Delaware General Assembly

CHAPTER 79

FORMERLY

HOUSE BILL NO. 123

AS AMENDED BY HOUSE AMENDMENT NO. 1

AN ACT TO AMEND CHAPTERS 5, 11, 13, 15 and 49 of TITLE 18, DELAWARE CODE, RELATING TO INSURANCE COMPANY INVESTMENTS, DEPOSITS AND CERTAIN PROCEDURES.

WHEREAS, the investment provisions of the insurance codes of other leading insurance states have been broadened ; and

WHEREAS, the Delaware Insurance Code should be periodically improved in order to attract and hold domestic companies; and

WHEREAS, the deposit requirements of the insurance code require strengthening; and

WHEREAS, certain provisions of the Delaware Insurance Code may bring about retaliatory action by other States unless those provisions are changed.

Be it enacted by the General Assembly of the State of Delaware:

Section 1. Amend Section 1303 (a) of Title 18, Delaware Code, by adding thereto the following:

A debt security will be considered to be income-earning where, although bearing no fixed or contingent interest, it is issued at a discount and contains a specific maturity date on which redemption is to be made at a stated value. Stocks will be considered income-earning although dividends are currently not being paid. Nothing in this section shall prohibit the acquisition by an insurer of warrants, options or similar rights to acquire securities if (i) the acquisition of such securities would then be permitted by the provisions of this chapter (other than Section 1320 of this chapter) or, (ii) such warrants, options or similar rights are acquired in connection with an investment otherwise permitted by this chapter.

Section 2. Amend Section 1303 (c) of Title 18, Delaware Code, by striking said Section in its entirety and substituting a new paragraph (c) to read as follows:

"(c) No provisions of this chapter shall prohibit the acquisition by an insurer of other or additional securities or property if received as a dividend or as a lawful distribution of assets, or upon a debt or judgment, or under a lawful and bona fide agreement of bulk reinsurance, merger, or consolidation, or if acquired by it through the exercise of warrants, options or similar rights to acquire securities received by it in accordance with this chapter. No provision of this chapter shall prevent any insurer from entering into an agreement for the purpose of protecting the interests of the insurer in securities lawfully held by it, or for the purpose of reorganization of a corporation which issued securities so held, and from depositing such securities with a committee or depositaries appointed under such agreement, nor from accepting stock, bonds or other securities or other property which may be distributed pursuant to any such agreement, or to any plan of reorganization or arrangement; and no provision of this chapter shall prevent any insurer from acquiring or holding any property acquired in satisfaction of any debt previously contracted, or that shall be obtained by sale or foreclosure of any security held by it. Any security or property so acquired which is not otherwise an eligible investment under this chapter shall be disposed of pursuant to Section 1326 of this chapter if real estate, or pursuant to Section 1327 of this chapter if personal property or securities.

Section 3. Amend Section 1304 of Title 18, Delaware Code, by striking said section in its entirety and substituting in lieu thereof a new section to read as follows:

§ 1304. Authorization, record of investments

An insurer shall not make any investment or loan (other than policy loans or annuity contract loans of a life insurer) unless the same is authorized or approved by the insurer's board of directors or by a committee thereof charged with supervision of investments and loans. The insurer shall maintain a full record of each investment.

Section 4. Amend Section 1305 (1) of Title 18, Delaware Code, by striking the number "5" and substituting in lieu thereof the number "10".

Section 5. Amend Section 1305 (3) of Title 18, Delaware Code, by striking numbers and words "1310 (preferred and guaranteed stocks),".

Section 6. Amend Section 1305 (3) of Title 18, Delaware Code, by striking the period (.) immediately following the first sentence thereof and adding there to the following:

", and no more than 20% of its assets in stocks under Section 1310 (preferred and guaranteed stocks)."

Section 7. Amend Section 1307 (7), of Title 18, Delaware Code, by striking the phrase "when acquired in connection with the sale of mortgage loans to such association."

Section 8. Amend Sections 1308 (1) and (2) of Title 18, Delaware Code, by striking said subsections (1) and (2) in their entirety and substituting in lieu thereof new subsection (1) and (2) to read as follows:

(1) Obligations which are secured by adequate collateral security and bear fixed interest, if during each of any 3, including either of the last 2, fiscal years of a period of not less than 3 nor more than 5 fiscal years next preceding the date of acquisition by such insurer, the net earnings of the issuing, assuming or guaranteeing institution available for its fixed charges, as defined in Section 1309, shall have been not less than 11/4 times the total of its fixed charges for such year, or obligations which, at the date of acquisition by such insurer, are adequately secured and have investment qualities and characteristics wherein the speculative elements are not predominant. In determining the adequacy of collateral security not more than 1/3 of the total value of such required collateral shall consist of stock other than stock meeting the requirements of Section 1310 (preferred or guaranteed stocks) of this chapter.

(2) Fixed interest-bearing obligations, other than those described in subsection (1) of this section, or non-interest bearing obligations issued at a discount and repayable at a stated value on a specific maturity date, if the net earnings of the issuing, assuming or guaranteeing institution available for its fixed charges for a period of 5 fiscal years next preceding the date of acquisition by such insurer shall have averaged per year not less than 1¹/2 times its average annual fixed charges applicable to such period and if during either of the last 2 years of such period such net earnings shall have been not less than 1 ½ times its fixed charges for such year.

Section 9. Amend Section 1308 (3) of Title 18, Delaware Code, by striking the word "each" as the same appears on line 11 and substituting in lieu thereof the word "either".

Section 10. Amend Section 1308 of Title 18, Delaware Code, by adding thereto a new paragraph to be designated as paragraph (4) to read as follows:

(4) Fixed interest bearing obligations, other than those described in subsection (1) and (2) of this section, or non-interest bearing obligations issued at a discount and repayable at a stated value on a specific maturity date, if (a) the net earnings of the issuing, assuming or guaranteeing institution available for its fixed charges for a period of 5 fiscal years next preceding the date of acquisition by such insurer shall have averaged per year not less than 1¹/4 times its average annual fixed charges applicable to such period and if during each of any 4 fiscal years of such period such net earnings shall have been not less than 1 ¼ times its fixed charges for such year, (b) the net earnings of such institution available for its fixed charges during a period of not less than 7 nor more than 10 fiscal years next preceding the date of acquisition by such insurer shall have been such that for each of any 7 fiscal years of such period such net earnings shall have been not less than 1 ¼ times its fixed charges for such year, and (c) the liquid assets of such institution shall have been not less than 105% of its liabilities (other than capital stock and surplus).

Section 11. Amend Section 1309 (a) (4) of Title 18, Delaware Code, by striking said paragraph (4) in its entirety and substituting a new paragraph (4) to read as follows :

(4) "Fixed charges" includes interest on funded and unfunded debt, amortization of debt discount and rentals for leased properties, except that interest paid by a bank or trust company upon any deposit shall not be deemed a fixed charge of such institution.

Section 12. Amend Section 1309 (a) of Title 18, Delaware Code, by adding thereto two new paragraphs to be designated as paragraphs (5) and (6) to read as follows :

(5) "Liquid assets" and "liabilities" shall be determined in reliance upon the latest regular financial statement of the issuing, assuming or guaranteeing institution prepared as of the date not more than 15 months prior to the date of acquisition of the obligations in question by an insurer; if net earnings are determined in reliance upon consolidated earnings statements of parent and subsidiary institutions, "liquid assets" and "liabilities" shall be determined in reliance upon consolidated financial statements of parent and subsidiary institutions after treating any minority stock interest in such subsidiary institutions as a liability.

(6) "Liquid assets" means the sum of cash, receivables or portions thereof, as the case may be, payable on demand or not more than 10 years after the date as of which determination thereof shall be made for purposes of Section 1308, and readily marketable securities, in each case less applicable reserves and unearned income.

Section 13. Amend Section 1309 of Title 18, Delaware Code, by adding thereto a new subsection to be designated as subsection (c) to read as follows :

(c) If the issuing, assuming or guaranteeing institution has not been in legal existence for the whole of the period for which earnings tests are being applied for purposes of Sections 1308, 1310 or 1311, but was formed as a consolidation or merger of 2 or more businesses of which at least one was in operation at the commencement of such period or such institution has acquired all or substantially all of the assets of a business or any divisional, branch or other unitary portion thereof which was in operation at the commencement of such period, the tests of eligibility under Sections 1308, 1310 or 1311, as the case may be, shall be based upon pro forma statements incorporating statements of the predecessor or constituent institutions or businesses or portions thereof.

Section 14. Amend Section 1311 of Title 18, Delaware Code, by striking Section 1311 in its entirety and substituting in lieu thereof a new Section 1311 to read as follows:

§ 1311. Common Stocks: limited partnerships

An insurer may invest in common stocks, other than insurance stocks, of any solvent institution organized and existing under the laws of the United States or Canada, or of any state or province thereof, if such institution has had net earnings available for dividends on such stock in each of the 5 fiscal years next preceding acquisition by the insurer. As used in this section the term "common stock" includes transferable certificates of participation in business trusts. An insurer may invest in or otherwise acquire and hold a limited partnership interest in any limited partnership formed pursuant to the laws of any State or the United State of America. No limited partnership interest shall be acquired under this Section 1311 if the cost thereof would exceed 2% of the assets of such insurer nor if such cost, plus the book value on the date of such acquisition of all limited partnership interest then held by such insurer and acquired under this Section 1311, would exceed 10% of such assets.

Section 15. Amend Section 1313 of Title 18, Delaware Code, by striking the first sentence beginning with the words "an insurer" and ending with the words "affairs" and substitute a new sentence to read as follows:

An insurer may invest in the stock of its subsidiary insurance corporation formed or acquired by it, or in not less than a majority of the voting stock of a business corporation formed under the laws of this or another state and supplementary and complimentary to the convenient operation of the insurer's business or to the administration of any of its affairs.

Section 16. Amend Section 1314 (2) of Title 18, Delaware Code, by inserting after the words "open end" immediately before the word management the following words "or closed end."

Section 17. Amend Section 1316 of Title 18, Delaware Code, by inserting the word "used" immediately after the word "equipment" and preceding the word "wholly", and further inserting the words "or Canada," immediately following the phrase "United States of America".

Section 18. Amend Section 1318 of Title 18, Delaware Code, by striking the figure "90" as it appears in the second sentence thereof and substitute in lieu thereof the figure "100".

Section 19. Amend Section 1320 (a) of Title 18, Delaware Code, by striking the first sentence thereof and substitute a new sentence to read as follows :

An insurer may make loans or investments not otherwise expressly permitted under this chapter, in an aggregate amount not over 10% of the insurer's assets, if such loan or investment fulfills the requirements of Section 1303 of this chapter and otherwise qualifies as a sound investment.

Section 20. Amend Section 1320A(3) of Title 18, Delaware Code, by striking the words "any category of" as the same appears in said paragraph (3).

Section 21. Amend Section 1321 (a) of Title 18, Delaware Code, by striking the period (.) at the end of said paragraph (a) and insert the following:

", other than Canada."

Section 22. Amend Section 1324 (a) of Title 18, Delaware Code, by striking the phrase "20 years greater than" as the same appears in said paragraph.

Section 23. Amend Section 1324 (a) of Title 18, Delaware Code, by adding thereto a new paragraph to be designated as paragraph (4) to read as follows:

(4) No mortgage loan upon a leasehold shall be made or acquired by an insurer pursuant to this Section 1324 unless the terms thereof shall provide for such payments of principal, whatever the period of the loan, so that at no time during the period of the loan shall the aggregate payments of principal theretofore required to be made under the terms of the loan be less than would have been necessary for a loan payable completely by the end of the lesser of a period of 4/5 of the period of the leasehold, inclusive of the period or periods which may be provided by enforceable options of renewal, which is unexpired at the time the loan is made or 40 years, through payments of interest only for 5 years and equal payments applicable first to interest and then to principal at the end of each year thereafter.

Section 24. Amend Section 1324 of Title 18, Delaware Code, by adding thereto two (2) new subsections to be designated as subsections (c) and (d) to read as follows :

Section 25. Amend Section 1325 (a) (7) of Title 18, Delaware Code, by striking the phrase "other than real estate to be used primarily for agricultural, ranch, mining, development of oil or mineral resources, recreational, amusement, hotel, motel or club purposes" as the same appears in the first sentence thereof.

Section 26. Amend Section 1325 (a) (7) of Title 18, Delaware Code, by adding at the end of the first sentence thereof the following new sentence to read as follows :

Real estate to be used primarily for agricultural, ranch, mining, development of oil or mineral resources, recreational, amusement, hotel, motel or club purposes shall in total not exceed 5% of an insurer's assets.

Section 27. Amend Section 1326 (b) of Title 18, Delaware Code, by striking paragraph (b) in its entirety and substitute a new paragraph (b) to read as follows :

(b) The Commissioner may by order grant, from time to time, reasonable extensions of the period, as specified in any such order, within which an insurer shall dispose of any particular parcel of such real estate.

Section 28. Amend Section 1327 of Title 18, Delaware Code, by striking the figure "3" as the same appears in the first sentence thereof and substitute in lieu thereof the figure "5".

Section 29. Amend Section 1327 of Title 18, Delaware Code, by striking the second sentence thereof beginning with the words "Upon application" and ending with the words "reasonable time" and substitute a new sentence to read as follows:

The Commissioner may by order grant, from time to time, reasonable extensions of the period, as specified in any such order, within which an insurer shall dispose of any such property or security.

Section 30. Amend Chapter 13 of Title 18, Delaware Code, by adding a new Section 1331 to read as follows:

§ 1331. Personal property

An insurer may invest in tangible personal property, or interests therein evidenced by trust certificates or other instruments, and a right to receive rental, charter hire, purchase or other payments for the use or purchase of such personal property adequate to return the investment and payable or guaranteed by one or more governmental units or instrumentalities whose obligations would qualify for investment under Section 1306 (public obligations) or one or more institutions whose obligations would qualify for investment under subsections (2) or (4) of Section 1308 (corporate obligations). No insurer shall make an investment pursuant to this Section 1331 if the aggregate amount so invested will exceed 5% of its assets or if the aggregate amount so invested as to which such rental, charter hire, purchase or other payments are payable or guaranteed by any one governmental unit or instrumentality other than the United States or Canada or any one institution will exceed 1% of such sets.

Section 31. Amend Chapter 13 of Title 18, Delaware Code, by adding thereto a new Section 1332 to read as follows:

§ 1332. Secured Non-Corporate obligations

An insurer may invest in obligations, other than those of institutions, which are secured by (a) an assignment of a right to receive rental, charter hire, purchase or other payments for the use or purchase of real or personal property adequate to return the investment and payable or guaranteed by one or more governmental units or instrumentalities whose obligations would qualify for investment under Section 1306 (public obligations) or one or more institutions whose obligations would qualify for investment under subsections (2) or (4) of Section 1308 (corporate obligations), and (b) a mortgage on or secured interest in such real or personal property. No insurer shall make an investment pursuant to this Section 1332 if the aggregate amount so invested will exceed 5% of its assets or if the aggregate amount so invested as to which such rental, charter hire, purchase or other payments are payable or guaranteed by any one governmental unit or instrumentality or any one institution will exceed 1% of such assets.

Section 32. Amend Section 513 of Title 18, Delaware Code, by adding a new paragraph (f) to read as follows:

(f) The Commissioner shall not authorize a domestic insurer, other than a title insurer, to transact insurance unless it makes and thereafter continuously maintains on deposit in this State through the Commissioner, cash or securities eligible therefor under Section 1503 of this Title of a fair market value of not less than $50,000 for the protection of all its policyholders wherever located, or all its policyholders in the United States or all its policyholders and creditors.

Section 33. Amend Section 513 (b) of Title 18, Delaware Code, by adding thereto a new sentence to read as follows:

The foregoing requirement shall not be applicable to any insurer having a paid-in capital and surplus of $10,000,000 or more and continuously maintaining on deposit in this State through the Commissioner, or in another state, cash or securities eligible for such deposit under the laws of this State or of such other state of a fair market value of not less than $400,000 for the protection of all its policyholders wherever located, or all of its policyholders in the United States or all of its policyholders and creditors.

Section 34. Amend Section 513 (c) of Title 18, Delaware Code, by adding thereto a new sentence to read as follows:

The foregoing requirement shall not be applicable to any insurer having a paid-in capital and surplus of $10,000,000 or more and continuously maintaining on deposit in this State through the Commissioner, or in another state, cash or securities eligible for such deposit under the laws of this State or of such other state of a fair market value of not less than $400,000 for the protection of all its policyholders wherever located, or all of its policyholders in the United States or all of its policyholders and creditors.

Section 35. Amend Section 1503 of Title 18, Delaware Code, by adding a new paragraph to be designated as paragraph (d) to read as follows:

(d) All securities placed on deposit on and after July 1, 1973 shall be of such a nature that the interest or dividends are payable without the necessity of access to the depository.

Section 36. Amend Section 4928 (b) (2) of Title 18, Delaware Code, by inserting after the word "and" immediately preceding the word "by" the following phrase:

"provided there are any qualified policyholders".

Section 37. Amend Section 4937 (b) of Title 18, Delaware Code, by adding at the end thereof the following new sentence:

In the case of mutual insurers with more than 10,000 members, in lieu of such notice by mail, such notice may be given by publication in a newspaper of general circulation in either of the two largest cities in each state in which the insurer shall be authorized to transact an insurance business.

Section 38. Amend Section 4937 of Title 18, Delaware Code, by adding thereto a new paragraph to be designated as paragraph (d) to read as follows:

(d) In the event that a mutual insurer shall have no members entitled to vote, the merger agreement need not be submitted to its members, and notice need not be given to its members, and the Commissioner may approve the agreement of merger or consolidation without a hearing thereon, and the same may be effectuated without approval of the insurer's members.

Section 39. Amend Section 1115 (c) of Title 18 Delaware Code, by striking said paragraph (c) in its entirety.

Section 40. Amend Section 1504, Title 18, Delaware Code, by inserting the following subsection at the end thereof :

(d) In addition to the manner of making deposits under this Title provided for above, any such deposits may also be made by sufficient securities or cash being deposited directly with any established bank or trust company located in this state pursuant to an escrow agreement entered into between the person making such deposits and the bank receiving them which agreement has first been approved in writing by the Commissioner. If deposits are made in this manner, the provisions of subsections (a), (b), and (c) shall not apply to such deposits except as required by the Commissioner in granting approval of such escrow agreement and the arrangements made pursuant thereto.

Approved June 18, 1973.