CHAPTER 325
FORMERLY
SENATE BILL NO. 151
AS AMENDED BY SENATE AMENDMENT NO. 2 AND HOUSE AMENDMENT NO. 1
AN ACT TO AMEND TITLE 18 DELAWARE CODE TO ADOPT AN INSURANCE HOLDING COMPANY SYSTEM REGISTRATION.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE
Section 1. Amend Title 18 Delaware Code by deleting Chapter 50 in its
entirety, substituting the following in lieu thereof:
"Chapter 50. INSURANCE HOLDING COMPANY SYSTEM REGISTRATION Section 5001. Definitions
As used in this Chapter, the following terms shall have the respective meanings hereinafter set forth, unless the context shall otherwise require:
'Affiliate.' An "affiliate" of, or person "affiliated" with, a
specific person, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.
'Commissioner.' The term 'Commissioner' shall mean the Insurance
Commissioner, his deputies, or the Insurance Department, as appropriate.
'Control.' The term 'control' (including the terms 'controlling',
"controlled by and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, ten percent or more of the voting securities of any other person. This
presumption may be rebutted by a showing made in the manner provided by Section 5004(k) that control does not exist in fact. The Commissioner may determine, after furnishing all persons in interest notice and opportunity to be heard and making specific findings of fact to support such determination, that control exists in fact, notwithstanding the absence of a presumption to that effect.
'Insurance Holding Company System.' An 'insurance holding company system' consists of two or more affiliated persons, one or more of which is an insurer.
'Insurer.' The term 'insurer' shall have the same meaning as set
forth in Section 102 of this Title, except that it shall not include agencies, authorities or instrumentalities of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia, or a state or political subdivision of a state.
'Person.' A 'person' is an individual, a corporation, a partnership, an association, a joint stock company, a trust, an unincorporated organization, any similar entity or any combination of the foregoing acting in concert, but shall not include any joint venture partnership exclusively engaged in owning, managing, leasing or developing real or tangible personal property.
'Securityholder.' A isecurityholder' of a specified person is one
who owns any security of such person, including common stock, preferred stock, debt obligations and any other security convertible into or evidencing the right to acquire any of the foregoing.
'Subsidiary.' A 'subsidiary' of a specified person is an affiliate controlled by such person directly or indirectly through one or more intermediaries.
I. 'Voting Security.' The term 'voting security' shall include any
security convertible into or evidencing a right to acquire a voting security.
Section 5002. Subsidiaries of Insurers
A. Authorization. Any domestic insurer, either by itself or in
cooperation with one or more persons, may organize or acquire one or more subsidiaries as otherwise permitted under this Title. Such subsidiaries may conduct any kind of business or businesses and their authority to do so shall not be limited by reason of the fact that they are subsidiaries of a domestic insurer.
Section 5003. Acquisition of Control of or Merger with Domestic Insurer
A. Filing Requirements. No person other than the issuer shall make a tender offer for or a request or invitation for tenders of, or enter into any agreement to exchange securities or, seek to acquire, or acquire, in the open market or otherwise, any voting security of a domestic insurer if, after the consummation thereof, such person would, directly or indirectly (or by conversion or by exercise of any right to acquire) be in control of such insurer, and no person shall enter into an agreement to merge with or otherwise to acquire control of a domestic insurer or any person controlling a domestic insurer unless, at the time any such offer, request, or invitation is made or any such agreement is entered into or prior to the acquisition of such securities if no offer or agreement is involved, such person has filed with the Commissioner and has sent to such insurer, a statement containing the information required by this Section and such offer, request, invitation, agreement or acquisition has been approved by the Commissioner in the manner hereinafter prescribed.
(1) For purposes of this Section a domestic insurer shall include any person controlling a domestic insurer unless such person as determined by the Commissioner is either directly or through its affiliates primarily engaged in business other than the business of insurance. However, such person shall file a pre-acquisition notification with the Commissioner containing the information set forth in 5003.1 thirty days prior to the proposed effective date of the acquisition. Failure to file is subject to Section 5003.1. For the purposes of this Section, "person" shall not include any securities broker holding, in the usual and customary brokers function, less than twenty percent of the voting securities of an insurance company or of any person which controls an insurance company.
B. Content of Statement. The statement to be filed with the
Commissioner hereunder shall be made under oath or affirmation and shall contain the following information:
(I) The name and address of each person by whom or on whose behalf the merger or other acquisition of control referred to in Subsection (A) is to be effected (hereinafter called 'acquiring party'), and
If such person is an individual, his principal occupation and all offices and positions held during the past five years, and any conviction of crimes other than minor traffic violations during the past ten years;
If such person is not an individual, a report of the nature of its business operations during the past five years or for such lesser period as such person and any predecessors thereof shall have been in existence; an informative description of the business intended to be done by such person and such person's subsidiaries; and a list of all individuals who are or who have been selected to become directors or executive officers of such person, or who perform or will perform functions appropriate to such positions. Such list shall include for each such individual the information required by paragraph (a) of this subsection.
(2) The source, nature and amount of the consideration used or to be used in effecting the merger or other acquisition of control, a description of any transaction wherein funds were or are to be obtained for any such purpose (including any pledge of the insurer's stock, or the stock of any
of its subsidiaries or controlling affiliates), and the identity of persons furnishing such consideration , provided, however, that where a source of such consideration is a loan made in the lender's ordinary course of business, the identity of the lender shall remain confidential, if the person filing such statement so requests.
Fully audited financial information as to the earnings and financial condition of each acquiring party for the preceding five fiscal years of each such acquiring party (or for such lesser period as such acquiring party and any predecessors thereof shall have been in existence), and similar unaudited information as of a date not earlier than ninety days prior to the filing of the statement.
Any plans or proposals which each acquiring party may have to liquidate such insurer, to sell its assets or merge or consolidate it with any person, or to make any other material change in its business or corporate structure or management.
The number of shares of any security referred to in Subsection (A) which each acquiring party proposes to acquire, and the terms of the offer, request, invitation, agreement, or acquisition referred to in Subsection (A), and a statement as to the method by which the fairness of the proposal was arrived at.
The amount of each class of any security referred to in Subsection (A) which is beneficially owned or concerning which there is a right to acquire beneficial ownership by each acquiring party.
A full description of any contracts, arrangements or understandings with respect to any security referred to in Subsection (A) in which any acquiring party is involved, including but not limited to transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or guarantees of profits, division of losses or profits, or the giving or withholding of proxies. Such description shall identify the persons with whom such
contracts, arrangements or understandings have been entered into.
A description of the purchase of any security referred to in Subsection (A) during the twelve calendar months preceding the filing of the statement, by any acquiring party, including the dates of purchase, names of the purchasers, and consideration paid or agreed to be paid therefore.
A description of any recommendations to purchase any security referred to in Subsection (A) made during the twelve calendar months preceding the filing of the statement, by any acquiring party, or by anyone based upon interviews or at the suggestion of such acquiring party.
Copies of all tender offers for, requests, or invitations for tenders of, exchange offers for, and agreements to acquire or exchange any securities referred to in Subsection (A), and (if distributed) of additional soliciting material relating thereto.
The term of any agreement, contract or understanding made with or proposed to be made with any broker-dealer as to solicitation of securities referred to in Subsection (A) for tender, and the amount of any fees, commissions or other compensation to be paid to broker-dealers with regard thereto.
Such additional information as the Commissioner may by rule or regulation prescribe as necessary or appropriate for the protection of policyholders of the insurer or in the public interest. If the person
required to file the statement referred to in Subsection (A) is a partnership, limited partnership, syndicate or other group, the
Commissioner may require that the information called for by clauses (1) through (12) shall be given with respect to each partner of such partnership or limited partnership, each member of such syndicate or group, and each person who controls such partner or member. If any such partner, member or person is a corporation or the person required to file the statement referred to in Subsection (a) is a corporation, the Commissioner may require that the information called for by clauses (1) through (12) shall be given with respect to such corporation, each officer and director
of such corporation, and each person who is directly or indirectly the beneficial owner of more than ten percent of the outstanding voting securities of such corporation.
If any material change occurs in the facts set forth in the statement filed with the Commissioner and sent to such insurer pursuant to this Section, an amendment setting forth such change, together with copies of all documents and other material relevant to such change, shall be filed with the Commissioner and sent to such insurer within two business days after the person learns of such change.
Alternative Filing Materials. If any offer, request, invitation,
agreement or acquisition referred to in Subsection (A) is proposed to be made by means of a registration statement under the Securities Act of 1933 or in circumstances requiring the disclosure of similar information under the Securities Exchange Act of 1934, or under a state law requiring similar registration or disclosure, the person required to file the statement referred to in Subsection (A) may utilize such documents in furnishing the information called for by that statement.
Approval by Commissioner: Hearings.
(1) The Commissioner shall approve any merger or other acquisition of control referred to in Subsection (A) unless, after a public hearing thereon, he finds that:
(a) After the change of control, the domestic insurer referred to in Subsection (A) would not be able to satisfy the requirements for the issuance of a license to write the line or lines of insurance for which it is presently licensed;
(b) The effect of the merger or other acquisition of control would be substantially to lessen competition in insurance in this state or tend to create a monopoly therein. In applying the competitive standard in this paragraph:
(I) The informational requirements of Section 5003.1(C)(1) and the standards of Section 5003.1(D)(2) shall apply;
The merger or other acquisition shall not be disapproved if the Commissioner finds that any of the situations meeting the criteria provided by Section 5003.1(D)(3) exist; and
The Commissioner may condition the approval of the merger or other acquisition on the removal of the basis of disapproval within a specified period of time;
(c) The financial condition of any acquiring party is such as might jeopardize the financial stability of the insurer, or prejudice the interest of its policyholders;
(d) The plans or proposals which the acquiring party has to liquidate the insurer, sell its assets or consolidate or merge It with any person, or to make any other material change in its business or corporate structure or management, are unfair and unreasonable to policyholders of the insurer and not in the public interest;
(e) The competence, experience and integrity of those persons who would control the operation of the insurer are such that it would not be in the interest of policyholders of the insurer and of the public to permit the merger or other acquisition of control; or
(f) The acquisition is likely to be hazardous or prejudicial to the insurance buying public.
(2) The public hearing referred to in clause (1) shall be held within thirty days after the statement required by Subsection (A) is filed, and at least twenty days notice thereof shall be given by the Commissioner to the person filing the statement.
Not less than seven days notice of such public hearing shall be given by the person filing the statement to the insurer and to such other persons as
may be designated by the Commissioner. The Commissioner shall make a
determination within thirty days after the conclusion of such hearing. At
such hearing, the person filing the statement, the insurer, any person to whom notice of hearing was sent, and any other person whose interest may be affected thereby shall have the right to present evidence, examine and cross-examine witnesses, and offer oral and written arguments and in connection therewith shall be entitled to conduct discovery proceedings in the same manner as is presently allowed in the Superior Court of this state. All discovery proceedings shall be concluded not later than three days prior to the commencement of the public hearing.
The Commissioner may retain at the acquiring person's expense any attorneys, actuaries, accountants and other experts not otherwise a part of the Commissioner's staff as may be reasonably necessary to assist the Commissioner in reviewing the proposed acquisition of control.
E. Exemptions. The provisions of this section shall not apply to:
Any transaction which is subject to the provisions of Chapter 49 of this Title dealing with the merger or consolidation of two or more insurers.
Any offer, request, invitation, agreement or acquisition which the Commissioner by order shall exempt therefrom as (I) not having been made or entered into for the purpose and not having the effect of changing or influencing the control of a domestic insurer, or (ii) as otherwise not comprehended within the purposes of this Section.
F. Violations. The following shall be violations of this Section:
The failure to file any statement, amendment, or other material required to be filed pursuant to Subsection (A) or (B); or
The effectuation or any attempt to effectuate an acquisition of control of, or merger with, a domestic insurer unless the Commissioner has given his approval thereto.
G. Jurisdiction, Consent to Service of Process. The courts of this
State are hereby vested with jurisdiction over every person not resident, domiciled, or authorized to do business in this state who files a statement with the Commissioner under this Section, and over all actions involving such person arising out of violations of this Section, and each such person shall be deemed to have performed acts equivalent to and constituting an appointment by such a person of the Commissioner to be his true and lawful attorney upon whom may be served all lawful process in any action, suit or proceeding arising out of violations of this Section. Copies of all such lawful process shall be served on the Commissioner and transmitted by registered or certified mail by the Commissioner to such person at his last known address.
Section 5003.1 Acquisitions Involving Insurers Not Otherwise Covered
A. Definitions. The following definitions shall apply for the purposes of this Section only:
'Acquisition' means any agreement, arrangement or activity the consummation of which results in a person acquiring directly or indirectly the control of another person, and includes but is not limited to the acquisition of voting securities, the acquisition of assets, bulk
reinsurance and mergers.
An 'involved insurer' includes an insurer which either acquires or is acquired, is affiliated with an acquirer or acquired or is the result of a merger.
B. Scope.
Except as exempted in Paragraph (2) of this subsection, this section applies to any acquisition in which there is a change in control of an insurer authorized to do business in this state.
This Section shall not apply to the following:
(a) An acquisition subject to approval or disapproval by the Commissioner pursuant to Section 5003;
(b) A purchase of securities solely for investment purposes so long as such securities are not used by voting or otherwise to cause or attempt to cause the substantial lessening of competition in any insurance market in this state. If a purchase of securities results in a presumption of control under Section 5001(C), it is not solely for investment purposes unless the Commissioner of the insurer's state of domicile accepts a disclaimer of control or affirmatively finds that control does not exist and such disclaimer action or affirmative finding is communicated by the domiciliary Commissioner to the Commissioner of this state;
(c) The acquisition of a person by another person when both persons are neither directly nor through affiliates primarily engaged in the business of insurance, if pre-acquisition notification is filed with the Commissioner in accordance with Subsection 5003.1(C)(1) thirty days prior to the proposed effective date of the acquisition. However, such pre-acquisition notification is not required for exclusion from this Section if the acquisition would otherwise be excluded from this Section by any other subparagraph of Section 5003.1(B)(2);
(d) The acquisition of already affiliated persons;
(e) An acquisition if, as an immediate result of the acquisition,
(I) In no market would the combined market share of the involved insurers exceed five percent of the total market,
There would be no increase in any market share, or
In no market would
-The combined market share of the involved insurers exceeds twelve percent of the total market, and
-The market share increases by more than two percent of the total market.
For the purpose of this Subparagraph (2)(e), a market means direct written insurance premium in this state for a line of business as contained in the annual statement required to be filed by insurers licensed to do business in this state;
(f) An acquisition for which a pre-acquisition notification would be required pursuant to this Section due solely to the resulting effect on the ocean marine insurance line of business;
(g) An acquisition of an insurer whose domiciliary Commissioner affirmatively finds that such insurer is in failing condition; there is a lack of feasible alternative to improving such condition; the public benefits of improving such insurer's condition through the acquisition exceed the public benefits that would arise from not lessening competition; and such findings are communicated by the domiciliary Commissioner to the Commissioner of this state.
C. Pre-acquisition Notification, Waiting Period. An acquisition
covered by Subsection 5003.1(B) may be subject to an order pursuant to Subsection 5003.1(E) unless the acquiring person files a pre-acquisition notification and the waiting period has expired.
The acquired person may file a pre-acquisition notification. The
Commissioner shall give confidential treatment to information submitted under this Subsection in the same manner as provided in Section 5007 of this Chapter.
(1) The pre-acquisition notification shall be in such form and contain such information as prescribed by the National Association of Insurance Commissioners relating to those markets which, under Subsection 5003.1(B)(2)(e), cause the acquisition not to, be exempted from the provisions of this Section. The Commissioner may require such additional material and information as he deems necessary to determine whether the proposed acquisition, if consummated, would violate the competitive
standard of Subsection 5003.1(D). The required information may include an opinion of an economist as to the competitive impact of the acquisition in this state accompanied by a summary of the education and experience of such person indicating his or her ability to render an informed opinion.
(2) The waiting period required shall begin on the date of receipt of the Commissioner of a pre-acquisition notification and shall end on the earlier of the thirtieth day after the date of such receipt, or termination of the waiting period by the Commissioner. Prior to the end of the waiting period, the Commissioner on a one-time basis may require the submission of additional needed information relevant to the proposed acquisition, in which event the waiting period shall end on the earlier of the thirtieth day after receipt of such additional information by the Commissioner or termination of the waiting period by the Commissioner.
D. Competitive Standard.
The Commissioner may enter an order under Section 5003.1(E)(1) with respect to an acquisition if there is substantial evidence that the effect of the acquisition may be substantially to lessen competition in any line of insurance in this state or tend to create a monopoly therein or if the insurer fails to file adequate information in compliance with Subsection 5003.1(C).
In determining whether a proposed acquisition would violate the competitive standard of Paragraph (1) of this subsection, the Commissioner shall consider the following:
(a) Any acquisition covered under Subsection 5003.1(B) involving two or more insurers competing in the same market is prima facie evidence of violation of the competitive standards
If the market is highly concentrated and the involved insurers possess the following shares of the market:
Insurer A Insurer B
4% 4% or more
107 2% or more
15% 1% or more
or, if the market is not highly concentrated and the involved insurers possess the following shares of the market:
Insurer A Insurer B
5% 5% or more
107 4% or more
15% 3% or more
197 1% or more
A highly concentrated market is one in which the share of the four largest insurers is seventy-five percent or more of the market. Percentages not shown in the tables are interpolated proportionately to the percentages that are shown. If more than two insurers are involved, exceeding the total of the two columns in the table is prima facie evidence of violation of the competitive standard in Paragraph (1) of this subsection. For the purpose of this subparagraph, the insurer with the largest share of the market shall be deemed to be Insurer A.
(b) There is a significant trend toward increased concentration when the aggregate market share of any grouping of the largest insurers In the market,from the two largest to the eight largest,has increased by seven percent or more of the market over a period of time extending from any base year five to ten years prtor to the acqutsttton up to the time of the acquisition. Any acquisition or merger covered under Subsection 5003.1(b) involving two or more insurers competing in the same market is prima facie
evidence of violation of the competitive standard in Paragraph (1) of this subsection if:
There is a significant trend toward increased concentration in the market;
One of the insurers involved is one of the Insurers in a grouping of such large insurers showing the requisite increase in the market share; and
Another involved insurer's market is two percent or more.
(c) For the purposes of Subsection 5003.1(D)(2):
The term "insurer" includes any company or group of companies under common management, ownership or control;
The term "market" means the relevant product and geographical markets. In determining the relevant product and geographical markets, the Commissioner shall give due consideration to, among other things, the definitions or guidelines, if any, promulgated by the National Association of Insurance Commissioners and to information, if any, submitted by parties to the acquisition. In the absence of sufficient information to the contrary, the relevant product market is assumed to be the direct written insurance premium for a line of business, such line being that used in the annual statement required to be filed by insurers doing business in this state, and the relevant geographical market is assumed to be this state.
The burden of showing prima facie evidence of violation of the competitive standard rests upon the Commissioner.
(d) Even though an acquisition is not prima facie violative of the competitive standard under Subparagraphs (2)(a) and (2)(b) of this subsection, the Commissioner may establish the requisite anticompetitive effect based upon other substantial evidence. Even though an acquisition is prima facie violative of the competitive standard under Subparagraphs (2)(a) and (2)(b) of this subsection, a party may establish the absence of the requisite anticompetitive effect based upon other substantial evidence. Relevant factors in making a determination under this paragraph include, but are not limited to, the following: market shares, volatility of ranking of market leaders, number of competitors, concentration, trend of concentration in the industry, and ease of entry and exit into the market.
(3) An order may not be entered under Section 5003.1(E)(1) if:
The acquisition will yield substantial economies of scale or economies in resource utilization that cannot be feasibly achieved in any other way, and the public benefits which would arise from such economies exceed the public benefits which would arise from not lessening competition; or
The acquisition will substantially increase the availability of insurance, and the public benefits of such increase exceed the public benefits which would arise from not lessening competition.
E. Orders and Penalties.
(1)(a) If an acquisition violates the standards of this section, the Commissioner may enter an order
Requiring an involved insurer to cease and desist from doing business in this state with respect to the line or lines of insurance involved in the violation, or
Denying the application of an acquired or acquiring insurer for a license to do business in this state.
(b) Such an order shall not be entered unless (a) there is a hearing, (b) notice of such hearing is issued prior to the end of the waiting period and not less than fifteen days prior to the hearing, and (c) the hearing is
concluded and the order is issued no later than sixty days after the end of the waiting period. Every order shall be accompanied by a written decision of the Commissioner setting forth his findings of fact and conclusions of law.
An order entered under this paragraph shall not become final earlier than thirty days after it is issued, during which time the involved insurer may submit a plan to remedy the anticompetitive impact of the acquisition within a reasonable time. Based upon such plan or other
information, the Commissioner shall specify the conditions, if any, under the time period during which the aspects of the acquisition causing a violation of the standards of this Section would be remedied and the order vacated or modified.
An order pursuant to this paragraph shall not apply if the acquisition is not consummated.
(2) Any person who violates a cease and desist order of the Commissioner under Paragraph (1) and while such order is in effect may, after notice and hearing and upon order of the Commissioner, be subject at the discretion of the Commissioner to any one or more of the following:
A monetary penalty of not more than $10,000 for every day of violation and/or
Suspension or revocation of such person's license.
(3) Any insurer or other person who fails to make any filing required by this Section, and who also fails to demonstrate a good faith effort to comply with any such filing requirement, shall be subject to a fine of not more than $50,000.
F. Inapplicable Provisions. Sections 5009(B), (C), and 5011 do not apply to acquisitions covered under Section 5003.1(B).
Section 5004. Registration of Insurers
Registration. Every insurer which is authorized to do business in this state and which is a member of an insurance holding company system shall register with the Commissioner, except a foreign insurer subject to registration requirements and standards adopted by statute or regulation in the jurisdiction of its domicile which are substantially similar to those contained in: (1) Section 5004, (2) Section 5005(A)(1), (B), (D); and (3) Either 5005(A)(2) or a provision such as the following: Each registered insurer shall keep current the information required to be disclosed in its registration statement by reporting all material changes or additions
within fifteen days after the end of the month in which it learns of each such change or addition. Any insurer which is subject to registration under this Section shall register within fifteen days after it becomes subject to registration, and annually thereafter by June 1 of each year for the previous calendar year, unless the Commissioner for good cause shown extends the time for registration, and then within such extended time. The Commissioner may require any insurer authorized to do business in the state which is a member of a holding company system, and which is not subject to registration under this section, to furnish a copy of the registration statement, the summary specified in Section 5004(C) or other information filed by such insurance company with the insurance regulatory authority of domiciliary jurisdiction.
Information and Form Required. Every insurer subject to
registration shall file the registration statement on a form prescribed by the NAIC, which shall contain the following current information:
The capital structure, general financial condition, ownership and management of the insurer and any person controlling the insurer;
The identity and relationship of every member of the insurance holding company system;(3) The following agreements in force, and transactions currently outstanding or which have occurred during the last calendar year between such insurer and its affiliates:
Loans, other investments, or purchases, sales or exchanges of securities of the affiliates by the insurer or of the insurer by its affiliates;
Purchases, sales or exchange of assets;
Transactions not in the ordinary course of business;
Guarantees or undertakings for the benefit of an affiliate which result in an actual contingent exposure of the insurer's assets to liability, other than insurance contracts entered into in the ordinary course of the insurer's business;
All management agreements, service contracts and all cost-sharing
arrangements;
Reinsurance agreements;
Dividends and other distributions to shareholders; and
Consolidated tax allocation agreements;
(4) Any pledge of the insurer's stock, including stock of any subsidiary or controlling affiliate, for a loan made to any member of the insurance holding company system;
(5) Other matters concerning transactions between registered insurers and any affiliates as may be included from time to time in any registration forms adopted or approved by the Commissioner.
Summary of Registration Statement. All registration statements
shall contain a summary outlining all items in the current registration statement representing changes from the prior registration statement.
Materiality. No information need be disclosed on the registration statement filed pursuant to Section 4(B) if such information is not material for the purposes of this Section. Unless the Commissioner by
rule, regulation or order provides otherwise; sales, purchases, exchanges, loans or extensions of credit, investments, or guarantees involving one-half of 1% or less of an insurer's admitted assets as of the 31st day of December next preceding shall not be deemed material for purposes of this Section.
Reporting of Dividends to Shareholders. Subject to Subsection (B) of Section 5005, each registered insurer shall report to the Commissioner all dividends and other distributions to shareholders within fifteen business days following the declaration thereof.
Information of Insurers. Any person within an insurance holding company system subject to registration shall be required to provide complete and accurate information to an insurer, where such information is reasonably necessary to enable the insurer to comply with the provisions of this Chapter.
Termination of Registration. The Commissioner shall terminate the registration of any insurer which demonstrates that it no longer is a member of an insurance holding company system.
Consolidated Filing. The Commissioner may require or allow two or more affiliated Insurers subject to registration hereunder to file a consolidated registration statement.
Alternative Registration. The Commissioner may allow an insurer
which is authorized to do business in this state and which is part of an insurance holding company system to register on behalf of any affiliated insurer which is required to register under Subsection (A) and to file all information and material required to be filed under this Section.
Exemptions. The provisions of this Section shall not apply to any insurer, information or transaction if and to the extent that the Commissioner by rule, regulation or order shall exempt the same from the provisions of this Section.
Disclaimer. Any person may file with the Commissioner a disclaimer of affiliation with any authorized insurer or such a disclaimer may be filed by such insurer or any member of an insurance holding company system. The disclaimer shall fully disclose all material relationships and bases for affiliation between such person and such insurer as well as the basis for disclaiming such affiliation. After a disclaimer has been filed, the insurer shall be relieved of any duty to register or report under this Section which may arise out of the insurer's relationship with such person unless and until the Commissioner disallows such a disclaimer. The
Commissioner shall disallow such a disclaimer only after furnishing all parties in interest with notice and opportunity to be heard and after making specific findings of fact to support such disallowance.
Violations. The failure to file a registration statement or any
summary of the registration statement thereto required by this Section within the time specified for such filing shall be a violation of this Section.
Section 5005. Standards and Management of an Insurer Within a Holding
Company System.
A. Transactions Within a Holding Company System.
(1) Transactions within a holding company system to which an insurer subject to registration is a party shall be subject to the following standards:
The terms shall be fair and reasonable;
Charges or fees for services performed shall be reasonable;
Expenses incurred and payment received shall be allocated to the insurer in conformity with customary insurance accounting practices consistently applied;
The books, accounts and records of each party to all such transactions shall 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; and
The insurer's surplus as regards policyholders following any dividends or distributions to shareholder affiliates shall be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs.
(2) The following transactions involving a domestic insurer and any person in its holding company system may not be entered into unless the insurer has notified the Commissioner in writing of its intention to enter into such transaction at least thirty days prior thereto, or such shorter period as the Commissioner may permit, and the Commissioner has not disapproved it within such period.
Sales, purchases, exchanges, loans or extensions of credit, guarantees, or investments provided 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 31st day of December next preceding;
Loans or extensions of credit to any person who is not an affiliate, where the insurer makes such loans or extensions of credit with the agreement or understanding that the proceeds of such transactions, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase assets of, or to make investments in, any affiliate of the insurer making such loans or extensions of credit provided 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 31st day of December next preceding;
Reinsurance agreements or modifications thereto in which the reinsurance premium or a change in the insurer's liabilities equals or exceeds five percent of the insurer's surplus as regards policyholders, as of the 31st day of December next preceding, including those agreements which may require as consideration the transfer of assets from an insurer to a non-affiliate, if an agreement or understanding exists between the insurer and non-affiliate that any portion of such assets will be transferred to one or more affiliates of the insurer;
All management agreements, service contracts and all cost-sharing arrangements; and
Any material transactions, specified by regulation, which the Commissioner determines may adversely affect the interests of the insurer's policyholders.
Nothing herein contained shall be deemed to authorize or permit any transactions which, in the case of an insurer not a member of the same holding company system, would be otherwise contrary to law.
A domestic insurer may not enter into transactions which are part of a plan or series of like transactions with persons within the 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 Commissioner determines that such separate transactions were entered into over any twelve month period for such purpose, he may exercise his authority under Section 10.
The Commissioner, in reviewing transactions pursuant to Subsection (A) Paragraph 2, shall consider whether the transactions comply with the standards set forth in Subsection (A) Paragraph 1 and whether they may adversely affect the interests of policyholders.
The Commissioner shall be notified within thirty days of any investment of the domestic insurer in any one corporation if the total investment in such corporation by the insurance holding company system exceeds ten percent of such corporation's voting securities.
B. Dividends and other Distributions.
No domestic insurer shall pay any extraordinary dividend or make any other extraordinary distribution to its shareholders until (1) thirty days after the Commissioner has received notice of the declaration thereof and has not within such period disapproved such payment, or (2) the Commissioner shall have approved such payment within such thirty-day period.
For purposes of this Section, an extraordinary dividend or distribution includes any dividend or distribution of cash or other property, whose fair market value together with that of other dividends or distributions made within the preceding twelve months exceeds the greater of (1) ten percent of such insurer's surplus as regards policyholders as of the 31st day of December next preceding, or (2) the net gain from operations of such insurer, if such insurer is a life insurer, or the net income, if such insurer is not a life insurer, not including realized capital gains, for the twelve-month period ending the 31st day of December next preceding, but shall not include pro rata distributions of any class of the insurer's own securities. In determining whether a dividend or distribution is extraordinary, an insurer other than a life insurer may carry forward net income from the previous two calendar years that has not already been paid out as dividends. This carry-forward shall be computed by taking the net income from the second and third preceding calendar years, not including realized capital gains, less dividends paid in the second and immediate preceding calendar years. Notwithstanding any other provision of law, an insurer may declare an extraordinary dividend or distribution which is conditional upon the Commissioner's approval thereof, and such a declaration shall confer no rights upon shareholders until (1) the
Commissioner has approved the payment of such a dividend or distribution or (2) the Commissioner has not disapproved such payment within the thirty—day period referred to above.
C. Adequacy of Surplus. For purposes of this Chapter, in determining whether an insurer's surplus as regards policyholders is reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs, the following factors, among others, shall be considered:
The size of the insurer as measured by its assets, capital and surplus, reserves, premium writings, insurance in force and other
appropriate criteria;
The extent to which the insurer's business is diversified among the several lines of insurance;
The number and size of risks insured in each line of business;
The extent of the geographical dispersion of the insurer's insured risks;
The nature and extent of the insurer's reinsurance program;
The quality, diversification and liquidity of the Insurer's investment portfolio;
The recent past and projected future trend in the size of the insurer's investment portfolio;
The surplus as regards policyholders maintained by other comparable insurers;
The adequacy of the insurer's reserves; and
The quality and liquidity of investments in affiliates. The
Commissioner may treat any such investment as a disallowed asset for purposes of determining the adequacy of surplus as regards policyholders whenever in his judgment such investment so warrants.
Section 5006. Examination
Power of Commissioner. Subject to the limitation contained in this Section and in addition to the powers which the Commissioner has under Chapter 3 relating to the examination of insurers, the Commissioner shall also have the power to order any insurer registered under Sectton5004 to produce such records, books, or other information papers in the possession of the insurer or its affiliates as are reasonably necessary to ascertain the financial condition of such insurer or to determine compliance with this Chapter. In the event such insurer fails to comply with such order, the Commissioner shall have the power to examine such affiliates to obtain such information.
Use of Consultants. The Commissioner may retain at the registered insurer's expense such attorneys, actuaries, accountants and other experts not otherwise a part of the Commissioner's staff as shall be reasonably necessary to assist in the conduct of the examination under Subsection (A) above. Any persons so retained shall be under the direction and control of the Commissioner and shall act in a purely advisory capacity.
Expenses. Each registered insurer producing for examination
records, books and papers pursuant to Subsection (A) above shall be liable for and shall pay the expense of such examination in accordance with Section 326 of this Title.
Section 5007. Confidential Treatment
All Information, documents and copies thereof obtained by or disclosed to the Commissioner or any other person in the course of an examination or investigation made pursuant to Section 5006 and all information reported pursuant to Section 5004 and Section 5005, shall be given confidential treatment and shall not be subject to subpoena and shall not be made public by the Commissioner, the National Association of Insurance Commissioners,
or any other person, except to insurance departments of other states, without the prior written consent of the insurer to which it pertains unless the Commissioner, after giving the insurer and its affiliates who would be affected thereby, notice and opportunity to be heard, determines that the interest of policyholders, shareholders or the public will be served by the publication thereof, in which event he may publish all or any part thereof in such manner as he may deem appropriate.
Section 5008. Rules and Regulations
The Commissioner may, upon notice and opportunity for all interested persons to be heard, issue such rules, regulations and orders as shall be necessary to carry out the provisions of this Chapter.
Section 5009. Injunctions, Prohibitions Against
Voting Securities,
Sequestration of Voting Securities.
Injunctions. Whenever it appears to the Commissioner that any
insurer or any director, officer, employee or agent thereof has committed or is about to commit a violation of this Chapter or of any rule, regulation or order issued by the Commissioner hereunder, the Commissioner may apply to the Chancery Court for an order enjoining such insurer or such director, officer, employee or agent thereof from violating or continuing to violate this Chapter or any such rule, regulation or order, and for such other equitable relief as the nature of the case and the interest of the insurer's policyholders, creditors and shareholders or the public may require.
Voting of Securities; When Prohibited. No security which is the
subject of any agreement or arrangement regarding acquisition, or which is acquired or to be acquired, in contravention of the provisions of this Chapter or of any rule, regulation or order issued by the Commissioner hereunder may be voted at any shareholder's meeting, or may be counted for quorum purposes, and any action of shareholders requiring the affirmative vote of a percentage of shares may be taken as though such securities were not issued and outstanding; but no action taken at any such meeting shall be invalidated by the voting of such securities, unless the action would materially affect control of the insurer or unless the courts of this State have so ordered. If an insurer or the Commissioner has reason to believe that any security of the insurer has been or is about to be acquired in contravention of the provisions of this Chapter or of any rule, regulation or order issued by the Commissioner hereunder; the insurer or the Commissioner may apply to the Chancery Court to enjoin any offer, request, invitation, agreement or acquisition made in contravention of Section 5003 or any rule, regulation or order issued by the Commissioner thereunder to enjoin the voting of any security so acquired, to void any vote of such security already cast at any meeting of shareholders and for such other equitable relief as the nature of the case and the interest of the insurer's policyholders, creditor and shareholders or the public may require.
Sequestration of Voting Securities. In any case where a person has acquired or Is proposing to acquire any voting securities in violation of this Chapter or any rule, regulation or order issued by the Commissioner hereunder, the Chancery Court may, on such notice as the court deems appropriate, upon the application of the insurer or the Commissioner seize or sequester any voting securities of the insurer owned directly or indirectly by such person, and issue such order with respect thereto as may be appropriate to effectuate the provisions of this Chapter.
Notwithstanding any other provisions of law, for the purposes of this Chapter the sites of the ownership of the securities of domestic insurers shall be deemed to be in this State.
Section 5010. Sanctions
A. Any insurer failing, without just cause, to file any registration statement as required in this Article shall be required, after notice and hearing, to pay a penalty of $500.00 for each day's delay, to be recovered by the Commissioner of Insurance and the penalty so recovered shall be paid into the General Revenue Fund of this State. The maximum penalty under this section Is $25,000.00. The Commissioner may reduce the penalty if the
insurer demonstrates to the Commissioner that the imposition of the penalty would constitute a financial hardship to the insurer.
Every director or officer of an insurance holding company system who knowingly violates, participates in, or assents to, or who knowingly shall permit any of the officers or agents of the insurer to engage in transactions or make investments which have not been properly reported or submitted pursuant to Section 5004(A), 5005(A)(2), or (B), or which violate this Chapter, shall pay, in their individual capacity, a civil forfeiture of not more than $2,000.00 per violation, after notice and hearing before the Commissioner. In determining the amount of the civil forfeiture, the Commissioner shall take into account the appropriateness of the forfeiture with respect to the gravity of the violation, the history of previous violations, and such other matters as justice may require.
Whenever it appears to the Commissioner that any insurer subject to this Act or any director, officer, employee or agent thereof has engaged in any transaction or entered into a contract which is subject to Section 5005 of this Chapter and which would not have been approved had such approval been requested, the Commissioner may order the insurer to cease and desist immediately any further activity under that transaction or contract. After notice and hearing the Commissioner may also order the insurer to void any such contracts and restore the status quo if such action is in the best interest of the policyholders, creditors or the public.
Whenever it appears to the Commissioner that any insurer or any director, officer, employee or agent thereof has committed a willful violation of this Chapter, the Commissioner may cause criminal proceedings to be instituted by the Superior Court against such insurer or the responsible director, officer, employee or agent thereof. Any insurer
which willfully violates this Chapter may be fined not more than $50,000 dollars. Any individual who willfully violates this Chapter may be fined in his/her individual capacity not more than $25,000.00 dollars or, be imprisoned for not more than one to three years or both.
Any officer, director, or employee of an insurance holding company system who willfully and knowingly subscribes to or makes or causes to be made any false statements or false reports or false filings with the intent to deceive the Commissioner in the performance of his duties under this Chapter, upon conviction thereof, shall be imprisoned for not more than 2 years or fined $50,000 dollars or both. Any fines imposed shall be paid by the officer, director, or employee in his/her individual capacity.
Section 5011. Receivership
Whenever it appears to the Commissioner that any person has committed a violation of this Chapter which so impairs the financial condition of a domestic insurer as to threaten insolvency or make the further transaction of business by it hazardous to its policyholders, creditors, shareholders or the public, then the Commissioner may proceed as provided in Chapter 59 of this Title to take possessions of the property of such domestic insurer and to conduct the business thereof.
Section 5012. Recovery
If an order for liquidation or rehabilitation of a domestic insurer has been entered, the receiver appointed under such order shall have a right to recover on behalf of the insurer, (i) from any parent corporation or holding company or person or affiliate who otherwise controlled the insurer, the amount of distributions (other than distributions of shares of the same class of stock) paid by the insurer on its capital stock, or (ii) any payment in the form of a bonus, termination settlement or extraordinary lump sum salary adjustment made by the Insurer or Its subsIdlary(s) to a director, officer or employee, where the distribution or payment pursuant to (I) or (ii) is made at any time during the one year preceding the petition for liquidation, conservation or rehabilitation, as the case may be, subject to the limitations of Subsections (B), (C), and (0) of this section.
No such distribution shall be recoverable if the parent or affiliate shows that when paid such distribution was lawful and reasonable, and that the insurer did not know and could not reasonably have known that such
distribution might adversely affect the ability of the insurer to fulfill its contractual obligations.
Any person who was a parent corporation or holding company or a person who otherwise controlled the insurer or affiliate at the time such distributions were paid shall be liable up to the amount of distributions or payments under (A) such person received. Any person who otherwise
controlled the insurer at the time such distributions were declared shall be liable up to the amount of distributions he would have received if they had been paid immediately. If two or more persons are liable with respect to the same distributions, they shall be jointly and severely liable.
The maximum amount recoverable under this subsection shall be the amount needed in excess of all other available assets of the impaired or insolvent insurer to pay the contractual obligations of the impaired or insolvent insurer and to reimburse any guaranty funds.
To the extent that any person liable under Subsection (C) of this section is insolvent or otherwise fails to pay claims due from it pursuant to such paragraph, its parent corporation or holding company or person who otherwise controlled it at the time the distribution was paid, shall be jointly and severely liable for any resulting deficiency in the amount recovered from such parent corporation or holding company or person who otherwise controlled it.
Section 5013. Revocation, Suspension, or Nonrenewal of Insurer's License
Whenever it appears to the Commissioner that any person has committed a violation of this Chapter which makes the continued operation of an insurer contrary to the interests of policyholders or the public, the Commissioner may, after giving notice and an opportunity to be heard, determine to suspend, revoke or refuse to renew such insurer's license or authority to do business in this State for such period as he finds is required for the protection of policyholders or the public. Any such determination shall be accompanied by specific findings of fact and conclusions of law.
Section 5014. Judicial Review, Mandamus
Any person aggrieved by any act, determination, rule, regulation, or order or any other action of the Commissioner pursuant to this Chapter may appeal therefrom to the Superior Court. The court shall conduct its review without a jury and by trial de novo, except that if all parties,
including the Commissioner, so stipulate, the review shall be confined to the record. Portions of the record may be introduced by stipulation into evidence in a trial de novo as to those parties so stipulated.
The filing of an appeal pursuant to this Section shall stay the application of any such rule, regulation, order or other action of the Commissioner to the appealing party unless the court, after giving such party notice and an opportunity to be heard, determines that such a stay would be detrimental to the interest of policyholders, shareholders, creditors or the public.
Any person aggrieved by any failure of the Commissioner to act or make a determination required by this Chapter may petition the Superior Court for a writ in the nature of a mandamus or a peremptory mandamus directing the Commissioner to act or make such determination forthwith.
Section 5015. Conflict with Other Laws
All laws and parts of laws of this State inconsistent with this Chapter are hereby superceded with respect to matters covered by this Chapter."
Section 2. Severability of Provisions
If any provision of this Chapter or the application thereof to any person or circumstances is held invalid, the invalidity shall not affect other provisions or applications of this Chapter which can be given effect without the invalid provisions or application, and for this purpose the provisions of this Chapter are severable.
Section 3. Amend Section 4932, Chapter 49, Title 18, Delaware Code by deleting said Section in its entirety.
Section 4. This Chapter shall become effective 30 days after its adoption. Approved July 7, 1992.