SCS/SB 66 - This act modifies various provisions of law relating to insurance company investments, revises the enforcement powers of the Department of Insurance, and substantially revises the title insurance code.EXEMPTING INSURANCE COMPANIES FORMED UNDER CHAPTER 376 FROM CERTAIN INVESTMENT RESTRICTION STATUTORY PROVISIONS - The act provides that the provision of law that forbids insurance companies from trading in goods and other merchandise does not apply to insurance companies formed under chapter 376 (section 375.320).
The act provides that certain real estate ownership and restrictions shall not apply to insurance companies formed under chapter 376 (Section 375.330 and Section 375.340)). The act explicitly provides that insurance companies formed under chapter 376 may engage in derivative transactions under certain conditions (Section 375.345).
Under current law, capital, reserve and surplus of a domestic insurer may be invested in bonds, notes or other evidences of indebtedness, or preferred or guaranteed stocks if such bonds, notes or other evidences of indebtedness, or preferred or guaranteed stocks or shares, carry at least the second highest designation or quality rating conferred by the Securities Valuation Office of the National Association of Insurance Commissioners. Under this act, this provision shall not apply to insurance companies organized under Chapter 376, RSMo (Section 375.532).
Under this act, certain foreign government and foreign company investment restrictions shall not apply to insurance companies organized under Chapter 376, RSMo (Section 375.534).
This act provides that the "Investments I Medium and Lower Quality Obligations Law" shall not apply to insurance companies organized under Chapter 376, RSMo.
INVESTMENTS BY HEALTH AND ACCIDENT INSURERS UNDER CHAPTER 376 - After making the above-mentioned statutory exemptions for insurers organized under Chapter 376, RSMo, the act institutes a new investment statutory scheme (Sections 376.291 to 376.307). The act defines the terms applicable to the new investment provisions.
The act sets forth what insurers may acquire, hold, or invest in investments or engage in investment practices. Investments not conforming to the provisions of the act may not be admitted assets (Section 376.293). The act provides that an insurer shall not directly or indirectly invest in obligations or securities or make guarantees for the benefit of officers or directors except as provided by law (Section 376.294).
LOANS TO OFFICERS AND DIRECTORS - Under the act, an insurer may not, except under specified circumstances, directly or indirectly, without the prior written approval of the director: 1) make a loan to an officer or director of the insurer or make another investment in a person in which the officer or director has any direct or indirect financial interest; 2) make a guarantee for the benefit of or in favor of an officer or director of the insurer or a person in which the officer or director has any direct or indirect financial interest; or 3) enter into an agreement for the purchase or sale of property from or to an officer or director of the insurer or a person in which the officer or director has any direct or indirect financial interest. An insurer may, without the prior written approval of the director, make any of the following:
(1) Policy loans in accordance with the terms of the policy or contract;
(2) Advances to officers or directors for expenses reasonably expected to be incurred in the ordinary course of the insurer's business or guarantees associated with credit or charge cards issued or credit extended for the purpose of financing these expenses;
(3) Loans secured by the principal residence of an existing or new officer of the insurer made in connection with the officer's relocation at the insurer's request if the loans comply with the requirements of law and the terms and conditions are the same as those generally available from unaffiliated third parties;
(4) Loans and advances to officers or directors made in compliance with state or federal law specifically related to the loans and advances by a regulated noninsurance subsidiary or affiliate of the insurer in the ordinary course of business and on terms no more favorable than available to other customers of the entity; and
(5) Secured loans to an existing or new officer of the insurer made in connection with the officer's relocation at the insurer's request, if the loans meet certain criteria (Section 376.295).
VALUATION OF INVESTMENTS - The act requires investments to be valued based on published accounting and valuation standards of the National Association of Insurance Commissioners (NAIC)(Section 376.296).
GENERAL THREE PERCENT DIVERSIFICATION -- MEDIUM-GRADE AND LOWER-GRADE INVESTMENTS -- CANADIAN INVESTMENTS - Under this act, an insurer is prohibited from investing more than 3% of its admitted assets in investments issued by a single person. The 3% limitation does not apply to the aggregate amounts insured by a single financial guaranty insurer with the highest generic rating issued by a nationally recognized statistical rating organization. The act sets forth the conditions for medium and lower grade investments. The act also establishes the conditions for Canadian investments (Section 376.297).
RATED CREDIT INSTRUMENTS - Under the act, an insurer, subject to certain limitations, is allowed to acquire rated credit instruments issued, assumed, insured, or guaranteed by certain governments, government agencies, or government-sponsored enterprises (if their instruments are assumed, guaranteed, or insured by the United States or are otherwise backed or supported by the full faith and credit of the United States) (Section 376.298).
TANGIBLE PERSONAL PROPERTY - An insurer may acquire and invest in tangible personal property if the resulting ownership of the property returns to the insurer the cost of the investment plus a return deemed adequate by the insurer. Investments under this portion of the act cannot exceed 2% of its admitted assets or 0.5% of its admitted assets as to any single item of tangible personal property (Section 376.301).
OBLIGATIONS SECURED BY MORTGAGES - An insurer may acquire obligations secured by mortgages on real estate situated within a domestic jurisdiction, either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by law, joint ventures, stock of an investment subsidiary, membership interests in a limited liability company, trust certificates, or other similar instruments or obligations secured by mortgages on real estate. However, a mortgage loan that is secured by other than a first lien may not be acquired unless the insurer is the holder of the first lien. The obligations held by the insurer and any obligations with an equal lien priority may not, at the time of acquisition of the obligation, exceed certain limitations imposed by the act.
An insurer may acquire, manage, and dispose of real estate situated in a domestic jurisdiction, either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by law, joint ventures, stock of an investment subsidiary, membership interests in a limited liability company, trust certificates, or other similar instruments. The real estate must be income-producing or intended for improvement or development for investment purposes under an existing program. An insurer may acquire, manage, and dispose of real estate for the convenient accommodation of the insurer's or the insurer's affiliates' business operations, Including home office, branch office, and field office operations (Section 376.302).
SECURITIES LENDING - An insurer may enter into securities lending, repurchase, reverse repurchase, and dollar roll transactions with business entities, subject to the insurer's board of directors adopting a written plan that specifies how cash received will be invested or used, operational procedures to manage certain investment risks, and the extent to which an insurer may engage in these transactions. The act sets forth the various conditions the insurer must meet in order to engage in these types of investment transactions (Section 376.303).
FOREIGN INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS- The act sets forth the conditions in which an insurer may invest in foreign investments or engage in investment practices with persons in foreign jurisdictions. The act also authorizes insurers to acquire investments in foreign currencies if certain conditions are met (Section 376.304).
The insurance investment portions of the act are substantially similar to HB 1926 and SB 1135 (2006).
DEPARTMENT OF INSURANCE ENFORCEMENT POWERS - This act provides a consistent set of administrative, civil and criminal enforcement tools for all of Missouri's insurance laws. For each violation in chapters 354, 374, 375, 376, 377, 378, 379, 380, 381, 382, 383, 384, and 385, RSMo, this act authorizes cease and desist orders, curative orders, injunctions, consumer relief, recovery of investigative costs for violations, and a range of civil penalties commensurate with the seriousness of the offense, scienter of the offender, and losses suffered by consumers. For example, the act revises the administrative and enforcement powers of the department with respect to health service corporations and HMOs by making violations of key provisions subject to the administrative orders and civil actions provisions of sections 374.046 and 374.048. The act revises other provisions in the insurance chapters to synchronize the administrative powers of the department (many of these provisions may be found in SB 153 (2007)).
The act removes the director's authority to suspend a prepaid dental corporation's certificate of authority if it issues a contract without filing and receiving prior approval from the director (section 354.722).
ADMINISTRATIVE HEARINGS - The act provides applicants who are refused licenses with the opportunity to file petitions with the administrative hearing commission. The administrative hearing commission is required to conduct hearings, but the director retains his or her discretion in refusing to issue licenses. The act also requires the director to refer certain matters involving revocation or suspension of a license to the administrative hearing commission. The act requires the director to hold administrative hearings for persons aggrieved by orders of the director for violations of Missouri's insurance laws. Final orders issued by the director are subject to judicial review (section 374.051).
COOPERATION WITH OTHER AGENCIES AND BODIES - The act authorizes the director to cooperate with other administrative agencies and national associations (e.g. NAIC) to effectuate greater uniformity in insurance and financial services regulation among state and federal governments, and self-regulatory organizations. The act further provides that the director may share records with such entities subject to privacy and disclosure laws (section 374.185).
MARKET CONDUCT STUDY BY DIRECTOR - The act requires the director to study and recommend to the General Assembly changes to avoid duplication of market conduct activities and to implement uniform procedures for market conduct examinations. The study must be completed by January 1, 2008 (section 374.208).
FALSE TESTIMONY AND PRODUCTION OF RECORDS - The act modifies the law on the issue of testifying falsely in insurance investigations. No person shall knowingly make a false statement under oath or affirmation in any record submitted to the director. Under the act, knowingly making false statements or making false entries upon documents is a Class D felony (current law provides a $1,000 fine and five years in prison) . The act provides that the director may seek an order to enforce compliance if a person refuses to testify, file statements or produce records. Persons are not excused from testifying or producing records based on the grounds that the testimony or records may tend to incriminate them. In such a case, the director may seek a court order to compel the testimony or production of records and the testimony or records may not be used as evidence in a criminal case (section 374.210 and section 374.215).
INSURANCE PRODUCERS - The act requires insurance producers to complete 16 hours of continuing instruction (up from 10 hours)(section 375.020).
Under the act, the director is authorized to issue administrative orders and maintain civil actions against insurance producers. The act modifies other insurance producer provisions in order to make the new enforcement powers applicable to insurance producers.
Under the act, the director may adopt rules and regulations codifying professional standards of producer competency and trustworthiness in the handling of applications, premium funds, conflicts of interest, record-keeping, supervision of others, and customer suitability in the sale of annuities (section 375.143).
The act provides that a violation of a provision of chapter 375, if not specifically provided for, shall be a Class B misdemeanor (section 375.780).
The act also modifies section 384.054 by providing that the penalty on surplus line insurers who are delinquent in paying taxes. The act provides that the penalty shall be one percent of the tax per diem up to ten percent of the tax.
FILING FEES - This act revises the fee schedules for health services corporations, health maintenance organizations and insurance companies. The act modifies the filing fees for certain documents paid by those types of organizations (section 354.150, 354.485, and 374.230).
EXAMINATION ASSESSMENTS - The act also provides that the assessments made against insurance companies for examination purposes shall include:
1) the costs of compensation, including benefits, for the examiners, analysts, actuaries, and attorneys contributing to the examination of the company;
2) reasonable travel, lodging and meal expenses related to an on-site examination; and
3) other expenses related to the examination (section 374.160).
The act requires the director to pay such expenses from the insurance examiners fund.
The act provides that the Insurance Dedicated Fund may be used for the regulation of the business of insurance, regulation of HMOs and the operation of the division of consumer affairs (section 374.150.2). The act removes subsection 3 of section 374.150 which is no longer operative.
The act provides that domestic insurance companies subject to orders of conservation, rehabilitation or liquidation shall reimburse the Insurance Dedicated Fund for administrative services rendered by state employees to the company (section 374.160).
The act also repeals provisions relating to the Insurance Examiner's Sick Leave Fund (sections 374.261 to 374.267).
The provision relating to filing fees, examination assessments, and the repeal of the provisions relating to the Insurance Examiner's Sick Leave Fund are substantially similar to ones contained in SCS/SB 170 (2007) and SB 883 (2006).
DISCOUNT MEDICAL PLANS - The act establishes regulations for discount medical plan organizations that issue health discount medical plans (section 376.1500 to 376.1532). The act establishes a basic regulatory system for health discount plans, which are currently unregulated in Missouri. The act requires medical discount plan organizations to register with the director, establishes standards for advertising and disclosures related to health discount plans, and allows the department to examine and investigate the business and affairs of a medical discount plan organization. The discount medical plan organization provisions are similar to the ones contained in SB 381 (2007) and the truly agreed to version of HB 818 (2007).
ACCIDENT RESPONSE SERVICE FEES - This act provides that no person or entity shall impose an accident response service fee on or from an insurance company, the driver or owner of a motor vehicle, or any other person. An accident response service fee is a fee imposed for the response or investigation by a local law enforcement agency of a motor vehicle accident (section 374.055.3).
ANNUITY CONTRACTS - Under the act, the director may, consult and cooperate with the commissioner of securities in investigations arising from the offer and sale of annuity contracts and may request assistance from the commissioner of securities in any proceeding arising from the offer and sale of any such contracts (section 376.309).
SUICIDE AND LIFE INSURANCE COVERAGE CONTESTABILITY- This act allows life insurance companies to exclude coverage for suicide for one year after the issuance of the policy. If the insured dies as a result of suicide within the one year period, the insurer must refund all premiums paid. This portion of the act is similar to SB 325 (2007), SB 838 (2006) and HB 1060 (1996)(section 376.620).
TITLE INSURANCE CODE REVISION - This act substantially revises the title insurance act. The act reenacts numerous provisions that were contained in SB 894 (2000) they were found unconstitutional due to clear title violations. The unconstitutional provisions remain in the statute books whereas the pre-SB 894 provisions are not contained in the statute books. The act provides that sections 381.011 to 381.412 shall govern the regulation of title insurance within the state of Missouri and that all insurance laws shall also apply unless the context requires otherwise (section 381.011).
TITLE INSURANCE COMMITMENT, OWNER’S AND LENDER’S TITLE INSURANCE POLICIES - The act defines the term “title insurance commitment” for purposes of the title insurance act. This act requires written notice to be given to a purchaser-mortgagor at the time a commitment is prepared. The notice shall a lender's policy protects the lender and does not protect the purchaser and that the purchaser could be protected through the purchase of an owner's policy of title insurance within 60 days of the closing (Section 381.015).
DUTIES OF INSURERS UTILIZING SERVICES OF TITLE AGENCIES - A title insurer shall not allow its agents to sell title insurance policies unless there is a written contract between the parties. The title insurer shall maintain an inventory of all policy numbers allocated to each title agency or title agent not affiliated with a title agency. The title insurer shall have on file proof that the title agency or title agent is licensed by Missouri. The title insurer shall establish underwriting guidelines and limitations on title claims settlement authority to be incorporated into contracts with its title agencies and title agents not affiliated with a title agency. If a title insurer terminates its contract with a title agency, the insurer shall, within 7 days of the termination, notify the director of the reasons for termination (Section 381.018).
DISCLOSURE OF CHARGES – Under this act, a title insurer, title agency or title agent participating in a settlement or closing of a residential real estate transaction shall provide clear and conspicuous disclosure of premiums and charges. The director shall adopt rules not in conflict with provisions of RESPA to implement disclosure of premium, abstract or title search and examination fee, and settlement or closing fees (Section 381.019).
CONDITIONS FOR MAINTAINING ESCROW AND SECURITY DEPOSIT ACCOUNTS - The act defines the terms “escrow”, “qualified depository institution”, and security”. In order for a title insurer or title agent to operate as an escrow, security, settlement, or closing agent, it must deposit such related funds into a separate fiduciary trust account within 1 business day of receipt. Any bank credits, bank services, interest or similar consideration received on escrow, settlement, security deposit, or closing funds may be retained by the title insurer or agent as compensation for the administration of the account, unless written instructions provide otherwise. Under the act, it is unlawful for any person to commingle personal or any other moneys with escrow funds, use escrow funds to pay or indemnify against debts of the title insurance agent or of any other person, use escrow funds for any purpose other than to fulfill the terms of the individual written escrow instructions after the necessary conditions of the instructions have been met, disburse any funds held in an escrow account unless the disbursement is made pursuant to a written instruction or agreement or pursuant to an order of a court of competent jurisdiction; or disburse any funds held in a security deposit account unless the disbursement is made pursuant to a written agreement. Under the act, a title insurer or title agent shall not provide escrow or closing services unless it issues a commitment or policy or gives written notice that the closing or settlement is not protected by the title insurer or agent. The act further provides it is unlawful for any title agency or agent to engage in the handling of an escrow, settlement or closing of a residential real estate transaction unless it is performed in conjunction with the issuance of a title insurance policy or closing protection letter or disclosure by the agent that there is no coverage is being provided for the closing or settlement funds (Section 381.022).
PERIODIC ONSITE REVIEWS OF TITLE AGENTS BY TITLE INSURERS - Under the act, a title insurer must, at least annually, conduct an onsite review of the underwriting, claims, and escrow practices of the title insurance agency or agent with which it has a contract. If the agency or agent does not maintain separate fiduciary trust accounts for each title insurer it represents, the title insurer shall verify that the funds held on its behalf are reasonably ascertainable from the books of account and records of the agency or agent. Each title insurer shall adopt and utilize standards and procedures for the on-site review of title insurance agents and agencies. On-site review documentation, work papers, summaries and reports shall be maintained by each title insurer for a period of at least 4 years and shall be made available to the director for examination upon request. The title insurer shall provide a copy of its review report to the director (Section 381.023).
ACCESS TO RECORDS OF UNAFFILIATED AGENT – Under this act, it is unlawful for any title agency or title agent not affiliated with an agency to unreasonably deny access or fail to cooperate with its underwriters in the title insurers' reviews of the agency's or agent's escrow, settlement, closing and security deposit accounts (Section 381.024).
DIVISION OF PREMIUMS AND CHARGES – Nothing in the title insurance act shall be construed as prohibiting the division of premiums and charges between or among a title insurer and its title agents or agencies, provided that the division of premiums and charges does not constitute a violation of the Real Estate Settlement Procedures Act (Section 381.025).
RECORDING OF DEEDS - Under this act, a settlement agent shall present for recording all deeds and security instruments for real estate closings handled by it within five business days after completion of all conditions precedents (Section 381.026).
AFFILIATED BUSINESS ARRANGEMENTS - The act provides definitions for the terms “affiliate”, affiliated business”, “associate”, “control”, and “referral”. Whenever the business to be written constitutes affiliated business, prior to commencing the transaction, the title insurer or title agent shall ensure that its customer has been provided with disclosure of the existence of the affiliated business arrangement and a written estimate of the charges generally made for the title services provided by the title insurer or agent. The director shall require each title insurer and agent to file on forms reports setting forth the names and addresses of those persons that have a financial interest in the insurer or agent. Nothing shall be construed as prohibiting affiliated business arrangements in the provision of title insurance business so long as the title insurer or title agent or other party, at or prior to the time of the referral, discloses the arrangement and, in connection with the referral, provides the person being referred with a written estimate of the charge or range of charges likely to be assessed. Affiliated business arrangements are not prohibited if the only thing of value that is received by the title insurer, agent or party making the referral, other than payments otherwise permitted, is a return on an ownership interest (Section 381.029).
ISSUANCE OF TITLE INSURANCE POLICIES (RECORD KEEPING, TIME LIMITS FOR ISSUANCE) – Records relating to escrow and security deposits shall be retained for a minimum of 7 years. All title agents shall remit premiums to title insurers no later than 60 days of receiving the invoice. Title insurers shall issue each title insurance policy within 45 days after compliance with the requirements of the commitment for insurance unless special circumstances delay the issuance (Section 381.038).
RULES AND REGULATIONS – The act authorizes the director of the Department of Insurance to promulgate rules to implement the provisions of the title insurance chapter (Section 381.042).
ENFORCEMENT OF TITLE INSURANCE LAWS - If the director determines that a person has engaged, is engaging, or has taken a substantial step toward engaging in a violation of the title insurance laws, the director may issue administrative orders (cease and desist, curative orders, etc.), suspend or revoke the license of a producer or the certificate of authority of any title insurer for any such willful violation. The director may bring an action in a court of competent jurisdiction to enjoin violations of the Real Estate Settlement Procedures Act (Sections 381.045 and 381.048).
TRANSACTION OF TITLE INSURANCE BUSINESS - No person other than a domestic, foreign or non-U.S. title insurer organized on the stock plan and duly licensed by the director shall transact title insurance business as an insurer in this state (Section 382.052). Under the act, a title insurer shall have the power to do only title insurance business and reinsure title insurance policies (Section 381.055). Only title insurance companies can issue title insurance policies. A title insurer shall not engage in the business of guaranteeing payment of the principal or the interest of bonds or mortgages (Section 381.058).
CLOSING OR SETTLEMENT PROTECTION - Under the act, a title insurer is expressly authorized to issue closing or settlement protection letters. The closing or settlement protection letter shall be filed with the director. The closing or settlement protection shall indemnify the proposed insured solely against losses not to exceed the amount of the settlement funds due to theft or fraud with regard to the settlement funds by the title agent or for the title agent's failure to comply with the closing instructions. The rate for issuance of the closing or settlement protection letter shall be filed as a rate with the director. The entire rate for the closing or settlement protection letter shall be retained by the title insurer. A title insurer shall not provide any other coverage which purports to indemnify against improper acts or omissions of a person with regard to escrow, settlement, or closing services (Section 381.058).
CAPITAL AND SURPLUS REQUIREMENTS – Under this act, a title insurer licensed shall establish and maintain a minimum paid-in capital of $400,000 and a surplus of not less than $400,000. Beginning January 1, 2013, the capital and surplus requirements are increased to $800,000, respectively (Section 381.062).
NET RETAINED LIABILITY OF TITLE INSURER - The title insurer's net retained liability for a single risk shall not exceed the aggregate of 50% of the surplus as it regards policyholders plus the statutory premium reserve less the company's investment in title plants. A single risk is the insured amount of any title insurance policy. Where there are two or more policies which are issued simultaneously covering different estates in the same real property, a single risk shall be the sum of the insured amounts of all the policies (Section 381.065).
FINANCIAL SOLVENCY - In determining the financial condition of a title insurer, the general provisions of Sections 379.080 to 379.082 shall apply except than an investment in title plants equal to an amount to the actual cost shall be allowed as an admitted asset for title insurers. The aggregate amount of the investment shall not exceed 20% of surplus to policyholders (Section 381.068).
LIQUIDATION AND INSOLVENCY OF TITLE INSURERS - The Missouri Uniform Insurers Liquidation Act shall apply to all title insurers. Security and escrow funds held by title insurers shall not become general assets and shall be administered as secure claims. Title insurance policies shall not be canceled during a period of liquidation unless good cause is shown to the court. Premiums paid, due or to become due under a title insurance policy at the date of order of insolvency shall be fully earned and it is the duty of the title insurer or its agents to pay the premiums to the liquidator (Section 381.075).
FORM FILING - Title insurance standard forms shall be approved by the director 30 days before they are used. The director shall review such forms within 30 days. If the director believes the forms or terms are not in compliance with the insurance laws of Missouri, the director may schedule a hearing to be held within 60 days. If the director disapproves a form after the hearing, the director shall issue a disapproval order in accordance with Chapter 536. The disapproval order is subject to judicial review (section 381.085).
LICENSING OF TITLE AGENTS/CONTINUING EDUCATION – All title insurance agencies and agents must be licensed as insurance producers. Certain employees of an insurer or agent are exempt from licensure if they do not engage in certain transactions (determine insurability, calculate premiums, etc.). Title insurance agents must eliminate the word insurer or underwriter from their business name unless the word "agency" is part of the name. If the title insurance agent delegates a title search to a third party, the agent must obtain proof that the third party is qualified by the rules and regulations established by the director.
Every title agent shall pass an examination. Each title agent shall, during a 2 year period, attend courses or programs that provide a minimum of 8 hours of instruction. The act delineates what courses will qualify as continuing education courses. The act allows excess classroom hours accumulated during a two-year period to be carried forward to the next two-year period. For good cause, an agent may be granted an extended period of time to complete the educational requirements. Those title agents who reside in a state with mandatory continuing education requirements do not have to comply with this portion of the act. Every applicant seeking approval by the director for a continuing education course shall a filing fee of $50 per course (total fee not to exceed $250). The act provides that the examination requirements shall be waived for all title agents and qualified principals who are licensed in Missouri as of January 1, 2008 (Sections 381.115 and 381.118).
AUDITING OF BOOKS AND RECORDS – Under the act, the director may during normal business hours examine, audit and inspect any and all books and records maintained by a title agency or title agent (Section 381.122).
GOOD FUNDS - This act modifies the definition of "financial institution" for purposes of closing real estate transactions and settlement agents. The act modifies the "good funds" provision by restricting title insurers or agents from making payments or withdrawals from a settlement escrow account unless a corresponding deposit of funds was made to the escrow account for the benefit of the payee or payees. This restriction applies regardless of the amount of the payment or withdrawal. The current restriction only applies to payments or withdrawals that exceed $10,000 (Sections 381.410 and 381.412).
The title insurance code revisions are substantially similar to the provisions contained in SB 635 (2007).
STEPHEN WITTE