HB56 Alabama 2014 Session

Summary

Primary Sponsor

Mike Hill

Republican

Session

Regular Session 2014

Title

Insurance Department, insurance holding companies, regulation further provided for, purpose to conform with National Association of Insurance Commissioners, model act, Secs. 10A-20-6.16, 27-21A-23, 27-29-1 to 27-29-7, inclusive, 27-29-10, 27-34-54 am'd.; Secs. 27-29-3.1, 27-29-6.1, 27-29-11.1 added

Description

Under existing law, members of an insurance holding company system are required to meet certain requirements deemed appropriate to protect the solvency of the insurers within the system.

Under existing law, the commissioner is required to hold a public hearing to consider a proposed acquisition of control of an Alabama-domiciled insurer.

Under existing law, domestic insurers are required to give 30 days' notice to the commissioner prior to paying any extraordinary dividend, defined as a distribution in an amount exceeding the greater of 10 percent of the insurer's surplus or the net gain from operations for the calendar year preceding the payment.

Under existing law, insurers or officers, directors, employees, or agents thereof willfully violating the holding company act can be criminally prosecuted and, upon conviction, fined up to ten thousand dollars ($10,000) for an insurer and up to one thousand dollars ($1,000) for an individual, or up to two years in prison, or both.

This bill, which would state the purpose of the bill is to make Alabama's law substantially similar to the current version of the model Insurance Holding Company System Regulatory Act developed by the National Association of Commissioners, would add requirements to the insurance holding company system law for assessing the "enterprise risk" within the entire holding company system, including the risk caused by non-insurance affiliates.

The bill would permit the commissioner to hold the public hearing required to consider a proposed acquisition of control of an Alabama-domiciled insurer on a consolidated basis with other commissioners if the approval of commissioner from other states is also required.

The bill would require, in certain circumstances, a pre-acquisition notification to the commissioner, and give the commissioner authority to order the acquisition not occur under certain circumstances and according to certain requirements.

The bill would define extraordinary dividend to be a distribution in an amount exceeding the lesser of 10 percent of the insurer's surplus or the net gain from operations for the calendar year preceding the payment.

The bill would authorize the commissioner to participate in a supervisory college with other regulators for any domestic insurer that is part of a holding company with international operations in order to determine compliance by the insurer with this law.

The bill would add additional penalties for certain violations of the act, including a daily fine of up to ($1,000) for failure to file any registration required to be filed under the act, up to a maximum of ($50,000); a civil forfeiture of up to ($10,000) per violation for any officers or directors of an insurance holding company system who knowingly violate, participate in, or assent to, or who knowingly permit the officers or agents of the insurer to engage in transactions or investments not properly reported or submitted pursuant to the act; and a criminal penalty of up to five years in prison or a fine of up to ($50,000), or both, for any officer, director, or employee of an insurance holding company system who willfully and knowingly subscribes to or makes or causes to be made any false statement or false reports or false filings with the intent to deceive the commissioner in the performance of the commissioner's duties under this act.

The bill would provide certain recovery rights to a receiver appointed to liquidate or rehabilitate a domestic insurer from any parent corporation or holding company or person or affiliate who otherwise controlled the insurer the amounts of distributions paid by the insurer on its capital stock or in the form of a bonus, termination settlement, or extraordinary lump sum salary adjustment to a director, officer, or employee made at any time during the one year preceding the petition for liquidation, conservation, or rehabilitation, with certain limitations and exceptions.

Amendment 621 of the Constitution of Alabama of 1901, now appearing as Section 111.05 of the Official Recompilation of the Constitution of Alabama of 1901, as amended, prohibits a general law whose purpose or effect would be to require a new or increased expenditure of local funds from becoming effective with regard to a local governmental entity without enactment by a 2/3 vote unless: it comes within one of a number of specified exceptions; it is approved by the affected entity; or the Legislature appropriates funds, or provides a local source of revenue, to the entity for the purpose.

The purpose or effect of this bill would be to require a new or increased expenditure of local funds within the meaning of the amendment. However, the bill does not require approval of a local governmental entity or enactment by a 2/3 vote to become effective because it comes within one of the specified exceptions contained in the amendment.

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Subjects

Insurance