SB 0535 Modifies law relating to reinsurers and insolvency proceedings and the investment of insurance company assets
LR Number:1917S.05C Fiscal Note:1917-05
Committee:Insurance and Housing
Last Action:05/18/01 - S Inf Calendar S Bills for Perfection Journal page:
Title:SCS SB 535
Effective Date:Varies
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Current Bill Summary

SCS/SB 535 - This act makes various changes with respect to how insurance companies are treated in liquidation proceedings. This act also modifies the law with respect to how certain insurance companies may invest their assets and capital.

CARRYOVER DEDUCTION FOR EXAMINATION FEES - After January 1, 2003, insurers may carry forward their deduction for examination fees which exceeds the insurer's premium tax liability to subsequent tax years, not to exceed 5 years, until the full deduction is claimed (Section 148.400).

HEALTH SERVICE CORPORATIONS/INSURANCE COMPANY DATA PROCESSING SYSTEMS (COST AND AMORTIZATION) - This act modifies the law regarding acquisition of data processing systems by Health service corporations. The section deletes the reference to mechanical machines, allowing only electronic data processing equipment. The cost of such equipment shall have an aggregate cost which shall not exceed 3% of the capital and surplus of the company. The cost of the equipment shall be fully amortized over a period not to exceed three years. Under current law, the cost of such a system must be amortized over a period not to exceed 10 years (Section 354.315). This act also modifies the law regarding insurance companies possessing data processing equipment, the cost of such system and its amortization in a similar manner (Section 375.325).

PREPAID DENTAL PLAN RESERVE REQUIREMENTS - Prepaid dental plan organizations must maintain a loss reserve to cover all uncovered liabilities on expenses arising under the policies they issue. This section removes the requirement that these uncovered expenses be determined with generally accepted accounting principles for the actual contractual obligations with providers (Section 354.710).

INSURANCE COMPANY FEES - This act allows insurers and insurance producers to charge additional incidental fees for premium installments, late payments and similar services specifically provided by law without providing written disclosure (Section 375.172).

REINSURANCE CREDIT - This act modifies provisions relating to credit for reinsurance when an insurance company is involved in an insolvency proceeding. This provision is modeled after the NAIC Model Law on Credit for Reinsurance. The purpose behind this section is to reinforce Missouri's actions to compel security from alien reinsurers and to enforce state requirements that the claims against insolvent aliens be valued and paid in accordance with Missouri law.

The law is clarified to state that credit is allowed a domestic ceding insurer when reinsurance is ceded to an insurer licensed in the ceding company's state of domicile "only as respect cession of those kinds of business which the assuming insurer is licensed or otherwise permitted to write or assume in this state". This section also provides for a Lloyd's transition provision applying to reinsurance ceded under reinsurance agreements with an inception, amendment or renewal date of August 1, 1995, and those with recoverables on direct and reinsurance business on agreements with an inception date of July 31, 1995, which are not amended or renewed. Trusts must provide financial statements that are filed with domestic regulators within 90 days of that filing date. These statements are a clarification as to the solvency of each underwriter in the group or if that is not available, financial statements prepared by public accountants of each group member.

If the assuming insurer is a non-U.S. insurer using a multiple beneficiary trust fund, then the reinsurer must waive certain rights under U.S. Bankruptcy Code. In the reinsurance agreement, the trust fund reinsurer must agree that if its fund is found to be inadequate or the reinsurer is found to be insolvent, the trustee will comply with an order to transfer control of the trust to the commissioner with regulatory oversight. The trustee must agree that the assets will be distributed by, and claims filed with and valued by, the commissioner subject to the laws for liquidation of insurers of the state of oversight. The commissioner with regulatory oversight may, upon a finding of the trust being inadequate, require the trustee to distribute funds in accordance with the trust agreement (Section 375.246).

AUTOMOBILES AS ASSETS - This act repeals the section of law which allowed certain types of insurance companies (stock, mutual or reciprocal insurance companies) to hold automobiles as admitted assets if they met certain conditions (Section 375.326).

INSURANCE COMPANY INVESTMENTS - This act modifies the law regarding the authority of insurance companies to purchase or sell financial futures and contracts. Under this act, an insurance company cannot invest in derivatives at any one time an aggregate amount of more than the limit applicable to the securities underlying the derviatives. This act also modifies the rulemaking capability of the Director of Insurance regarding the requirements for the accounting treatment, reporting and statement value and investment limits of the purchase and sale of and investment in any derivative (Section 375.345).

This act repeals a section of current law which prohibited an insurer from showing a certificate of contribution in its financial statements as an admitted asset (Section 375.774).

REHABILITATOR'S AND LIQUIDATOR'S EMPLOYEES - The Director may hire employees to assist him in his duties as rehabilitator but no employee hired shall not be related within the second degree by blood or marriage to the rehabilitator, the special duty rehabilitator, or to any law firm or consulting firm receiving fees from the insurer's assets. The liquidator's employees, legal counsel and other personnel shall not be related within the second degree by blood or marriage to the liquidator, special duty liquidator, or any law firm or other persons receiving fees from the insurer's assets.

REHABILITATOR PURSUING CRIMINAL OR TORTIOUS CONDUCT - Requires the court to approve rehabilitator's legal actions before the rehabilitator pursues them. The court must consider the costs and benefits of pursuing such a legal action before approving the rehabilitator's legal action. The court may impose conditions on the rehabiliitator's pursuit of legal remedies so that the insurer's assets are conserved.

ATTORNEY GENERAL AND APPEALS - the Attorney General and rehabilitator must agree on whether to appeal a lower court decision releasing a company from rehabilitation (Section 375.1168).

SPECIAL DEPUTY REHABILITATOR - A special deputy shall not be anyone who served as a special deputy rehabilitator for the same insurer unless a court determines that such appointment will contribute to conserving the assets of the insurer. Removes requirement that liquidator file with the Director of Insurance a statement reflecting the insurer's claim reserves. This act also removes the power of the Director to issue orders barring reinsurers from reinsuring insurers if the reinsurer fails to post letters of credit (375.1176).

LIQUIDATOR EMPLOYEES AND APPEALS - Liquidator employees may not be related within the 2nd degree by blood or marriage to the liquidator, nor shall employees of law firms and other persons receiving substantial fees from the insurer's assets be related within the 2nd degree to the lidquidator. Any appeals by the liquidator to a higher court from a lower court may be taken only if both the liquidator and the attorney general agree the appeal is appropriate (Section 375.1182).

AMOUNTS RECOVERABLE BY LIQUIDATOR FROM REINSURERS - This act states that payment made to an insured or other creditor shall not diminish the reinsurer's obligation to the insurer's estate except where the reinsurance contract specifically provides payment to the named insured in the event of the ceding insurer's insolvency or where the assuming insurer has assumed the ceding insurer's policy obligations. If a life and health insurance guaranty association has elected to succeed to the rights and obligations of an insolvent insurer, then the reinsurer's liability to pay covered reinsured claims shall continue under the reinsurance contract (Section 375.1202).

INVESTMENT OF SURPLUS AND RESERVE FUNDS OF LIFE INSURANCE COMPANIES - This act broadens the categories in which life insurance companies can invest their capital, reserves and surplus. This Section also requires domestic life insurers shall maintain assets which are diversified and reasonably liquid. This Section also prohibits life insurers from having assets to cover policyholder obligations in certain investments (Section 376.300).

LIMITATIONS ON INVESTMENTS IN CANADIAN SECURITIES - This Section removes the prohibition on life insurance companies from investing more than 1% of its assets in any one enumerated investment or that the aggregate amount of its investments shall not exceed 10% of its admitted assets (Section 376.301).

INVESTMENTS IN INTERNATIONAL AND FOREIGN BANKS - This act removes the restriction that a life insurance company investment in certain bonds and notes cannot in the aggregate exceed 2% of the admitted assets of the company (Section 376.303).

INVESTMENT IN COMMON STOCKS - This act repeals certain investment restrictions on common stocks for life insurance companies (Section 376.305).

STOCK COMPANY INVESTMENTS - This act adds additional categories in which the minimum capital required of a stock company may be invested in. The minimum capital amount may be invested in any asset approved by the Director of Insurance which meets certain enumerated qualifications (Section 379.080).

SURPLUS LINES INSURANCE LICENSING REQUIREMENTS - This section allows the Director of Insurance to issue a surplus lines license to any holder of a current resident or nonresident property and casualty license. Current law is limited to a resident holder of a property and casualty license. This Section changes the amount of the bond a surplus lines licensee has to file from $10,000 to $100,000 or equal to the sum of the tax liability of the previous year, whichever is smaller (Section 384.043). This provision is similar to SB 605 (2001).