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1181Ratification Number: 470Act Number: 426Introducing Body: SenateSubject: Relating to the Insurance Holding Company Regulatory Act
(A426, R470, S1181)
AN ACT TO AMEND SECTIONS 38-29-10, 38-29-30, 38-29-50, 38-29-60, 38-29-70, 38-29-90, 38-29-110, 38-29-140, 38-29-150, 38-29-170, 38-29-190, 38-29-220, 38-29-240, 38-29-250, 38-29-260, 38-29-270, 38-29-280, 38-29-330, 38-29-340, AND 38-29-350, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO THE INSURANCE HOLDING COMPANY REGULATORY ACT, SO AS TO DELETE THE REFERENCE TO SECURITIES BROKER IN THE DEFINITION OF "PERSON"; PERMIT A DOMESTIC INSURER TO INVEST IN THE SECURITIES OF A SUBSIDIARY IN AN AMOUNT NOT TO EXCEED TEN PERCENT INSTEAD OF FIVE PERCENT OF THE INSURER'S ASSETS AND TO EXCLUDE INVESTMENTS IN DOMESTIC OR FOREIGN INSURANCE SUBSIDIARIES IN CALCULATING THE AMOUNT OF THE INVESTMENT; TO DETERMINE COMPLIANCE WITH PROVISIONS AUTHORIZING INVESTMENTS OF A DOMESTIC INSURER IN A SUBSIDIARY BY CALCULATING THE INVESTMENT LIMITATIONS AS THOUGH THE INVESTMENT HAD BEEN MADE; TO PROVIDE STANDARDS FOR REPORTING TRANSACTIONS WITHIN A HOLDING COMPANY SYSTEM; AND TO PROVIDE A PENALTY FOR AN INSURER, DIRECTOR, OR OFFICER OF AN INSURANCE HOLDING COMPANY WHO VIOLATES THIS CHAPTER; TO AMEND THE 1976 CODE BY ADDING SECTIONS 38-29-155 AND 38-29-165 SO AS TO PROVIDE THAT THE REGISTRATION STATEMENT OF AN INSURER WITH AN INSURANCE HOLDING COMPANY SHALL INDICATE CHANGES IN A PRIOR STATEMENT AND REPORT DIVIDEND DISTRIBUTION TO SHAREHOLDERS; AND TO REPEAL SECTION 38-29-100 RELATING TO THE REQUIREMENT THAT AN INSURER MAIL ALL MATERIALS AND NOTICES TO THE INSURER'S SHAREHOLDERS.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Item (f) of Section 38-29-10 of the 1976 Code is amended to read:
"(f) 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."
Insurers may invest in securities of
SECTION 2. Section 38-29-30 of the 1976 Code is amended to read:
"Section 38-29-30. In addition to investments in common stock, preferred stock, debt obligations, and other securities permitted under all other sections of this title, a domestic insurer may also:
(1) invest, in common stock, preferred stock, debt obligations, and other securities of one or more subsidiaries, amounts which do not exceed the lesser of ten percent of the insurer's assets or fifty percent of the insurer's surplus as regards policyholders if, after such investments, the insurer's surplus as regards policyholders will be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs. In calculating the amount of the investments, investments in domestic or foreign insurance subsidiaries must be excluded, and there must be included:
(a) total net monies or other consideration expended and obligations assumed in the acquisition or formation of a subsidiary, including all organizational expenses and contributions to capital and surplus of the subsidiary whether or not represented by the purchase of capital stock or issuance of other securities, and
(b) all amounts expended in acquiring additional common stock, preferred stock, debt obligations, and other securities and all contributions to the capital or surplus of a subsidiary subsequent to its acquisition or formation;
(2) invest any amount in common stock, preferred stock, debt obligations, and other securities of one or more subsidiaries engaged or organized to engage exclusively in the ownership and management of assets authorized as investments for the insurer if each subsidiary agrees to limit its investments in any asset so that the investments will not cause the amount of the total investment of the insurer to exceed any of the investment limitations specified in item (1) or in the investment laws and regulations of this State applicable to the insurer. For the purpose of this item, 'the total investment of the insurer' includes:
(a) any direct investment by the insurer in an asset, and
(b) the insurer's proportionate share of any investment in an asset by any subsidiary of the insurer, which must be calculated by multiplying the amount of the subsidiary's investment by the percentage of the ownership of the subsidiary;
(3) with the approval of the Commissioner, invest any greater amount in common stock, preferred stock, debt obligations, or other securities of one or more subsidiaries if after such investment the insurer's surplus as regards policyholders will be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs."
SECTION 3. Section 38-29-50 of the 1976 Code is amended to read:
"Section 38-29-50. Whether any investment pursuant to Section 38-29-30 meets the applicable requirements thereof is to be determined before the investment is made by calculating the applicable investment limitations as though the investment had already been made, taking into account the then outstanding principal balance on all previous investments in debt obligations, and the value of all previous investments in equity securities as of the day they were made, net of any return of capital invested, not including dividends.
If an insurer ceases to control a subsidiary, it must dispose of any investment therein made pursuant to Section 38-29-30 within three years from the time of the cessation of control or within such further time as the Commissioner may prescribe unless, at any time after the investment has been made, the investment has met the requirements for investment under any other section of this title, and the insurer has notified the Commissioner thereof."
Person seeking to acquire control of insurer;
SECTION 4. Section 38-29-60 of the 1976 Code is amended to read:
"Section 38-29-60. No person other than the issuer shall make a tender offer for or a request or invitation for tenders of, or enter into any agreement to exchange securities for, seek to acquire or acquire, in the open market or otherwise, any voting security of a domestic insurer if, after the consumation thereof, such person would, directly or indirectly, or by conversion or by exercise of any right to acquire, be in control of such insurer, and no person shall enter into an agreement to merge with or otherwise to acquire control of a domestic insurer unless, at the time any such offer, request, or invitation is made or any such agreement is entered into, or prior to the acquisition of such securities if no offer or agreement is involved, such person has filed with the Commissioner a statement containing the information required by this section and such offer, request, invitation, agreement, or acquisition has been approved by the Commissioner in the manner hereinafter prescribed.
For purposes of this section, a domestic insurer includes any other person controlling a domestic insurer unless the person as determined by the Commissioner is either directly or through its affiliates primarily engaged in business other than the business of insurance. As used in this section, 'person' does not include any securities broker holding, in the usual and customary brokers' function, less than twenty percent of the voting securities of an insurance company or of any person which controls an insurance company."
Statement of acquisition, amendment
SECTION 5. The last paragraph of Section 38-29-70 of the 1976 Code is amended to read:
"If any material change occurs in the facts set forth in the statement filed with the Commissioner and sent to the insurer pursuant to this section, an amendment setting forth the change, together with copies of all documents and other material relevant to the change, must be filed with the Commissioner and sent to the insurer within two business days after the person learns of the change. "
SECTION 5A. Subsection (12) of Section 38-29-70 of the 1976 Code is amended to read:
"(12) Such additional information as the Commissioner may by rule or regulation prescribe as necessary or appropriate for the protection of policyholders of the insurer or in the public interest."
Approval of merger by Commissioner
SECTION 6. Section 38-29-90 of the 1976 Code is amended to read:
"Section 38-29-90. (1) The Commissioner shall approve any merger or other acquisition of control referred to in Section 38-29-60 unless, after a public hearing thereon, he finds that:
(i) After the change of control, the domestic insurer referred to in Section 38-29-60 is not able to satisfy the requirements for the issuance of a license to write the line of insurance for which it is presently licensed;
(ii) The effect of the merger or other acquisition of control would substantially lessen competition in insurance in this State or tend to create a monopoly therein;
(iii) The financial condition of any acquiring party is such as might jeopardize the financial stability of the insurer, or prejudice the interest of its policyholders;
(iv) The plans or proposals which the acquiring party has to liquidate the insurer, sell its assets or consolidate or merge it with any person, or to make any other material change in its business or corporate structure or management, are unfair and unreasonable to policyholders of the insurer and not in the public interest;
(v) The competence, experience, and integrity of those persons who would control the operation of the insurer are such that it is not in the interest of policyholders of the insurer and of the public to permit the merger or other acquisition of control;
(vi) The acquisition is likely to be hazardous or prejudicial to the insurance buying public.
(2) The public hearing referred to in subsection (1) must be held within thirty days after the statement required by Section 38-29-60 is filed, and at least twenty days' notice must be given by the Commissioner to the person filing the statement, to the insurer, and to any other persons designated by the Commissioner. The Commissioner shall make a determination within thirty days after the conclusion of the hearing. At the hearing, the person filing the statement, the insurer, any person to whom notice of hearing was sent, and any other person whose interest is affected thereby has the right to present evidence, examine and cross-examine witnesses, and offer oral and written arguments and in connection therewith is entitled to conduct discovery proceedings in the same manner as is presently allowed in the circuit court of this State. All discovery proceedings must be concluded not later than three days prior to the commencement of the public hearing.
(3) The Commissioner may retain at the acquiring person's expense any attorneys, actuaries, accountants, and other experts not otherwise a part of the Commissioner's staff as may be reasonably necessary to assist the Commissioner in reviewing the proposed acquisition of control."
Exception to merger or acquisition
SECTION 7. Section 38-29-110 of the 1976 Code is amended to read:
"Section 38-29-110. The provisions of Sections 38-29-60 through 38-29-130 do not apply to:
(1) any transaction which is subject to the provisions of Sections 38-15-10 through 38-15-70 dealing with the merger or consolidation of two or more insurers.
(2) any offer, request, invitation, agreement, or acquisition which the Commissioner by order exempts therefrom as (a) not having been made or entered into for the purpose and not having the effect of changing or influencing the control of a domestic insurer, or (b) as otherwise not comprehended within the purposes of Sections 38-29-60 through 38-29-130."
Registration of members of insurance
SECTION 8. Section 38-29-140 of the 1976 Code is amended to read:
"Section 38-29-140. Every insurer authorized to do business in this State which is a member of an insurance holding company system must register with the Commissioner, except a foreign insurer subject to registration requirements and standards adopted by statute or regulation in the jurisdiction of its domicile which are substantially similar to those contained in this chapter. The insurer shall file a copy of the registration statement and summary of its registration statement as required by Sections 38-29-150 and 38-29-155 with the National Association of Insurance Commissioners.
The insurer shall also file a copy of the summary of its registration as required by Section 38-29-155 in each state in which that insurer is authorized to do business if requested by the Commissioner of that state. Any insurer which is subject to registration under this chapter shall register within fifteen days after it becomes subject to registration, and annually thereafter by March first of each year for the previous calendar year, unless the Commissioner for good cause shown extends the time for registration, and then within the extended time. The Commissioner may require any authorized insurer which is a member of a holding company system which 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 of its domiciliary jurisdiction."
SECTION 9. Section 38-29-150 of the 1976 Code is amended to read:
"Section 38-29-150. Every insurer subject to registration shall file the registration statement on a form prescribed by the National Association of Insurance Commissioners, which shall contain the following current information:
(1) the capital structure, general financial condition, ownership, and management of the insurer and any person controlling the insurer;
(2) the identity and relationship of every member of the insurance holding company system;
(3) the following agreements in force, and transactions currently outstanding or which have occurred during the last calendar year between such insurer and its affiliates:
(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) guarantees or undertakings for the benefit of an affiliate which 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) all management agreements, service contracts, and all cost-sharing arrangements;
(vi) reinsurance agreements;
(vii) dividends and other distributions to shareholders; and
(viii) consolidated tax allocation agreements.
(4) other matters concerning transactions between registered insurers and any affiliates as may be included in any registration forms adopted or approved by the Commissioner."
SECTION 10. Chapter 29 of Title 38 of the 1976 Code is amended by adding:
"Section 38-29-155. All registration statements shall contain a summary outlining all items in the current registration statement representing changes from the prior registration statement."
Reports of dividends and distributions
SECTION 11. Chapter 29 of Title 38 of the 1976 Code is amended by adding:
"Section 38-29-165. Subject to Section 38-29-260, each registered insurer shall report to the Commissioner all dividends and other distributions to shareholders within fifteen business days following the declaration thereof."
Insurance holding company to report
SECTION 12. Section 38-29-170 of the 1976 Code is amended to read:
"Section 38-29-170. Any persons within an insurance holding company system subject to registration are required to provide complete and accurate information to an insurer, where such information is reasonably necessary to enable the insurer to comply with the provisions of this chapter."
Insurers file registration statement
SECTION 13. Section 38-29-190 of the 1976 Code is amended to read:
"Section 38-29-190. The Commissioner may require or allow two or more affiliated insurers subject to registration hereunder to file a consolidated registration statement."
SECTION 14. Section 38-29-220 of the 1976 Code is amended to read:
"Section 38-29-220. The failure to file a registration statement or any summary of such registration statement as required by this chapter within the time specified for filing constitutes a violation of these sections."
Holding company system transactions,
SECTION 15. Section 38-29-240 of the 1976 Code is amended to read:
"Section 38-29-240. (1) Transactions within a holding company system to which an insurer subject to registration is a party are subject to the following standards:
(i) The terms must be fair and reasonable;
(ii) Charges or fees for services performed must be reasonable;
(iii) Expenses incurred and payment received must be allocated to the insurer in conformity with customary insurance accounting practices consistently applied;
(iv) The books, accounts, and records of each party to all transactions must be so maintained as to clearly and accurately disclose the nature and details of the transactions including such accounting information as is necessary to support the reasonableness of the charges or fees to the respective parties; and
(v) The insurer's surplus as regards policyholders following any dividends or distributions to shareholder affiliates must be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs.
(2) The following transactions involving a domestic insurer and any person in its holding company system must not be entered into unless the insurer has notified the Commissioner in writing of its intention to enter into the transaction at least thirty days prior thereto, or such shorter period as the Commissioner may permit, and the Commissioner has not disapproved it within such period:
(i) sales, purchases, exchanges, loans, or extensions of credit, guarantees, or investments if the transactions are equal to or exceed:
(a) with respect to nonlife insurers, the lesser of three percent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders;
(b) with respect to life insurers, three percent of the insurer's admitted assets, each as of the thirty-first day of December next preceding;
(ii) loans or extensions of credit to any person who is not an affiliate, where the insurer makes the loans or extensions of credit with the agreement or understanding that the proceeds of the transactions, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase assets of, or to make investments in, any affiliate of the insurer making the loans or extensions of credit provided such transactions are equal to or exceed:
(a) with respect to nonlife insurers, the lesser of three percent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders;
(b) with respect to life insurers, three percent of the insurer's admitted assets, each as of the thirty-first day of December next preceding;
(iii) reinsurance agreements or modifications thereto in which the reinsurance premium or a change in the insurer's liabilities equals or exceeds five percent of the insurer's surplus as regards policyholders, as of the thirty-first day of December next preceding, including those agreements which may require as consideration the transfer of assets from an insurer to a nonaffiliate, if an agreement or understanding exists between the insurer and nonaffiliate that any portion of such assets will be transferred to one or more affiliates of the insurer;
(iv) all management agreements, serve contracts, and all cost-sharing arrangements; and
(v) any material transactions, specified by regulation, which the Commissioner determines may adversely affect the interests of the insurer's policyholders.
Nothing herein authorizes or permits any transactions which, in the case of an insurer, not a member of the same holding company system, would be otherwise contrary to law.
(3) A domestic insurer may not enter into transactions, which are part of a plan or series of like transactions with persons within the holding company system, if the purpose of those separate transactions is to avoid the statutory threshold amount and thus avoid the review that would occur otherwise. If the Commissioner determines that such separate transactions were entered into over any twelve-month period for such purpose, he may exercise his authority under Section 38-29-330.
(4) The Commissioner, in reviewing transactions pursuant to subsection (2), shall consider whether the transactions comply with the standards set forth in subsection (1) and whether they may adversely affect the interests of policyholders.
(5) The Commissioner must be notified within thirty days of any investment of the domestic insurer in any one corporation if the total investment in the corporation by the insurance holding company system exceeds ten percent of the corporation's voting securities."
Determining adequacy of insurer's surplus
SECTION 16. Section 38-29-250 of the 1976 Code is amended to read:
"Section 38-29-250. For purposes of this chapter, in determining whether an insurer's surplus as regards policyholders is reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs, the following factors, among others, are considered:
(1) the size of the insurer as measured by its assets, capital and surplus, reserves, premium writings, insurance in force, and other appropriate criteria;
(2) the extent to which the insurer's business is diversified among the several lines of insurance;
(3) the number and size of risks insured in each line of business;
(4) the extent of the geographical dispersion of the insurer's insured risks;
(5) the nature and extent of the insurer's reinsurance program;
(6) the quality, diversification, and liquidity of the insurer's investment portfolio;
(7) the recent past and projected future trend in the size of the insurer's investment portfolio;
(8) the surplus as regards policyholders maintained by other comparable insurers;
(9) the adequacy of the insurer's reserves; and
(10) the quality and liquidity of investments in affiliates. The Commissioner may treat any such investment as a disallowed asset for purposes of determining the adequacy of surplus as regards policyholders whenever in his judgment such investment so warrants."
Extraordinary dividends or distributions
SECTION 17. Section 38-29-260 of the 1976 Code is amended to read:
"Section 38-29-260. No domestic insurer shall pay any extraordinary dividend or make any other extraordinary distribution to its shareholders until (i) thirty days after the Commissioner has received notice of the declaration thereof and has not within such period disapproved such payment, or (ii) the Commissioner has approved the payment within the thirty-day period.
For purposes of this section, an extraordinary dividend or distribution includes any dividend or distribution of cash or other property, whose fair market value together with that of other dividends or distributions made within the preceding twelve months exceeds (i) ten percent of such insurer's surplus as regards policyholders as of the thirty-first day of December next preceding, or (ii) the net gain from operations of such insurer, if the insurer is a life insurer, or the net income, if the insurer is not a life insurer, not including realized capital gains, for the twelve-month period ending the thirty-first day of December next preceding, but shall not include pro rata distributions of any class of the insurer's own securities. In determining whether a dividend or distribution is extraordinary, an insurer may carry forward income from the previous two calendar years that has not already been paid out as dividends.
An insurer may declare an extraordinary dividend or distribution which is conditional upon the Commissioner's approval. The declaration shall confer no rights upon shareholders until (i) the Commissioner has approved the payment of the dividend or distribution or (ii) the Commissioner has not disapproved the payment within the thirty-day period referred to above."
Commissioner may compel production
of records, etc.
SECTION 18. Section 38-29-270 of the 1976 Code is amended to read:
"Section 38-29-270. (a) In addition to all powers prescribed in this title relating to examinations or investigations, the Commissioner has the power to order any insurer registered under Sections 38-29-140 through 38-29-230 to produce records, books, or other information papers in the possession of the insurer or its affiliates as considered necessary to ascertain the financial condition or legality of conduct of the insurer. If the insurer fails to comply with the order, the Commissioner has, in addition to the powers prescribed in Section 38-29-330, the power to examine the affiliates to obtain the information.
(b) The Commissioner may retain at the registered insurer's expense such attorneys, actuaries, accountants, and other experts not otherwise a part of the Commissioner's staff as considered reasonably necessary to assist in the conduct of the examination under subsection (a). Any persons so retained must be under the direction and control of the Commissioner and shall act in a purely advisory capacity.
(c) Each registered insurer producing for examination records, books, and papers pursuant to subsection (a) is liable for and must pay the expense of the examination in accordance with Sections 38-5-1220 and 38-5-1240."
Records, etc., confidential
SECTION 19. Section 38-29-280 of the 1976 Code is amended to read:
"Section 38-29-280. All information, documents, and copies thereof obtained by or disclosed to the Commissioner or any other person in the course of an examination or investigation made pursuant to Section 38-29-270 and all information reported pursuant to Sections 38-29-140 through 38-29-230 must be given confidential treatment and is not subject to subpoena and must not be made public by the Commissioner, the National Association of Insurance Commissioners, or any other person, except to insurance departments of other states, without the prior written consent of the insurer to which it pertains unless the Commissioner, after giving the insurer and its affiliates who would be affected thereby, notice and opportunity to be heard, determines that the interests of policyholders, shareholders, or the public will be served by the publication thereof, in which event he may publish all or any part thereof in such manner as he considers appropriate."
SECTION 20. Section 38-29-330 of the 1976 Code is amended to read:
"Section 38-29-330. (a) Any insurer failing, without just cause, to file any registration statement or summary thereof as required in this chapter is required, after notice and hearing, to pay a penalty of one thousand dollars for each day's delay, to be recovered by the Commissioner and the penalty so recovered must be paid into the general fund of the State. The maximum penalty under this section is thirty thousand dollars. The Commissioner may reduce the penalty if the insurer demonstrates to the Commissioner that the imposition of the penalty would constitute a financial hardship to the insurer.
(b) Every director or officer of an insurance holding company system who knowingly violates, participates in, or assents to, or who knowingly permits any of the officers or agents of the insurer to engage in transactions or make investments which have not been properly reported or submitted pursuant to this chapter or which violate this chapter, shall pay, in their individual capacity, a civil forfeiture of not more than ten thousand dollars per violation, after notice and hearing before the Commissioner. In determining the amount of the civil forfeiture, the Commissioner shall take into account the appropriateness of the forfeiture with respect to the gravity of the violation, the history of previous violations, and other matters as justice may require.
(c) Whenever it appears to the Commissioner that any insurer subject to this chapter or any director, officer, employee, or agent thereof has engaged in any transaction or entered into a contract which is subject to Sections 38-29-240 through 38-29-260 and which would not have been approved had such approval been requested, the Commissioner may order the insurer to cease and desist immediately any further activity under that transaction or contract. After notice and hearing the Commissioner may also order the insurer to void any such contracts and restore the status quo if such action is in the best interest of the policyholders, creditors, or the public.
(d) Whenever it appears to the Commissioner that any insurer or any director, officer, employee, or agent thereof has committed a wilful violation of this chapter, the Commissioner may, in addition to other powers prescribed in this section, cause criminal proceedings to be instituted in the circuit court for the county in which the principal office of the insurer is located or if such insurer has no such office in the State, then in the circuit court for Richland County against such insurer or the responsible director, officer, employee, or agent thereof. Any insurer which wilfully violates the provisions of this chapter may be fined not more than fifty thousand dollars. Any individual who wilfully violates this chapter is guilty of a misdemeanor and shall be fined not to exceed ten thousand dollars or be imprisoned for a term not to exceed two years, or both.
(e) Any officer, director, or employee of an insurance holding company system who wilfully and knowingly subscribes to or makes or causes to be made any false statements or false reports or false filings with the intent to deceive the Commissioner in the performance of his duties under this chapter is guilty of a misdemeanor and, upon conviction, shall be imprisoned for not more than two years or fined ten thousand dollars or both. Any fines imposed must be paid by the officer, director, or employee in his individual capacity.
(f) Whenever it appears to the Commissioner that any insurer has committed a violation of this chapter, or that any person has committed a violation of this chapter which makes continued operation of the insurer contrary to the interests of policyholders or the public, the Commissioner may, after giving notice and an opportunity to be heard, determine to suspend, revoke, or refuse to renew such insurer's license or authority to do business in this State for such period as he finds is required for the protection of policyholders or the public. Any such determination must be accompanied by specific findings of fact and conclusions of law."
Commissioner may take possession of
property and conduct business of insurer
SECTION 21. Section 38-29-340 of the 1976 Code is amended to read:
"Section 38-29-340. Whenever it appears to the Commissioner that any person has committed a violation of this chapter which so impairs the financial condition of a domestic insurer as to threaten insolvency or make the further transaction of business by it hazardous to its policyholders, creditors, or the public, then the Commissioner may proceed as provided in Section 38-5-1810, et seq. to take possession of the property of such domestic insurer and to conduct the business thereof."
Receiver for liquidation or rehabilitation
of domestic insurer
SECTION 22. Section 38-29-350 of the 1976 Code is amended to read:
"Section 38-29-350. (a) If an order for liquidation or rehabilitation of a domestic insurer has been entered, the receiver appointed under the order has a right to recover on behalf of the insurer (i) from any parent corporation or holding company or person or affiliate who otherwise controlled the insurer, the amount of distributions (other than distributions of shares of the same class of stock) paid by the insurer on its capital stock, or (ii) any payment in the form of a bonus, termination settlement, or extraordinary lump sum salary adjustment made by the insurer or its subsidiary to a director, officer, or employee, where the distribution or payment pursuant to (i) or (ii) is made at any time during the one year preceding the petition for liquidation, conservation, or rehabilitation, as the case may be, subject to the limitations of subsections (b), (c), and (d).
(b) No such distribution may be recoverable if the parent or affiliate shows that when paid the distribution was lawful and reasonable and that the insurer did not know and could not reasonably have known that the distribution might adversely affect the ability of the insurer to fulfill its contractual obligations.
(c) Any person who was a parent corporation or holding company or a person who otherwise controlled the insurer or affiliate at the time the distributions were paid is liable up to the amount of distributions or payments under subsection (a). Any person who otherwise controlled the insurer at the time the distributions were declared is liable up to the amount of distributions he would have received if they had been paid immediately. If two or more persons are liable with respect to the same distributions, they are jointly and severally liable.
(d) The maximum amount recoverable under this section is the amount needed in excess of all other available assets of the impaired or insolvent insurer to pay the contractual obligations of the impaired or insolvent insurer and to reimburse any guaranty funds.
(e) To the extent that any person liable under subsection (c) is insolvent or otherwise fails to pay claims due from it pursuant to such subsection, its parent corporation or holding company or person who otherwise controlled it at the time the distribution was paid is jointly and severally liable for any resulting deficiency in the amount recovered from the parent corporation or holding company or person who otherwise controlled it."
SECTION 23. Section 38-29-100 of the 1976 Code is repealed.
SECTION 24. This act shall take effect October 1, 1986.