Bill Summary – FastDemocracy

67th Legislature                                                                                                           SB 364.1
                                                      SENATE BILL NO. 364
                                              INTRODUCED BY S. FITZPATRICK
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   A BILL FOR AN ACT ENTITLED: “AN ACT GENERALLY REVISING INSURANCE LAWS; PROVIDING A
   FRAMEWORK FOR LIQUIDITY STRESS TESTING; PROVIDING THE COMMISSIONER CERTAIN
   AUTHORITY TO REQUIRE CERTAIN DOMICILIARY HOLDING COMPANIES TO FILE A GROUP CAPITAL
   CALCULATION AND LIQUIDITY STRESS TEST; ADDING CONFIDENTIALLY PROTECTIONS FOR DATA
   THAT GROUPS MAY SUBMIT FOR THE GROUP CAPITAL CALCULATION AND LIQUIDITY STRESS TEST;
   PROVIDING REGULATORY LAWS FOR INTERNATIONALLY ACTIVE INSURANCE GROUPS; PROVIDING
   DEFINITIONS; PROVIDING RULEMAKING AUTHORITY; AND AMENDING SECTIONS 33-2-1101, 33-2-
   1111, AND 33-2-1116, MCA.”
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   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:
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              Section 1. Section 33-2-1101, MCA, is amended to read:
              "33-2-1101. Definitions. As used in this part, the following definitions apply unless the context
   requires otherwise:
              (1)   An "affiliate" of or person "affiliated" with a specific person is a person that directly, or indirectly
   through one or more intermediaries, controls or is controlled by or is under common control with the person
   specified.
              (2)   "Control", including the terms "controlling", "controlled by", and "under common control with",
   means the possession, direct or indirect, of the power to direct or cause the direction of the management and
   policies of a person. This power may be evidenced through the ownership of voting securities, by contract other
   than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result
   of an official position with or corporate office held by the person. Control is presumed to exist if any person
   directly or indirectly owns, controls, holds with the power to vote, or holds proxies representing 10% or more of
   the voting securities of any other person. This presumption may be rebutted by a showing made in the manner
   provided by 33-2-1112 that control does not exist in fact. The commissioner may determine, after furnishing all
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   persons in interest notice and opportunity to be heard and making specific findings of fact to support such
   determination, that control exists in fact, notwithstanding the absence of a presumption to that effect.
              (3)   "Enterprise risk" means any activity, circumstance, event, or series of events involving one or
   more affiliates of an insurer that, if not remedied promptly, is likely to have a material adverse effect on the
   financial condition or liquidity of the insurer or its insurance holding company system as a whole. The term
   includes but is not limited to anything that would cause the insurer's risk-based capital to fall into a company
   action level, as provided in 33-2-1904, or that would cause the insurer to be in hazardous financial condition as
   determined by the commissioner pursuant to 33-2-1321.
              (4)   “Group-wide supervisor” means the regulatory official authorized to engage in conducting and
   coordinating group-wide supervision activities who is determined or acknowledged by the commissioner under
   [section 4] to have sufficient significant contacts with the internationally active insurance group.
              (5)   "Group capital calculation instructions" means the group capital calculation instructions as adopted
   by the NAIC and as amended by the NAIC from time to time in accordance with the procedures adopted by the
   NAIC.
              (4) (6)   "Insurance holding company system" means two or more affiliated persons, one or more of
   which is an insurer.
              (5) (7)   "Insurer" has the meaning provided in 33-1-201, except that the term does not include
   agencies, authorities, or instrumentalities of the United States, its possessions and territories, the
   Commonwealth of Puerto Rico, the District of Columbia, or a state or political subdivision of a state.
              (8)   “Internationally active insurance group” means an insurance holding company system that
   includes an insurer registered 33-2-1111 and meets the following criteria:
              (a)   premiums written in at least three countries;
              (b)   the percentage of gross premiums written outside the United States is at least 10% of the
   insurance holding company system’s total gross written premiums; and
              (c)   based on a 3-year rolling average, the total assets of the insurance holding company system are
   at least $50 billion or the total gross written premiums of the insurance holding company system are at least
   $10 billion.
              (9)   “NAIC" means the national association of insurance commissioners.
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              (10)    “NAIC liquidity stress test framework” means a separate NAIC publication that includes a history
   of the NAIC’s development of regulatory liquidity stress testing, the scope criteria applicable for a specific data
   year, and the liquidity stress test instructions and reporting templates for a specific data year, the scope criteria,
   instructions, and reporting template as adopted by the NAIC and as amended by the NAIC from time to time in
   accordance with the procedures adopted by the NAIC.
              (6) (11)   (a) "Person" means an individual, a corporation, a partnership, an association, a joint-stock
   company, a trust, an unincorporated organization, any similar entity, or any combination of the foregoing acting
   in concert.
              (b)    The term does not include any securities broker performing no more than the usual and customary
   broker's function.
              (12)    The “scope criteria,” as detailed in the NAIC liquidity stress test framework, are the designated
   exposure bases along with minimum magnitudes thereof for the specified data year, used to establish a
   preliminary list of insurers considered scoped into the NAIC liquidity stress test framework for that data year.
              (7) (13)   A "securityholder" of a specified person is one who owns any security of that person,
   including common stock, preferred stock, debt obligations, and any other security convertible into or evidencing
   the right to acquire any of the foregoing.
              (8) (14)   A "subsidiary" of a specified person is an affiliate controlled by that person directly or
   indirectly through one or more intermediaries.
              (9) (15)   "Voting security" means any security convertible into or evidencing a right to acquire a voting
   security."
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              Section 2. Section 33-2-1111, MCA, is amended to read:
              "33-2-1111. Registration of insurers -- requisites -- termination. (1) (a) An insurer authorized to
   do business in this state that is a member of an insurance holding company system shall register with the
   commissioner, except that a foreign insurer subject to disclosure requirements and standards adopted by
   statute or regulation in the jurisdiction of its domicile that are substantially similar to those contained in this
   section is not required to register.
              (b)    Any insurer subject to registration under this section shall register within 15 days after becoming
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   subject to registration, unless the commissioner for good cause extends the time for registration.
              (c)   The commissioner may require any authorized insurer that is a member of a holding company
   system that is not subject to registration under this section to furnish a copy of the registration statement or
   other information filed by the insurance company with the insurance regulatory authority in the jurisdiction
   where the company is domiciled.
              (2)   An insurer subject to registration shall file with the commissioner, on or before April 30 each year,
   a registration statement on a form provided by the commissioner that must contain current information about:
              (a)   the capital structure, general financial condition, ownership, and management of the insurer and
   any person controlling the insurer;
              (b)   the identity and relationship of every member of the insurance holding company system;
              (c)   transactions currently outstanding or that occurred during the last calendar year between the
   insurer and its affiliates and the following agreements that are in force:
              (i)   loans, other investments, or purchases, sales, or exchanges of securities of the affiliates by the
   insurer or of the insurer by its affiliates;
              (ii) purchases, sales, or exchanges of assets;
              (iii) transactions not in the ordinary course of business;
              (iv) guaranties or undertakings for the benefit of an affiliate that result in an actual contingent exposure
   of the insurer's assets to liability, other than insurance contracts entered into in the ordinary course of the
   insurer's business;
              (v)   management and service contracts and cost-sharing arrangements;
              (vi) reinsurance agreements;
              (vii) dividends and other distributions to shareholders; and
              (viii) consolidated tax allocation agreements;
              (d)   a pledge of the insurer's stock, including stock of a subsidiary or controlling affiliate for a loan
   made to a member of the insurance holding company system;
              (e)   if requested by the commissioner, financial statements of or within an insurance holding company
   system, including all affiliates, which may include annual audited financial statements filed with the U.S.
   securities and exchange commission pursuant to the Securities Act of 1933, as amended, or the Securities
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   Exchange Act of 1934, as amended, or the most recently filed parent corporation financial statements filed with
   the U.S. securities and exchange commission;
              (f)   statements that the insurer's board of directors is responsible for and oversees corporate
   governance and internal controls and that the insurer's officers or senior management have approved, have
   implemented, and continue to maintain and monitor corporate governance and internal control procedures;
              (g)   all matters concerning transactions between registered insurers and any affiliates as may be
   included from time to time in registration forms adopted or approved by the commissioner; and
              (h)   any other information required by the commissioner by rule.
              (3)   A registration statement must contain a summary outlining each item in the current registration
   statement that represents a change from the prior registration statement.
              (4)   Information need not be disclosed on the registration statement filed pursuant to subsection (2) if
   the information is not material for the purposes of this section. Unless the commissioner by rule or order
   provides otherwise, sales, purchases, exchanges, loans or extensions of credit, or investments involving 1/2 of
   1% or less of an insurer's admitted assets as of the prior December 31 are not material for purposes of this
   section. The definition of materiality provided in this subsection does not apply for purposes of the group capital
   calculation of the liquidity stress test framework.
              (5)   A person within an insurance holding company system subject to registration shall provide
   complete and accurate information to an insurer if the information is reasonably necessary to enable the insurer
   to comply with Title 33, chapter 2, part 11.
              (6)   Each registered insurer shall keep current the information required to be disclosed in its
   registration statement by reporting all material changes or additions on amendment forms provided by the
   commissioner within 15 days after the end of the month in which the registered insurer learns of each change
   or addition.
              (7)   (a) The ultimate controlling person of every insurer subject to registration under this section shall
   also file an annual enterprise risk report. The report must identify the material risks within the insurance holding
   company system that could pose enterprise risk to the insurer to the best of the controlling person's knowledge
   and belief. The report must be filed with the lead state commissioner of the insurance holding company system,
   as determined by the procedures within the financial analysis handbook adopted by rule of the commissioner.
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              (b)   Except as provided in this section, the ultimate controlling person of every insurer subject to
   registration shall concurrently file with the registration an annual group capital calculation as directed by the
   lead state commissioner. The report must be completed in accordance with the NAIC group capital calculation
   instructions, which may permit the lead state commissioner to allow a controlling person that is not the ultimate
   controlling person to file the group capital calculation. The report must be filed with the lead state commissioner
   of the insurance holding company system as determined by the commissioner in accordance with the
   procedures within the financial analysis handbook adopted by the NAIC. Insurance holding company systems
   described below are exempt from filing the group capital calculation:
              (i)   an insurance holding company system that has only one insurer within its holding company
   structure, that only writes business and is only licensed in its domestic state, and assumes no business from
   any other insurer;
              (ii) an insurance holding company system that is required to perform a group capital calculation
   specified by the United States federal reserve board. The lead state commissioner shall request the calculation
   from the federal reserve board under the terms of information-sharing agreements in effect. If the federal
   reserve board cannot share the calculation with the lead state commissioner, the insurance holding company
   system is not exempt from the group capital calculation filing.
              (iii) an insurance holding company system whose non-U.S. group-wide supervisor is located within a
   reciprocal jurisdiction as described in 33-2-1216 that recognizes the U.S. state regulatory approach to group
   supervision and group capital;
              (iv) an insurance holding company system:
              (A)   that provides information to the lead state that meets the requirements for accreditation under the
   NAIC financial standards and accreditation program, either directly or indirectly through the group-wide
   supervisor, who has determined such information is satisfactory to allow the lead state to comply with the NAIC
   group supervision approach, as detailed in the NAIC financial analysis handbook; and
              (B)   whose non-U.S. group-wide supervisor that is not in a reciprocal jurisdiction recognizes and
   accepts, as specified by the commissioner in regulation, the group capital calculation as the worldwide group
   capital assessment for U.S. insurance groups who operate in that jurisdiction;
              (v)   notwithstanding the provisions of subsections (7)(b)(iii) and (7)(b)(iv), a lead state commissioner
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   shall require the group capital calculation for U.S. operations of any non-U.S. based insurance holding
   company system where, after any necessary consultation with other supervisors or officials, it is deemed
   appropriate by the lead state commissioner for prudential oversight and solvency monitoring purposes or for
   ensuring the competitiveness of the insurance marketplace;
              (vi) notwithstanding the exemptions from filing the group capital calculation stated in subsections
   (7)(b)(i) through (7)(b)(iv), the lead state commissioner has the discretion to exempt the ultimate controlling
   person from filing the annual group capital calculation or to accept a limited group capital filing or report in
   accordance with criteria as specified by the commissioner in regulation;
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