trust that would be eligible as an investment by the insurer pursuant to subsection A
if the following requirements are met:
1. The mortgagee or beneficiary of the deed of trust is a trustee specifically
designated by a participation agreement or otherwise who is required to act as trustee
for all persons or institutions owning an interest in or participating in the bonds,
notes or other evidences of indebtedness that are secured by the mortgage or deed of
trust. The trustee may be one of the participants in the bonds, notes or other evidences
of indebtedness secured by the mortgage or deed of trust.
2. The participant in or co-owner of any of the bonds, notes or other evidences of
indebtedness does not have any interest in the mortgage or deed of trust superior to that
of the insurer.
3. The trustee is under an obligation to distribute all payments, proceeds and
recoveries from the notes, bonds, evidences of indebtedness, mortgages and deeds of trust
ratably without preference among all participants.
F. No mortgage loan on a leasehold shall be made or acquired pursuant to this
section unless the terms of the loan provide for amortization payments to be made by the
borrower on the principal of the loan at least once in each year in amounts sufficient
completely to amortize the loan within a period of four-fifths of the term of the
leasehold, inclusive of the term which may be provided by an enforceable option of
renewal, that is unexpired at the time the loan is made, but in no event exceeding
thirty-five years.
G. An insurer may invest in construction loans pursuant to this section and the
accounting practices and procedures manual adopted by the national association of
insurance commissioners, if the real property is improved or will be improved with the
proceeds of the construction loan. The insurer shall not report the construction loan in
an amount that is more than eighty per cent of the fair value of the property. The
appraisal prescribed in subsection D may take into consideration the improvements to be
constructed. However, the appraisal shall take into consideration the percentage of
completion of the property in determining the fair value of the property securing the
amount advanced under the construction loan.
H. At any one time, an insurer shall not invest more than two per cent of its
assets in construction loans allowed pursuant to this article.
I. For the purposes of this section:
1. "Construction loan" means a mortgage loan that is less than three years in term,
that is made for financing the cost of construction of any building or other improvement
to real estate and that is secured by the real estate.
2. "Improved real property" includes all land that has been reclaimed and that is
used for the purpose of husbandry, whether for tillage or pasture.
20-554 Purchase money mortgages
An insurer may invest in purchase money mortgages or like securities, received by it
upon the sale or exchange of real property theretofore owned by it.
20-555 Security agreements; definition
A. In connection with a mortgage loan on the security of real property designed and
used primarily for residential purposes only, which mortgage loan was acquired pursuant
to section 20-553, an insurer may lend or invest an amount not exceeding twenty per cent
of the amount loaned on or invested in such real property mortgage in a security
agreement for a term of not more than five years, representing a first and prior lien,
except for taxes not then delinquent, on personal property constituting durable equipment
owned by the mortgagor and kept and used in the mortgaged premises.
B. For the purposes of this section, the term "durable equipment" shall include
only mechanical refrigerators, air conditioning equipment, mechanical laundering
machines, heating and cooking stoves and ranges, and in addition, in the case of
apartment houses and hotels, room furniture and furnishings.
C. Prior to the acquisition of a security interest under this section, items of
property to be included therein shall be separately appraised by a qualified appraiser
and the fair market value thereof determined. No such security interest may exceed in
amount the same ratio of loan to the value of the property as is applicable to the
companion loan on the real property.
20-556 Real property
An insurer, including for the purposes of this section a reciprocal insurer, may
invest in real property only if acquired or used for the following purposes and in the
following manner:
1. The land and the building thereon in which it has its principal office, and such
other real property as shall be requisite for its convenient accommodation in the
transaction of its business, but no such investments shall aggregate more than an amount
equal to the excess of the insurer's assets over its required policy reserves plus fifty
per cent of the surplus to policyholders required under this title for initial
authorization for the kinds of insurance it is transacting at the time the investment is
made.
2. Such real property as has been acquired in satisfaction of loans, mortgages,
liens, judgments, decrees or debts previously owing to the insurer in the course of its
business.
3. Such real property as has been acquired in part payment of the consideration on
the sale of real property owned by it, if each transaction effected a net reduction in
the insurer's investment in real property.
4. Such real property, or any interest therein, as may be acquired as an investment
for the production of income, or as may be acquired to be improved or developed for such
investment purpose, pursuant to an existing program therefor. An insurer shall not,
except with the director's consent, have at any one time over twenty per cent of its
assets invested in all its investments pursuant to this paragraph, nor more than five per
cent of its assets so invested in any single parcel or related parcels of real property.
5. The seller's interest in real property subject to an agreement of purchase or
sale, but the sum invested in any such parcel of real property shall not exceed
two-thirds of the market value of the parcel.
6. Additional real property and equipment incident to real property, if necessary
or convenient for the purpose of enhancing the sale or other value of real property
previously acquired or held by it, pursuant to the provisions of paragraph 2, 3 or 4 of
this section. An insurer shall not, except with the director's consent, have at any time
invested in excess of ten per cent of its assets in the investments authorized by this
paragraph. 20-557 Second mortgages
A. An insurer may invest in bonds, notes or other evidences of indebtedness that
are secured by second mortgages or deeds of trust on improved real property located in
the United States. An insurer shall not make or acquire either:
1. A loan or investment if the total of the outstanding indebtedness of the first
and second mortgages or deeds of trust exceeds eighty per cent of the value of the real
property.
2. A loan secured by a second lien if the borrower, without the approval of the
insurer, is entitled to increase the principal amount of the indebtedness secured by the
prior first mortgage except to the extent the amount of the increase is applied in
reduction of the investment held by the insurer.
B. An insurer may invest in construction loans pursuant to this section if the real
property is improved or will be improved with the proceeds of the construction loan and
if the insurer's total investment in construction loans is not more than the amount
prescribed in section 20-553, subsection H.
20-558 Investment company or trust; mutual funds
An insurer may invest in the securities of any open end management type investment
company, investment trust or mutual fund registered with the United States securities and
exchange commission or in a common trust fund of a bank regulated by a federal or state
agency within the limitations prescribed by this article if the investments held by the
investment company or common trust fund, if added to the assets of the insurer on a basis
that is in the same proportion that the shares of the investment company or investments
in a common trust fund held by the insurer bear to all of the shares of the investment
company or investments in a common trust fund outstanding, would not cause the insurer to
exceed the limitations contained in this article.
20-559 Investments of foreign and alien insurers
A. Foreign and alien insurers transacting insurance in this state shall have assets
of the same general character and quality, and have invested in home office real property
as permitted under paragraph 1 of section 20-556, all as specified in this article for
domestic insurers, except that other investments authorized by the law of such an
insurer's state or country of domicile may be recognized as assets in the discretion of
the director.
B. A foreign insurer domiciled in a state that requires insurers domiciled in this
state to invest in the securities of such state a stipulated percentage or amount of its
reserves under its policies in force in such state, shall likewise be required to invest
in similar securities of this state a like percentage or amount of its reserves under its
policies in force in this state, and shall from time to time furnish proof of such
investments as required by the director.
20-561 Collateral loans
A. An insurer may lend its funds in negotiable promissory notes on the pledge of
any investment that qualifies under this article, other than real property. The insurer
shall not make a loan that is more than seventy-five per cent of the market value of the
collateral pledged. The loan documents shall provide that all of the rights and remedies
of a secured party provided by the law governing secured transactions in the jurisdiction
of the loan are available to the insurer, except that a borrower shall not have more than
twenty days to correct a default after the secured party has given notice of default in
writing to the borrower.
B. The amount loaned is an admitted asset to the extent that the amount loaned plus
the insurer's investments that are like those pledged are not more than the applicable
investment limitation or the limitation on the percentage of assets invested with a
single person prescribed by this article.
C. Sections 20-553, 20-554, 20-556 and 20-557 apply to loans that are secured by
real estate.
20-562 Insurer investments; partnerships; limited liability companies; limitations
A. An insurer that meets the standards prescribed in subsection B may invest in a
partnership or limited liability company interest if the investments held by the
partnership or limited liability company, if added to the assets of the insurer in the
same proportion as the interests in the partnership or limited liability company held by
all other partners or members, would not cause the insurer to exceed the limitations
prescribed in this article.
B. To be eligible to make any investment provided in this section, an insurer shall
possess surplus as regards policyholders of at least:
1. Seven million dollars if the surplus is at least seven per cent of the insurer's
admitted assets.
2. One hundred million dollars if the surplus is at least six per cent of the
insurer's admitted assets.
3. Two hundred fifty million dollars if the surplus is at least five per cent of
the insurer's admitted assets.
C. Except with the director's consent, the eligible insurer investments pursuant to
this section are subject to the following limitations:
1. An insurer's investment in a partnership or limited liability company shall not
exceed two per cent of the insurer's admitted assets.
2. An insurer's total investments in partnerships and limited liability companies
shall not exceed ten per cent of the insurer's admitted assets.
20-581 Deposits of insurers
The state treasurer shall accept and hold in trust, when made through the director,
deposits of securities or funds by insurers as follows:
1. Deposits required for authority to transact insurance in this state.
2. Deposits of domestic, foreign or alien insurers when made pursuant to the laws
of other states, provinces and countries as prerequisite for authority to transact
insurance in such state, province or country.
3. Deposits in such additional amounts as are permitted to be made by section
20-587.
20-582 Purpose of deposits
Deposits made under the provisions of section 20-581, shall be held for purposes as
follows:
1. When the deposit is required for authority to transact insurance in this state
the deposit shall be held for the protection of all the insurer's policyholders within
the United States.
2. When the deposit is required pursuant to the laws of another state, province or
country, the deposit shall be held for such purposes as are required by such laws, and as
specified by the director at the time the deposit is made.
3. When the deposit is required pursuant to the retaliatory provision set forth in
section 20-230, the deposit shall be held for purposes as specified in the director's
order requiring the deposit.
20-583 Assets eligible for deposit
A. All deposits required for authority to transact insurance in this state shall
consist of cash or any combination of the securities described in the following
sections: section 20-537, section 20-538 and section 20-551, subsection A. The deposits
by domestic stock life and disability insurers only or either of assets described in
section 20-538 shall be limited to bonds and other evidences of indebtedness of this
state or any of the counties or incorporated cities, towns or duly organized school
districts within this state, and the deposits of assets described in section 20-551,
subsection A shall be limited to banks or trust companies, credit unions and savings and
loan associations which are domiciled in this state, but such limitations shall not apply
to that part of those deposits which are in excess of the minimum amount necessary to
transact insurance in this state.
B. All such deposits required pursuant to the laws of another state, province or
country, or pursuant to the retaliatory provision set forth in section 20-230, shall
consist of such assets as are required or permitted by such laws or as required pursuant
to the retaliatory provision.
20-584 Trust companies as depositaries
Upon request of the insurer, the state treasurer may designate any solvent trust
company or other solvent financial institution having trust powers domiciled in this
state as the treasurer's depositary to receive and hold any such deposit. Any such
deposit so held shall be at the expense of the insurer.
20-585 Responsibility of state for safekeeping of deposits
The state shall be responsible for the safekeeping and return of all funds and
securities deposited pursuant to this title with the state treasurer or in any depositary
so designated by him.
20-586 Rights of insurer during solvency
As long as the insurer remains solvent and complies with this title it may:
1. Demand, receive, sue for and recover the income from the securities or cash
deposited.
2. Exchange and substitute for the deposited cash or securities, or any part of the
cash or securities, cash or eligible securities of equivalent or greater value.
3. Inspect, at reasonable times, any such deposit made in a form other than book
entry.
20-587 Excess deposits
An insurer may so deposit cash or eligible securities in an amount exceeding its
deposit required or otherwise permitted under this title by not more than one hundred
thousand dollars, for the purpose of absorbing fluctuations in the value of securities
held in its deposit, and to facilitate the exchange and substitution of securities
deposited. During the solvency of the insurer any such excess deposit or part thereof
shall be released to the insurer upon its request. During the insolvency of the insurer
the excess deposit shall be released only as provided in section 20-588.
20-588 Release of deposits
A. Any deposit made in this state under this title shall be released and returned:
1. To the insurer upon extinguishment by reinsurance or otherwise of substantially
all liability of the insurer for the security of which the deposit is held.
2. To the insurer to the extent such deposit is in excess of the amount required.
3. Upon proper order of a court of competent jurisdiction to the receiver,
conservator, rehabilitator or liquidator of the insurer, or to any other properly
designated official or officials who succeed to the management and control of the
insurer's assets.
B. No release of deposited funds shall be made except upon application to and the
written order of the director. The director shall have no personal liability for any
such release of any such deposit or part thereof so made by him in good faith.
20-589 Levy upon deposits prohibited; exception
No judgment creditor or other claimant of an insurer shall levy upon any deposit
held pursuant to this title, or upon any part thereof, but such levy may be permitted if
so specified in the director's order requiring the deposit pursuant to the retaliatory
provision set forth in section 20-230.
20-611 Definitions
For the purpose of this article:
1. "Ancillary state" means any state other than a domiciliary state.
2. "Court" means, unless the context otherwise requires, the judge of the superior
court assigned to the delinquency proceeding.
3. "Delinquency proceeding" means any proceeding commenced against an insurer
pursuant to this article for the purpose of liquidating, rehabilitating, reorganizing or
conserving such insurer.
4. "Domiciliary state" means the state in which an insurer is incorporated or
organized, or in the case of an insurer incorporated or organized in a foreign country,
the state in which such insurer, having become authorized to do business in such state,
has, at the commencement of delinquency proceedings, the largest amount of its assets
held in trust and assets held on deposit for the benefit of its policyholders or
policyholders and creditors in the United States, and any such insurer is deemed to be
domiciled in such state.
5. "Foreign country" means territory not in any state.
6. "General assets" means all property, real, personal or otherwise, not
specifically mortgaged, pledged, deposited or otherwise encumbered for the security or
benefit of specified persons or a limited class or classes of persons, and as to such
specifically encumbered property the term includes all such property or its proceeds in
excess of the amount necessary to discharge the amount or amounts secured thereby.
Assets held in trust and assets held on deposit for the security or benefit of all
policyholders or all policyholders and creditors in the United States shall be deemed
general assets.
7. "Impairment" or "insolvency" means that the capital of a stock insurer or
limited capital stock insurer, or the surplus of a mutual or reciprocal insurer, shall be
deemed to be impaired and the insurer shall be deemed to be insolvent, when such insurer
is not possessed of assets at least equal to all liabilities and required reserves
together with its total issued and outstanding capital stock if a stock insurer, or the
minimum surplus if a mutual or reciprocal insurer, required by this title to be
maintained for the kind or kinds of insurance it is then authorized to transact.
8. "Insurer" means any person, firm, corporation, association or aggregation of
persons doing an insurance business and subject to the insurance supervisory authority
of, or to liquidation, rehabilitation, reorganization or conservation by the director or
the equivalent insurance supervisory official of another state.
9. "Preferred claim" means any claim with respect to which the law of the state or
of the United States accords priority of payments from the general assets of the insurer.
10. "Receiver" means the director as receiver, liquidator, rehabilitator or
conservator as the context may require.
11. "Reciprocal state" means any state other than this state in which in substance
and effect the provisions of the uniform insurers liquidation act, as defined in section
20-631, are in force, including the provisions requiring that the director of insurance
or equivalent insurance supervisory official be the receiver of a delinquent insurer.
12. "Secured claim" means any claim secured by mortgage, trust deed, pledge, deposit
as security, escrow or otherwise, including federal, state or local tax liens that are
perfected before the commencement of a delinquency proceeding but not including a special
deposit claim or claims against general assets. The term also includes claims that more
than four months prior to the commencement of delinquency proceedings in the state of the
insurer's domicile have become liens on specific assets by reason of judicial process.
13. "Special deposit claim" means any claim secured by a deposit made pursuant to
statute for the security or benefit of a limited class or classes of persons, but not
including any general assets.
14. "State" means any state of the United States, the District of Columbia and the
territories and possessions of the United States. 20-612 Delinquency proceedings; jurisdiction; venue; nature of remedy; appeal
A. The superior court is vested with exclusive original jurisdiction of delinquency
proceedings under this article, and is authorized to make all necessary and proper orders
to carry out the purposes of this article.
B. The venue of delinquency proceedings against a domestic, foreign or alien
insurer shall be in Maricopa county.
C. Delinquency proceedings pursuant to this article shall constitute the sole and
exclusive method of liquidating, rehabilitating, reorganizing or conserving an insurer,
and no court shall entertain a petition for the commencement of such proceedings unless
it has been filed in the name of the state on the relation of the director of insurance.
D. An appeal shall lie to the supreme court from an order granting or refusing
rehabilitation, liquidation or conservation, and from every other order in delinquency
proceedings having the character of a final order as to the particular portion of the
proceedings embraced therein.
20-613 Commencement of delinquency proceedings
A. The director of insurance shall commence any such proceeding, the attorney
general representing him, by an application to the court for an order directing the
insurer to show cause why the director should not have the relief prayed for. On the
return of the order to show cause, and after a full hearing, the court shall either deny
the application or grant the application, together with such other relief as the nature
of the case and the interests of policyholders, creditors, stockholders, members,
subscribers or the public requires.
B. The director may file with the superior court a certificate stating that the
delinquency proceeding is of special public importance. On receipt of the certificate
the presiding judge of the superior court immediately shall designate a judge to hear and
determine the proceeding. The designated judge shall assign the proceeding for hearing
at the earliest practicable date and cause the proceeding to be expedited in every way,
including applications for temporary restraining orders, preliminary injunctions and
orders appointing receivers. An expedited hearing under this subsection is in addition
to the requirements of section 20-172, subsection A.
C. Pending proceedings commenced under section 20-169, the director is not
precluded from commencing a delinquency proceeding under this article. The pendency of
proceedings under section 20-169 is not a ground for denying an application for an order
under this article.
20-614 Injunctions
A. Upon application by the director for an order to show cause, or at any time
thereafter, the court may without notice issue an injunction restraining the insurer, its
officers, directors, stockholders, members, subscribers and agents and all other persons
from the transaction of its business or the waste or disposition of its property until
further order of the court.
B. The court may at any time during a proceeding under this article issue such
other injunctions or orders as is deemed necessary to prevent any of the following:
1. Interference with the receiver or the proceeding.
2. The waste of the assets of the insurer.
3. The commencement or prosecution of any actions.
4. The obtaining of preferences, judgments, attachments or other liens.
5. The making of any levy against the insurer or against its assets or any part of
its assets.
C. The court may also prescribe exclusive conditions and procedures for access to
information from the receiver including procedures for the inspection or copying of the
records of the insurer or receiver. The court may not place conditions on a reinsurer's
contract rights to access to claim files other than the payment of reasonable charges for
locating and copying the records.
D. Notwithstanding any other provision of law, no bond shall be required of the
director or receiver as a prerequisite for the issuance of any injunction or restraining
order pursuant to this section or for the filing of any appeal or other action for which
a bond may be required.
20-615 Grounds for rehabilitation of domestic insurers
The director may apply to the court for an order appointing the director as receiver
of and directing the director to rehabilitate a domestic insurer upon one or more of the
following grounds:
1. That the insurer is impaired or insolvent.
2. That the insurer has refused to submit its books, records, accounts or affairs
to reasonable examination by the director.
3. That the insurer has failed to comply with an order of the director to make good
an impairment of capital or surplus, or both.
4. That the insurer has transferred or attempted to transfer substantially its
entire property or business, or has entered into any transaction the effect of which is
to merge substantially its entire property or business in that of any other insurer
without having first obtained the written approval of the director.
5. That the insurer has wilfully violated its charter or any law of this state.
6. That the insurer has an officer, director or manager who has refused to be
examined under oath concerning its affairs, for which purpose the director is authorized
to conduct and to enforce by all appropriate and available means any such examination
under oath in any other state or territory of the United States, in which any such
officer, director or manager may then presently be, to the full extent permitted by the
laws of such other state or territory, this special authorization considered.
7. That the insurer has been the subject of an application for the appointment of a
receiver, trustee, custodian or sequestrator of the insurer or its property otherwise
than pursuant to the provisions of this title, but only if such appointment has been made
or is imminent and its effect is or would be to oust the courts of this state of
jurisdiction under this section.
8. That the insurer has consented to such an order through a majority of its
directors, stockholders, members or subscribers.
9. That the insurer has failed to pay a final judgment rendered against it in this
state upon any insurance contract issued or assumed by it, within thirty days after the
judgment became final or within thirty days after the time for taking an appeal has
expired, or within thirty days after dismissal of an appeal before final termination,
whichever date is later.
10. That an authorized control level event or mandatory control level event has
occurred with respect to the insurer as prescribed in chapter 2, article 12 of this
title.
20-616 Grounds for liquidation
The director may apply to the court for an order appointing him as receiver, if his
appointment as receiver is not then in effect, and directing him to liquidate the
business of a domestic insurer or of the United States branch of an alien insurer having
trusteed assets in this state, regardless of whether or not there has been a prior order
directing him to rehabilitate such insurer, upon any of the grounds specified in section
20-615, or if such insurer:
1. Has ceased transacting business for a period of one year.
2. Is an insolvent insurer and has commenced voluntary liquidation or dissolution,
or attempts to commence or prosecute any action or proceeding to liquidate its business
or affairs, or to dissolve its corporate charter, or to procure the appointment of a
receiver, trustee, custodian or sequestrator under any law except this title.
20-617 Grounds for conservation of foreign insurers
The director may apply to the court for an order appointing him as receiver or
ancillary receiver, and directing him to conserve the assets within this state, of a
foreign insurer upon any of the following grounds:
1. Upon any of the grounds specified in sections 20-615 or 20-616.
2. Upon the ground that its property has been sequestrated in its domiciliary
sovereignty or in any other sovereignty.
20-618 Grounds for conservation of alien insurers
The director may apply to the court for an order appointing him as receiver or
ancillary receiver, and directing him to conserve the assets within this state, of any
alien insurer upon any of the following grounds:
1. Upon any of the grounds specified in sections 20-615 or 20-616.
2. Upon the ground that the insurer has failed to comply, within the time
designated by the director, with an order made by him to make good an impairment of its
trusteed funds.
3. Upon the ground that the property of the insurer has been sequestrated in its
domiciliary sovereignty or elsewhere.
20-619 Grounds for ancillary liquidation of foreign insurers
The director may apply to the court for an order appointing the director as
ancillary receiver of and directing the director to liquidate the business of a foreign
insurer having assets, business or claims in this state upon the occurrence of either:
1. The appointment in the domiciliary state of the insurer of any receiver,
liquidator, conservator, rehabilitator or other officer by whatever name called for the
purpose of liquidating the business of the insurer.
2. A mandatory control level event as prescribed by chapter 2, article 12 of this
title, if any receiver, liquidator, conservator, rehabilitator or other officer by
whatever name called is not appointed in the insurer's domiciliary state.
20-620 Order of rehabilitation; termination
A. An order to rehabilitate a domestic insurer shall direct the receiver to take
immediate possession of the property of the insurer, to conduct its business and to take
such steps toward removal of the causes and conditions which have made rehabilitation
necessary as the court may direct.
B. If at any time the receiver deems that further efforts to rehabilitate the
insurer would be useless, he may apply to the court for an order of liquidation.
C. The receiver, or any interested person upon due notice to the receiver, at any
time may apply to the court for an order terminating the rehabilitation proceedings and
permitting the insurer to resume possession of its property and the conduct of its
business, but no such order shall be granted except when, after a full hearing, the court
has determined that the purposes of the proceeding have been fully accomplished.
20-621 Order of liquidation of domestic insurers
A. An order to liquidate the business of a domestic insurer shall direct the
receiver to take immediate possession of the property of the insurer, to liquidate its
business, to deal with the insurer's property and business in the receiver's own name as
receiver or in the name of the insurer, as the court may direct, and to give notice to
all creditors who have claims against the insurer to present such claims.
B. The receiver may apply for and secure an order dissolving the corporate
existence of a domestic insurer upon his application for an order of liquidation of the
insurer or at any time after such order has been granted.
20-622 Order of liquidation of alien insurers
An order to liquidate the business of a United States branch of an alien insurer
having trusteed assets in this state shall be in the same terms as those prescribed for
domestic insurers, except that the assets of the business of such United States branch
shall be the only assets included therein.
20-623.01 Conduct of all delinquency proceedings
A. In any delinquency proceeding, the receiver may appoint one or more special
deputy receivers to act for the receiver and may employ, as the receiver deems necessary,
counsel, clerks and assistants. Subject to the approval of the court, the receiver shall
fix the compensation of the special deputies, counsel, clerks or assistants and all
expenses of taking possession of the insurer and of conducting the proceeding and shall
use the funds or assets of the insurer to pay the compensation and expenses. Subject to
the limits of duties imposed on a special deputy, in any delinquency proceeding the
special deputy possesses all of the powers given to the receiver and, in the exercise of
those powers, is subject to all of the duties imposed on the receiver.
B. No person except the receiver may cancel or terminate an insurance policy under
which another insurer who is the subject of a delinquency proceeding is included in the
policy as an owner or insured, based on the director or receiver instituting the
delinquency proceeding or any other action pursuant to this article.
20-623 Order of conservation or ancillary liquidation of foreign or alien insurers
A. An order to conserve the assets of a foreign or alien insurer shall require the
director as ancillary receiver to take immediate possession of the property of the
insurer within this state and to conserve it, subject to the further direction of the
court.
B. An order to liquidate the assets in this state of a foreign insurer shall
require the director as ancillary receiver to take immediate possession of the property
of the insurer within this state and to liquidate it subject to the orders of the court
and with due regard to the rights and powers of the domiciliary receiver, as provided in
this article.
20-624 Conduct of delinquency proceedings against domestic and alien insurers
A. When under this article a receiver is to be appointed in delinquency proceedings
for a domestic or alien insurer, the court shall appoint the director of insurance as
receiver. The court shall order the receiver to take immediate possession of the assets
of the insurer and to administer them under the orders of the court.
B. As domiciliary receiver, the director shall be vested by operation of law with
the title to all of the property, contracts and rights of action and all of the books and
records of the insurer, wherever located, as of the date of entry of the order directing
him to rehabilitate or liquidate a domestic insurer or to liquidate the United States
branch of an alien insurer domiciled in this state, and he shall have the right to
recover the assets and reduce them to possession, except that ancillary receivers in
reciprocal states shall have, as to assets located in their respective states, the rights
and powers which are prescribed in this article for ancillary receivers appointed in this
state as to assets located in this state.
C. The recording of a certified copy of the order directing possession to be taken
in the office of the county recorder of the county where the proceedings are pending
shall impart the same notice as would be imparted by a deed, a bill of sale or any other
evidence of title duly recorded or filed.
D. The director as domiciliary receiver shall be responsible for the proper
administration of all assets coming into his possession or control. The court may at any
time require a bond from him or his deputies if deemed desirable for the protection of
the assets.
E. Upon taking possession of the assets of an insurer, the domiciliary receiver
shall, subject to the direction of the court, immediately proceed to conduct the business
of the insurer or to take such steps as are authorized by this article for the purpose of
rehabilitating, liquidating or conserving the affairs or assets of the insurer.
20-625 Conduct of delinquency proceedings against foreign insurers
A. When under this article an ancillary receiver is to be appointed in delinquency
proceedings for an insurer not domiciled in this state, the court shall appoint the
director of insurance as ancillary receiver. The director shall file a petition
requesting the appointment on the grounds set forth in section 20-619 if he finds that
there are sufficient assets of the insurer located in this state to justify the
appointment of an ancillary receiver, or if ten or more persons resident in this state
having claims against such insurer file a petition with the director requesting the
appointment of an ancillary receiver.
B. The domiciliary receiver for the purpose of liquidating an insurer domiciled in
a reciprocal state shall be vested by operation of law with the title to all of the
property, contracts and rights of action and all of the books and records of the insurer
located in this state, and he shall have the immediate right to recover balances due from
local agents and to obtain possession of any books and records of the insurer found in
this state. He shall also be entitled to recover the other assets of the insurer located
in this state, except that upon the appointment of an ancillary receiver in this state,
the ancillary receiver shall during the ancillary receivership proceedings have the sole
right to recover such other assets. The ancillary receiver shall, as soon as
practicable, liquidate from their respective securities those special deposit claims and
secured claims which are proved and allowed in the ancillary proceedings in this state,
and shall pay the necessary expenses of the proceedings. All remaining assets he shall
promptly transfer to the domiciliary receiver. Subject to the foregoing provisions, the
ancillary receiver and his deputies shall have the same powers and be subject to the same
duties with respect to the administration of such assets as a receiver of an insurer
domiciled in this state.
C. The domiciliary receiver of an insurer domiciled in a reciprocal state may sue
in this state to recover any assets of the insurer to which he may be entitled under the
laws of this state.
20-626 Claims of nonresidents against domestic insurers
A. In a delinquency proceeding begun in this state against a domestic insurer,
claimants residing in reciprocal states may file claims either with the ancillary
receivers, if any, in their respective states, or with the domiciliary receiver. All
such claims shall be filed on or before the last date fixed for the filing of claims in
the domiciliary delinquency proceedings.
B. Controverted claims belonging to claimants residing in reciprocal states may
either be proved in this state, or if ancillary proceedings have been commenced in such
reciprocal states, may be proved in those proceedings. In the event a claimant elects to
prove his claim in ancillary proceedings, if notice of the claim and opportunity to
appear and be heard is afforded the domiciliary receiver of this state as provided in
section 20-627 with respect to ancillary proceedings in this state, the final allowance
of such claim by the courts in the ancillary state shall be accepted in this state as
conclusive as to its amount and shall also be accepted as conclusive as to its priority,
if any, against special deposits or other security located within the ancillary state,
but shall not be conclusive as to its priority against general assets under section
20-629.
20-627 Claims against foreign insurers
A. In a delinquency proceeding in a reciprocal state against an insurer domiciled
in that state, claimants against the insurer who reside within this state may file claims
either with the ancillary receiver, if any, appointed in this state, or with the
domiciliary receiver. All such claims shall be filed on or before the last date fixed
for the filing of claims in the domiciliary delinquency proceedings.
B. Controverted claims belonging to claimants residing in this state may either be
proved in the domiciliary state as provided by the law of that state, or if ancillary
proceedings have been commenced in this state, be proved in those proceedings. In the
event that any such claimant elects to prove his claim in this state, he shall file his
claim with the ancillary receiver and shall give notice in writing to the receiver in the
domiciliary state, either by registered mail or by personal service at least forty days
prior to the date set for hearing. The notice shall contain a concise statement of the
amount of the claim, the facts on which the claim is based, and the priorities asserted,
if any. If the domiciliary receiver within thirty days after the giving of such notice
shall give notice in writing to the ancillary receiver and to the claimant, either by
registered mail or by personal service, of his intention to contest such claim, he shall
be entitled to appear or to be represented in any proceeding in this state involving
adjudication of the claim. The final allowance of the claim by the courts of this state
shall be accepted as conclusive as to its amount and shall also be accepted as conclusive
as to its priority, if any, against special deposits or other security located within
this state.
20-628 Proof of claims; notice; hearing
A. All claims against an insurer against which delinquency proceedings have been
begun shall set forth in reasonable detail the amount of the claim, or the basis upon
which such amount can be ascertained, the facts upon which the claim is based and the
priorities asserted, if any. All such claims shall be verified by the affidavit of the
claimant, or someone authorized to act on his behalf and having knowledge of the facts,
and shall be supported by such documents as may be material thereto.
B. All claims filed in this state shall be filed with the receiver, whether
domiciliary or ancillary, in this state, on or before the last date for filing as
specified in this article.
C. Within ninety days after the claims bar date, or within such further period as
the court may, for good cause shown, fix, the receiver shall report the claim to the
court, specifying in the report his recommendation with respect to the action to be taken
thereon. Upon receipt of the report, the court shall fix a time for hearing the claim
and shall direct that the claimant or the receiver, as the court specifies, shall give
such notice as the court determines to such persons as appear to the court to be
interested therein. All such notices shall specify the time and place of the hearing and
shall concisely state the amount and nature of the claim, the priorities asserted, if
any, and the recommendation of the receiver with reference thereto.
D. At the hearing, all persons interested shall be entitled to appear and the court
shall enter an order allowing, allowing in part or disallowing the claim. Any such order
shall be deemed to be an appealable order.
20-629 Priority of distribution; definition
A. In a delinquency proceeding against an insurer domiciled in this state, the
priority of distribution of claims from the general assets of the insurer shall be
determined pursuant to this section. Every claim in each class shall be paid in full or
adequate funds shall be reserved for the payment before the members of the next class may
receive any payment. Subclasses may not be established within any class. The order of
distribution is as follows:
1. The costs and expenses of administration incurred in connection with the
delinquency proceedings and, in a delinquency proceeding of a health care services
organization domiciled in this state, claims of providers for covered services rendered
pursuant to section 20-1069, subsection A, after the organization is declared insolvent
to the extent those claims are not fully funded by the plan for the risk of insolvency.
2. Claims of the ARIZONA property and casualty insurance guaranty fund established
pursuant to section 20-662 and the life and disability insurance guaranty fund
established pursuant to section 20-683 or a similar organization in another state to the
extent the organization provides substantially similar protection with respect to the
same kinds of insurance, including claims for unallocated loss adjustment expenses and
general administrative costs and expenses.
3. Claims under insurance policies and contracts and guaranteed investment
contracts except reinsurance, including claims under nonassessable policies for unearned
premiums, claims under annuity contracts, third party claims against insureds who are
covered under liability insurance policies and, in a delinquency proceeding of a health
care services organization that is domiciled in this state, claims of enrollees and
enrollees' beneficiaries including any claim that an enrollee may have because the
enrollee is liable to a provider for services that are provided pursuant to and covered
by the enrollee's health care plan with the health care services organization.
4. Claims of the federal government, except those claims under paragraph 3 of this
subsection and claims that are treated as secured claims.
5. Claims for compensation actually owing to employees of the insurer, other than
its officers, for services rendered to the insurer. This priority is in lieu of any other
similar priority authorized by law as to wages or compensation of employees.
6. Claims of any state or local government, except those claims under paragraph 3
of this subsection and claims that are treated as secured claims.
7. In a delinquency proceeding of a health care services organization that is
domiciled in this state, claims of providers who are required by law or agreement to hold
enrollees harmless from liability for services that are provided pursuant to and covered
by a health care plan.
8. Claims of other general creditors that do not fall within any other priority
under this section.
9. Claims that are filed after the date specified for filing proofs of claim
pursuant to section 20-640.
10. Claims of surplus note or certificate of contribution holders or other similar
obligations and for premium refunds on assessable policies.
11. Claims of shareholders, members or other owners in that capacity.
B. In a delinquency proceeding against an insurer domiciled in this state, the
priority of claims against the general assets of the insurer shall be determined pursuant
to this section regardless of where the claimant resides or where the assets are located.
C. In a delinquency proceeding against an insurer domiciled in a reciprocal state,
claims owing to residents of this state shall be preferred if like claims are preferred
by the laws of that state.
D. The owners of special deposit claims against an insurer for which a receiver is
appointed in this or any other state shall be given priority against their several
special deposits, including without limitation assets comprising the applicable separate
account, in accordance with the provisions of the statutes governing the creation and
maintenance of such deposits. If there is a deficiency in any such deposit so that the
claims secured are not fully discharged, the claimants may share in the general assets,
but such sharing shall be deferred until general creditors, all other persons who are
entitled to priority under subsection A, paragraph 3 of this section, and also claimants
against other special deposits who have received smaller percentages from their
respective special deposits have been paid percentages of their claims equal to the
percentage paid from the special deposit, subject to the applicable terms of any variable
life contract, variable annuity contract or guaranteed investment contract that is
supported by a separate account to the extent it is guaranteed by the general account.
This subsection shall not be applied in a manner that would reduce the value of any
general account guaranty.
E. The owner of a secured claim against an insurer for which a receiver has been
appointed in this or any other state may surrender the owner's security and file the
owner's claim as a general creditor, or the claim may be discharged by resort to the
security, in which case the deficiency, if any, shall be treated as a claim against the
general assets of the insurer on the same basis as claims of unsecured creditors. If the
amount of the deficiency has been adjudicated in ancillary proceedings as provided in
this article or if it has been adjudicated by a court of competent jurisdiction in
proceedings in which the domiciliary receiver has had notice and opportunity to be heard,
such amounts shall be conclusive. Otherwise the amount shall be determined in the
delinquency proceeding in the domiciliary state.
F. For the purposes of this section, "health care plan" has the same meaning
prescribed in section 20-1051.
20-630 Attachment and garnishment of assets
During the pendency of delinquency proceedings in this or any reciprocal state, no
action or proceeding in the nature of an attachment, garnishment or execution shall be
commenced or maintained in the courts of this state against the delinquent insurer or its
assets. Any lien obtained by any such action or proceeding within four months prior to
the commencement of any such delinquency proceeding or at any time thereafter shall be
void as against any rights arising in the delinquency proceeding.
20-631 Uniform insurers liquidation act
A. Section 20-611, paragraphs 1, 3 through 6 and 8 through 14 and sections 20-613,
20-614, 20-624, 20-625, 20-626, 20-627, 20-628, 20-629 and 20-630 are and may be cited as
the uniform insurers liquidation act.
B. The uniform insurers liquidation act shall be so interpreted and construed as to
effectuate its general purpose to make uniform the law of those states that enact it. To
the extent that its provisions when applicable conflict with other provisions of this
article the provisions of such act shall control.
20-632 Deposit of monies collected
The monies collected by the receiver in a proceeding under this article shall be
from time to time deposited in one or more state or national banks, savings banks or
trust companies, and in the case of the insolvency or voluntary or involuntary
liquidation of any such depositary which is an institution organized and supervised under
the laws of this state, such deposits shall be entitled to priority of payment on an
equality with any other priority given by the banking laws of this state. The receiver
may deposit such monies or any part thereof in a national bank or trust company as a
trust fund.
20-634 Borrowing on pledge of assets
For the purpose of facilitating the rehabilitation, liquidation, conservation or
dissolution of an insurer pursuant to this article, the receiver may, subject to the
approval of the court, borrow money and execute, acknowledge and deliver notes or other
evidences of indebtedness therefor and secure its repayment by the mortgage, pledge,
assignment, transfer in trust or hypothecation of any or all of the property, whether
real, personal or mixed, of the insurer, and the receiver, subject to the approval of the
court, may take any and all other action necessary and proper to consummate the loan and
to provide for the repayment thereof. The receiver is under no obligation personally or
in the receiver's official capacity to repay any loan made pursuant to this section.
20-635 Rights and liabilities fixed as of date liquidation order filed
The rights and liabilities of the insurer and of its creditors, policyholders,
stockholders, members, subscribers and all other persons interested in its estate shall,
unless otherwise directed by the court, be fixed as of the date on which the order
directing the liquidation of the insurer is filed in the office of the clerk of the court
which made the order, subject to the provisions of this article with respect to the
rights of claimants holding contingent claims.
20-636 Voidable transfers
A. Any transfer of, or lien upon, the property of an insurer which is made or
created within four months prior to the granting of an order to show cause under this
article with the intent of giving to any creditor or of enabling such creditor to obtain
a greater percentage of his debt than any other creditor of the same class, and which is
accepted by such creditor having reasonable cause to believe that such preference will
occur, shall be voidable.
B. Every director, officer, employee, stockholder, member and subscriber and any
other person acting on behalf of the insurer who is concerned in any such act or deed and
every person receiving thereby any property of the insurer or the benefit thereof shall
be personally liable therefor and shall be bound to account to the receiver.
C. The receiver in any proceeding under this article may avoid any transfer of or
lien upon the property of an insurer which any creditor, stockholder, subscriber or
member of such insurer might have avoided and may recover the property so transferred
unless such person was a bona fide holder for value prior to the date of the granting of
an order to show cause under this article. Such property or its value may be recovered
from anyone who has received it except a bona fide holder for value as specified in this
article.
20-638 Offsets
A. In all cases of mutual debts or mutual credits between the insurer and another
person in connection with any action or proceeding under this article, such credits and
debts shall be set off and the balance only shall be allowed or paid, except as provided
in subsection B of this section.
B. No offset shall be allowed in favor of any such person where the obligation of
the insurer to such person would not at the date of the entry of any liquidation order or
otherwise as provided in section 20-635, entitle him to share as a claimant in the assets
of the insurer, or the obligation of the insurer to such person was purchased by or
transferred to such person with a view of its being used as an offset, or the obligation
of such person is to pay an assessment levied against the members of a mutual insurer or
against the subscribers of a reciprocal insurer or is to pay a balance upon the
subscription to the capital stock of a stock insurer.
20-639 Allowance of certain claims
A. No contingent claim shall share in a distribution of the assets of an insurer
which has been adjudicated to be insolvent by an order made pursuant to this article,
except that such claim shall be considered, if properly presented, and may be allowed to
share where either:
1. Such claim becomes absolute against the insurer on or before the last day for
filing proof of claims against the assets of such insurer.
2. There is a surplus and the liquidation is thereafter conducted upon the basis
that such insurer is solvent.
B. Where an insurer has been so adjudicated to be insolvent any person who has a
cause of action against an insured of such insurer under a liability insurance policy
issued by such insurer shall have the right to file a claim in the liquidation
proceeding, regardless of the fact that the claim may be contingent, and the claim may be
allowed if all of the following requirements are met:
1. If it may be reasonably inferred from the proof presented upon the claim that
the person would be able to obtain a judgment upon the cause of action against the
insured.
2. If the person furnishes suitable proof, unless the court for good cause shown
otherwise directs, that no further valid claim against the insurer arising out of his
cause of action other than those already presented can be made.
3. If the total liability of the insurer to all claimants arising out of the same
act of its insured shall be no greater than its maximum liability would be were it not in
liquidation.
C. No judgment against such an insured taken after the date of entry of the
liquidation order shall be considered in the liquidation proceedings as evidence of
liability, or of the amount of damages, and no judgment against an insured taken by
default or by collusion prior to the entry of the liquidation order shall be considered
as conclusive evidence in the liquidation proceedings, either of the liability of the
insured to such person upon the cause of action or of the amount of damages to which the
person is therein entitled.
D. No claim of any secured claimant shall be allowed at a sum greater than the
difference between the value of the claim without security and the value of the security
itself as of the date of the entry of the order of liquidation or such other date set by
the court for determining rights and liabilities as provided in section 20-635 unless the
claimant surrenders the claimant's security to the receiver, in which event the claim
shall be allowed in the full amount for which it is valued.
20-640 Time to file claims
A. If, upon the granting of an order of liquidation under this article or at any
time thereafter during the liquidation proceeding, the insurer is not clearly solvent,
the court shall, after such notice and hearing as it deems proper, make an order
declaring the insurer to be insolvent. Thereupon regardless of any prior notice which
may have been given to creditors, the receiver shall notify all persons who may have
claims against the insurer and who have not filed proper proofs thereof to present them
to him, at a place specified in the notice, within four months from the date of entry of
the order, or if the receiver certifies that it is necessary, within such longer time as
the court shall prescribe. The last day for filing of proofs of claims shall be
specified in the notice, and notice shall be given in a manner to be determined by the
court.
B. Proofs of claim may be filed subsequent to the date specified, but no such claim
shall share in the distribution of the assets until all allowed claims, proofs of which
have been filed before such date, have been paid in full with interest according to the
priorities established in section 20-629.
20-641 Report for assessment
Within three years from the date an order of rehabilitation or liquidation of a
domestic mutual insurer or a domestic reciprocal insurer was filed in the office of the
clerk of the court by which the order was made, the receiver may make a report to the
court setting forth:
1. The reasonable value of the assets of the insurer.
2. The insurer's probable liabilities.
3. The probable necessary assessment, if any, to pay all claims and expenses in
full, including expenses of administration.
20-642 Levy of assessment
A. Upon the basis of the report provided for in section 20-641, including any
amendments thereof, the court, ex parte, may levy one or more assessments against all
members of the insurer who, as shown by the records of the insurer, were members, if a
mutual insurer, or subscribers, if a reciprocal insurer, at any time within one year
prior to the date of issuance of the order to show cause under section 20-613.
B. The assessment or assessments shall cover the excess of the probable liabilities
over the reasonable value of the assets, together with the estimated cost of collection
and percentage of uncollectibility thereof. The total of all assessments against any
member or subscriber with respect to any policy, whether levied pursuant to this article
or pursuant to any other provision of this title, shall be for no greater amount than
that specified in the policy or policies of the member or subscriber and as limited under
this title, except that if the court finds that the policy was issued at a rate of
premium below the minimum rate lawfully permitted for the risk insured, the court may
determine the upper limit of the assessment upon the basis of the minimum rate.
C. No assessment shall be levied against any member or subscriber with respect to
any nonassessable policy issued in accordance with this title.
20-643 Order to pay assessment
After levy of an assessment as provided in section 20-642, upon the filing of a
further detailed report by the receiver the court shall issue an order directing each
member, if a mutual insurer, or each subscriber, if a reciprocal insurer, if the member
or subscriber has not paid the amount assessed against the member or subscriber to the
receiver on or before a day specified in the order, to show cause why the member or
subscriber should not be held liable to pay such assessment, together with costs as
provided in section 20-645, and to show cause why the receiver should not have judgment
therefor.
20-644 Publication and service of assessment order
The receiver shall cause a notice of the assessment order, setting forth a brief
summary of the contents of the order, to be published in such manner as shall be directed
by the court, and enclosed in a sealed envelope, addressed and mailed postage prepaid, to
each member or subscriber liable thereunder at his last known address as it appears on
the records of the insurer, at least twenty days before the return day of the order to
show cause provided for in section 20-643.
20-645 Judgment upon assessment
A. Upon the return day of the order to show cause provided for in section 20-643,
if the member or subscriber does not appear and serve duly verified objections upon the
receiver, the court shall make an order adjudging that the member or subscriber is liable
for the amount of the assessment against him, together with costs, and that the receiver
may have judgment against the member or subscriber therefor.
B. If, on such return day, the member or subscriber appears and serves duly
verified objections upon the receiver, there shall be a full hearing before the court
which, after the hearing, shall make such order as the facts warrant.
C. Any such order shall have the same force and effect, shall be entered and
docketed and may be appealed from, as if it were a judgment in an original action brought
in the court in which the proceeding is pending.
20-646 Cooperation with ARIZONA property and casualty insurance guaranty fund and life and disability insurance guaranty fund
The provisions of this article shall be construed to permit the orderly and
effective payment of claims by the ARIZONA property and casualty insurance guaranty fund
established pursuant to article 6 of this chapter and the life and disability insurance
guaranty fund established pursuant to article 7 of this chapter.
20-647 Giving guaranty fund or association immediate access to assets
A. As soon as practicable after a final determination of insolvency of an insurer
by a court of competent jurisdiction of this state, the receiver may make application to
the court for approval of a proposal to distribute assets out of such company's marshaled
assets, from time to time as such assets become available, to the ARIZONA property and
casualty insurance guaranty fund established in section 20-662 and the life and
disability insurance guaranty fund established in section 20-683 or a similar
organization in another state to the extent the organization provides substantially
similar protection with respect to the same kinds of insurance.
B. Such proposal shall at least include provisions for:
1. Reserving amounts for the payment of claims of secured creditors and claims
accorded a higher priority pursuant to section 20-629.
2. Distribution of assets marshaled to date and subsequent distribution of assets
as such assets become available.
3. Equitable allocation of disbursements to each of the funds.
4. The securing by the receiver from each of the funds entitled to distribution
pursuant to this section of an agreement to return to the receiver such assets previously
distributed as may be required to pay claims of secured creditors and claims accorded a
higher priority pursuant to section 20-629. No bond shall be required of any such fund.
5. A full report to be made by the funds to the receiver accounting for all assets
distributed to the fund, all disbursements made, any interest earned by the funds from
such assets and any other matter as the court may direct.
C. The receiver's proposal shall provide for distribution to the funds in amounts
estimated to at least equal the claim payment made or to be made for which such funds
could assert a claim against the receiver, and shall further provide that if the assets
available for distribution do not equal or exceed the amount of such claim payments made
or to be made by the funds, then distribution shall be in the amount of available assets.
D. Notice of such application shall be given to the funds and to the commissioners
and directors of insurance of each of the states. Any such notice shall be deemed to
have been given when deposited in the United States mail, first class postage prepaid, at
least thirty days prior to submission of such application to the court. Action on the
application may be taken by the court if required notice has been given and if the
receiver's proposal complies with subsection B, paragraphs 1 and 2 of this section.
20-648 Receivership liquidation fund; purpose; deposit; expenses of receivership; deputy receiver; powers and duties
A. The director shall appoint a deputy receiver to administer the conservation,
rehabilitation or liquidation of an insurer pursuant to this article.
B. There is established a receivership liquidation fund. The deputy receiver shall
file a petition with the court authorizing the deputy receiver to deposit in the fund ten
per cent of the insolvent insurer's deposit required under section 20-213.
C. The common administrative costs of the receiverships incurred by the deputy
receiver are payable from the receivership liquidation fund. The director shall by order
after a hearing describe the nature of administrative costs common to every receivership
in the operation of the receivership office that are payable from this fund. Costs may
include the compensation of special deputies, clerks or assistants but shall not include
attorney fees.
D. The deputy receiver shall prepare and file with the court a quarterly financial
report listing expenditures and the balance remaining in the fund allocable to the
respective insurer. On termination of a receivership, the deputy receiver shall remit
any balance remaining in the fund which is allocated to a particular insurer to the
separate account for that receivership or to the person entitled to the monies. If the
common administrative expenses allocable to a receivership exceed the initial ten per
cent deposit to the fund, the deputy receiver may petition the court to authorize an
amount, equal to the excess, to be deposited in the fund.
20-649 Extension of time
A. Except as provided in subsection D, if any law, rule, order or agreement fixes a
period of time within which the insurer subject to a delinquency proceeding or the
receiver may commence an action, and that period is enforceable and has not expired
before the date of the commencement of the delinquency proceeding under this title, the
receiver may commence the action before any of the following, whichever is later:
1. The end of the period, including any suspension of the period occurring on or
after commencement of the delinquency proceeding under this title.
2. Five years after the entry of the order appointing the receiver.
3. A date set by the court that in no event is more than eight years after the
entry of the order appointing the receiver.
B. Except as provided in subsection A or D, if any law, rule, order or agreement
fixes a period of time within which the insurer subject to a delinquency proceeding or
the receiver may file any pleading, motion, demand, notice or proof of claim or loss, may
cure a default or may perform any other similar act and that period is enforceable and
has not expired before the commencement of the delinquency proceeding, the receiver may
file, cure or perform before either of the following, whichever is later:
1. The end of the period, including any suspension of the period occurring on or
after the commencement of the delinquency proceeding under this title.
2. One hundred twenty days after the entry of the order appointing the receiver.
C. Except as provided in subsection D, if any law, rule, order or agreement fixes a
period for commencing or continuing a civil action in any court on a claim against the
insurer in receivership, and that period has not expired before the date of the
commencement of the delinquency proceeding, the court may extend that period to permit
the filing of a claim with the receiver pursuant to this article.
D. The extension of time provided under this section does not apply to any other
time period imposed by this chapter, an agreement executed by the receiver and approved
by the court or an order of the court.
20-650 Recovery of shareholder liability
A. The receiver of an insurer may file a claim in the receivership proceeding to
recover the liability of shareholders under article XIV, section 11, Constitution of
ARIZONA.
B. Any amount recovered in an action under this section shall be distributed in the
same manner provided by law for the distribution of general assets of the estate.
C. The receiver shall bring an action pursuant to subsection A of this section,
within four years of the entry of an order of liquidation or other order fixing the
rights and liabilities of shareholders under section 20-635.
D. In an action pursuant to this section:
1. The defendant is not entitled to offset obligations of the insurer to the
defendant, except that a defendant may file a claim with the receiver for those
obligations.
2. The receiver shall recover costs and reasonable attorney fees.
20-651 Establishment of separate accounts; income, gains and losses; variable benefits; requirements; reserves
A. Any legal reserve life insurance company, except a limited capital stock
company, may establish one or more separate accounts, and may allocate amounts thereto,
including without limitation proceeds applied under optional modes of settlement or under
dividend options, to provide for life insurance, guaranteed investment contracts or
annuities, and benefits incidental thereto, payable in fixed or in variable dollar
amounts or in both.
B. The income, gains and losses, realized or unrealized, from assets allocated to a
separate account shall be credited to or charged against the account, without regard to
other income, gains or losses of the company.
C. Except with the approval of the director and under such conditions as to
investments and other matters as the director may prescribe, which shall recognize the
guaranteed nature of the benefits provided, reserves for benefits guaranteed as to dollar
amount and duration and funds guaranteed as to principal amount or stated rate of
interest shall not be maintained in a separate account.
D. Amounts allocated to a separate account in the exercise of the power granted by
this section shall be owned by the company and the company shall not be, nor hold itself
out to be, a trustee with respect to such amounts. If and to the extent so provided
under the applicable contracts, that portion of the assets of any such separate account
equal to the reserves and other contract liabilities with respect to such account shall
not be chargeable with liabilities arising out of any other business the company may
conduct.
E. To the extent such company deems it necessary to comply with any applicable
federal or state laws, such company, with respect to any separate account, including
without limitation any separate account which is a management investment company or a
unit investment trust, may provide for persons having an interest in the account
appropriate voting and other rights and special procedures for the conduct of the
business of such account, including without limitation special rights and procedures
relating to investment policy, investment advisory services, selection of independent
public accountants, and the selection of a committee, the members of which need not be
otherwise affiliated with such company, to manage the business of such account.
F. Any contract providing benefits payable in variable amounts that is delivered or
issued for delivery in this state shall contain a statement of the essential features of
the procedures to be followed by the company in determining the dollar amount of such
variable benefits. Any such contract under which the benefits vary to reflect investment
experience, including a group contract and any certificate in evidence of variable
benefits issued under the contract, shall state that such dollar amount will so vary and
shall contain on its first page a statement to the effect that the benefits under the
contract are on a variable basis.
G. Except for sections 20-1219, 20-1223, 20-1224, 20-1225, 20-1271 and 20-1274 in
the case of a variable annuity contract and sections 20-1203, 20-1207, 20-1209, 20-1211,
20-1212, 20-1213, 20-1231, 20-1231.01 and 20-1259 in the case of a variable life
insurance policy and except as otherwise provided in this section and in sections 20-515
and 20-536.01, all pertinent provisions of this title shall apply to separate accounts
and contracts relating to separate accounts. Any individual variable life insurance
contract or variable annuity contract delivered or issued for delivery in this state
shall contain grace, reinstatement and nonforfeiture provisions appropriate to such a
contract, and if participating, an appropriate dividend provision. Any group variable
life insurance contract or variable annuity contract delivered or issued for delivery in
this state shall contain grace and nonforfeiture provisions appropriate to such a
contract. The reserve liability for variable contracts shall be established in
accordance with actuarial procedures that recognize the variable nature of the benefits
provided and any mortality guarantees.
H. No company shall deliver or issue for delivery within this state variable
contracts unless it is licensed or organized to do a life insurance or annuity business
in this state, and the director is satisfied that its condition or methods of operation
in connection with the issuance of such variable contracts will not render its operation
hazardous to the public or its policyholders in this state. In this connection, the
director shall consider, among other things, all of the following:
1. The history and financial condition of the company.
2. The character, responsibility and fitness of the officers and directors of the
company.
3. In the case of a company other than a domestic company, whether the statutes and
regulations of the jurisdiction of its incorporation provide a degree of protection to
policyholders and the public which is substantially equal to that provided by this
section and the rules issued under this section. If the company is a subsidiary of an
admitted life insurance company or affiliated with such company through common management
or ownership, it may be deemed by the director to have met the provisions of this
subsection if either it or the parent or the affiliated company meets the requirements of
this section.
I. Notwithstanding any other law, the director shall have sole authority to
regulate the issuance and sale of variable contracts and to issue such reasonable rules
as may be appropriate to carry out the purposes and provisions of this section and
sections 20-515 and 20-536.01.
20-661 Definitions
In this article, unless the context otherwise requires:
1. "Account" means any one of the two accounts within the ARIZONA property and
casualty insurance guaranty fund.
2. "Board" means the guaranty fund board.
3. "Covered claim" means an unpaid claim, including one for unearned premium, which
arises out of and is within the coverage of an insurance policy to which this article
applies issued by an insurer, if such insurer becomes an insolvent insurer after August
27, 1977 and the claimant or insured is a resident of this state at the time of the
insured event or the property from which the claim arises is permanently located in this
state. Covered claim does not include any amount due any reinsurer, insurer, insurance
pool or underwriting association as subrogation recoveries or otherwise nor shall it
include any obligations of the insolvent insurer arising out of any reinsurance contracts
nor shall it include attorney's fees or adjustment expenses incurred prior to the
determination of insolvency.
4. "Fund" means the ARIZONA property and casualty insurance guaranty fund.
5. "Insolvent insurer" means an insurer authorized to transact insurance in this
state either at the time the policy was issued or when the insured event occurred and who
has been determined to be insolvent by a court of competent jurisdiction.
6. "Member insurer" means any person who writes any kind of insurance, unless such
writing is restricted solely to life, title, surety, disability, credit, mortgage
guaranty, workers' compensation or ocean-marine insurance, including the exchange of
reciprocal or inter-insurance contracts, and is licensed to transact insurance in this
state.
7. "Net direct written premiums" means direct gross premiums written in this state
on insurance policies to which this article applies, less return premiums and dividends
paid or credited to policyholders on such direct business. Net direct written premiums
do not include premiums on contracts between insurers or reinsurers.
20-662 Insurance guaranty fund
A. There is established an ARIZONA property and casualty insurance guaranty fund
within the department of insurance. The fund shall be deposited in a depository
designated by the director and shall exercise its powers through a board established
pursuant to section 20-663.
B. For the purpose of assessment, the fund shall be divided into two separate
accounts:
1. The automobile insurance account.
2. The account for all other insurance to which this article applies.
C. All costs, expenses and liabilities of the fund shall be paid by the fund and
shall not be a general obligation of the state.
D. All monies placed in the accounts of the fund may be expended for the purposes
of this article.
20-663 Guaranty fund board; composition; compensation
A. There is established within the department of insurance a guaranty fund board
consisting of eleven members appointed by the governor. Membership on the board shall be
for a term of three years. Of the members first appointed, four shall serve for terms of
one year, four shall serve for terms of two years and three shall serve for terms of
three years.
B. The members of the board shall be appointed from a list of persons submitted to
the governor by the director of insurance. The board shall be selected as follows:
1. Two members from insurers representing the American insurance association.
2. Two members from insurers representing the American mutual insurance alliance.
3. Two members from insurers representing the national association of independent
insurers.
4. Three members from member insurers not affiliated with the groups listed in
paragraph 1, 2 or 3.
5. One member shall be a casualty insurance producer residing in this state.
6. One member representing the general public.
C. The board shall conduct periodic meetings in Phoenix. Meetings shall be held
upon call of the director or upon written request of any two members of the board.
D. Subject to the powers of the director the board shall administer, operate and
manage the fund pursuant to this article. The board shall advise and counsel with the
director upon matters relating to the solvency of insurers.
E. Members of the board shall receive no compensation and shall not be entitled to
travel expenses as authorized by title 38, chapter 4, article 2, but shall be entitled to
be reimbursed for expenses incurred by them as members of the board from the assets of
the fund.
20-664 Powers and duties of the board
A. The board shall:
1. Investigate claims brought against the fund and adjust, compromise, settle and
pay covered claims to the extent of the fund's obligation and deny all other claims.
2. Within six months after the determination of insolvency or six months after the
fund discovers or should have discovered the settlement of a covered claim, whichever is
later, deny and state the basis for the denial or pay any covered claim that was settled
within four months before the determination of insolvency of the insolvent insurer.
3. Allocate claims paid and expenses incurred among the two accounts of the fund
separately.
4. Assess member insurers separately for each account of the fund.
5. Notify such persons as the director directs pursuant to section 20-668,
subsection B, paragraph 1.
6. Handle claims through its employees or through one or more insurers or other
persons designated as servicing facilities. Designation of a servicing facility shall be
subject to the approval of the director. Designation may be declined by a member insurer.
7. Reimburse each servicing facility for obligations of the fund paid by the
facility and for expenses incurred by the facility while handling the claims on behalf of
the fund and pay the other expenses of the fund authorized pursuant to this article.
B. The board may:
1. Appear in, defend and appeal any action on a claim that is brought against the
fund.
2. Employ or retain such persons as are necessary to handle claims and perform
other duties of the fund.
3. Borrow funds necessary to carry out the intent of this article pursuant to the
plan of operation.
4. Sue and be sued.
5. Negotiate and become a party to such contracts as are necessary to carry out the
intent of this article.
6. Perform such other acts as are necessary or proper to carry out the intent of
this article.
20-665 Plan of operation
A. The board shall submit to the director a fund plan of operation and any
amendments necessary or suitable to assure the fair, reasonable and equitable
administration of the fund. The plan of operation and any amendments shall become
effective upon approval in writing by the director.
B. If the board fails to submit a suitable plan of operation or if at any time the
board fails to submit suitable amendments to the plan, the director shall adopt any plan
or amendment that is necessary or advisable to effectuate the provisions of this article
and the plan or amendment shall continue in force until modified by the director or
superseded by a plan submitted by the board and approved by the director. All member
insurers shall comply with the plan of operation.
C. The plan of operation shall:
1. Establish the procedures for execution of all powers and duties of the board.
2. Establish procedures for handling assets of the fund.
3. Establish the amount and method of reimbursing members of the board pursuant to
section 20-663.
4. Establish procedures by which claims may be filed with the fund and establish
acceptable forms of proof of covered claims. Notice of claims to the receiver,
conservator or liquidator of the insolvent insurer shall be deemed notice to the fund or
its agents and a list of such claims shall be periodically submitted to the fund or
similar organization in another state by the receiver or liquidator.
5. Establish regular places and times for meetings of the board.
6. Establish procedures for records to be kept of all financial transactions of the
fund, the board and its agents.
7. Provide that any member insurer aggrieved by any final action or decision of the
fund may appeal to the director within thirty days after the action or decision.
8. Establish the procedures for recommendations to the director for selections to
the board.
9. Contain additional provisions that are necessary or proper for the execution of
the powers and duties of the board.
D. In regard to the prevention and detection of insolvencies the board shall:
1. Notify the director of any information indicating that any member insurer may be
insolvent or in a financial condition that is hazardous to the policyholders or to the
public.
2. Notify the director of any information indicating that a member insurer may be
unable to fulfill its contractual obligations and request a meeting with the director.
3. Upon request of the director, attend hearings before the director and meet with
and advise the director or the receiver, conservator or liquidator appointed by the
director on matters relating to the affairs of an insolvent insurer and relating to
action which may be taken by the director, receiver, conservator or liquidator to best
protect the interests of persons holding covered claims against the insolvent insurer and
relating to the amount and timing of partial assessments and the marshalling of assets
and the processing and handling of covered claims.
4. At the conclusion of any insurer insolvency in which the fund was obligated to
pay covered claims, prepare a report on the history and causes of such insolvency, based
on the information available to the board and submit such report to the director.
E. In regard to the prevention and detection of insolvencies the board may, on
majority vote:
1. Request that the director make available to the board any information in the
director's possession relative to the financial condition of any member insurer,
including the power to pursue officially any operational records or activity of the
member insurer wherever deemed necessary.
2. Request that the director order an examination of any member insurer which the
board in good faith believes may be in a financial condition hazardous to the
policyholders or to the public.
3. Make recommendations and reports to the director upon any matter germane to the
solvency, liquidation, rehabilitation or conservation of any member insurer. Such
reports and recommendations shall not be considered public documents.
4. Make recommendations to the director for the detection and prevention of insurer
insolvencies.
F. The plan of operation may provide that any or all powers and duties of the
board, except those pursuant to section 20-664, subsection A, paragraphs 3 and 4 and
subsection B, are delegated to a corporation, association or other organization which
performs or will perform functions similar to those of this fund, or its equivalent, in
two or more states. Such a corporation, association or organization shall be reimbursed
as a servicing facility and shall be paid for its performance of any other function of
the fund. A delegation pursuant to this subsection shall take effect only with the
approval of both the board and the director and may be made only to a corporation,
association or organization which extends protection not substantially less favorable and
effective than that provided by this article.
20-666 Assessments; notification; exemptions; setoffs; refunds
A. The board shall assess each member insurer, as a condition of such insurer's
authority to transact insurance in this state, in such amounts as are necessary to pay
the obligations of the fund pursuant to section 20-667 subsequent to an insolvency, the
expenses of handling covered claims subsequent to an insolvency, the cost of examinations
and other expenses authorized pursuant to this article.
B. The assessment of each member insurer shall be in the proportion that the net
direct written premiums of the member insurer for the preceding calendar year on the
kinds of insurance in the account bears to the net direct written premiums of all member
insurers for the preceding calendar year on the kinds of insurance in the account. The
board shall notify each member insurer of the assessment not later than thirty days
before it is due. No member insurer may be assessed in any year on any account an amount
greater than one per cent of such member insurer's net direct written premiums for the
preceding calendar year on the kinds of insurance in the account.
C. If the maximum assessment, together with the other assets of the fund in any
account, does not provide in any one year in any account an amount sufficient to make all
necessary payments from such account, the funds available may be prorated and the unpaid
portion shall be paid as soon as funds become available. The board shall pay claims in
any order which it may deem reasonable, including the payment of claims as such claims
are received from the claimants or in groups or categories of claims.
D. The board may exempt or defer, in whole or in part, the assessment of any member
insurer, if the assessment would cause the member insurer's financial statement to
reflect amounts of capital or surplus less than the minimum amounts required for a
certificate of authority by any jurisdiction in which the member insurer is authorized to
transact insurance.
E. Each member insurer serving as a servicing facility may set off against any
assessment, authorized payments made on covered claims and expenses incurred in the
payment of such claims by the member insurer if they are chargeable to the account for
which the assessment is made.
F. In addition to all other assessments, the board may assess each member insurer
in an amount not to exceed two hundred dollars per year for the purpose of paying for
operating expenses of the board and employees of the board.
G. If, at the end of any calendar year, the board finds that the assets of the fund
in any account exceed the liabilities of such account as estimated by the board for the
coming year, the board may refund to the member insurers in proportion to the
contribution of each member insurer to such account the amount by which the assets of the
account exceed the liabilities. All refunds will be contingent upon the return of a
member insurer's certificate(s) of contribution and will be in an amount equal to the
premium tax offset value of the relinquished certificate.
20-667 Obligations of the fund
A. The fund is obligated solely to the extent of the covered claims existing during
any of the following periods:
1. Prior to the determination of insolvency and arising within thirty days after
the determination of insolvency.
2. Before the policy expiration date if less than thirty days after the
determination of insolvency.
3. Before the insured replaces the policy or on request effects cancellation, if
the insured does so within thirty days of the determination of insolvency.
B. Such obligation shall include only that amount of each covered claim which is in
excess of one hundred dollars and is less than one hundred thousand dollars, except that
the fund shall pay any covered claim in unearned premiums of twenty-five dollars or
more. In no event shall the fund be obligated to a policyholder or claimant in any
amount in excess of the face amount of the policy from which the claim arises.
C. The fund is deemed the insurer to the extent of its obligation on the covered
claims and to such extent shall have all rights, duties and obligations of the insolvent
insurer as if the insurer had not become insolvent. Notwithstanding any other law, the
fund is not obligated to pay any amount that does not constitute a payment of a covered
claim, including taxable costs, attorney fees or interest that could be awarded or any
additional liabilities or obligations that might otherwise exist or accrue against the
insolvent insurer if the insurer had not become insolvent.
D. Any settlement of a covered claim that is entered into with any insured or
claimant within four months before the determination of insolvency and that has not been
paid is voidable by the fund for six months after the determination of the insolvency or
six months after the fund discovers or should have discovered the settlement, whichever
is later.
E. The fund is not bound by any settlement that is more than the fund's limits of
liability established by this article.
20-668 Powers and duties of the director
A. The director shall:
1. Report to the board when the director has reasonable cause to believe that any
member insurer examined or being examined at the request of the board may be insolvent or
in a financial condition hazardous to the policyholders or to the public.
2. Notify the board of the existence of an insolvent insurer not later than three
working days after the director receives notice of such insolvency.
3. Upon request of the board, provide the fund with a statement of the net direct
written premiums of each member insurer.
4. Immediately make available to the fund for the purpose of making payment upon
all covered claims such assets of the insolvent insurer which are not required for
payment of any claim accorded a higher priority pursuant to section 20-629.
B. The director may:
1. Require that the fund notify the insureds of the insolvent insurer and any other
interested parties of the determination of insolvency and of their rights pursuant to
this article. Such notification shall be by mail at their last known address, where
available. If sufficient information for notification by mail is not available, notice
shall be by publication in a newspaper of general circulation.
2. Suspend or revoke, after notice and hearing, the certificate of authority to
transact insurance in this state of any member insurer which fails to pay an assessment
when due or fails to comply with the plan of operation. As an alternative, the director
may assess a civil penalty on any member insurer which fails to pay an assessment when
due. The penalty shall not exceed five per cent of the unpaid assessment per month. No
penalty shall be less than one hundred dollars per month, which amount shall be
deposited, pursuant to sections 35-146 and 35-147, in the state general fund.
3. Revoke the designation of any servicing facility if the director finds claims
are being handled unsatisfactorily.
C. Any final action or order of the director pursuant to this article shall be
subject to review pursuant to chapter 1, article 2 of this title.
20-669 Examination of member insurer; costs; release of report
A. Within thirty days of receipt by the director of a request from the board to
examine any member insurer, the director shall begin such examination. The director may
conduct the examination in any manner deemed appropriate.
B. The cost of such examination shall be paid by the board and the examination
report shall be treated as are other examination reports.
C. Such examination report may be released to the board prior to its release to the
public. The director shall notify the board when the examination is completed. The
request for an examination shall be kept on file by the director but it shall not be open
to public inspection prior to the release of the examination report to the public.
20-670 Meetings; information; subpoena power; confidentiality
A. Upon receipt of notification from the board that a member insurer may be unable
to fulfill its contractual obligations, the director shall meet with the board.
B. At such meeting, the director may divulge to the board any information in his
possession and any records of his office, including examination reports or preliminary
reports from examiners relating to such insurer.
C. The director may subpoena officers, directors and employees of an insolvent or
impaired insurer or of an insurer the director considers to be in danger of insolvency or
impairment, to appear before the board for a conference or for taking of testimony.
D. The board shall not reveal information received in such meetings to anyone
unless authorized by the director or when required as a witness in court.
20-671 Special meetings closed
Notwithstanding any provision of law to the contrary, special meetings of the board
in which the financial condition of any member insurer is discussed, shall not be open to
the public and only members of the board, the director of insurance and other persons
specifically authorized by the board may attend such meetings.
20-672 Effect of paid claims
A. Any person recovering pursuant to this article shall be deemed to have assigned
his or her rights under the policy to the fund to the extent of his or her recovery from
the fund. Every insured or claimant seeking the protection of this article shall
cooperate with the fund to the same extent as such person would have been required to
cooperate with the insolvent insurer. The fund shall have no cause of action against the
insured of the insolvent insurer for any sums it has paid.
B. The receiver, conservator, liquidator or statutory successor of an insolvent
insurer shall be bound by settlement of covered claims by the fund or similar
organization in another state.
C. The board shall periodically file with the receiver, conservator, liquidator or
statutory successor of the insolvent insurer statements of the covered claims paid by the
fund and estimates of anticipated claims on the fund which shall preserve the rights of
the fund against the assets of the insolvent insurer.
20-673 Nonduplication of recovery; exhausting all other applicable coverages; rights of fund and member insurer; definition
A. Any person having a claim against an insurer under any provision in an insurance
policy that is also a covered claim shall be required to exhaust first all rights under
such policy. Any amount payable on a covered claim pursuant to this article shall be
reduced by the amount of such recovery under the claimant's insurance policy. Any
recovery pursuant to this article shall be reduced by the amount of the recovery under
the claimant's insurance policy. A member insurer or other insurer, which pays such
insurer's own policy, shall have no right of subrogation or recovery against the insured
of an insolvent insurer.
B. Any person having a claim that may be recovered under more than one insurance
guaranty fund or its equivalent or who is insured under more than one policy shall first
exhaust coverage from the fund of the place of residence of the insured or, if it is a
first-party claim for damage to property with a permanent location, shall first exhaust
coverage from the fund of the location of the property, or shall first exhaust coverage
under such other policy. Any recovery pursuant to this article shall be reduced by the
amount of the recovery from any other insurance guaranty fund or its equivalent or under
another policy. Covered claims by subscribers of an insolvent reciprocal insurer shall
not be paid until all subscribers have been assessed pursuant to section 20-791.
C. Where more than one policy may be applicable, a policy issued by the insolvent
insurer shall be deemed to be excess coverage. The claimant shall be required to exhaust
all rights under other applicable coverage or coverages. Any recovery pursuant to this
article shall be reduced by the amount of the recovery under the claimant's insurance
policy. Any amount payable on a covered claim shall be reduced by the amount of such
recovery under other applicable insurance.
D. If damages against uninsured motorists are recoverable by the claimant from such
claimant's own insurer, such recoverable damages shall reduce the amount of any recovery
pursuant to this article if the full amount of such uninsured motorist coverage has been
exhausted. Such claimant shall have no claim against the insured of the insolvent
carrier or the fund if the full amount of uninsured motorist coverage was not recovered
by such claimant. A member insurer shall have no right of subrogation against the
insured of the insolvent carrier or against the fund for any amount paid by such insurer
under uninsured motorist coverage. A member insurer may file a claim for such
subrogation payments under uninsured motorist coverage against the ancillary or
domiciliary receiver of the insolvent insurer.
E. The fund shall receive the proceeds of any amounts recoverable on reinsurance
contracts or treaties entered into by the insolvent insurer that cover any of the
liabilities incurred by the insolvent insurer in the category or categories
involved. Such proceeds shall be limited to payments upon or loss adjustment expenses or
defense costs actually incurred by the fund on account of claims covered in such
contracts or treaties. The director, as receiver or ancillary receiver, shall receive
the proceeds of any reinsurance recoverable to the extent of payment on claims, loss
adjustment expenses or defense costs made prior to the order of liquidation.
F. If a covered claim arises out of two or more policies to which this article
applies, a recovery under one policy reduces the amount that is payable under the other
policy. The fund is not liable for the payment of more than one policy on a covered
claim.
G. For the purposes of this article, "exhaustion of all rights under any other
policy of insurance" means the payment of the applicable policy limits or an adjudication
by a court of record that no benefits are owed.
20-674 Premium tax offset
A. The fund shall issue to each insurer paying an assessment pursuant to this
article a certificate of contribution, in a form prescribed by the director for the
amount paid. All outstanding certificates shall be of equal priority without reference
to amounts or dates of issue.
B. A certificate of contribution issued to a member insurer may be offset against
such insurer's premium tax liability to this state in the amount of twenty per cent of
the assessment for the year of assessment and twenty per cent of the assessment per year
for each of the succeeding four years. A member shall at its option have the right to
show a certificate of contribution as an asset in the form approved by the director at
percentages of the original face amount approved by the director, for calendar years as
follows:
1. One hundred per cent for the calendar year of issuance.
2. Eighty per cent for the first calendar year after the year of issuance.
3. Sixty per cent for the second calendar year after the year of issuance.
4. Forty per cent for the third calendar year after the year of issuance.
5. Twenty per cent for the fourth calendar year after the year of issuance.
C. Any sums available for refund, pursuant to section 20-666, from the fund which
have been written off by contributing insurers and offset against premium taxes shall be
paid to the director and shall be deposited, pursuant to sections 35-146 and 35-147, in
the state general fund.
D. Notwithstanding subsection B of this section, the total amount a member insurer,
as defined in section 20-661, may offset against its premium tax liability pursuant to a
certificate of contribution that is issued from 1987 through 1994 shall not exceed the
following percentage amounts for each certificate of contribution, except that in no
event may the total amount of the offset exceed one hundred per cent of each assessment:
1. For 1992, thirteen per cent.
2. For 1993, eleven per cent.
3. For 1994, thirteen per cent.
E. No insurer may offset its premium tax liability by any amount unless the
assessment for which the first year credit is claimed was collected by the guaranty fund
in the calendar year for which the insurer seeks to offset its taxes.
F. Beginning in 1995, the total amount that a member insurer may offset against its
premium tax liability pursuant to a certificate of contribution shall be as provided in
subsection B of this section, except that in no event may the total amount of the offset
exceed one hundred per cent of the assessment. 20-675 Immunity and indemnification
A. There shall be no liability on the part of, and no cause of action shall rise
against, the fund, any member insurer, the board or its agents or employees, the director
or representatives of the director for any action taken in the performance of their
powers and duties pursuant to this article.
B. The board and its agents or employees shall be indemnified by the fund against
all expenses incurred in the defense of any action, suit or proceeding brought against
such person on account of any action taken in the performance of the powers and duties of
such person pursuant to this article, unless such person is finally adjudged to have
committed a breach of duty involving gross negligence, bad faith, dishonesty, wilful
malfeasance or reckless disregard of the responsibilities of his or her office. In the
event of settlement before the final adjudication, such indemnity shall be provided only
if the board is advised by independent counsel selected by the board that such person did
not, in the counsel's opinion, commit such a breach of duty.
C. The fund's reimbursement of such expenses of indemnification shall be prorated
and paid for by the member insurers in the proportion that the net direct written
premiums of each member insurer for the calendar year preceding the commencement of such
action, suit or proceeding bears to the net direct written premiums of all member
insurers for the preceding calendar year.
20-676 Stay of proceedings
A. All proceedings in which the insolvent insurer or the insolvent insurer's
insured is a party in any court of this state shall be stayed for six months from the
date the insolvency is determined or an ancillary proceeding is instituted in this state,
whichever is later, to permit proper defense by the fund of all pending causes of action
as to any covered claim. At the request of any party and on a showing of good cause, the
court may shorten or lengthen the stay prescribed in this section.
B. On application of the fund, either on the fund's own behalf or on the insured's
behalf, the court may set aside any judgment, order, decision, verdict, finding or award
arising from the default of the insolvent insurer or the insurer's failure to defend the
insured and the fund shall be permitted to defend the claim on the merits.
20-677 Interest
All interest earned on monies held and invested by the fund shall be credited to the
account from which the funds were obtained. Investments by the board shall be restricted
to those investments which are permitted by insurers for statutory deposits pursuant to
section 20-583.
20-678 Examination of the fund; annual report
The fund shall be subject to examination by the director. The fund shall, annually,
report its financial condition for the preceding year, to the legislature, member
insurers and the director. At the conclusion of the fund's handling of each insolvency,
an audit of the financial transactions relating to such insolvency shall be made by the
director of insurance or an independent accounting firm.
20-679 Limitation on filing of creditor's claims
With respect to the handling of claims, the fund may by resolution bar known claims,
whether liquidated or unliquidated, not filed within four months from the date of notice
to creditors.
20-680 Exempt types of insurance
A. This article applies to all kinds of insurance except life, title, surety,
disability, credit, mortgage guarantee, workers' compensation, ocean marine insurance,
any kind of surplus lines insurance and any policy of insurance issued to an industrial
insured pursuant to section 20-400.10. This article does not apply to any new types of
coverages approved or permitted after August 27, 1977.
B. The exemption prescribed in this section does not restrict any of the fund's
rights or defenses permitted under this article, including the application of any credit
or offset prescribed in section 20-673 for payments made under any policy of insurance,
including any policy of insurance that is exempt from this article.
20-681 Definitions
In this article, unless the context otherwise requires:
1. "Account" means any of the three accounts established pursuant to section
20-683.
2. "Fund" means the life and disability insurance guaranty fund.
3. "Impaired insurer" means either:
(a) An insurer which becomes insolvent and is placed under a final order of
liquidation, rehabilitation or conservation by a court of competent jurisdiction.
(b) An insurer deemed by the director to be unable or potentially unable to fulfill
its contractual obligations.
4. "Member insurer" means a person authorized to transact any kind of insurance to
which this article applies.
5. "Premiums" means direct gross insurance premiums and annuity considerations
written on policies, less return premiums and considerations and dividends paid or
credited to policyholders on such direct business, except dividends, refunds, savings
coupons and other similar returns paid or credited to policyholders which are reapplied
as premiums for new, additional or extended insurance. "Premiums" does not include
premiums and considerations on contracts between insurers and reinsurers. As used in
section 20-686 "premiums" are those for the calendar year preceding the determination of
impairment.
6. "Resident" means a person who resides in this state at the time impairment is
determined and to whom contractual obligations are owed.
20-682 Scope of article
A. This article applies to life insurance policies, disability insurance policies,
annuity contracts, contracts supplemental to life and disability insurance policies and
annuity contracts and certificates under group life and disability policies and annuity
contracts that are issued directly to residents of this state by persons authorized to
transact insurance in this state, except that this article applies to policies and
contracts issued to persons who are not residents of this state if all of the following
conditions are met:
1. The insurer that issued the policy or contract is domiciled in this state.
2. The insurer that issued the policy or contract never held a license or
certificate of authority in the state in which the person resides.
3. The state in which the person resides has guaranty fund protection similar to
the guaranty fund protection established by this article.
4. The person is not eligible for guaranty fund protection under the laws or rules
of another state.
B. This article does not apply to:
1. Any policies or contracts, or any part of such policies or contracts, under
which the risk is borne by the policyholder, including variable plans and contracts.
2. Any policy or contract, or any part of such policy or contract, assumed by the
impaired insurer under a contract of reinsurance other than bulk reinsurance or
reinsurance for which assumption certificates have been issued.
3. Any such policy or contract issued by assessment mutuals, fraternals, hospital,
medical, dental and optometric service corporations or plans, burial societies,
cooperative hospital associations, prepaid dental plan organizations and health care
services organizations.
4. Any guaranteed investment contract or any part of a guaranteed investment
contract that is issued by a life insurance company, unless the contract holder exercises
an annuity option for individual persons provided by the guaranteed investment contract
on or before the date the life insurance company becomes subject to a delinquency
proceeding as defined in section 20-611.
C. Notwithstanding any provision in any policy or contract to the contrary, the
provisions of any employee benefit plan as prescribed in the employee retirement income
security act of 1974 (29 United States Code sections 1001 through 1461) or any other
similar extrinsic plan, trust, arrangement, entity or agreement shall not be considered
for purposes of determining the obligations of the fund under this article.
20-683 Life and disability insurance guaranty fund
A. There is established in the insurance department a life and disability insurance
guaranty fund. The fund shall be deposited in a depository designated by the
director. All member insurers shall be members of the fund as a condition of their
authority to transact insurance in this state. For purposes of administration and
assessment, the fund shall maintain three accounts:
1. The disability insurance account.
2. The life insurance account.
3. The annuity account.
B. The fund shall be under the immediate supervision of the director and shall be
subject to the applicable provisions of the insurance laws of this state.
C. All costs, expenses and liabilities of the fund shall be paid by the fund and
shall not be a general obligation of the state.
D. All monies placed in the accounts of the fund may be expended for the purposes
of this article.
20-684 Guaranty fund board; meetings; definition
A. Subject to the powers of the director, the life and disability insurance
guaranty fund shall be administered by a board of nine members. Each member of the board
shall serve for a term of three years. Of the members first appointed, three shall serve
for terms of one year, three shall serve for terms of two years, and three shall serve
for terms of three years.
B. The members of the board shall be appointed by the governor from a list of
persons submitted to the governor by the director of insurance. In submitting selections
for the board, the director shall consider whether all member insurers are fairly
represented.
C. Members of the board shall receive no compensation and shall not be entitled to
travel expenses as authorized by title 38, chapter 4, article 2 but shall be entitled to
be reimbursed for expenses incurred by them as members of the board from the assets of
the fund.
20-685 Powers and duties of the board
A. If a domestic insurer is an impaired insurer, the fund may, prior to an order of
liquidation or rehabilitation and subject to any conditions imposed by the fund other
than those which impair the contractual obligations of the impaired insurer, with the
approval of the impaired insurer and the director:
1. Guarantee, assume or reinsure, or cause to be guaranteed, assumed or reinsured,
all the policies of the impaired insurer.
2. Provide such monies, pledges, notes, guarantees or other means as are proper to
effectuate paragraph 1 of this subsection and assure payment of the contractual
obligations of the impaired insurer pending action pursuant to paragraph 1 of this
subsection.
3. Loan money to the impaired insurer.
B. If a foreign or alien insurer is an impaired insurer, the board may, prior to
any order of liquidation, rehabilitation or conservation, with respect to the covered
policies of residents and subject to any conditions imposed by the board other than those
which impair the contractual obligations of the impaired insurer and with the approval of
the impaired insurer and the director:
1. Guarantee, assume or reinsure, or cause to be guaranteed, assumed or reinsured,
the impaired insurer's covered policies of residents.
2. Provide such monies, pledges, notes, guarantees or other means as are proper to
effectuate paragraph 1 of this subsection and assure payment of the impaired insurer's
contractual obligations to residents pending action pursuant to paragraph 1 of this
subsection.
3. Loan money to the impaired insurer.
C. If a domestic insurer is an impaired insurer under an order of liquidation or
rehabilitation, the board shall, subject to the approval of the director:
1. Guarantee, assume or reinsure, or cause to be guaranteed, assumed or reinsured,
the covered policies of the impaired insurer.
2. Assure payment of the contractual obligations of the impaired insurer.
3. Provide such monies, pledges, notes, guarantees or other means as are reasonably
necessary to discharge such duties. If the board fails to act within a reasonable period
of time, the director shall have the powers and duties of the board prescribed pursuant
to this article with respect to such domestic impaired insurer.
D. If a foreign or alien insurer is an impaired insurer under an order of
liquidation, rehabilitation or conservation, the board shall, subject to the approval of
the director:
1. Guarantee, assume or reinsure, or cause to be guaranteed, assumed or reinsured,
the covered policies of residents.
2. Assure payment of the contractual obligations of the impaired insurer to
residents.
3. Provide such monies, pledges, notes, guarantees or other means as are reasonably
necessary to discharge such duties. If the board fails to act within a reasonable period
of time, the director shall have the powers and duties of the board pursuant to this
article with respect to such foreign or alien impaired insurer.
E. In carrying out its duties under subsections C and D of this section, the board
may request that there be imposed policy or contract liens, moratoriums on payments or
other similar means. Such liens, moratoriums or similar means may be imposed if the
director:
1. Finds that the amounts which can be assessed pursuant to this article are less
than the amounts needed to assure full and prompt performance of the impaired insurer's
contractual obligations or that the economic or financial conditions as they affect
member insurers are sufficiently adverse to render the imposition of policy or contract
liens, moratoriums or similar means to be in the public interest.
2. Approves the specific policy liens, contract liens, moratoriums or similar means
to be used. Before being obligated pursuant to subsections C and D of this section the
board may request that there be imposed temporary moratoriums or liens on payments of
cash values and policy loans and such temporary moratoriums and liens may be imposed if
they are approved by the director.
F. The board is not liable pursuant to this section for any covered policy of a
foreign or alien insurer whose domiciliary jurisdiction or state of entry provides by
statute or regulation for residents of this state protection substantially similar to
that provided by this article for residents of other states.
G. The board may render assistance and advice to the director, upon his or her
request, concerning rehabilitation, payment of claims, continuations of coverage or the
performance of other contractual obligations of any impaired insurer.
H. The board shall have standing to appear before any court in this state with
jurisdiction over an impaired insurer concerning which the board is or may become
obligated. Such standing shall extend to all matters germane to the powers and duties of
the board, including proposals for reinsuring or guaranteeing the covered policies of the
impaired insurer and the determination of the covered policies and contractual
obligations.
I. Any persons receiving benefits shall be deemed to have assigned their rights
under the policy to the board to the extent of the benefits received whether the benefits
are payments of contractual obligations or continuation of coverage. The board may
require an assignment to the board of such rights by any payee, policy or contract owner,
beneficiary, insured or annuitant as a condition precedent to the receipt of any rights
or benefits conferred upon such person. The board shall be subrogated to such rights
against the assets of any impaired insurer.
J. The contractual obligations of the impaired insurer for which the board becomes
or may become liable shall be as great as, but no greater than, what the contractual
obligations of the impaired insurer would have been in the absence of an impairment,
unless the obligations are reduced as permitted by subsection E of this
section. However, the aggregate liability of the board shall not exceed one hundred
thousand dollars with respect to cash value or annuity claims or three hundred thousand
dollars for all benefits, including cash values and annuity claims, as well as death
benefits, with respect to any one life. Notwithstanding any other law, the board is not
obligated to pay any amount that does not constitute a payment of a contractual
obligation, including taxable costs or attorney fees that could be awarded or any
additional liabilities or obligations as might otherwise exist or accrue against the
impaired insurer if the insurer had not become impaired.
K. The board may:
1. Enter into such contracts as are necessary or proper to carry out the provisions
and purposes of this article.
2. Sue and be sued, including taking any legal actions that are necessary and
proper for recovery of any unpaid assessments pursuant to section 20-686.
3. Borrow money to effect the purposes of this article. Any notes or other
evidence of indebtedness of the fund that are not in default shall be legal investments
for domestic insurers and may be carried as admitted assets.
4. Employ and retain such persons as are necessary to handle the financial
transactions of the fund and perform such other functions as become necessary or proper.
5. Negotiate and contract with any liquidator, rehabilitator, conservator or
ancillary receiver to carry out the powers and duties of the board.
6. Take such legal action as may be necessary to avoid payment of improper claims.
7. Exercise, for the purposes of this article and to the extent approved by the
director, the powers of a domestic life and disability insurer. In no case may the board
issue insurance policies or annuity contracts other than those issued to perform the
contractual obligations of the impaired insurer.
20-686 Assessments
A. For the purpose of providing the funds necessary to carry out the powers and
duties of the fund, the board of directors shall assess the member insurers, separately
for each account, at such times and for such amounts as the board finds necessary. The
board shall collect the assessments after thirty days' written notice to the member
insurers before payment is due.
B. There shall be two classes of assessments, as follows:
1. Class A assessments shall be made for the purpose of meeting administrative
costs and other general expenses not related to a particular impaired insurer.
2. Class B assessments shall be made to the extent necessary to carry out the
powers and duties of the fund pursuant to section 20-685 with regard to an impaired
domestic or foreign insurer.
C. The amount of assessment for each account shall be determined as follows:
1. The amount of any class A assessment for each account shall be determined by the
board. The amount of any class B assessment shall be divided among the accounts in the
proportion that the premiums received by the impaired insurer on the policies covered by
each account bear to the premiums received by such insurer on all policies.
2. Class A and class B assessments against member insurers for each account shall
be in the proportion that the premiums received on business in this state by each
assessed member insurer on policies covered by each account bear to such premiums
received on business in this state by all assessed member insurers, except that with
respect to residents of other states covered by the fund, class B assessments for each
account shall be made separately for each state in which the impaired domestic insurer
was authorized to transact insurance at any time, in the proportion that the premiums
received on business in that state by the impaired insurer on policies covered by the
account bear to the premiums in all the states by the impaired insurer. The assessments
against member insurers shall be in the proportion that the premiums received on business
in each state by each assessed member insurer on policies covered by each account bear to
the premiums received on business in each state by all assessed member insurers.
3. Assessments for funds to meet the requirements of the board with respect to an
impaired insurer shall not be made until necessary to implement the purposes of this
article. Classification of assessments as prescribed pursuant to subsection B of this
section and computation of assessments pursuant to this subsection shall be made with a
reasonable degree of accuracy, recognizing that exact determinations may not always be
possible.
D. The board may abate or defer, in whole or in part, the assessment of a member
insurer if, in the opinion of the board, payment of the assessment would endanger the
ability of the member insurer to fulfill its contractual obligations. The total of all
assessments upon a member insurer for each account shall not in any one calendar year
exceed two per cent of such insurer premiums in this state on the policies covered by the
account.
E. If an assessment against a member insurer is abated or deferred, in whole or in
part, because of the limitations set forth in subsection D of this section, the amount by
which such assessment is abated or deferred shall be assessed against the other member
insurers in a manner consistent with the basis for assessments set forth in this
section. If the maximum assessment, together with the other assets of the fund in either
account, does not provide in any one year in either account an amount sufficient to carry
out the responsibilities of the fund, the necessary additional monies shall be assessed
as soon thereafter as permitted by this article.
F. The board may, by an equitable method as established in the plan of operation,
refund to member insurers, in proportion to the contribution of each insurer to that
account, the amount the board finds is not necessary to carry out during the coming year
the obligations of the fund with regard to such amount, including assets accruing from
net realized gains and income from investments. A reasonable amount may be retained in
any account to provide funds for the continuing expenses of the fund and for future
losses if refunds are impractical.
G. Any member insurer may, in determining its premium rates and policyowner
dividends as to any kind of insurance within the scope of this article, consider the
amount reasonably necessary to meet its assessment obligations.
H. The fund shall issue to each insurer paying an assessment a certificate of
contribution, in a form prescribed by the director, for the amount paid. All outstanding
certificates shall be of equal priority without reference to amounts or dates of
issue. A certificate of contribution may be shown by the insurer in its financial
statement as an asset in such form and for such amount and period of time as the director
may approve.
20-687 Plan of operation
A. The board shall submit to the director a plan of operation and any amendments
necessary to assure the fair, reasonable and equitable administration of the fund. The
plan of operation and any amendments shall become effective upon approval in writing by
the director. If the board fails to submit a plan of operation or if at any time the
board fails to submit suitable amendments to the plan, the director shall adopt any plan
or amendment that is necessary or advisable to effectuate the provisions of this article
and the plan or amendment shall continue in force until modified by the director or
superseded by a plan submitted by the board and approved by the director.
B. All member insurers shall comply with the plan of operation.
C. The plan of operation shall, in addition to all other requirements:
1. Establish procedures for handling the assets of the fund and claims against the
fund.
2. Establish the amount and method of reimbursing members of the board of directors
pursuant to section 20-684.
3. Establish regular places and times for meetings of the board of directors.
4. Establish procedures for records to be kept of all financial transactions of the
fund, its agents and the board of directors.
5. Establish the procedures for selecting the board of directors and submitting
such selections to the director.
6. Establish any additional procedures for assessments required pursuant to section
20-686.
7. Contain additional provisions necessary for the execution of the powers and
duties of the board.
D. The plan of operation may provide that any or all powers and duties of the
board, except those in section 20-685, subsection K, paragraph 3 and section 20-686, are
delegated to any corporation, association or other organization which performs or will
perform functions similar to those of this fund in two or more states. Such a
corporation, association or organization shall be reimbursed for any payments made on
behalf of the fund and shall be paid for its performance of any function of the fund. A
delegation pursuant to this subsection shall take effect only with the approval of both
the board of directors and the director and may be made only to a corporation,
association or organization which extends protection not substantially less favorable and
effective than that provided by this article.
20-688 Duties and powers of the director
A. In addition to all other duties and powers enumerated in this article, the
director shall:
1. Notify the board of directors of the existence of an impaired insurer not later
than three days after a determination of impairment or the director receives notice of
impairment.
2. Upon request of the board of directors, provide the board with a statement of
the premiums in the appropriate states for each member insurer.
3. When an impairment is declared and the amount of the impairment is determined,
serve a demand upon the impaired insurer to make good the impairment within a reasonable
time. Notice to the impaired insurer shall constitute notice to its shareholders. The
failure of the insurer to promptly comply with such demand shall not excuse the board
from the performance of its duties pursuant to this article.
B. The director may suspend or revoke, after notice and a hearing pursuant to title
41, chapter 6, article 10, the certificate of authority to transact insurance in this
state of any member insurer which fails to pay an assessment when due or fails to comply
with the plan of operation. As an alternative the director may levy a forfeiture on any
member insurer which fails to pay an assessment when due. Such forfeiture shall not
exceed five per cent of the unpaid assessment per month, but no forfeiture may be less
than one hundred dollars per month.
C. Any action of the board of directors may be appealed to the director by any
member insurer within thirty days. Except as provided in section 41-1092.08, subsection
H, any final action or order of the director is subject to judicial review pursuant to
title 12, chapter 7, article 6.
D. The liquidator, rehabilitator or conservator of any impaired insurer may notify
all interested persons of the effect of this article.
20-689 Prevention of impairments
To aid in the detection and prevention of insurer impairments:
1. The board of directors shall, upon majority vote, notify the director of any
information indicating that any member insurer may be unable or potentially unable to
fulfill its contractual obligations.
2. The board of directors may, upon majority vote, request that the director order
an examination of any member insurer which the board in good faith believes may be unable
or potentially unable to fulfill its contractual obligations. The director may conduct
such examination. The examination may be conducted as a national association of
insurance commissioners examination or may be conducted by such persons as the director
designates. The cost of such examination shall be paid by the fund and the examination
report shall be treated as are other examination reports. In no event shall such
examination report be released to the board of directors of the fund prior to its release
to the public, but this shall not excuse the director from his or her obligation to
comply with paragraph 3. The director shall notify the board of directors when the
examination is completed. The request for an examination shall be kept on file by the
director but it shall not be open to the public and shall be released only if the
examination discloses that the examined insurer is unable or potentially unable to meet
its contractual obligations.
3. The director shall report to the board of directors when the director has
reasonable cause to believe that any member insurer examined at the request of the board
of directors may be unable or potentially unable to fulfill its contractual obligations.
4. The board of directors may, upon majority vote, make reports and recommendations
to the director upon any matter germane to the solvency, liquidation, rehabilitation or
conservation of any member insurer. Such reports and recommendations shall not be
considered public documents.
5. The board of directors may, upon majority vote, make recommendations to the
director for the detection and prevention of insurer impairments.
6. The board of directors shall, at the conclusion of any insurer impairment in
which the fund carried out its duties, prepare a report on the history and causes of such
impairment based on the information available to the fund and submit such report to the
director.
20-690 Financial provisions; definition
A. Nothing in this article shall be construed to reduce the liability for unpaid
assessments of the insureds of an impaired insurer operating under a plan with assessment
liability.
B. Records shall be kept of all negotiations and meetings in which the fund or its
representatives are involved to discuss the activities of the fund in carrying out its
powers and duties. Records of such negotiations or meetings shall be made public only
upon the termination of a liquidation, rehabilitation or conservation proceeding
involving the impaired insurer, upon the termination of the impairment of the insurer or
upon the order of a court of competent jurisdiction.
C. For the purpose of carrying out its obligations pursuant to this article, the
board shall be deemed to be a creditor of the impaired insurer to the extent of assets
attributable to policies reduced by any amounts to which the board is entitled as
subrogee. All assets of the impaired insurer attributable to policies shall be used to
continue all policies and pay all contractual obligations of the impaired insurer. As
used in this subsection, "assets attributable to policies" means that proportion of the
assets which the reserves that should have been established for such policies bear to the
reserve that should have been established for all policies of insurance written by the
impaired insurer.
D. Prior to the termination of any liquidation, rehabilitation or conservation
proceeding, the court may take into consideration the contributions of the respective
parties including the board, the shareholders and policyowners of the impaired insurer
and any other party with a bona fide interest in making an equitable distribution of the
ownership rights of such impaired insurer. In such a determination, consideration shall
be given to the welfare of the policyholders of the continuing or successor insurer. No
distribution to stockholders of the assets of an impaired insurer may be made until and
unless the total amount of assessment levied by the board with respect to such insurer is
fully recovered by the fund.
E. If an order for liquidation or rehabilitation of an insurer domiciled in this
state has been entered, the receiver appointed under such order may recover on behalf of
the insurer, from any affiliate that controlled it, the amount of distributions, other
than stock dividends paid by the insurer on its capital stock, made at any time during
the five years preceding the petition for liquidation or rehabilitation subject to the
following limitations:
1. No such dividend shall be recoverable if the insurer shows that when paid the
distribution was lawful and reasonable and that the insurer did not know and could not
reasonably have known that the distribution might adversely affect the ability of the
insurer to fulfill its contractual obligations.
2. Any person who as an affiliate that controlled the insurer at the time the
distributions were paid shall be liable up to the amount of distributions he or she
received. Any person who was an affiliate that controlled the insurer at the time the
distributions were declared shall be liable up to the amount of distributions he or she
would have received if they had been paid immediately. If two persons are liable with
respect to the same distributions, they are jointly and severally liable.
3. The maximum amount recoverable pursuant to this subsection shall be the amount
needed in excess of all other available assets of the impaired insurer to pay the
contractual obligations of the impaired insurer.
4. If any person liable pursuant to paragraph 2 is insolvent, all its affiliates
that controlled it at the time the dividend was paid are jointly and severally liable for
any resulting deficiency in the amount recovered from the insolvent affiliate.
F. The receiver, conservator, liquidator or statutory successor of an impaired
insurer is bound by a settlement of covered claims by the board or a similar organization
in another state.
20-691 Examination of the fund; annual report
The fund shall be subject to examination and regulation by the director. The board
of directors shall submit to the director, not later than May 1 of each year, a financial
report for the preceding calendar year in a form approved by the director and a report of
its activities during the preceding calendar year.
20-692 Premium tax offset
A. The board shall issue to each insurer paying an assessment pursuant to this
article a certificate of contribution, in a form prescribed by the director for the
amount paid. All outstanding certificates shall be of equal dignity and priority without
reference to amounts or dates of issue.
B. A certificate of contribution issued to a member insurer shall be offset against
its premium tax liability to this state in the amount of twenty per cent of the
assessment for the year of assessment and twenty per cent of the assessment per year for
each of the succeeding four years.
C. Notwithstanding subsection B of this section, the total amount a member insurer,
as defined in section 20-681, may offset against its premium tax liability pursuant to a
certificate of contribution that is issued from 1987 through 1994 shall not exceed the
following percentage amounts for each certificate of contribution, except that in no
event may the total amount of the offset exceed one hundred per cent of each assessment:
1. For 1991, seven per cent.
2. For 1992, nine per cent.
3. For 1993, eleven per cent.
4. For 1994, thirteen per cent.
D. No insurer may offset its premium tax liability by any amount unless the
assessment for which the first year credit is claimed was collected by the guaranty fund
in the calendar year for which the insurer seeks to offset its taxes.
E. Beginning in 1995, the total amount that a member insurer may offset against its
premium tax liability pursuant to a certificate of contribution shall be as provided in
subsection B of this section, except that in no event shall the total amount of the
offset exceed one hundred per cent of the assessment.
20-693 Immunity
There shall be no liability on the part of and no cause of action of any nature
shall arise against the fund or its agents or employees, members of the board of
directors or the director or his or her representatives for any action taken by them in
the performance of their powers and duties pursuant to this article.
20-694 Stay of proceedings; reopening default judgments
All proceedings in which the impaired insurer or the impaired insurer's insured is a
party in any court in this state shall be stayed sixty days from the date an order of
liquidation, rehabilitation or conservation is final to permit proper legal action by the
board on any matters germane to its powers or duties. At the request of the board and on
a showing of good cause, the court may lengthen the stay prescribed in this section. As
to a judgment under any decision, order, verdict or finding based on default, the board
may apply to have such judgment set aside by the same court that made such judgment and
shall be permitted to defend against such suit on the merits.
20-695 Statute of limitations
With respect to the handling of claims pursuant to section 20-687 the board may by
resolution provide that claims not filed within four months from the date of notice to
creditors shall be barred.
20-696.01 Definitions
In this article, unless the context otherwise requires:
1. "Actuarial opinion" means the opinion of an appointed actuary regarding the
adequacy of the reserves and related actuarial items based on presently accepted
actuarial standards.
2. "Actuarial standards board" means the board established by the American academy
of actuaries to develop and promulgate standards of actuarial practice.
3. "Annual statement" means the statement an insurer annually files with the
director pursuant to section 20-223.
4. "Appointed actuary" means any individual who is appointed or retained pursuant
to section 20-696.02, subsection D to provide the actuarial opinion
and supporting memorandum as required by section 20-510, subsection C.
5. "Asset adequacy analysis" means an analysis that meets the standards and other
requirements under section 20-696.02, subsection E and includes cash flow testing,
sensitivity testing or applications of risk theory.
6. "Company" means an insurer, fraternal benefit society or reinsurer that is
subject to this article pursuant to section 20-696.
7. "Noninvestment grade bonds" means bonds that are designated as class 3, 4, 5 or
6 by the national association of insurance commissioners' securities valuation office.
8. "Qualified actuary" means any individual who meets the requirements set forth in
section 20-696.02.
20-696.02 General requirements; statement of actuarial opinion; qualified actuary; appointed actuary; analysis
A. The following apply to the submission of statements of actuarial opinion:
1. Pursuant to section 20-696.05, a company shall include on or attach to page 1 of
its annual statement the statement of actuarial opinion that is made by an appointed
actuary and that sets forth an opinion relating to reserves and related actuarial items
held in support of policies and contracts. If a company is exempt from submitting a
statement of actuarial opinion pursuant to section 20-696.05, the exempt company shall
include on or attach to page 1 of its annual statement a statement of actuarial opinion
made by an appointed actuary pursuant to section 20-696.04.
2. If in the previous year a company submitted a statement of actuarial opinion
pursuant to section 20-696.04 and in the current year the company fails to qualify as
exempt pursuant to section 20-696.03, subsection C, paragraph 1, 2 or 5 allowing
submittal of an actuarial opinion pursuant to section 20-696.04, the company is not
required to file the statement of actuarial opinion pursuant to section 20-696.05 until
August 1 following the date of the annual statement. The company shall submit with its
annual statement a statement of actuarial opinion pursuant to section 20-696.04 and shall
note its intent to subsequently submit a statement of actuarial opinion pursuant to
section 20-696.05.
3. If a foreign or alien company is required to submit a statement of actuarial
opinion, the director may accept the statement of actuarial opinion filed by the company
with the insurance supervisory regulator of another state if the director determines that
the opinion reasonably meets the requirements applicable to a company domiciled in this
state.
4. On written request by the company, the director may grant an extension of the
date for submission of the statement of actuarial opinion.
B. A qualified actuary is an individual who meets the following requirements:
1. Is a member in good standing of the American academy of actuaries.
2. Is qualified to sign statements of actuarial opinion for life and health
insurance company annual statements in accordance with the American academy of actuaries
qualification standards for actuaries signing statements of actuarial opinion.
3. Is familiar with the valuation requirements applicable to life and health
insurance companies.
4. Except as provided in subsection C of this section, has not been found by the
director, after appropriate notice and a hearing and without subsequent reinstatement as
a qualified actuary, to have done any of the following:
(a) Violated any provision of or any obligation imposed by this title or any other
law in the course of the person's conduct as an actuary.
(b) Committed or been convicted of fraudulent or dishonest practices.
(c) Demonstrated incompetency, lack of cooperation or untrustworthiness to act as a
qualified actuary.
(d) Pursuant to this article, submitted to the director during the past five years
an actuarial opinion or memorandum that the director rejected because it did not meet the
provisions of this article, including standards set by the actuarial standards board.
(e) Resigned or been removed as an actuary within the past five years as a result
of acts or omissions that are indicated in any adverse report on examination or as a
result of failure to adhere to generally acceptable actuarial standards.
5. Has not failed to notify the director of any action taken against the actuary by
the director or commissioner of another state for an act that is proscribed under
paragraph 4 of this subsection.
C. Notwithstanding subsection B, paragraph 4 of this section, the director for good
cause shown may classify an individual as a qualified actuary.
D. An appointed actuary is a qualified actuary who is appointed or retained by the
board of directors or an executive officer of the company to prepare the statement of
actuarial opinion required by this article. The company shall give the director timely
written notice of the name, the title, the name of the firm if the actuary is a
consulting actuary and the manner of appointment or retention of each person who is
appointed or retained by the company as an appointed actuary and shall state that the
person meets the requirements prescribed in subsection B of this section. After the
company furnishes notice, no further notice is required with respect to this person,
except that the company shall give the director timely written notice if the actuary
ceases to be appointed or retained as an appointed actuary or fails to meet the
requirements prescribed in subsection B of this section. If a person who is appointed or
retained as an appointed actuary replaces a previously appointed actuary, the notice
shall state this fact and shall give the reasons for the replacement.
E. The asset adequacy analysis required by this article shall conform to standards
adopted by order of the director. In establishing standards, the director shall consider
both:
1. The standards of practice as promulgated from time to time by the actuarial
standards board and to any additional standards under this article.
2. The methods of analysis that the actuarial standards board deems appropriate.
F. Liabilities shall be covered in the actuarial opinion as follows:
1. The statement of actuarial opinion applies to all in force business on the
statement date regardless of when or where issued.
2. If as the result of asset adequacy analysis the appointed actuary determines
that a reserve should be held in addition to the aggregate reserve that is held by the
company and calculated pursuant to section 20-510, the company shall establish an
additional reserve.
3. For years ending before December 31, 1998, the company, in lieu of establishing
the full amount of the additional reserve required by paragraph 2 of this subsection in
the annual statement for that year, may comply by reserving an amount not less than the
following:
(a) For December 31, 1996, the additional reserve divided by three.
(b) For December 31, 1997, two times the additional reserve divided by three.
4. Additional reserves that are established under paragraph 2 or 3 of this
subsection and that are deemed not necessary in subsequent years may be released. The
released amounts shall be disclosed in the actuarial opinion for the applicable
year. The release of the additional reserves is not an adoption of a lower standard of
valuation.
20-696.03 Required opinions; company categories
A. Pursuant to section 20-510, every company doing business in this state shall
annually submit the opinion of an appointed actuary pursuant to this article. The type
of opinion submitted by each company shall be determined by this section and shall be in
accordance with the applicable provisions of this article.
B. For the purposes of this article, companies shall be classified as follows based
on the admitted assets as of the end of the calendar year for which the actuarial opinion
is applicable:
1. Category A consists of companies whose admitted assets do not exceed twenty
million dollars.
2. Category B consists of companies whose admitted assets are at least twenty
million dollars but less than one hundred million dollars.
3. Category C consists of companies whose admitted assets are at least one hundred
million dollars but less than five hundred million dollars.
4. Category D consists of companies whose admitted assets are at least five hundred
million dollars or more.
C. The following tests apply to determine the actuarial opinion filing requirements
that apply to the company classifications established by subsection B of this section:
1. For any year beginning with the year 1996, a category A company that does not
meet all of the following criteria shall submit a statement of actuarial opinion pursuant
to section 20-696.05 for the year in which the criteria are not met. The ratios in
subdivisions (a), (b) and (c) of this paragraph shall be calculated based on amounts as
of the end of the calendar year for which the actuarial opinion is applicable:
(a) The ratio of the sum of capital and surplus to the sum of cash and invested
assets equals or exceeds .10.
(b) The ratio of the sum of the reserves and liabilities for annuities and deposits
to the total admitted assets is less than .30.
(c) The ratio of the book value of the noninvestment grade bonds to the sum of
capital and surplus is less than .50.
(d) The examiner team for the national association of insurance commissioners has
not designated the company as a first priority company in any of the two calendar years
preceding the calendar year for which the actuarial opinion is applicable, or as a second
priority company in each of the two calendar years preceding the calendar year for which
the actuarial opinion is applicable, or the company has resolved the first or second
priority status to the satisfaction of the director of insurance of the state of domicile
and the director of that state has notified the chairperson of the national association
of insurance commissioners' life and health actuarial task force and the national
association of insurance commissioners' staff and support office.
2. For any year beginning with the year 1996, a category B company that does not
meet all of the following criteria shall submit a statement of actuarial opinion pursuant
to section 20-696.05 for the year in which the criteria are not met. The ratios in
subdivisions (a), (b) and (c) of this paragraph shall be calculated based on amounts as
of the end of the calendar year for which the actuarial opinion is applicable:
(a) The ratio of the sum of capital and surplus to the sum of cash and invested
assets equals or exceeds .07.
(b) The ratio of the sum of the reserves and liabilities for annuities and deposits
to the total admitted assets is less than .40.
(c) The ratio of the book value of the noninvestment grade bonds to the sum of
capital and surplus is less than .50.
(d) The examiner team for the national association of insurance commissioners has
not designated the company as a first priority company in any of the two calendar years
preceding the calendar year for which the actuarial opinion is applicable, or as a second
priority company in each of the two calendar years preceding the calendar year for which
the actuarial opinion is applicable, or the company has resolved the first or second
priority status to the satisfaction of the director of the state of domicile and the
director of that state has notified the chairperson of the national association of
insurance commissioners' life and health actuarial task force and the national
association of insurance commissioners' staff and support office.
3. Notwithstanding paragraphs 1 and 2 of this subsection, the director may order a
category A or category B company that meets all the applicable criteria prescribed in
paragraph 1 or 2 of this subsection to submit a statement of actuarial opinion pursuant
to section 20-696.05.
4. After submitting an opinion pursuant to section 20-696.05 and except as provided
in paragraph 5 of this subsection, a category C company that meets all of the following
criteria is not required to submit a statement of actuarial opinion pursuant to section
20-696.05 more frequently than every third year. A category C company that fails to meet
all of the following criteria for any year shall submit a statement of actuarial opinion
pursuant to section 20-696.05 for that year. The ratios in subdivisions (a), (b) and (c)
of this paragraph shall be calculated based on amounts as of the end of the calendar
year for which the actuarial opinion is applicable:
(a) The ratio of the sum of capital and surplus to the sum of cash and invested
assets equals or exceeds .05.
(b) The ratio of the sum of the reserves and liabilities for annuities and deposits
to the total admitted assets is less than .50.
(c) The ratio of the book value of the noninvestment grade bonds to the sum of the
capital and surplus is less than .50.
(d) The examiner team for the national association of insurance commissioners has
not designated the company as a first priority company in any of the two calendar years
preceding the calendar year for which the actuarial opinion is applicable, or as a second
priority company in each of the two calendar years preceding the calendar year for which
the actuarial opinion is applicable, or the company has resolved the first or second
priority status to the satisfaction of the director of insurance of the state of domicile
and the director of that state has notified the chairperson of the national association
of insurance commissioners' life and health actuarial task force and the national
association of insurance commissioners' staff and support office.
5. A company that is not required by this section to submit a statement of
actuarial opinion pursuant to section 20-696.05 for any year shall submit a statement of
actuarial opinion pursuant to section 20-696.04 for that year unless the director
requires that a statement of actuarial opinion be submitted pursuant to section
20-696.05.
D. For each year beginning with the year 1996, a category D company shall submit a
statement of actuarial opinion pursuant to section 20-696.05.
20-696.04 Statement of actuarial opinion not based on an asset adequacy analysis
A. The statement of actuarial opinion required by this section shall include all of
the following:
1. An opening paragraph that identifies the appointed actuary and the actuary's
qualifications. This paragraph shall include the following information:
(a) The actuary's relationship to the company.
(b) The actuary's name, address and firm affiliation.
(c) The actuary's membership status in the American academy of actuaries.
(d) Identification of who appointed the actuary and whether the actuary was
appointed as a company actuary or a consulting actuary, the scope of the appointment and
the date the appointment occurred.
(e) The actuary's familiarity and compliance with the standards of the American
academy of actuaries.
2. A regulatory authority paragraph that states that the company is exempt pursuant
to this article from submitting a statement of actuarial opinion based on an asset
adequacy analysis and that the opinion, which is not based on an asset adequacy analysis,
is rendered pursuant to this section. This paragraph shall identify:
(a) If the company has a statutory obligation to file an actuarial opinion based on
an asset adequacy analysis.
(b) The statute under which the actuarial opinion is being offered.
3. A scope paragraph that identifies the subject on which the opinion is to be
expressed and that describes the scope of the appointed actuary's work. This paragraph
shall:
(a) State if the actuary has examined the actuarial assumptions and related
actuarial items of the annual statement on which the actuarial opinion is based.
(b) Identify the specific annual statement items on which the actuary is expressing
an actuarial opinion, including:
(i) Aggregate reserves for and deposit funds for life or accident health policies
or contracts.
(ii) Deposit funds and other liabilities without life or disability contingencies.
(iii) Policy and contract claims.
(c) State the extent to which the actuary has personally, or in reliance on another
identified individual, examined and tested the underlying records of the company on which
the actuary bases the actuarial opinion.
4. An opinion paragraph that expresses the appointed actuary's actuarial opinion as
required by section 20-510. The opinion shall confirm that the actuarial opinion that is
prepared pursuant to this section complies with subsection B of this section. The
opinion shall state if the amounts that are carried in the balance sheet of the annual
statement on which the actuary bases the actuarial opinion:
(a) Are computed according to presently accepted actuarial standards.
(b) Are based on actuarial assumptions that produce reserves that are greater than
or equal to the company's contractual obligations regarding reserve basis and method and
are consistent with all other contract provisions.
(c) Are in compliance with this title and the laws of the company's domiciliary
jurisdiction.
(d) Are computed using actuarial assumptions that are consistent with those used in
the previous year's annual statement filing, with any exceptions specifically identified
and explained.
(e) Include a provision for all actuarial reserves and related statement items that
must be established.
(f) Are based on the applicable standards of the American academy of actuaries.
5. An eligibility paragraph that confirms the company's eligibility for filing
under this section, including:
(a) If the actuarial opinion includes an opinion regarding the adequacy of reserves
and related actuarial items.
(b) The admitted assets of the company.
(c) The category of the company pursuant to section 20-696.03.
(d) A statement that the criteria specified for a company meeting the category's
description of the company pursuant to section 20-696.03 are satisfied. The statement
shall describe:
(i) The specific ratios that are calculated pursuant to the applicable formulas
that are prescribed by section 20-696.03, subsection B.
(ii) If the company has been designated a priority company by the national
association of insurance commissioners and the resolution, if any, of that designation.
(iii) If the company has been ordered by an insurance regulatory official to file
an asset adequacy opinion.
B. All actuarial methods, considerations and analysis that are used in forming
actuarial opinions prescribed by this section shall comply with standards adopted by
order of the director. In establishing standards, the director shall consider the
applicable standards of the American academy of actuaries.
C. If the appointed actuary is unable to form an opinion, the appointed actuary
shall refuse to issue a statement of actuarial opinion. If the appointed actuary's
opinion is adverse or qualified, the appointed actuary shall issue an adverse or
qualified actuarial opinion that explicitly explains the reasons for the opinion.
D. If the appointed actuary does not express an opinion regarding the accuracy and
completeness of the listings and summaries of policies in force, or if another person
certifies the accuracy and completeness of the listings and summaries of policies in
force pursuant to this section, the company officer or accounting firm that prepared the
underlying data shall sign and attach a statement to the opinion indicating:
1. The name, address and telephone number of the individual signing the statement.
2. An affirmation regarding the accuracy of the listings and summaries of policies
and contracts in force as of the annual statement date on which the actuarial opinion is
based, including the name of the individual who prepared or directed the preparation of
the listings and summaries.
3. The extent to which the listings and summaries are believed to be substantially
accurate and complete.
20-696.05 Statement of actuarial opinion based on an asset adequacy analysis
A. The statement of actuarial opinion required by this section shall include all of
the following:
1. An opening paragraph that identifies the appointed actuary and the actuary's
qualifications. This paragraph shall include the following information:
(a) The actuary's relationship to the company.
(b) The actuary's name, address and firm affiliation.
(c) The actuary's membership status in the American academy of actuaries.
(d) Identification of who appointed the actuary and whether the actuary was
appointed as a company actuary or a consulting actuary, the scope of the appointment and
the date the appointment occurred.
(e) The actuary's familiarity and compliance with the standards of the American
academy of actuaries.
2. A scope paragraph that identifies the subject on which an opinion is to be
expressed and that describes the scope of the appointed actuary's work, including a table
of reserves and liabilities that delineates the reserves and related actuarial items that
have been analyzed for asset adequacy and the method of analysis, and that identifies
those reserves and related actuarial items that have not been analyzed for asset
adequacy. The scope paragraph shall include the following information:
(a) If the actuary has examined the actuarial assumptions and actuarial methods
used to determine the reserves and related actuarial items of the annual statement on
which the actuarial opinion is based.
(b) The specific reserves and related actuarial items that were subjected to asset
adequacy analysis, including the formula reserves, additional actuarial reserves, other
amounts included pursuant to applicable actuarial standards and the sum of these items,
and the applicable analysis method employed to determine these items for the following
annual statement entries:
(i) All applicable items from the aggregate reserve for life policies and contracts
exhibit to the annual statement, consisting of entries for life insurance, annuities,
supplementary contracts involving life contingencies, accidental death benefit,
disability-active, disability-disabled, miscellaneous and a total of these items.
(ii) All applicable items contained on the aggregate reserve for accident and
health policies exhibit of the annual statement, including active life reserve and claim
reserve and a total for these items.
(iii) All applicable items from the deposit funds and other liabilities without
life or disability contingencies exhibit from the annual statement, including premiums
and other deposit funds, policyholder premiums, guaranteed interest contracts, other
contract deposit funds, supplementary contracts not involving life contingencies,
dividend and coupon accumulations and a total for these items.
(iv) All applicable items from the policy and contract claims exhibit from the
annual statement, including life and health and a total for these items.
(v) Separate account information from the annual statement.
(vi) Total reserves from the annual statement.
(vii) The interest maintenance reserve from the annual statement.
(viii) The allocated amount for the asset valuation reserve from the annual
statement.
3. A reliance paragraph that describes each area in which the appointed actuary who
issues the opinion pursuant to this section has relied on others to develop data,
procedures or assumptions and that includes a statement from each person on whom reliance
has been placed. The reliance portion of the actuarial opinion shall indicate the extent
to which the actuary has personally, or in reliance on other specifically identified
individuals, examined and tested the underlying records of the company on which the
actuary bases the actuarial opinion. The reliance paragraph shall include the following
information:
(a) The identity of and a verification from each person on whom reliance has been
placed to prepare the opinion with respect to the specific annual statement entries and
related reserve and related actuarial items, listings and summaries of policies in force
or asset records prepared by the company or a third party, and the specific items relied
on that were prepared by a person other than the actuary.
(b) The underlying asset and liability records, actuarial assumptions and actuarial
methods examined by the actuary including a description of each test of the actuarial
calculations considered necessary by the actuary.
4. An opinion paragraph that expresses the appointed actuary's actuarial opinion as
required by section 20-510. The opinion shall confirm that the actuarial opinion
prepared pursuant to this section complies with subsection B of this section. The
opinion shall state if amounts that are carried in the balance sheet of the annual
statement on which the actuary bases the actuarial opinion:
(a) Are computed according to presently accepted actuarial standards.
(b) Are based on actuarial assumptions that produce reserves that are greater than
or equal to the company's contractual obligations regarding reserve basis and method and
are consistent with all other contract provisions.
(c) Are in compliance with this title and the laws of the company's domiciliary
jurisdiction.
(d) Are computed using actuarial assumptions consistent with those used in the
previous year's annual statement filing, with any exceptions specifically identified and
explained.
(e) Include a provision for all actuarial reserves and related statement items that
must be established.
(f) Are based on the applicable standards of the American academy of actuaries.
(g) If the reserve and related actuarial items and the assets of the company
provide adequate cash flows to satisfy the contractual obligations and related expenses
of the company.
(h) Whether unanticipated events that occur after the date of the opinion have been
considered in the issuance of the opinion.
B. All actuarial methods, considerations and analysis that are used in forming
actuarial opinions prescribed by this section shall comply with standards adopted by
order of the director. In establishing standards, the director shall consider the
applicable standards of the American academy of actuaries.
C. If the appointed actuary is unable to form an opinion, the appointed actuary
shall refuse to issue a statement of actuarial opinion. If the appointed actuary's
opinion is adverse or qualified, the appointed actuary shall issue an adverse or
qualified actuarial opinion that explicitly explains the reasons for the opinion.
D. If the appointed actuary does not express an opinion regarding the accuracy and
completeness of the listings and summaries of policies in force, or if another person
certifies the accuracy and completeness of the listings and summaries of policies in
force pursuant to this section, the company officer or accounting firm that prepared the
underlying data shall sign and attach a statement to the opinion indicating:
1. The name, address and telephone number of the individual signing the statement.
2. An affirmation regarding the accuracy of the listings and summaries of policies
and contracts in force as of the annual statement date on which the actuarial opinion is
based, including the name of the individual who prepared or directed the preparation of
the listings and summaries.
3. The extent to which the listings and summaries are believed to be substantially
accurate and complete.
E. Each company that files with the director an actuarial opinion prepared pursuant
to this section shall obtain from the appointed actuary who prepared the actuarial
opinion a memorandum prepared pursuant to section 20-696.06.
20-696.06 Actuarial memorandum including an asset adequacy analysis
A. Each company shall obtain a memorandum prepared pursuant to this section from
the appointed actuary that describes the analysis done in support of the actuarial
opinion prepared pursuant to section 20-696.05.
B. The director may examine the memorandum prepared pursuant to this section and
shall return the memorandum to the company after the examination. The memorandum is not
a record of the department and is not subject to automatic filing with the director. The
department may use the memorandum in connection with proceedings brought to enforce this
title.
C. The appointed actuary may rely on and include as a part of the memorandum
prepared pursuant to this section documents or statements that are prepared and signed by
other qualified actuaries. The memorandum shall state that the appointed actuary relied
on other qualified actuaries to prepare the memorandum.
D. If the director requests a memorandum and no memorandum exists or if the
director finds that the analysis described in the memorandum fails to meet the standards
of the actuarial standards board or the standards and requirements of this article, the
director may designate a qualified actuary to review the opinion and to prepare a
supporting memorandum if it is required for review. The company shall pay any reasonable
and necessary expenses that are incurred during the independent review. The director
shall direct and control the independent review.
E. The reviewing actuary who is designated under subsection D of this section has
the same status as an examiner for the purposes of obtaining data from the company. The
director shall retain the work papers and documentation of the reviewing actuary. The
director shall keep confidential any information that is provided by the company to the
reviewing actuary and that is included in the work papers. The reviewing actuary shall
not be an employee of a consulting firm that was involved with the preparation of any
prior actuarial memorandum or actuarial opinion for the company pursuant to this article
during the current year or the preceding three years.
F. If an actuarial opinion under section 20-696.05 is provided, the memorandum
shall demonstrate that the analysis has been done in accordance with the standards for
asset adequacy under section 20-696.02 and any additional standards under this
article. The memorandum shall specify all of the following:
1. For reserves:
(a) Product descriptions including market descriptions, underwriting and other
aspects of a risk profile and the specific risks the appointed actuary deems significant.
(b) Source of liability in force.
(c) Reserve method and basis.
(d) Investment reserves.
(e) Reinsurance arrangements.
2. For assets:
(a) Portfolio descriptions, including a risk profile that discloses the quality,
distribution and types of assets.
(b) Investment and disinvestment assumptions.
(c) Source of asset data.
(d) Asset valuation basis.
3. Analysis basis:
(a) Methodology.
(b) Rationale for the inclusion or exclusion of different blocks of business and
how pertinent risks were analyzed.
(c) Rationale for degree of rigor in analyzing different blocks of business.
(d) Criteria for determining asset adequacy.
(e) Effect of federal income taxes, reinsurance and other relevant factors.
4. Summary of results.
5. Conclusions.
G. The memorandum shall state whether the actuarial methods, consideration and
analyses that were used to prepare the memorandum conform to the appropriate standards of
practice adopted by the actuarial standards board and that the standards of practice form
the basis for this memorandum.
H. All actuarial methods, considerations and analysis that are used in preparing
the actuarial memoranda prescribed by this section shall comply with standards adopted by
order of the director. In establishing standards, the director shall consider the
applicable standards of the American academy of actuaries.
20-696.07 Additional considerations for analysis
A. For the purposes of asset adequacy analysis for the statement of actuarial
opinion under section 20-696.05, reserves and assets may be aggregated by either of the
following methods:
1. Aggregate the reserves and related actuarial items and the supporting assets for
different products or lines of business, before analyzing the adequacy of the combined
assets to mature the combined liabilities. The appointed actuary shall be satisfied that
the assets held in support of the aggregated reserves and related actuarial items are
managed in a manner that the cash flows from the aggregated assets are available to help
mature the liabilities from the blocks of business that have been aggregated.
2. Aggregate the results of asset adequacy analysis of one or more products or
lines of business, the reserves for which prove through analysis to be redundant, with
the results of one or more products or lines of business, the reserves for which prove
through analysis to be deficient. The appointed actuary shall be satisfied that the
asset adequacy results for the various products or lines of business for which the
results are so aggregated either:
(a) Are developed using consistent economic scenarios.
(b) Are subject to mutually independent risks.
B. If the actuary aggregates reserves under subsection A of this section, the
actuary shall disclose in the actuary's opinion which method of aggregation was used and
shall describe the aggregation in the supporting memorandum.
C. The appointed actuary shall analyze only those assets that are held in support
of the reserves that are the subject for specific analysis and that are called "specified
reserves". A particular asset or portion of a particular asset that supports a group of
specified reserves cannot support any other group of specified reserves. An asset may be
allocated over several groups of specified reserves. Except pursuant to subsection D of
this section, the annual statement value of the assets that are held in support of the
reserves shall not exceed the annual statement value of the specified reserves. If the
method of asset allocation is not consistent from year to year, the supporting memorandum
shall describe the extent of its inconsistency.
D. An asset adequacy analysis shall use an appropriate allocation of assets in the
amount of the interest maintenance reserve, whether positive or negative. An analysis of
risks regarding asset default may include an appropriate allocation of assets supporting
the asset valuation reserve. The asset valuation reserve assets may not be applied to
any other risks with respect to reserve adequacy. An analysis of these and other risks
may include assets supporting other mandatory or voluntary reserves that are available to
the extent they are not used for risk analysis and reserve support. The memorandum shall
disclose the amount of the assets used for the asset valuation reserve in the table of
reserves and liabilities of the opinion and shall also disclose the method that was used
for selecting particular assets or allocated portions of assets.
E. For the purposes of performing the asset adequacy analysis required by this
article, the qualified actuary shall comply with standards adopted by order of the
director. In establishing standards, the director shall consider the standards that are
adopted by the actuarial standards board. The appointed actuary shall consider in the
analysis the effect of at least the following interest rate scenarios:
1. Level with no deviation.
2. Uniformly increasing over ten years at a half per cent per year and then level.
3. Uniformly increasing at one per cent per year over five years and then uniformly
decreasing at one per cent per year to the original level at the end of ten years and
then level.
4. An immediate increase of three per cent and then level.
5. Uniformly decreasing over ten years at a half per cent per year and then level.
6. Uniformly decreasing at one per cent per year over five years and then uniformly
increasing at one per cent per year to the original level at the end of ten years and
then level.
7. An immediate decrease of three per cent and then level.
F. For the purposes of subsection E of this section, the projected interest rates
for a five year treasury note do not need to be reduced beyond the point at which the
five year treasury note yield would be fifty per cent of its initial level. The
beginning interest rates may be based on interest rates for new investments as of the
valuation date that are similar to recent investments allocated to support the product
being tested or that are based on an outside index of assets of the appropriate length on
a date close to the valuation date. The appointed actuary shall specifically define
which method is used to determine the beginning yield curve and associated interest
rates. The beginning yield curve and associated interest rates shall be consistent for
all interest rate scenarios.
G. The company and appointed actuary shall retain for at least seven years
sufficient documentation that indicates the procedures followed, the analyses performed,
the bases for assumptions and the results obtained.
20-696 Scope of article
A. This article applies to all insurers authorized to transact life insurance and
fraternal benefit societies doing business in this state and to all insurers and
fraternal benefit societies that are authorized to reinsure life insurance, annuities or
accident and health insurance business in this state.
B. This article applies to all annual statements filed with the director after the
effective date of this article. Except for insurers that are exempt pursuant to section
20-696.03, all insurers shall file the following with the director each year:
1. A statement of opinion on the adequacy of the reserves and related actuarial
items based on an asset adequacy analysis pursuant to section 20-696.05.
2. A memorandum in support of the statement of opinion pursuant to section
20-696.06.
C. An insurer that is exempt from filing pursuant to section 20-696.03 shall file a
statement of actuarial opinion pursuant to section 20-696.04.
D. Notwithstanding subsections A and B of this section, the director may require an
insurer that is otherwise exempt pursuant to this article to submit a statement of
actuarial opinion and to prepare a memorandum in support of the actuarial opinion
pursuant to sections 20-696.05 and 20-696.06 if the director determines that an asset
adequacy analysis is necessary.
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