(A) Transactions within an insurance holding company system to which an insurer subject to registration is a party are subject to the following standards:

(1) The terms must be fair and reasonable.

(2) Agreements for cost-sharing services and management must include provisions required by regulation promulgated by the department.

(3) Charges or fees for services performed must be reasonable.

(4) Expenses incurred and payment received must be allocated to the insurer in conformity with customary insurance accounting practices consistently applied.

(5) The books, accounts, and records of each party to all transactions must be so maintained as to clearly and accurately disclose the nature and details of the transactions including such accounting information as is necessary to support the reasonableness of the charges or fees to the respective parties.

(6) The insurer's surplus as regards policyholders following any dividends or distributions to shareholder affiliates must be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs.

(B) The following transactions involving a domestic insurer and any person in its insurance holding company system, including amendments or modifications of affiliate agreements previously filed pursuant to this section, which are subject to any materiality standards contained in items (1) through (7) may not be entered into unless the insurer has notified the department in writing of its intention to enter into the transaction at least thirty days prior, or such shorter period as the director or his designee may permit, and the director or his designee has not disapproved it within such period. The notice for amendments or modifications must include the reasons for the charge and the financial impact on the domestic insurer. Informal notice must be reported within thirty days after termination of a previously filed agreement to the director or his designee for determination of the type of filing required, if any.

(1) Sales, purchases, exchanges, loans, or extensions of credit, guarantees, or investments if the transactions are equal to or exceed:

(a) with respect to nonlife insurers, the lesser of three percent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders;

(b) with respect to life insurers, three percent of the insurer's admitted assets, each as of the thirty-first day of December next preceding.

(2) Loans or extensions of credit to any person who is not an affiliate, where the insurer makes the loans or extensions of credit with the agreement or understanding that the proceeds of the transactions, in whole or in substantial part, are to be used to make loans or extensions of credit to purchase assets of, or make investments in, any affiliate of the insurer making the loans or extensions of credit as long as such transactions are equal to or exceed:

(a) with respect to nonlife insurers, the lesser of three percent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders;

(b) with respect to life insurers, three percent of the insurer's admitted assets, each as of the thirty-first day of December next preceding.

(3) Reinsurance agreements or modifications, including:

(a) all reinsurance pooling agreements; and

(b) agreements in which the reinsurance premium or a change in the insurer's liabilities, or the projected reinsurance premium or a change to the insurer's liabilities in any of the next three years, equals or exceeds five percent of the insurer's surplus as regards policyholders, as of the thirty-first day of December next preceding, including those agreements which may require as consideration the transfer of assets from an insurer to a nonaffiliate, if an agreement or understanding exists between the insurer and nonaffiliate that any portion of such assets will be transferred to one or more affiliates of the insurer.

(4) All management agreements, service contracts, tax allocation agreements, and all cost-sharing arrangements.

(5) Guarantees when made by a domestic insurer; provided, however, that a guarantee which is quantifiable as to amount is not subject to the notice requirements of this item unless it exceeds the lesser of one-half of one percent of the insurer's admitted assets or ten percent of surplus as regards policyholders as of the thirty-first day of December next preceding. Further, all guarantees which are not quantifiable as to amount are subject to the notice requirements of this item.

(6) Direct or indirect acquisitions or investments in a person that controls the insurer or in an affiliate of the insurer in an amount which, together with its present holdings in such investments, exceeds two and one-half percent of the insurer's surplus to policyholders. Direct or indirect acquisitions or investments in subsidiaries acquired pursuant to Sections 38-21-20 through 38-21-50, or authorized under any other section of this chapter, or in nonsubsidiary insurance affiliates that are subject to the provisions of this chapter, are exempt from this requirement.

(7) Any material transactions, specified by regulation of the department, which the director or his designee determines may adversely affect the interests of the insurer's policyholders. Nothing herein authorizes or permits any transactions which, in the case of an insurer, not a member of the same insurance holding company system, would be otherwise contrary to law.

(C) A domestic insurer may not enter into transactions, which are part of a plan or series of like transactions with persons within the insurance holding company system, if the purpose of those separate transactions is to avoid the statutory threshold amount and thus avoid the review that would occur otherwise. If the director or his designee determines that such separate transactions were entered into over any twelve-month period for such purpose, he may exercise his authority under Section 38-21-340.

(D) The director or his designee, in reviewing transactions pursuant to subsection (B), shall consider whether the transactions comply with the standards set forth in subsection (A) and whether they may adversely affect the interests of policyholders.

(E) The department must be notified within thirty days of any investment of the domestic insurer in any one corporation if the total investment in the corporation by the insurance holding company system exceeds ten percent of the corporation's voting securities.

HISTORY: Former 1976 Code Section 38-21-250 [1947 (45) 322; 1952 Code Section 37-875; 1962 Code Section 37-875] recodified as Section 38-37-250 by 1987 Act No. 155, Section 1; Former 1976 Code Section 38-29-240 [1962 Section 37-1422; 1971 (57) 251; 1986 Act No. 426, Section 15] recodified as Section 38-21-250 by 1987 Act No. 155, Section 1; 1993 Act No. 181, Section 581; 2015 Act No. 2 (S.342), Section 13, eff March 9, 2015.

Effect of Amendment

2015 Act No. 2, Section 13, rewrote the section.