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ENROLLED
COMMITTEE SUBSTITUTE
FOR
H. B. 4128
(By Delegate Perry)
[Passed March 3, 2010; in effect ninety days from passage.]
AN ACT
to repeal §33-34-11 of the Code of West Virginia, 1931, as
amended; to repeal §33-34A-1, §33-34A-2, §33-34A-3, §33-34A-4,
§33-34A-5, §33-34A-6, §33-34A-7 and §33-34A-8 of said code; to
amend and reenact §33-34-3 and §33-34-4 of said code; and to
further amend said article by adding thereto a new section,
designated §33-34-3a, all relating to determining when
insurance companies are to be deemed to be in hazardous
financial condition; deleting severability provisions;
providing for consideration of impact on creditors; providing
for entry of an order by the commissioner placing the insurer
under administrative supervision; revising standards and
authority for the Insurance Commissioner's identification of
companies in potentially hazardous condition; providing for
additional remedies; removing requirement of hearing prior to
entry of order of supervision; requiring a prompt hearing and
providing procedure; and revising confidentiality provisions.
Be it enacted by the Legislature of West Virginia:
That §33-34-11 of the Code of West Virginia, 1931, as amended,
be repealed; that §33-34A-1, §33-34A-2, §33-34A-3, §33-34A-4,
§33-34A-5, §33-34A-6, §33-34A-7 and §33-34A-8 of said code be
repealed; that §33-34-3 and §33-34-4 of said code be amended and
reenacted; and that said article be amended by adding thereto a new
section, designated §33-34-3a, all to read as follows:
ARTICLE 34. ADMINISTRATIVE SUPERVISION.
§33-34-3. Administrative supervision; order; review.
(a) An insurer may be subject to administrative supervision by
the commissioner if upon examination or at any other time it
appears in the commissioner's discretion that:
(1) The insurer's condition renders the continuance of its
business hazardous to the public, to its insureds or to its
creditors;
(2) The insurer has or appears to have exceeded its powers
granted under its certificate of authority and applicable law;
(3) The insurer has failed to comply with the applicable
provisions of this chapter or chapter twenty-three of this code;
(4) The business of the insurer is being conducted
fraudulently; or
(5) The insurer gives its consent.
(b) If the commissioner determines that one or more of the
conditions set forth in subsection (a) of this section exist, the
commissioner shall enter an order placing the insurer under
administrative supervision of the commissioner. The order shall:
(1) Notify the insurer of the commissioner's determination and set forth the conduct, conditions and grounds upon which the
commissioner based
the determination;
(2) Set forth all requirements necessary to abate the
determination; and
(3) Notify the insurer that it is under the supervision of the
commissioner and that the commissioner is applying and effectuating
the provisions of the article.
(c) (1) If placed under administrative supervision, the
insurer shall have sixty days, or another period of time as
designated by the commissioner, to comply with the requirements of
the commissioner subject to the provisions of this article.
(2) If it is determined after notice and hearing that
conditions giving rise to the supervision still exist at the end of
the supervision period specified above, the commissioner may enter
an order to extend such period.
(3) If it is determined by the commissioner that conditions
giving rise to the supervision have been corrected, the
commissioner shall enter an order to release the insurer from
supervision.
(d) (1) An insurer subject to an order placing the insurer
under administrative supervision may contest and seek review of the
order, or any extensions or modifications thereof, pursuant to the
provisions of section thirteen, article two of this chapter.
Every
notice of hearing shall state the time and place of the hearing and
the conduct, condition or ground upon which the commissioner based
the order. Unless mutually agreed between the commissioner and the insurer, the hearing shall occur not less than ten days nor more
than thirty days after notice is served.
(2) A hearing upon an order of the commissioner in which the
commissioner is alleging, pursuant to subdivision (1), subsection
(a) of this section that the insurer's condition renders the
continuance of its business hazardous to the public, its insureds
or its creditors shall be held privately unless the insurer
requests a public hearing, in which case the hearing shall be
public.
(3) During the period of supervision, the insurer may contest
an action taken or proposed to be taken by the supervisor
specifying the manner wherein the action being complained of would
not result in improving the condition of the insurer.
§33-34-3a. Standards to determine hazardous condition;
commissioner's authority.
(a) Standards. -- In making a determination pursuant to
subdivision (1), subsection (a), section three of this chapter as
to whether the continued operation of an insurer transacting an
insurance business in this state might be deemed to be hazardous to
the public, to its insureds or to its creditors
, the commissioner
may consider the following standards either singly or in
combination:
(1) Adverse findings reported in financial condition and
market conduct examination reports, audit reports and actuarial
opinions, reports or summaries;
(2) The National Association of Insurance Commissioners' insurance regulatory information system and its other financial
analysis solvency tools and reports;
(3) Whether the insurer has made adequate provision, according
to presently accepted actuarial standards of practice, for the
anticipated cash flows required by the contractual obligations and
related expenses of the insurer, when considered in light of the
assets held by the insurer with respect to such reserves and
related actuarial items including, but not limited to, the
investment earnings on such assets and the considerations
anticipated to be received and retained under such policies and
contracts;
(4) The ability of an assuming reinsurer to perform and
whether the insurer's reinsurance program provides sufficient
protection for the insurer's remaining surplus, after taking into
account the insurer's cash flow and the classes of business written
as well as the financial condition of the assuming reinsurer;
(5) Whether the insurer's operating loss in the last twelve-
month period or any shorter period of time, including but not
limited to net capital gain or loss, change in nonadmitted assets
and cash dividends paid to shareholders, is greater than fifty
percent of such insurer's remaining surplus as regards
policyholders in excess of the minimum required;
(6) Whether the insurer's operating loss in the last twelve-
month period or any shorter period of time, excluding net capital
gains, is greater than twenty percent of the insurer's remaining
surplus as regards policyholders in excess of the minimum required;
(7) Whether a reinsurer, obligor or any entity within the
insurer's insurance holding company system is insolvent, threatened
with insolvency or delinquent in payment of its monetary or other
obligations and which in the opinion of the commissioner may affect
the solvency of the insurer;
(8) Contingent liabilities, pledges or guaranties which either
individually or collectively involve a total amount which in the
opinion of the commissioner may affect the solvency of the insurer;
(9) Whether any controlling person of an insurer is delinquent
in the transmitting to, or payment of, net premiums to such
insurer;
(10) The age and collectability of receivables;
(11) Whether the management of an insurer, including officers,
directors or any other person who directly or indirectly controls
the operation of such insurer, fails to possess and demonstrate the
competence, fitness and reputation deemed necessary to serve the
insurer in such position;
(12) Whether management of an insurer has failed to respond to
inquiries relative to the condition of the insurer or has furnished
false and misleading information concerning an inquiry;
(13) Whether the insurer has failed to meet financial and
holding company filing requirements in the absence of a reason
satisfactory to the commissioner;
(14) Whether management of an insurer has filed any false or
misleading sworn financial statement, released a false or
misleading financial statement to lending institutions or to the general public, or made a false or misleading entry or omitted an
entry of material amount in the books of the insurer;
(15) Whether the insurer has grown so rapidly and to such an
extent that it lacks adequate financial and administrative capacity
to meet its obligations in a timely manner;
(16) Whether the insurer has experienced or will experience in
the foreseeable future cash flow or liquidity problems;
(17) Whether management has established reserves that do not
comply with minimum standards established by this chapter or the
rules promulgated thereunder, statutory accounting standards, sound
actuarial principles and standards of practice;
(18) Whether management persistently engages in material
under-reserving that results in adverse development;
(19) Whether transactions among affiliates, subsidiaries or
controlling persons for which the insurer receives assets or
capital gains, or both, do not provide sufficient value, liquidity
or diversity to assure the insurer's ability to meet its
outstanding obligations as they mature; and
(20) Any other finding determined by the commissioner to be
hazardous to the insurer's insureds, creditors or the general
public.
(b) Commissioner's authority.-- For the purposes of making a
determination of an insurer's financial condition under this
section, the commissioner may:
(1) Disregard any credit or amount receivable resulting from
transactions with a reinsurer that is insolvent, impaired or otherwise subject to a delinquency proceeding;
(2) Make appropriate adjustments, including disallowance, to
asset values attributable to investments in or transactions with
parents, subsidiaries or affiliates consistent with the NAIC
Accounting Policies And Procedures Manual, state laws and rules;
(3) Refuse to recognize the stated value of accounts
receivable if the ability to collect receivables is highly
speculative in view of the age of the account or the financial
condition of the debtor; or
(4) Increase the insurer's liability in an amount equal to any
contingent liability, pledge or guarantee not otherwise included if
there is a substantial risk that the insurer will be called upon to
meet the obligation undertaken within the next twelve-month period.
(c) Order. -- If the commissioner determines that the
continued operation of the insurer may be hazardous to its
insureds, creditors or the general public, then the commissioner
may order the insurer to do one or more of the following:
Provided, That if the insurer is a foreign insurer, the
commissioner's order may be limited to the extent provided by
statute:
(1) Reduce the total amount of present and potential liability
for policy benefits by reinsurance;
(2) Reduce, suspend or limit the volume of business being
accepted or renewed;
(3) Reduce general insurance and commission expenses by
specified methods;
(4) Increase the insurer's capital and surplus;
(5) Suspend or limit the declaration and payment of dividend
by an insurer to its stockholders or to its policyholders;
(6) File reports in a form acceptable to the commissioner
concerning the market value of an insurer's assets;
(7) Limit or withdraw from certain investments or discontinue
certain investment practices to the extent the commissioner deems
necessary;
(8) Document the adequacy of premium rates in relation to the
risks insured;
(9) File, in addition to regular annual statements, interim
financial reports on the form adopted by the National Association
of Insurance Commissioners or in such format as promulgated by the
commissioner.
(10) Correct corporate governance practice deficiencies, and
adopt and utilize governance practices acceptable to the
commissioner;
(11) Provide a business plan to the commissioner in order to
continue to transact business in the state; or
(12) Notwithstanding any other provision of law limiting the
frequency or amount of premium rate adjustments, adjust rates for
any nonlife insurance product written by the insurer that the
commissioner considers necessary to improve the financial condition
of the insurer.
§33-34-4. Confidentiality of certain proceedings and records.
(a) Notwithstanding any other provision of law and except as set forth in this section, proceedings, hearings, notices,
correspondence, reports, records and other information in the
possession of the commissioner relating to the supervision of any
insurer shall not be subject to disclosure as provided in article
one, chapter twenty-nine-b of this code, shall not be subject to
subpoena and shall not be subject to discovery or admissible in
evidence in any private civil action, except as provided by this
section. However, 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.
(b) The personnel of the offices of the Insurance Commissioner
shall have access to these proceedings, hearings, notices,
correspondence, reports, records or information as permitted by the
commissioner. Neither the commissioner nor any person who received
documents, materials or other information while acting under the
authority of the commissioner shall be permitted or required to
testify in any private civil action concerning any such documents,
materials or information.
(c) The commissioner may share the notices, correspondence,
reports, records or information 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,
if the commissioner determines that the disclosure is necessary or
proper for the enforcement of the laws of this or another state of the United States, and provided that the recipient agrees to
maintain the confidentiality of the documents, material or other
information. No waiver of any applicable privilege or claim of
confidentiality shall occur as a result of the sharing of
documents, materials or other information pursuant to this
subsection.
(d) The commissioner may open the proceedings or hearings or
make public the notices, correspondence, reports, records or other
information if the commissioner deems that it is in the best
interest of the public, the insurer, its insureds, creditors or the
general public.
(e) This section does not apply to hearings, notices,
correspondence, reports, records or other information obtained upon
the appointment of a receiver for the insurer by a court of
competent jurisdiction.