CHAPTER 616
SENATE BILL NO. 773
AS AMENDED BY SENATE AMENDMENT NO. 1
AN ACT TO AMEND CHAPTER 50, PART I, TITLE 18, DELAWARE CODE, RELATING TO INSURANCE HOLDING COMPANIES IN ORDER TO PROVIDE NOTICE TO THE COMMISSIONER OF ANY DECLARATION OF EXTRAORDINARY DIVIDEND OR OTHER DISTRIBUTION AND TO REQUIRE THE APPROVAL OF THE COMMISSIONER IN CONNECTION WITH CERTAIN TRANSACTIONS BETWEEN INSURANCE COMPANIES AND INSURANCE HOLDING COMPANY SYSTEMS.
Be it enacted by the General Assembly of the State of Delaware:
Section 1. Amend Chapter 50, Part I, Title 18 of the
Delaware Code by striking the present title to said section, and substituting in lieu thereof the following:
"CHAPTER 50. INSURANCE HOLDING COMPANIES"
Section 2. Amend §5001, Chapter 50, Part I, Title
18 of the Delaware Code by striking the words "Registration of".
Section 3. Amend §5002, Chapter 50, Part 1, Title 18 of the Delaware Code by adding thereto four new paragraphs, designated as paragraphs (3), (4), (5) and (6) respectively, which shall read as follows:
"(3) An 'affiliate' of, or person 'affiliated' with, a specified person, is a person who directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the specified person.
(4) A 'subsidiary' of a specified person is an affiliate controlled by such person directly, or indirectly through one or more intermediaries.
(5) '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, or otherwise, unless the power is the result of an official position with a 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 per centum (10%) or more of the voting securities of any other person. This presumption may be rebutted by a showing that control does not exist in fact. The Commissioner may, after furnishing all persons in interest notice and an opportunity be heard, determine that control exists in fact, notwithstanding the absence of a presumption to that effect.
(6) An 'extraordinary dividend' or 'extraordinary 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 (i) 10% of such insurer's surplus as regards policyholders as of the thirty-first day of December next preceding, or (ii) the net gain from operations of such insurer, if such insurer is a life insurer, or the net investment income, if such insurer is not a life insurer, for the twelve month period ending the thirty-first day of December next preceding, but shall not include pro rata distribitions of any class of the insurer's own securities."
Section 4. Amend §5003, Chapter 50, Part I, Title 18 of the Delaware Code by adding thereto a new paragraph, designated as paragraph (1), which shall read as follows:
"(1) The failure to file a registration statement or any amendment thereto required by this section within the time specified for such filing shall constitute a violation of this section."
Section 4. Amend Chapter 50, Part I, Title 18 of the Delaware Code by adding thereto a new section designated as §5004, which new section shall read as follows:
"§5004. Transactions with Affiliates.
Material transactions by registered insurers with their affiliates shall be subject to the following standards:
(a) the terms shall be fair and reasonable;
(b) the books, accounts and records of each party shall be so maintained as to disclose clearly and accurately the precise nature and details of the transactions; and
(c) the insurer's surplus as regards policyholders following any such transaction, including the payment of dividends or distributions to shareholder affiliates, shall be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs."
Section 5. Amend Chapter 50, Part I, Title 18 of the Delaware Code by adding thereto a new section, designated as §5005, which new section shall read as follows:
"§5005. Adequacy of Surplus.
For purposes of this section, in determing 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 where appropriate:
(a) the size of the insurer as measured by its assets, capital and surplus, reserves, premium writings, insurance in force and other appropriate criteria;
(b) the extent to which the insurer's business is diversified among the several lines of insurance;
(c) the number and size of risks insured in each line of business,
(d) the extent of the geographical disperson of the insurer's insured risks;
(e) the nature and extent of the insurer's reinsurance program;
(f) the quality, diversification, and liquidity of the insurer's investment portfolio;
(g) the recent past and projected future trend in the size of the insurer's surplus as regards policyholders;
(h) the surplus as regards policyholders maintained by other comparable insurers;
() the adequacy of the insurer's reserves; and
(a) the quality and liquidity of investments in affiliated persons. The Commissioners 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 6. Amend Chapter 50, Part I, Title 18 of the Delaware Code by adding thereto a new section; designated as §5006, which new section shall read as follows:
"§5006. Dividends and Other Distributions.
(a) No insurer subject to registration under the provisions of Section 5003 shall pay any extraordinary dividend or make any other extraordinary distribution to its shareholders until (1) 30 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 30 day period.
(b) 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 dividend or distribution or (2) the Commissioner has not disapproved such payment within the 30 day period referred to above."
Section 7. Amend Chapter 50, Part I, Title 18 of the Delaware Code by adding thereto a new section, designated as §5007, which new section shall read as follows:
"§5007. Confidential Treatment.
All information, documents and copies thereof obtained by disclosed or reported to the Commissioner or any other person pursuant to Sections 5004, 5005 and 5006 shall be given confidential treatment and shall not be subject to subpoena nor be made public by the Commissioner or any other person, except to insurance departments of other states, without 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 interests 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."
the Delaware Code by adding thereto a new section, designated as §5008, which new section shall read as follows:
§5008. Jurisdiction, Injunctions, and Penalties,
(a) The Court of Chancery of the State of Delaware shall have exclusive jurisdiction of any civil action alleging a violation of this Chapter.
() Whenever it appears to the Commissioner that any person has committed or is about to commit a violation of this Chapter, the commissioner may apply to the Court of Chancery for an Order enjoining such person from violating or continuing to violate a provision of this Chapter and for such other equitable relief as the nature of the case and the interests of the insurer's policyholders, creditors and shareholders, or the public may require. Unless otherwise specified in this Chapter, the procedure for all such proceedings shall be as provided in the Rules of Procedure for the Court of Chancery or as established by the usual practice and procedure in said Court.
(a) Upon satisfactory evidence of a willful violation by any person of this Chapter, the Court of Chancery may, in its discretion, impose a penalty upon such offending person of not more than Ten Thousand Dollars ($10,000.00) for each act in violation of this Chapter.
(b) Upon a finding by the Court of Chancery of a willful violation of this Chapter, the Commissioner, if such offending person is an insurer, may:
(1) suspend or revoke the license of such offending person; or
(2) refuse, for a period not to exceed one (1) year thereafter, to issue a new license to such offending person."