HB416: relative to insurance examinations.

CHAPTER 186

HB 416 – FINAL VERSION

24Mar2009… 0794h

2009 SESSION

09-0732

01/10

HOUSE BILL 416

AN ACT relative to insurance examinations.

SPONSORS: Rep. Headd, Rock 3

COMMITTEE: Commerce and Consumer Affairs

AMENDED ANALYSIS

This bill clarifies the law relative to conducting insurance examinations, including how reports are to be filed with the department of insurance. This bill also clarifies the law relating to the regulation of investments by insurers.

This bill is a request of the insurance department.

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Explanation: Matter added to current law appears in bold italics.

Matter removed from current law appears [in brackets and struckthrough.]

Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

24Mar2009… 0794h

09-0732

01/10

STATE OF NEW HAMPSHIRE

In the Year of Our Lord Two Thousand Nine

AN ACT relative to insurance examinations.

Be it Enacted by the Senate and House of Representatives in General Court convened:

186:1 Conduct of Insurance Examinations. Amend the introductory paragraph of paragraph I and subparagraph I(a) of RSA 400-A:37 to read as follows:

I.(a) AUTHORITY, SCOPE, AND SCHEDULING OF EXAMINATIONS. The commissioner or any of his or her examiners may conduct an examination of any company as often as the commissioner deems appropriate [but shall at a minimum, conduct an examination of every insurer licensed in this state at least once every 5 years]. In scheduling and determining the nature, scope and frequency of the examinations, the commissioner shall consider the results of financial statement analyses and ratios, changes in management or ownership, actuarial opinions, reports of independent Certified Public Accountants and other criteria as set forth in the Financial Condition Examiners’ Handbook or the Market Regulation Handbook in effect and adopted by the National Association of Insurance Commissioners. [(a)] Except as otherwise expressly provided, the commissioner shall examine each domestic insurer at least once every 5 years, and he or she shall annually examine, value, or cause to be valued the reserve liabilities, including loss adjustment expense reserves, of each domestic insurer. For the purpose of making the annual valuation of the reserve liabilities for all outstanding life insurance policies and annuity and pure endowment contracts of domestic insurance companies, the commissioner may employ a competent actuary who shall make such valuation of a company’s contractual obligations and the company’s compliance with the law.

186:2 Conduct of Insurance Examinations. Amend the introductory paragraph of paragraph II and subparagraph II(a) of RSA 400-A:37 to read as follows:

II. EXAMINATION OF NON-INSURANCE COMPANY LICENSES. For the purpose of ascertaining compliance with law or relationships and transactions between any person and any insurer or proposed insurer, and in circumstances where the commissioner has reasonable grounds to believe there is noncompliance with or violation of law, regulation, or order, he or she may, as often and to the extent he or she deems advisable, examine the accounts, records, documents, and transactions pertaining to or affecting the insurance affairs or proposed insurance affairs and transactions of:

(a) Any insurance [agent, broker, general agent, surplus line licensee] producer, adjuster, [consultant,] insurer representative, or any person holding himself or herself out as any of the foregoing. (Provided, however, that if upon examination of any person specified in this paragraph the commissioner shall determine that such person is not in violation of the provisions of Title XXXVII or applicable regulations, the expense of the examination shall be borne by the insurance department.)

186:3 Conduct of Insurance Examinations. Amend RSA 400-A:37, III(a) to read as follows:

(a) Upon determining that an examination should be conducted, the commissioner or the commissioner’s designee shall issue an examination warrant appointing one or more examiners to perform the examination and instructing them as to the scope of the examination. In conducting the examination, the examiner shall observe those guidelines and procedures set forth in the Financial Condition Examiners’ Handbook or the Market Regulation Handbook adopted by the National Association of Insurance Commissioners. The commissioner may also employ such other guidelines or procedures as the commissioner may deem appropriate.

186:4 Conduct of Insurance Examinations. RSA 400-A:37, IV is repealed and reenacted to read as follows:

IV. EXAM REPORT, DISTRIBUTION, PROCEDURE.

(a) No later than 60 days following completion of the examination, the examiner in charge shall file with the department a verified written report of examination under oath. Upon receipt of the verified report, the department shall transmit the report to the company examined, together with a notice which shall afford the company examined not more than 30 days to make a written submission or rebuttal with respect to any matters contained in the examination report.

(b) Within 30 days of the period allowed for the receipt of written submissions or rebuttals, the commissioner shall fully consider and review the report, together with any written submissions or rebuttals, and any relevant portions of the examiner’s workpapers and enter an order:

(1) Adopting the examination report as filed or with modification or corrections. If the examination report reveals that the company is operating in violation of any law, regulation or prior order of the commissioner, the commissioner may order the company to take any action the commissioner considers necessary and appropriate to cure such violation;

(2) Rejecting the examination report with directions to the examiners to reopen the examination for purposes of obtaining additional data, documentation or information, and refiling as provided in subparagraph (a); or

(3) Calling for an investigatory hearing with no less than 20 days notice to the company for purposes of obtaining additional documentation, data, information, and testimony.

(c)(1) Upon the adoption of the examination report, the commissioner shall continue to hold the content of the examination report as private and confidential information for a period of 20 days, except as otherwise provided in this chapter.

(2) If requested by the person examined within 20 days after receipt of the order adopting the examination report, or if deemed advisable by the commissioner, the commissioner shall hold a closed meeting relative to the report. The closed meeting shall be conducted within 20 days after a request for closed meeting. Any order of the commissioner issued pursuant to RSA 400-A:37, IV(b)(1) shall be suspended pending a final decision of the commissioner after the closed meeting and the commissioner shall not file the report until after such closed meeting and his or her final order on the report; except that the commissioner may furnish a copy of the examination report:

(A) To the governor, attorney general, or treasurer pending the closed meeting and final decision thereon; and

(B) As otherwise provided in this chapter.

(3) After the closed meeting, the commissioner shall issue a final order on the report and shall file the final report. The commissioner may order the company to take any action the commissioner considers necessary and appropriate to cure any violation. Twenty days after the report is filed as a final report, the commissioner may open the report for public inspection if no court of competent jurisdiction has stayed its publication.

(4) If no request for a closed meeting is filed, the commissioner shall issue a final order on the report, shall file the final report, and may take all other appropriate action as set forth in subparagraph (3).

(5) A final report shall be filed, and any order shall be issued within 6 months after the adoption of the examination report.

(6) If the report is an examination of a domestic insurer, a copy of the report, or a summary approved by the commissioner, when filed in the department, together with the recommendations or statements of the commissioner or his or her examiner, shall be presented by the insurer’s chief executive officer to the insurer’s board of directors or similar governing body at a meeting which shall be held within 90 days following receipt of the report in final form by the insurer. A copy of the report shall also be furnished by the secretary of the insurer, if incorporated, or by the attorney-in-fact if a reciprocal insurer, to each member of the insurer’s board of directors or board of governors, if a reciprocal insurer. The certificate of the secretary or attorney-in-fact that a copy of the examination report has been furnished to such persons shall constitute knowledge of the contents of the report by each such member.

(7) The final report after filing shall be admissible in evidence in accordance with rules of the superior court, in any action or proceeding brought by the commissioner against the person examined, or against its officers, employees, or agents. In any such action or proceeding, the commissioner or the commissioner’s examiners may, however, at any time testify and offer proper evidence as to information secured or matters discovered during the course of an examination, whether or not a final written report of the examination has been made, furnished, or filed in the department.

(d) Nothing contained in this title shall prevent or be construed as prohibiting the commissioner from disclosing the content of an examination report, preliminary examination report or results, or any matter relating thereto, to the insurance department of this or any other state or country, or to law enforcement officials of this or any other state agency of the federal government at any time, so long as such agency or office receiving the report or matters relating thereto agrees in writing to hold it confidential and in a manner consistent with this title.

(e) In the event the commissioner determines that regulatory action is appropriate as a result of any examination, he or she may initiate any proceedings or actions as provided by law.

186:5 Conduct of Insurance Investigations. Amend the paragraph heading and subparagraph(a) of RSA 400-A:37, IV-a to read as follows:

IV-a. PRIVILEGE FOR[,] AND CONFIDENTIALITY OF REPORTS AND ANCILLARY INFORMATION.

(a) Except as provided in subparagraph IV[(c)(2)](d) and in this subparagraph, all documents, materials, or other information, including, but not limited to, [all] models or products provided by an entity separate from and not under direct or indirect corporate control of the company using the model or product, working papers, complaint logs, and copies thereof created, produced or obtained by or disclosed to the commissioner or any other person in the course of an examination made under this title, or in the course of analysis by the commissioner of the financial condition or market conduct of a company shall not be made public by the commissioner or any other person and shall be confidential by law and privileged, shall not be subject to RSA 91-A, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. The commissioner is authorized to use the documents, materials, or other information in the furtherance of any regulatory or legal action brought as part of the commissioner’s official duties.

186:6 Conduct of Insurance Examinations. Amend RSA 400-A:37, IV-a(e)(1) to read as follows:

(1) May share documents, materials, or other information, including the confidential and privileged documents, materials, or information subject to subparagraphs (a) and (b), with other state, federal, and international regulatory agencies, with the National Association of Insurance Commissioners and its affiliates and subsidiaries, and with state, federal, and international law enforcement authorities; provided, that the recipient agrees to maintain the confidentiality and privileged status of the document, material, communication, or other information. [Such parties shall agree in writing prior to receiving the information to provide to it the same confidential treatment as required by this paragraph, unless the prior written consent of the company to which it pertains has been obtained;]

186:7 Repeal. The following are repealed:

I. RSA 400-A:37, V, relative to exam reports; distribution; procedure.

II. RSA 400-A:37, VI, relative to reports as privileged.

186:8 Insurance; Regulation of Investments; Diversification. Amend RSA 411-A:6 to read as follows:

411-A:6 Diversification.

I. An insurer shall not at any one time have any combination of investments in or loans upon the security of obligations, property or securities of any one municipal corporation, institution, person or corporation (other than its lawful subsidiary) aggregating over 10 percent of the insurer’s assets. This shall not apply as to general obligations of, or obligations guaranteed by, the United States, its agencies or government sponsored enterprises, or of any state, or of Canada or any province thereof, or include policy loans made under RSA 411-A:27.

II. An insurer shall not invest in or hold at any one time more than 10 percent of the outstanding voting stock of any corporation, except as to voting rights of preferred stock during default of dividends. This does not apply as to stock of a subsidiary of the insurer acquired under RSA 411-A:13 or to controlling stock of an insurer acquired under RSA 411-A:12, II.

III. An insurer shall invest and have invested at any one time in aggregate amount not more than 10 percent of admitted assets in all stocks, investment in which is permitted under RSA 411-A:11, 411-A:12 and 411-A:14, and not more than 20 percent of its assets in stocks referred to in RSA 411-A:10. For the purposes of this paragraph stocks shall be valued at cost. This provision shall not apply to stock of controlled or subsidiary corporations or money market mutual funds.

IV. An insurer shall not at any one time have more than 50 percent of its assets invested in obligations secured by mortgages of real property, exclusive of that portion of such obligations guaranteed or insured by an agency or government sponsored enterprise of the United States government. For the purposes of this paragraph, mortgages shall be valued at book value.

186:9 Insurance; Regulation of Investments. Amend RSA 411-A:8, XII to read as follows:

XII. Federal Home Loan Mortgage Corporation.

XIII. Any other similar agency of, or participated in by, the government of the United States and of similar financial quality.

186:10 Insurance; Regulation of Investments; Corporate Obligations. Amend RSA 411-A:9 to read as follows:

411-A:9 Corporate Obligations. An insurer may invest in bonds, debentures, notes, mortgage-backed securities, asset-backed securities, and other evidences of indebtedness issued, assumed or guaranteed by any solvent institution created or existing under the laws of the United States or Canada or of any state, district, province or territory thereof, which are not in default as to principal or interest.

186:11 Insurance; Regulation of Investments; Collateral Loans. Amend RSA 411-A:28 to read as follows:

411-A:28 Collateral Loans. An insurer may lend its funds upon the pledge of securities eligible for investment under this chapter. No such loan shall exceed [in amount 80 percent of] the market value of such collateral pledged[, such market value to be determined as at the time of the loan].

186:12 Insurance; Regulation of Investments; Investments in Foreign Countries. Amend RSA 411-A:29 to read as follows:

411-A:29 Investments in Foreign Countries. An insurer transacting business in a foreign country may invest funds, in an aggregate amount not exceeding its deposit and reserve obligations incurred in such country, in conformity with the laws thereof in the same kinds of securities and investments of or in such country as the insurer is authorized to invest in or acquire under other provisions of this chapter. [Other] In addition to foreign investments permitted by the preceding sentence, insurers may have not over [1/2 of one] 10 percent of assets invested in such securities and investments of or in foreign countries, other than Canada.

186:13 Insurance; Regulation of Investments; Miscellaneous Investments. Amend RSA 411-A:30 to read as follows:

411-A:30 Miscellaneous Investments.

I. [Subject to the approval of the commissioner,] An insurer may make loans or investments not otherwise expressly permitted under this chapter and may make loans or investments in amounts in excess of limits set forth in this chapter, in an aggregate amount not over 10 percent of the insurer's assets, if such loan or investment [fulfills the requirements of RSA 411-A:4 and otherwise] qualifies as a sound investment. No such loan or investment shall be represented by loans or investments expressly prohibited by statute or by [rule,] regulation [or order of the commissioner].

II. The insurer shall keep a [separate] record of all loans and investments made under this section.

186:14 Effective Date. This act shall take effect January 1, 2010.

Approved: July 13, 2009

Effective Date: January 1, 2010