SB 464 Modifies various provisions relating to insurance
Sponsor: Stouffer
LR Number: 2158S.07T Fiscal Note: 2158-07
Committee: Small Business, Insurance and Industry
Last Action: 9/16/2009 - No Motion made to override Governor's veto Journal Page: S10 / H28
Title: CCS HCS SB 464 Calendar Position: 11
Effective Date: Varies
House Handler: Yates

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Current Bill Summary

CCS/HCS/SB 464 - This act modifies numerous provisions relating to the regulation of insurance.

TAXATION OF INSURANCE COMPANIES - Under current law, insurance companies which pay an annual tax on gross premium receipts are exempt from the imposition of Missouri's corporate income and franchise taxes. This act specifies that insurance companies subject to an annual tax on gross premium receipts are exempt from the imposition of Missouri's corporate income and franchise taxes. These provisions can be found in SB 280 (2009)(Sections 143.441, 147.010, and 148.370).

MOTOR VEHICLE LIABILITY INSURANCE CARD FRAUD - Under this act, any person who intentionally produces, manufactures, sells, or otherwise distributes a fraudulent document intended to serve as an insurance identification card is guilty of a Class D felony. The act further provides that any person who knowingly or intentionally possesses a fraudulent document intended to serve as an insurance identification card is guilty of a Class B misdemeanor. This provision is contained in SB 16 (2009)(Section 303.024).

BAIL BOND AGENTS - This act requires the department of insurance to conduct a study regarding the bail bond industry within Missouri and submit a report by January 6, 2010 (section 374.776).

CONTINUING EDUCATION COURSES FOR PRODUCERS - This act clarifies the continuing educational requirement statute for insurance producers. Under the act, a course of instruction sponsored by an entity engaged in the business of providing education courses to producers is recognized as a qualified continuing education course (Section 375.020).

FINANCIAL REPORTING MODEL REGULATION - This act amends Missouri's annual financial reporting laws to correspond with the NAIC Annual Financial Reporting Model Regulation. In the act's main provisions, the legislative proposal requires insurers to be governed by an audit committee with respect to annual audit reports; prohibits certain CPA non-audit services; requires CPA audit partner rotation every 5 years; requires a "cooling off" period before CPA auditors can be hired by insurance clients; requires audit committee preapproval of all audit and nonaudit services provided by CPA firms; and institutes certain internal control requirements over financial reporting to ensure the reliability of financial statements that are reported to the Department of Insurance.

The act exempts insurers having direct premiums written in this state less than $1,000,000 in any calendar year and less than 1,000 policyholders of direct written policies nationwide at the end of the calendar year from the purview of the act. The exemption does not apply if the director makes a finding that compliance with the act is necessary to carry out statutory responsibilities. The exemption also does not apply to insurers having assumed premiums pursuant to contracts of reinsurance of $1,000,000 or more (Section 375.1028).

Foreign or alien insurers that are required to file management's reports of internal control over financial reporting in another state are exempt from filing such reports in Missouri if the other state has similar reporting requirements as Missouri and such reports are filed with their departments of insurance.

The act requires requests for extensions for filing an annual audit report to be submitted in writing not less than 10 days prior to its filing due date. The current law allows requests to be made within 20 days of the due date. The act also provides for an extension for filing a management's report of internal control over financial reporting.

Every insurer required to file an audited financial report shall also be required to have an audit committee that is directly responsible for the appointment, oversight and compensation of any accountant the auditor (Section 375.1030).

Under the act, the director shall not recognize any person or firm as a qualified independent certified public accountant if that person or firm has either directly or indirectly entered into an indemnification with respect to the audit of the insurer. The lead or coordinating audit partner having primary responsibility over an audit may not act in that capacity for more than 5 consecutive years and may not rejoin in that capacity for a period more than five years. Under current law, the requirement is 7 and 2 years respectively. Under the act, a qualified independent certified public accountant may enter into an agreement with an insurer to have disputes relating to an audit resolved by mediation or arbitration.

Under the act, the director shall not accept an annual audited financial report, prepared in whole or in part by an accountant who functions in the role of management, audits his or her own work, or serves in an advocacy role for the insurer. The act also prohibits the director from recognizing as qualified independent certified public accountants or accepting annual audited financial reports prepared by accountants who provide to insurers, contemporaneously with the audits, certain non-audit services, such as bookkeeping services, appraisal or valuation services, human resources services, internal audit outsourcing services, investment services, legal services unrelated to the audit, or other impermissible services determined by the director. Insurers with less than $100,000,000 in direct and assumed premiums may request a waiver from this requirement based on financial or organizational hardship.

A qualified independent certified public accountant who performs the audit may engage in other nonaudit services, including tax services, that do not conflict with the previously described services, only if the activity is approved in advance by the audit committee, in accordance with the act.

All auditing and nonaudit services provided to an insurer by the qualified independent certified public accountant must be preapproved by the audit committee. The preapproval requirement is waived for nonaudit services if the insurer is a SOX compliant entity or meets other requirements outlined in the act.

Partners and senior managers of the audit engagement may not serve as a member of the board of directors, president, chief executive officer, controller, chief financial officer or other similar position of the insurer if employed by the independent public accounting firm that audited the insurer during the one-year period which preceded the most current statutory opinion (Section 375.1037).

The act repeals the requirement that an accountant provide an insurer evidence that the accountant has liability insurance in the lesser amount of $1,000,000 or 10% of the insurer's admitted assets (Section 375.1040).

The act requires insurers to furnish the director with written communication as to any unremediated material weaknesses in its internal control over financial reporting noted during the audit. The act outlines the procedure the accountant must follow in preparing the written communication. The insurer must also provide with its annual audited financial report a description of the remedial actions taken or proposed to correct unremediated material weaknesses (Section 375.1047).

The act requires audit committees to be directly responsible for the appointment, compensation, and oversight of the work of any accountant for the purpose of preparing or issuing the audited financial report required by the act. The act sets forth membership requirements for the audit committee and establishes certain conflict of interest and independence requirements so that the member of the audit committee may be considered independent. Under the act, based on various premium thresholds, a certain percentage of the audit committee members must be independent from the insurer. However, if domiciliary law requires board participation by otherwise non-independent members, such law shall prevail and such members may participate in the audit committee (subsection 8 of Section 375.1053). Under the act, insurers with less than $500 million in direct and assumed premiums may apply for a waiver from the audit committee requirements based on hardship (subsection 9 of Section 375.1053).

Under the terms of the act, no director or officer of an insurer shall make false or misleading statements to an accountant in connection with any audit, review or communication required under the act. In addition, no officer or director of an insurer, or any other person acting under the direction thereof, shall take any action to coerce, manipulate, mislead, or fraudulently influence any accountant engaged in the performance of an audit if that person knew or should have known that the action, if successful, could result in rendering the insurer's financial statements materially misleading (Section 375.1054).

Under the act, the management of insurance companies with $500,000,000 or more in direct or assumed annual premiums must file a report with the Department of Insurance regarding its assessment of internal control over financial reporting (known as a management's report of internal control over financial reporting). The report shall include a statement by management officials whether these controls are effective to provide reasonable assurance regarding the reliability of the statutory financial statements and disclosure of any unremediated material weaknesses in internal control over financial reporting. The act establishes what the management's report of internal control over financial reporting must include (Section 375.1056).

UNCLAIMED FUNDS IN INSURER LIQUIDATION PROCEEDINGS - This act repeals a current provision of law which requires all unclaimed funds subject to distribution remaining in the liquidator’s hands to be deposited with the department of economic development to be held and disposed of as unclaimed property. The act provides that these unclaimed funds shall be distributed to claims holders in the order of priority established in section 375.1218 (section 375.1224).

MINI-COBRA - This act requires group health insurance policies issued by health carriers to employers not covered by the federal COBRA law (employers with 2 to 19 employees) to provide terminated employees with group insurance coverage continuation rights in the same manner as provided by the federal COBRA law (Section 376.428). A similar provision may be found in HB 231, SB 415 and SB 547 (2009). This provision contains an emergency clause.

TRAVEL DISCRIMINATION UNDER LIFE INSURANCE POLICIES - Under this act, no life insurance company that has gross written premiums of three hundred million dollars per year or more shall deny or refuse to accept an application for life insurance, refuse to renew, cancel, restrict, or otherwise terminate a policy of life insurance, or charge a different rate for the same life insurance coverage, based upon the applicant's or insured's past or future lawful travel destinations. Nothing in this act shall prohibit a life insurance company from denying an application for life insurance, or charging a different premium or rate for such coverage under such policy based on a specific travel destination where the denial or rate differential is based upon sound actuarial principles or is related to actual or reasonably anticipated experience. Under the act, a violation constitutes an unfair trade practice. The act provides that it shall apply to life insurance policies issued or renewed on or after August 28, 2009. This provision of the act is similar to SB 126 (2009) and SB 865 (2008) (Section 376.502).

CAPTIVE INSURANCE COMPANIES - This act modifies various provisions of Missouri's captive insurance company law. Under this act, the definition of "association" is amended to include captive insurance companies formed as reciprocal insurers. The act amends multiple sections of the captive insurance law to permit reciprocal insurers to be used to form an association captive.

This act repeals the requirement that a captive insurance company must hold at least 35% of its assets within Missouri (Section 379.1302). The act expressly provides that association captive insurance companies and industrial insured captive insurance companies may be organized as reciprocal insurers as provided by law. The act provides that the organizers of a reciprocal insurer must petition the director for its formation. The act provide that the captive insurance company statutes shall control in cases of conflict between them and the reciprocal insurance statues. The act further modifies the law to permit a non-U.S. or alien captive to redomesticate to Missouri if approved by the director (Section 379.1310).

Under the terms of the act, the premium taxes imposed on captive insurance companies are redirected. Under the act, 10% of the taxes are credited to the Insurance Dedicated Fund, subject to a maximum of 3% of the current fiscal year's appropriation from such fund, with the remainder to be deposited in the general revenue fund (Sections 379.1326 and 379.1332). The act contains a similar provision for the disposition of premium taxes assessed on special purpose life insurance captive companies (Section 379.1412).

Under the act, an association captive insurance company or an industrial insured captive insurance company may be converted into or merged with and into a reciprocal insurer. Under the act, any conversion or merger must provide a fair and equitable plan for purchasing the interests of the stockholders and policyholders of the stock or mutual insurer. The act sets forth the statutory steps that must be followed in order to complete a conversion or a merger (Section 379.1339).

This act reduces the number of Missouri residents required to incorporate or organize a special purpose life reinsurance captive from two to one (Section 379.1373).

The act modifies the method in which the assets of a special purpose life reinsurance captive are valued. The act allows letters of credit, financial guarantee policies and surety bonds to be recognized as assets of a special life reinsurance captive regardless of the existence of any repayment obligations imposed upon the captive (Section 379.1388).

The captive insurance provisions may be found in SB 269 (2009).

INSURANCE HOLDING COMPANIES - This act amends the terminology of the state's holding company law in Chapter 382, to use the term "producer" rather than the term "broker" (Sections 382.400 to 382.409).

SURPLUS LINES INSURANCE - This act allows the department to publish notices regarding surplus lines insurance companies on a website rather than mailing notices to each surplus lines licensee (Section 384.025). The act requires the biennial renewal of a surplus lines license rather than having it renewed on an annual basis. The biennial renewal fee is $100 (currently the renewal fee is $50 for an annual license) (Section 384.043). This act transfers the collection of surplus lines taxes directly to the Department of Revenue in order to comply with Executive Order 07-06. Current law reflects a system in which tax funds are collected by DFIP and then are remitted to the Department of Revenue (Section 384.051). Under this act, surplus lines brokers are required to report the gross amounts charged for surplus lines insurance with respect to risks located within this state, exclusive of sums collected for the payment of federal, state, or local taxes and the amount of net premiums with respect to the insurance (Section 384.057). The act repeals a provision of law that requires the director of the Department of Insurance to personally report to certain legislative committees of all actions initiated, maintained and concluded by the director (Section 374.456). Under current law, each surplus lines licensee must file a written report with the director within 30 days of placing surplus lines insurance describing the surplus lines insurance transaction. This act repeals this provision (Section 384.031).

TRAILER DEALER EXEMPTION FROM GARAGE POLICY REQUIREMENT - This act exempts trailer dealers from submitting a copy of a current dealer garage policy when submitting their license applications. This provision of the act is identical to SB 357 and HB 365 (2009)(Section 301.560)(HOUSE AMENDMENT 2).