I

103D CONGRESS

1ST SESSION H. R. 1290

To ensure the financial soundness and solvency of insurers, and for other

purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 10, 1993

Mr. DINGELL introduced the following bill; which was referred to the

Committee on Energy and Commerce

NOVEMBER 22, 1993

Additional sponsors: Ms. MARGOLIES-MEZVINSKY, Mr. DE LUGO, Mr. HASTINGS, Mr. COLEMAN, Mr. ROMERO-BARCELO ́, and Miss COLLINS of

Michigan

A BILL

To ensure the financial soundness and solvency of insurers,

and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Federal Insurance Solvency Act of 1993’’.

6 (b) TABLE OF CONTENTS.—
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TITLE I—ESTABLISHMENT OF FEDERAL INSURANCE SOLVENCY

COMMISSION

Sec. 101. Establishment.

Sec. 102. Duties of Commission.

Sec. 103. Membership.

Sec. 104. Staff of Commission; experts and consultants.

Sec. 105. Offices and place of meeting.

Sec. 106. Powers of commission.

Sec. 107. Evaluations of insolvent insurers and reinsurers.

Sec. 108. Referral to enforcement authorities; data base on violations.

Sec. 109. Reports.

Sec. 110. Federal Insurance Regulation Advisory Committee.

Sec. 111. Fees.

Sec. 112. Authorization of appropriations.

Sec. 113. Budget Act compliance.

TITLE II—NATIONAL STANDARDS FOR THE FINANCIAL CONDITION OF INSURERS IN INTERSTATE COMMERCE AND FEDERAL

CERTIFICATES OF SOLVENCY FOR INSURERS

Sec. 201. National standards for the financial soundness and solvency of insurers in interstate commerce.

Sec. 202. Authority to issue Federal certificates of solvency.

Sec. 203. Criteria for the national standards for financial soundness and solvency.

Sec. 204. Surplus lines approval for federally certified insurers.–

Sec. 205. Membership in National Insurance Protection Corporation.

Sec. 206. Suspension and revocation of Federal certificate of solvency or State

insurance license.

Sec. 207. Relationship of federally certified insurers to State insurance regulation.

TITLE III—FEDERAL CERTIFICATES TO PROVIDE REINSURANCE

Sec. 301. Federal Insurance Solvency Commission authority to certify providers

of reinsurance.

Sec. 302. Certification of professional reinsurers.

Sec. 303. Certificate for other providers of reinsurance.

Sec. 304. Suspension and revocation of Federal certificate to provide reinsurance.

Sec. 305. Credit for reinsurance.

Sec. 306. Relationship to State law.

Sec. 307. Construction.

TITLE IV—REGULATORY ENFORCEMENT

Sec. 401. Authority to conduct financial examinations of insurers and reinsurers.

Sec. 402. Procedures for financial examination of insurers and reinsurers.

Sec. 403. Accounting standards and independent accountants.

Sec. 404. Actuaries.

Sec. 405. Registration of insurers and reinsurers in holding companies.

Sec. 406. Acquisition of control of or merger with insurer or reinsurer.

Sec. 407. Special circumstances as to the acquisition of a federally certified insurer or reinsurer.
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Sec. 408. Transactions within a holding company system that includes an insurer or reinsurer.

Sec. 409. Penalties and enforcement.

Sec. 410. Federal insurer and reinsurer employee protection remedy.

TITLE V—NATIONAL INSURANCE PROTECTION CORPORATION

Sec. 501. National Insurance Protection Corporation.

Sec. 502. Purpose.

Sec. 503. Relationship to the Federal Government.

Sec. 504. Membership.

Sec. 505. Corporate powers.

Sec. 506. Board of directors.

Sec. 507. Chairperson and vice chairperson.

Sec. 508. Officers.

Sec. 509. Meetings of Board.

Sec. 510. Bylaws and rules.

Sec. 511. Consultation with the Federal Insurance Solvency Commission.

Sec. 512. NIPC fund.

Sec. 513. Scope of guaranty.

Sec. 514. Assessments.

Sec. 515. Borrowing authority.

Sec. 516. Functions of the Federal Insurance Solvency Commission.

Sec. 517. Notice to Commission of changes in conditions in insurance markets.

Sec. 518. Liability of the member insurers.

Sec. 519. Liability of NIPC and its directors, officers, and employees.

Sec. 520. Advertising.

Sec. 521. Improvement of insolvency prevention and detection.

Sec. 522. Guarantee obligation of NIPC.

Sec. 523. Effect of paid claims.

Sec. 524. Nonduplication of payment of claims.

Sec. 525. Reports on payment of claims.

Sec. 526. Stay of proceedings.

Sec. 527. Judicial review.

TITLE VI—NATIONAL ASSOCIATION OF REGISTERED AGENTS

AND BROKERS

Sec. 601. National association of registered agents and brokers.

Sec. 602. Purpose.

Sec. 603. Relationship to the Federal Government.

Sec. 604. Membership.

Sec. 605. Corporate powers.

Sec. 606. Board of directors.

Sec. 607. Chairperson and vice chairperson.

Sec. 608. Officers.

Sec. 609. Meetings of Board.

Sec. 610. Bylaws, rules, and disciplinary action.

Sec. 611. Consultation with the Federal Insurance Solvency Commission.

Sec. 612. Borrowing authority.

Sec. 613. Assessments.

Sec. 614. Functions of the Federal Insurance Solvency Commission.

Sec. 615. Liability of narab and its directors, officers, and employees.

Sec. 616. Relationship to State law.

Sec. 617. Coordination with other regulators.

Sec. 618. Judicial review.
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TITLE VII—REHABILITATION AND LIQUIDATION

Sec. 701. Jurisdiction.

Sec. 702. Petition for appointment.

Sec. 703. Order appointing commission receiver.

Sec. 704. Effect of order.

Sec. 705. Applicability of receivership to foreign insurers and reinsurers.

Sec. 706. Injunctions and orders.

Sec. 707. Actions by and against the receiver.

Sec. 708. Jurisdiction over actions by and against receiver; transfer.

Sec. 709. Expenses of establishing receivership.

Sec. 710. Proceedings against culpable persons.

Sec. 711. Special deposits.

Sec. 712. Audits.

Sec. 713. Standing of guaranty associations.

Sec. 714. Prohibited and voidable transfers prior to petition for receivership.

Sec. 715. Voidable preferences to culpable officers.

Sec. 716. Fraudulent transfer after petition for receivership.

Sec. 717. Claims of holders of voidable transfers.

Sec. 718. Cooperation of an insurer’s or reinsurer’s officers, owners, and employees.

Sec. 719. Administrative seizure.

Sec. 720. Grounds for rehabilitation.

Sec. 721. Rehabilitation orders.

Sec. 722. Powers and duties of the receiver in rehabilitation.

Sec. 723. Termination of rehabilitation.

Sec. 724. Grounds for liquidation.

Sec. 725. Liquidation orders.

Sec. 726. Continuance of coverage.

Sec. 727. Dissolution of an insurer or reinsurer.

Sec. 728. Powers of the liquidator.

Sec. 729. Notice to creditors and others.

Sec. 730. Duties of agents.

Sec. 731. Setoffs.

Sec. 732. Obligation of a reinsurer.

Sec. 733. Reinsurer’s liability.

Sec. 734. Recovery of premiums owed.

Sec. 735. Receiver’s proposal to distribute assets.

Sec. 736. Filing of claims.

Sec. 737. Proof of claim.

Sec. 738. Contingent and immature claims.

Sec. 739. Valuation of claims.

Sec. 740. Disputed claims.

Sec. 741. Claims of surety.

Sec. 742. Secured creditors’ claims.

Sec. 743. Priority of distribution.

Sec. 744. Receiver’s recommendations to the court.

Sec. 745. Distribution of assets.

Sec. 746. Unclaimed and withheld funds.

Sec. 747. Termination of proceedings.

Sec. 748. Disposition of records during and after termination of receivership.

Sec. 749. Transition period.

TITLE VIII—DEFINITIONS

Sec. 801. Definitions.
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TITLE IX—TECHNICAL AND CONFORMING AMENDMENTS

Sec. 901. Executive schedule technical and conforming amendments.

1 TITLE I—ESTABLISHMENT OF

2 FEDERAL INSURANCE SOL3 VENCY COMMISSION

4 SEC. 101. ESTABLISHMENT.

5 There is established an independent regulatory agen6 cy to be known as the ‘‘Federal Insurance Solvency Com7 mission’’ (hereinafter in this Act referred to as the ‘‘Com8 mission’’).

9 SEC. 102. DUTIES OF COMMISSION.

10 The Commission shall—

11 (1) establish national, preemptive standards to

12 ensure the financial soundness and solvency of all in13 surers in interstate commerce;

14 (2) regulate insurers that obtain federal sol15 vency certificates for compliance with the national

16 standards for financial soundness and solvency es17 tablished under paragraph (1) and transmit to each

18 State such standards so that each State will apply

19 such standards to each insurer that is under its reg20 ulatory jurisdiction that is in interstate commerce

21 and that is not federally certified;

22 (3) establish procedures for financially sound

23 insurers to apply to the Commission for a Federal
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1 certificate of solvency to engage in the business of

2 insurance;

3 (4) consider the applications for, and issue and

4 renew on an annual basis, Federal certificates of sol5 vency to each qualified insurer in interstate com6 merce that meets the financial soundness and sol7 vency standards established by the Commission;

8 (5) establish standards to ensure the financial

9 soundness and solvency of federally certified reinsur10 ers and the collectibility of reinsurance recoverables

11 by United States ceding reinsurers with due consid12 eration to the public interest in providing secure ca13 pacity to the United States insurance marketplace;

14 (6) establish procedures for reinsurers to apply

15 to the Commission for a Federal certificate of sol16 vency to provide reinsurance for insurance on risks

17 written in the United States;

18 (7) consider the applications for, and issue and

19 renew on an annual basis, a Federal certificate to a

20 reinsurer that meet the standards established by the

21 Commission;

22 (8) determine whether State laws, rules, regula23 tions, orders, or actions are preempted by this Act;

24 (9) establish procedures for monitoring the fi25 nancial condition and solvency of insurers and rein-
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1 surers under this Act, and for determining if such

2 insurers and reinsurers may be financially impaired

3 or insolvent;

4 (10) establish standards and procedures to in5 tervene in the conduct of affairs of an insurer or re6 insurer under this Act if such insurer or reinsurer

7 becomes such that further transaction of business

8 will be hazardous to United States policyholders or

9 creditors or to the public and transmit such stand10 ards to each State for the State to follows as to in11 surers subject to State regulation for financial condi12 tion;

13 (11) take appropriate steps to address the fi14 nancial impairment of any insurer or reinsurer fed15 erally certified under this Act and act as the receiver

16 in the event such insurer or reinsurer requires either

17 rehabilitation or liquidation;

18 (12) oversee the activities of the National In19 surance Protection Corporation, including review of

20 the Corporation’s bylaws and rules and consultation

21 with the Corporation concerning appropriate finan22 cial soundness and solvency standards and the im23 plementation of such standards;
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1 (13) oversee the activities of the National Asso2 ciation of Registered Agents and Brokers, including

3 review of the Association’s bylaws and rules; and

4 (14) conduct, on an ongoing basis, studies and

5 research on any matter that may affect the financial

6 condition and solvency of the insurance industry in

7 the United States.

8 SEC. 103. MEMBERSHIP.

9 (a) NUMBER AND APPOINTMENT.—The Commission

10 shall be composed of 5 members appointed by the Presi11 dent by and with the advise and consent of the Senate.

12 (b) POLITICAL AFFILIATION.—Not more than 3

13 members appointed under subsection (a) may be of the

14 same political party.

15 (c) RESTRICTION ON OTHER EMPLOYMENT.—A

16 Commissioner shall not engage in any business, vocation,

17 or employment other than serving as a Commissioner.

18 (d) TERMS.—

19 (1) IN GENERAL.—Each member shall be ap20 pointed for a term of 6 years except as provided in

21 paragraphs (2) and (3).

22 (2) TERMS OF INITIAL APPOINTEES.—As des23 ignated by the President at the time of appointment,

24 members first appointed shall be appointed as

25 follows:
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1 (A) 1 shall be appointed for a term of 2

2 years.

3 (B) 2 shall be appointed for a term of 4

4 years.

5 (C) 2 shall be appointed for a term of 6

6 years.

7 (3) VACANCIES.—Any member appointed to fill

8 a vacancy occurring before the expiration of the

9 term for which the member’s predecessor was ap10 pointed shall be appointed only for the remainder of

11 that term. A member may serve after the expiration

12 of that member’s term until a successor has taken

13 office.

14 (e) QUORUM.—A majority of the members of the

15 Commission shall constitute a quorum but a lesser number

16 may hold hearings.

17 (f) CHAIRPERSON; VICE CHAIRPERSON.—The Chair18 person and Vice Chairperson of the Commission shall be

19 designated by the President at the time of the appoint20 ment or from among the sitting members of the Commis21 sion at such time as the post becomes vacant. The Chair22 person shall have executive authority within the Commis23 sion, including the authority to employ and direct the per24 sonnel of the Commission, other than personnel employed
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1 regularly and full time in the immediate offices of commis2 sioners other than the chairperson.

3 (g) APPLICABILITY OF THE ADMINISTRATIVE PROCE4 DURE ACT.—The Commission shall be an agency of the

5 United States for purposes of subchapter II of chapter 5

6 and chapter 7 of title 5, United States Code.

7 SEC. 104. STAFF OF COMMISSION; EXPERTS AND CONSULT8 ANTS.

9 (a) STAFF.—The Commission is authorized to ap10 point and fix the compensation of such officers, attorneys,

11 examiners, and other experts as may be necessary for car12 rying out its functions under this chapter, and the Com13 mission may, subject to the civil service laws, appoint such

14 other officers and employees as are necessary in the execu15 tion of its functions and fix their salaries without regard

16 to chapter 51 and subchapter III of chapter 53 of title

17 5, United States Code.

18 (b) EXPERTS AND CONSULTANTS.—Subject to rules

19 prescribed by the Commission, the Commission may pro20 cure temporary and intermittent services under section

21 3109(b) of title 5, United States Code.

22 SEC. 105. OFFICES AND PLACE OF MEETING.

23 The principal office of the Commission shall be in the

24 city of Washington, District of Columbia, but it may meet

25 and exercise its powers in any other place.
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1 SEC. 106. POWERS OF COMMISSION.

2 (a) IN GENERAL.—The Commission shall have the

3 power to carry out all duties and authority specifically

4 granted by this Act, and such incidental powers as shall

5 be necessary to carry out the powers so granted.

6 (b) RULES AND REGULATIONS.—The Commission

7 shall promulgate rules and regulations under chapter 5 of

8 title 5, United States Code, necessary to carry out its re9 sponsibilities under this Act. The Commission is encour10 aged to follow the procedures of subchapter III of chapter

11 5 of title 5, United States Code (5 U.S.C. 561 et seq.),

12 where appropriate.

13 (c) HEARINGS AND PROCEEDINGS.—The Commission

14 may, for the purpose of carrying out this Act, hold hear15 ings, sit and act at times and places, take testimony, and

16 receive evidence as the Commission considers appropriate.

17 The Commission may administer oaths or affirmations to

18 witnesses appearing before it. Proceedings regarding cer19 tificates and penalties shall be conducted pursuant to sec20 tion 554 of chapter 5 of title 5, United States Code. The

21 Commission is encouraged to follow the procedures of sub22 chapter IV of title 5, United States Code (5 U.S.C. 571

23 et seq.), where appropriate.

24 (d) DELEGATION OF FUNCTIONS BY COMMISSION.—

25 (1) In addition to its existing authority, the Commission

26 shall have the authority to delegate, by published order
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1 or rule, any of its functions to a division of the Commis2 sion, an individual Commissioner, an administrative law

3 judge, or an employee or employee board, including func4 tions with respect to hearing, determining, ordering, cer5 tifying, reporting, or otherwise acting as to any work,

6 business, or matter. Nothing in this subsection shall be

7 deemed to supersede section 556(b) of title 5 or to author8 ize the delegation of the function of rulemaking as defined

9 in subchapter II of chapter 5 of title 5, United States

10 Code, with reference to general rules as distinguished from

11 rules of particular applicability or of the making of any

12 rule pursuant to title V or VI of this Act.

13 (2) With respect to the delegation of any of its func14 tions, as provided in paragraph (1) of this subsection, the

15 Commission shall retain a discretionary right to review the

16 action of any such division of the Commission, individual

17 Commissioner, administrative law judge, employee, or em18 ployee board, upon its own initiative or upon petition of

19 a party to or an intervenor in such action, within such

20 time and in such manner as the Commission by rule shall

21 prescribe. The vote of 1 member of the Commission shall

22 be sufficient to bring any such action before the Commis23 sion for review. A person or party shall be entitled to re24 view by the Commission if such person or party is

25 adversely affected by action at a delegated level which
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1 imposes a penalty or removes or refuses to grant a

2 certificate.

3 (3) If the right to exercise such review is declined,

4 or if no such review is sought within the time stated in

5 the rules promulgated by the Commission, then the action

6 of any such division of the Commission, individual Com7 missioner, administrative law judge, employee, or em8 ployee board, shall, for all purposes, including appeal or

9 review thereof, be deemed the action of the Commission.

10 (e) SUBPOENA POWER.—

11 (1) IN GENERAL.—The Commission may issue

12 subpoenas requiring the attendance and testimony of

13 witnesses and the production of any evidence relat14 ing to any matter under investigation by the Com15 mission. The attendance of witnesses and the pro16 duction of evidence may be required from any place

17 within the United States at any designated place of

18 hearing within the United States. The Commission

19 may not delegate this authority.

20 (2) ENFORCEMENT OF A SUBPOENA.—A sub21 poena issued by the Commission shall be subject to

22 enforcement pursuant to section 555 of title 5,

23 United States Code.

24 (3) SERVICE OF SUBPOENAS.—The subpoenas

25 of the Commission shall be served in the manner
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1 provided for subpoenas issued by a United States

2 district court under the Federal Rules of Civil Pro3 cedure for the United States district courts.

4 (4) SERVICE OF PROCESS.—All process of any

5 court to which application is made under paragraph

6 (2) may be served in the judicial district in which

7 the person required to be served resides or may be

8 found.

9 (f) JUDICIAL REVIEW OF COMMISSION ACTIONS.—

10 (1) Rules and regulations promulgated by the

11 Commission shall be subject to judicial review in the

12 Court of Appeals for the District of Columbia

13 Circuit.

14 (2) Orders issued by the Commission shall be

15 subject to judicial review in the appropriate circuit

16 court of appeals or in the circuit court of appeals in

17 which the petitioner resides or has its principal place

18 of business.

19 (3) Judicial review of both regulations and or20 ders, including the scope of review, shall otherwise

21 be governed by chapter 7 of title 5 and by title 28,

22 United States Code.

23 (g) SEAL.—The Commission shall have an official

24 seal which shall be judicially noticed.
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1 SEC. 107. EVALUATIONS OF INSOLVENT INSURERS AND RE2 INSURERS.

3 The Commission shall investigate each insolvent in4 surer or reinsurer which holds a Federal certificate of sol5 vency to determine the causes of the insolvency. The Com6 mission may also investigate the insolvencies of any other

7 insurers if such are relevant to establishing standards for

8 sound financial condition and solvency by the Commission

9 or if they are relevant to the financial condition of the

10 insurance industry in the United States. These investiga11 tions shall include a review of the insurer’s or reinsurer’s

12 records, as well as interviews with persons having knowl13 edge of the operations of the insurer or reinsurer. The

14 Corporation shall issue a report on the causes of insolven15 cies at such times that it determines to be appropriate.

16 SEC. 108. REFERRAL TO ENFORCEMENT AUTHORITIES;

17 DATA BASE ON VIOLATIONS.

18 (a) REFERRALS.—The Commission shall refer to the

19 Department of Justice or to the appropriate State enforce20 ment authorities any information or matters which it de21 termines warrant investigation for possible civil or crimi22 nal enforcement action.

23 (b) DATA BASE.—The Commission shall establish, by

24 regulation, procedures and standards for creating a data

25 base for information regarding persons who have been

26 convicted of a crime or administratively disciplined for in-
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1 surance related activity, or who have been senior officers

2 or directors of insolvent insurers or reinsurers. The Com3 mission shall maintain and regularly update this data

4 base. Information contained in this system shall be shared

5 with appropriate State and Federal regulators and law en6 forcement officials. Each federally certified insurer and re7 insurer shall, as a condition of continued certification,

8 fully cooperate with the Commission’s implementation of

9 the data base. Each insurer regulated for financial condi10 tion by a State shall, as a condition of obtaining a State

11 insurance license, similarly cooperate with the Commis12 sion.

13 SEC. 109. REPORTS.

14 (a) ANNUAL AND OTHER REPORTS.—The Commis15 sion shall submit to the President and the Congress an

16 annual report and such additional reports and rec17 ommendations as the Commission considers appropriate.

18 (b) BUDGET ESTIMATES AND REQUESTS.—Whenever

19 the Commission submits any budget estimate or request

20 to the President or the Office of Management and Budget,

21 it shall concurrently transmit a copy of that estimate or

22 request to Congress.

23 (c) LEGISLATIVE MATTERS.—Whenever the Commis24 sion submits any legislative recommendations, or testi25 mony or comments on legislation to the President or the
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1 Office of Management and Budget, it shall concurrently

2 transmit a copy thereof to the Congress. No officer or

3 agency of the United States shall have any authority to

4 require the Commission to submit its legislative rec5 ommendations, or testimony or comments on legislation

6 to any officer or agency of the United States for approval,

7 comments, or review prior to the submission of such rec8 ommendations, testimony, or comments to the Congress.

9 SEC. 110. FEDERAL INSURANCE REGULATION ADVISORY

10 COMMITTEE.

11 (a) ESTABLISHMENT.—There is established the Fed12 eral Insurance Regulation Advisory Committee (herein13 after referred to in this section as the ‘‘Committee’’).

14 (b) MEMBERSHIP.—The Committee shall consist of

15 25 members appointed by the Commission. The Commis16 sion shall select those who can best represent the various

17 segments of the insurance industry and the interests of

18 the public and consumers so that the committee will pro19 vide a range of information and perspectives that will be

20 helpful to the Commission in carrying out its responsibil21 ities. Such members shall be appointed by the Commission

22 as follows:

23 (1) 5 members who are fairly representative of

24 the various types and sizes of certified insurers and
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1 who adequately represent the significant segments of

2 the marketplace;

3 (2) 5 members who are fairly representative of

4 the types and sizes of certified reinsurers and who

5 adequately represent the significant segments of the

6 marketplace;

7 (3) 5 members who are fairly representative of

8 the types and sizes of insurance agents and brokers

9 and who adequately represent significant segments

10 of the marketplace;

11 (4) 5 members from among the State insurance

12 regulators; and

13 (5) 5 members from among individuals who

14 shall represent the public interest.

15 (c) VACANCIES.—Any vacancy on the Committee

16 shall be filled in the same manner in which the original

17 appointment was made.

18 (d) PAY AND EXPENSES.—Members of the Commit19 tee shall serve without pay, but each member shall be re20 imbursed, in such manner as the Commission shall pre21 scribe by regulation, for expenses incurred in connection

22 with attendance of such members at meetings of the

23 Committee.

24 (e) TERMS.—Members shall be appointed for terms

25 of 3 years.
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1 (f) AUTHORITY OF THE COMMITTEE.—The Commit2 tee may select its Chairperson, Vice Chairperson, and Sec3 retary, and adopt methods of procedure, and shall have

4 power—

5 (1) to confer with the Commission on general

6 and special business conditions and regulatory and

7 other matters affecting insurance and reinsurance,

8 and

9 (2) to request information, and to make rec10 ommendations, with respect to matters within the

11 jurisdiction of the Commission.

12 (g) MEETINGS.—The Committee shall meet 2 times

13 each year, and more frequently if requested by the

14 Commission.

15 (h) REPORTS.—The Committee shall submit an an16 nual written report to the Commission and to the Commit17 tee on Energy and Commerce of the House and the Com18 mittee on of the Senate. Such report shall describe the

19 activities of the Committee for such annual period and

20 contain such recommendations as the Committee considers

21 appropriate. The Committee may submit such other re22 ports as it determines necessary.

23 (i) PROVISION OF STAFF AND OTHER RESOURCES.—

24 The Commission shall provide the Committee with the use

25 of such resources, including staff, as the Committee rea-
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1 sonably shall require to carry out its duties, including the

2 preparation and submission of reports to Congress, under

3 this section.

4 (j) FEDERAL ADVISORY COMMITTEE ACT.—The

5 Federal Advisory Committee Act shall apply to the

6 Committee.

7 SEC. 111. FEES.

8 (a) GENERAL AUTHORITY.—(1) The Commission, in

9 accordance with this section, shall assess and collect an

10 annual fee to be paid by applicants for certificates issued

11 by the Commission and by holders of such certificates to

12 recover the costs of such certification activities of the

13 Commission. It shall also assess and collect fees to cover

14 the costs of any specific other services and activities it pro15 vides to such applicants and to other persons.

16 (2) The total fees charged to a federally certified in17 surer or reinsurer or applicant for a Federal solvency cer18 tificate shall not exceed, on an annual basis—

(A) for insurers, 1 19 ⁄4 of one percent of the sum

20 of the net direct written premiums; or

(B) for reinsurers, 1 21 ⁄8 of one percent of net re22 insurance premium.

23 (3) Prior to establishing the fees described in para24 graph (1), the Commission shall obtain the views of feder25 ally certified insurers and reinsurers concerning the pro-
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1 posed formula or method for calculating fees, the proposed

2 amount, and the proposed timing or schedule for assess3 ment.

4 (4) The commission shall ensure that the schedule for

5 fees allows small, financially sound insurers and reinsurers

6 to apply for and maintain Federal certificates of solvency.

7 (b) FEES CONTINGENT ON APPROPRIATIONS.—The

8 fees described in subsection (a) shall be collected only if,

9 and only in the total amounts provided in appropriation

10 Acts.

11 (c) ESTABLISHMENT AND ADJUSTMENT OF FEES.—

12 The fees assessed under subsection (a) shall be estab13 lished, in accordance with subsection (a)(2), at amounts

14 that will result in collection, during each fiscal year follow15 ing the first 2 years of operation of the Commission, of

16 an amount equal to the amount appropriated for such fis17 cal year for the performance of the activities described in

18 subsection (a).

19 (d) NOTICE TO CONGRESS.—The Commission shall

20 annually transmit to Congress a notification of the fees

21 assessed pursuant to subsection (a) not later than 90 days

22 before the effective date of such fees. This notification

23 shall include an explanation of the estimates and calcula24 tion upon which the fees are based and the management

25 plan of the Commission which shows that the fees will
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1 produce sufficient revenue to support the cost of the activi2 ties for which they are assessed.

3 (e) PENALTIES FOR LATE PAYMENT.—

4 (1) IN GENERAL.—The Commission shall assess

5 as a penalty for late payment of fees required by

6 subsection (a) 25 percent of the amount of the

7 charge which was not paid in a timely manner.

8 (2) DISMISSAL OF APPLICATIONS OR FIL9 INGS.—The Commission may dismiss any applica10 tion or other filing for failure to pay in a timely

11 manner any fee or penalty assessed by the Commis12 sion.

13 (3) REVOCATIONS.—The Commission may re14 voke any certificate held by any insurer or reinsurer

15 that has failed to make payment of a fee or penalty

16 assessed pursuant to this section. Such revocation

17 action may be taken by the Commission after notice

18 of the Commission’s intent to take such action is

19 sent to the holder of the certificate by registered

20 mail, return receipt requested, at the insurer’s or re21 insurer’s last known address. The notice will provide

22 the entity at least 30 days to either pay the fee or

23 penalty or show cause why the fee or penalty does

24 not apply or should otherwise be waived or payment

25 deferred. The opportunity for a hearing on the
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1 record is not required under this paragraph unless

2 the response presents a substantial and material

3 question of fact. Unless the insurer or reinsurer sub4 stantially prevails in the hearing, the Commission

5 may assess a fee for the costs of such hearing. Any

6 Commission order adopted pursuant to this sub7 section shall determine the amount due, if any, and

8 provide the insurer or reinsurer with at least 30

9 days to pay that amount or have its authorization

10 revoked. No order of revocation under this sub11 section shall become final until the insurer or rein12 surer has exhausted its right to judicial review of

13 such order under chapter 7 of title 5, United States

14 Code.

15 (f) COLLECTION OF DELINQUENT FEES AND PEN16 ALTIES.—

17 (1) IN GENERAL.—The Commission may re18 cover the amount of any unpaid fee or penalty law19 fully payable to the Commission.

20 (2) STATUTE OF LIMITATIONS.—No action or

21 proceeding shall be brought for the recovery of any

22 fee or penalty due to the Commission, or for the re23 covery of any amount paid to the Commission, in ex24 cess of the amount due to it, unless such action or
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1 proceeding shall have been brought within 5 years

2 after the right accrued for which the claim is made.

3 (g) WAIVER AND DEFERMENT.—The Commission

4 may waive or defer payment of a fee in any specific in5 stance for good cause shown, where such action would pro6 mote the public interest.

7 (h) DEPOSIT OF COLLECTIONS.—Moneys received

8 from fees established under this section shall be deposited

9 as an offsetting collection in, and credited to, the account

10 providing appropriations for the Commission, and shall re11 main available until expended. No fees may be so depos12 ited for any fiscal year unless funds are authorized to be

13 appropriated for such fiscal year pursuant to this Act.

14 (i) REGULATIONS.—

15 (1) IN GENERAL.—The Commission shall pre16 scribe appropriate regulations to carry out this sec17 tion.

18 (2) TIME FOR PAYMENT.—Such regulations

19 shall require the payment of fees at the beginning of

20 the fiscal year for which such fees are in effect or

21 at such other time during the fiscal year as the

22 Commission may determine in accordance with the

23 efficient operation of the Commission. Such regula24 tions shall permit payment by installments in the

25 case of fees in large amounts.
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1 (3) MULTIPLE-YEAR PAYMENTS.—If the Com2 mission determines that, because of the small

3 amount of fee involved relative to the cost of annual

4 collection, it would be inefficient to collect any fee

5 each year, such regulations may also require the

6 payment of the fee in advance for a number of

7 years.

8 (j) LIMITATION ON JUDICIAL REVIEW.—The fees es9 tablished by the Commission under this section shall not

10 be subject to judicial review.

11 SEC. 112. AUTHORIZATION OF APPROPRIATIONS.

12 (a) IN GENERAL.—There is authorized to be appro13 priated for the operations and expenses of the Commission

14 for each of fiscal years 1994 through 1999 the sum of

15 $300,000,000 to carry out this Act.

16 (b) REHABILITATION AND LIQUIDATION EX17 PENSES.—In addition to the sums authorized to be appro18 priated by subsection (a), there are authorized to be ap19 propriated such sums as may be necessary to carry out

20 the Commission’s responsibilities as receiver in

21 rehabilitations and liquidations under this Act. These

22 sums shall be repaid to the Commission from the estate

23 of the insurer or reinsurer as provided in this Act.
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1 SEC. 113. BUDGET ACT COMPLIANCE.

2 Any spending authority (as defined in subparagraphs

3 (A) and (C) of section 401(c)(2) of the Congressional

4 Budget Act of 1974 (2 U.S.C. 651(c)(2)(A) and (C))) au5 thorized by this Act shall be effective only to such extent

6 and in such amounts as are provided in appropriation

7 Acts.

8 TITLE II—NATIONAL STAND9 ARDS FOR THE FINANCIAL

10 CONDITION OF INSURERS IN

11 INTERSTATE COMMERCE AND

12 FEDERAL CERTIFICATES OF

13 SOLVENCY FOR INSURERS

14 SEC. 201. NATIONAL STANDARDS FOR THE FINANCIAL

15 SOUNDNESS AND SOLVENCY OF INSURERS IN

16 INTERSTATE COMMERCE.

17 (a) AUTHORITY.—The Commission shall establish

18 national standards for the financial soundness and sol19 vency of all insurers in interstate commerce in accordance

20 with the criteria set forth in section 203.

21 (b) ENFORCEMENT.—

22 (1) IN GENERAL.—The Commission shall regu23 late the financial condition of insurers in interstate

24 commerce that obtain a Federal certificate of sol25 vency under the standards established under sub26 section (a). No State insurance regulatory agency
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1 may regulate the financial condition of such an in2 surer.

3 (2) STATE ENFORCEMENT.—The State regu4 latory agency shall regulate the financial condition

5 of each insurer in interstate commerce that holds an

6 insurance license in the State of such agency if the

7 insurer does not obtain a Federal certificate of sol8 vency. Such agency shall apply the standards estab9 lished under subsection (a) in regulating such insur10 ers and may not impose additional or different

11 standards on such insurers. In enforcing such stand12 ards, the State regulatory agency shall follow the in13 terpretative and enforcement guidelines established

14 by the Commission for such standards.

15 SEC. 202. AUTHORITY TO ISSUE FEDERAL CERTIFICATES

16 OF SOLVENCY.

17 The Commission is authorized to issue a Federal cer18 tificate of solvency to an insurer pursuant to the financial

19 standards and procedures adopted by the Commission if

20 the Commission determines that the insurer meets such

21 standards. This authority is intended to establish strong

22 and effective financial standards for federally certified in23 surers; to ensure that such insurers are closely monitored

24 by the Commission for compliance with these standards;

25 and to enable the Commission to identify financial prob-
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1 lems at the earliest possible stage and intervene to prevent

2 harm to policyholders and the public.

3 SEC. 203. CRITERIA FOR THE NATIONAL STANDARDS FOR

4 FINANCIAL SOUNDNESS AND SOLVENCY.

5 (a) CRITERIA FOR NATIONAL STANDARDS FOR DO6 MESTIC INSURERS.—

7 (1) IN GENERAL.—The Commission shall estab8 lish, by regulation, the criteria for the national

9 standards for financial soundness and solvency

10 which are to be established under section 201 and

11 which are to be met by domestic insurers, including

12 the United States branches of foreign insurers. Such

13 criteria shall include—

14 (A) net worth requirements and other fi15 nancial standards based on financial analysis

16 appropriate to maintaining reasonable net

17 worth for the various types of insurers and the

18 different types of risks;

19 (B) appropriate criteria for accounting and

20 valuation of investments, reserves, and other as21 sets and liabilities relating to net worth;

22 (C) limitations and controls on the use of

23 reinsurance, and standards for ceding, report24 ing on, and credit for such reinsurance;
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1 (D) requirements governing the activities

2 of and transactions with managing general

3 agents and reinsurance intermediaries to the

4 extent that such transactions affect the finan5 cial conditions of insurers;

6 (E) limitations on the amount of risk that

7 may be retained on a single risk where such

8 limits are appropriate;

9 (F) accounting standards and actuarial

10 standards for the valuation of reserves for

11 losses and expenses that will promote the

12 strong and appropriate financial monitoring of

13 insurers;

14 (G) bonding, trust fund, and liquidity re15 quirements appropriate to the various kinds of

16 insurance operations;

17 (H) requirements for audits by independ18 ent accountants of the annual financial state19 ments reporting the financial position and the

20 financial activities of insurers;

21 (I) requirements for annual opinions by

22 appointed actuaries on the reasonableness of re23 serves, of reports of findings that support such

24 opinions, and of any internal management re-
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1 ports the Commission determines necessary for

2 promoting financial soundness and solvency;

3 (J) regulation of financial transactions

4 within holding company systems;

5 (K) procedures for initial and special ex6 aminations of insurers, and for the annual fi7 nancial review of such insurers;

8 (L) procedures for ongoing monitoring and

9 enforcement of the compliance of insurers with

10 Commission standards;

11 (M) criteria as to the minimum qualifica12 tions of the management of insurers;

13 (N) criteria governing the fiduciary duties

14 of officers and directors of insurers;

15 (O) criteria for determining when insurers

16 are financially impaired, in a financially hazard17 ous condition, or insolvent;

18 (P) disclosure requirements, in addition to

19 those enumerated above, for information to be

20 provided to the Commission or the State insur21 ance regulator and the public; and

22 (Q) such other criteria as the Commission

23 determines to be necessary to evaluate and

24 maintain the sound financial condition of insur25 ers.
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1 (2) GUIDELINES FOR ESTABLISHING NET

2 WORTH REQUIREMENTS FOR DOMESTIC INSURERS

3 UNDER PARAGRAPH (1).—

4 (A) IN GENERAL.—The Commission, in es5 tablishing net worth requirements for domestic

6 insurers under paragraph (1), shall—

7 (i) establish requirements that recog8 nize differences in reserve, pricing, credit,

9 asset, and business risk among categories

10 of insurers in different lines of business;

11 (ii) address, to the extent appropriate,

12 factors that may substantially modify an

13 insurer’s capital requirements, including

14 size, growth rate, and age of the insurer,

15 degree of asset and liability mismatching,

16 degree of concentration of assets, overall

17 level of risk retention, and limitations on

18 various categories of investments; and

19 (iii) consider a range of methodolo20 gies, including one that incorporates risk21 based capital schemes, fixed dollar mini22 mums, and actuarial assessments.

23 (B) SMALL INSURERS.—To ensure that fi24 nancially sound small insurers may meet the

25 national standards established under paragraph
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1 (1), the Commission shall not establish net

2 worth requirements that would automatically

3 exclude any insurer the net worth of which

4 equals at least $500,000.

5 (C) ADJUSTMENTS.—The Commission

6 shall adjust, for inflation, the dollar values es7 tablished under subparagraphs (A) and (B).

8 This adjustment shall be made every fifth year

9 unless for good cause the Commission deter10 mines that it should be adjusted more fre11 quently.

12 (b) CRITERIA FOR NATIONAL STANDARDS FOR FOR13 EIGN INSURERS.—The Commission shall establish, by reg14 ulation, criteria for the national standards for financial

15 soundness and solvency which are to be established under

16 section 201 and which are to be met by foreign insurers.

17 Such criteria shall include the following:

18 (1) AUTHORIZATION BY DOMICILIARY JURISDIC19 TION.—The insurer must be authorized by the laws

20 of its domiciliary jurisdiction to write insurance.

21 (2) INTEGRITY AND MANAGEMENT EX22 PENSES.—The criteria shall require information that

23 demonstrates that the insurer has sufficient finan24 cial integrity and management experience to safe25 guard the public interest.
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1 (3) TRUST FUND.—The insurer shall maintain

2 a trust fund meeting the requirements of paragraph

3 (2) for the payment of the valid claims of, and other

4 contractual obligations owed to, its United States

5 policyholders or their beneficiaries, assigns, and suc6 cessors in interest under such policies which trust

7 fund shall be in an amount not less than the re8 serves for claims and unearned premiums and other

9 actuarial reserves and liabilities of the insurer’s

10 United States policyholders plus an amount equal to

11 the net worth required for an insurer under para12 graph (1)(A) of subsection (a). The trust fund re13 quired by this paragraph shall meet the following

14 requirements:

15 (A) The trust fund shall be exclusively for

16 the purpose of securing the payment of valid

17 claims of, and other contractual obligations

18 owed to, the insurer’s United States policy19 holders and the claimants and their assigns,

20 beneficiaries, and successors in interest under

21 such policies.

22 (B) Assets may be held in trust by a quali23 fied financial institution the principal place of

24 business of which is outside the United States

25 if the insurer demonstrates that a beneficiary of
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1 the trust can obtain immediate payment from a

2 United States branch, subsidiary, or representa3 tive office of the institution. The Commission

4 shall establish, by regulation, appropriate cri5 teria for a qualified financial institution to act

6 as a trustee. Foreign banks with a United

7 States presence may apply for acceptance.

8 (C) The trust fund shall be established in

9 a qualified financial institution that satisfies

10 criteria established by the Commission. The

11 Commission shall establish acceptable criteria

12 for assets held in trust, which shall include

13 cash; securities; bonds; commercial paper; clean,

14 irrevocable, unconditional, and automatically re15 newable letters of credit issued by a qualified fi16 nancial institution; or any other appropriate as17 sets, whether United States or non-United

18 States which provide the stability necessary for

19 adequate protection of the trust beneficiaries.

20 (D) The trust instrument shall provide for

21 the circumstances under which claims and other

22 contractual obligations shall be paid as provided

23 under the policies of the insurer. The insurer

24 may freely substitute and withdraw assets in

25 the trust so long as the value of the assets
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1 maintained in the trust equals or exceeds the

2 amount set forth in paragraph (1).

3 (E) No later than the date set by the Com4 mission by regulation, the trustees of the trust

5 shall report annually to the Commission or the

6 State insurance regulator in writing, setting

7 forth the balance of the trust, listing the trust’s

8 investments at the preceding year’s end, and

9 certifying the date of termination of the trust

10 as to new business, if so planned, or certifying

11 that the trust shall not expire prior to the next

12 following December 31. The trust shall be sub13 ject to examination by the Commission or the

14 State insurance regulator and shall remain in

15 effect as long as the insurer has outstanding

16 obligations under the agreements to which the

17 trust pertains.

18 (F) The trust instrument shall provide

19 that, in the event the insurer is placed in super20 vision, rehabilitation, or liquidation, or its

21 equivalent by its State or country of domicile,

22 or if the Commission or State insurance regu23 lator determines, pursuant to regulations adopt24 ed by the Commission, that the condition of the

25 insurer is such that further transaction of busi-
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1 ness will be hazardous to United States policy2 holders, creditors, or to the public, the Commis3 sion or State insurance regulator shall be au4 thorized to take control of the trust in the man5 ner described in this Act.

6 (4) OTHER REQUIREMENTS.—Any foreign in7 surer shall also—

8 (A) have been doing business in its country

9 or jurisdiction of domicile for at least 3 years,

10 or be an affiliate of an insurer which has been

11 doing business in a state, country, or jurisdic12 tion of domicile for at least 3 years, unless the

13 Commission or State insurance regulator, for

14 good cause shown, waives this 3-year operating

15 requirement;

16 (B) file an annual financial statement with

17 its domiciliary regulator and have established

18 satisfactory evidence of good repute and finan19 cial integrity;

20 (C) file with the Commission or State in21 surance regulator—

22 (i) a list identifying its officers and di23 rectors (or similar principals) along with a

24 biographical sketch for each, including a

25 description of their role in any financial
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1 entity that was the subject of a bankruptcy

2 or receivership proceeding during their em3 ployment or within one year of the termi4 nation of such employment and a descrip5 tion of any criminal proceeding involving

6 financial misconduct to which they have

7 been subject;

8 (ii) a certification that such persons

9 have not been convicted of a felony involv10 ing financial misconduct; and

11 (iii) an annual update of the informa12 tion described in clauses (i) and (ii);

13 (D) file with the Commission or State in14 surance regulator, on an annual basis, a copy of

15 the financial statement filed with its domiciliary

16 regulator (which the Commission or State in17 surance regulator may require to be translated

18 from its original language) and a report show19 ing the volume of written premiums with regard

20 to United States policyholders in the past year;

21 (E) agree to allow the Commission or

22 State insurance regulator to examine its books

23 and records and to waive any protection it has

24 under any secrecy laws of its domiciliary juris25 diction, except that such examinations will only
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1 take place upon the Commission’s or State in2 surance regulator’s showing of good cause for

3 concern about the financial condition of the

4 subject insurer;

5 (F) appoint an agent in the United States

6 upon whom may be served any lawful process in

7 any action, suit, or proceeding instituted by or

8 on behalf of any U.S. person, and agree that,

9 in the event such process may not be served

10 upon the appointed agent, process may be

11 served upon the Commission or State insurance

12 regulator;

13 (G) submit to the jurisdiction of any Unit14 ed States court or State court of competent ju15 risdiction for the resolution of any dispute aris16 ing out of an insurance policy or to respond to

17 any allegations or charges made against it by

18 any United States Government official or agen19 cy or State insurance regulator, except that

20 such requirement does not override any contrac21 tual agreement of the parties to a contract to

22 resolve disputes between them pursuant to

23 other procedures;

24 (H) provide the Commission, on an annual

25 basis, with—
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1 (i) a statement from the appointed ac2 tuary that the reserves and liabilities re3 ferred to in paragraph (1)(B) of this sub4 section are reasonable to meet United

5 States contractual obligations and related

6 expenses and that, where appropriate, the

7 anticipated cash flows from the trust fund

8 are reasonable to meet obligations as they

9 come due, and

10 (ii) an accompanying statement from

11 the independent accountant that the trust

12 contains the assets referred to in such ac13 tuarial statement and such other assets as

14 are required to meet the Commission’s

15 standards.

16 (I) comply with the credit for reinsurance

17 requirements of section 305 and the single risk

18 limits of subsection (a)(1)(E); and

19 (J) respond to any disclosure requests

20 from the Commission or State insurance regu21 lator, in addition to those required in subpara22 graphs (C), (D), and (H).

23 (c) OPERATIONAL AND INVESTMENT REQUIRE24 MENTS.—In establishing the criteria for national stand25 ards pursuant to subsections (a) and (b), the Commission
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1 shall differentiate, as appropriate, to accommodate the dif2 ferent operational and investment requirements of prop3 erty and casualty insurers and life and health insurers.

4 (d) PROCEDURES FOR OBTAINING A FEDERAL CER5 TIFICATE OF SOLVENCY.—The Commission shall estab6 lish, by regulation, procedures by which an insurer in

7 interstate commerce that has met the standards adopted

8 pursuant to subsection (a) or (b) may obtain a Federal

9 certificate of solvency for compliance with these standards.

10 The Commission shall grant such a certificate only if it

11 has determined that an insurer has met the national

12 standards for financial soundness and solvency adopted

13 pursuant to subsection (a) or (b).

14 (e) ADDITIONAL REQUIREMENTS FOR FOREIGN IN15 SURERS.—A foreign insurer may transact the business of

16 insurance in the United States (subject to any applicable

17 Federal or State law, including this Act) only if such in18 surer has a Federal solvency certificate or is authorized

19 to write insurance pursuant to applicable State law. Any

20 foreign insurer that does not comply with the requirement

21 of this subsection shall be subject to penalties under this

22 Act in addition to any other penalties that may be imposed

23 under any State or Federal law. The Commission or the

24 State insurance regulator in any State in which the trans-
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1 action allegedly occurred may bring an action for the im2 position of such penalties.

3 (f) ISSUANCE OF FEDERAL CERTIFICATE OF SOL4 VENCY.—Upon submission of an application in the form

5 prescribed by the Commission, the Commission shall ex6 amine the information submitted and may conduct such

7 further examination and investigation, as it finds nec8 essary, to determine whether the applicant satisfies the

9 national standards for financial soundness and solvency

10 established under subsection (a) or (b). Upon conclusion

11 of its examination and investigation, the Commission shall

12 publish its findings and determination. Upon a determina13 tion that the applicant for a Federal certificate of solvency

14 has satisfied such requirements, the Commission shall

15 issue such certificate.

16 (g) FORM AND CONTENT OF SUBMISSIONS BY INSUR17 ERS AND REINSURERS.—The Commission shall establish,

18 by regulation, the form and contents of the submissions

19 by insurers and reinsurers pursuant to this Act, includ20 ing—

21 (1) the initial and annual reports that shall be

22 submitted by each insurer to the Commission or

23 State insurance regulator, which shall provide a

24 complete report on the financial condition of the in25 surer;
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1 (2) the quarterly filing of the update of signifi2 cant financial factors and ratios that will provide an

3 early indication of any significant change in the fi4 nancial condition of such insurer; and

5 (3) any other submission the Commission deter6 mines to be necessary for the appropriate monitoring

7 of the financial condition of insurers and reinsurers.

8 SEC. 204. SURPLUS LINES APPROVAL FOR FEDERALLY CER9 TIFIED INSURERS.–

10 (a) FEDERAL SURPLUS LINES APPROVAL.—

11 ((1) The Commission may approve any domes12 tic or foreign insurer holding a Federal solvency cer13 tificate to write surplus lines insurance if such do14 mestic or foreign insurer meets the additional re15 quirements of this section. The Commission shall es16 tablish, by regulation, the standards for issuing such

17 approvals.

18 (2) Among the additional standards to be estab19 lished by the Commission for domestic insurers pur20 suant to paragraph (1) shall be a requirement that

21 the insurer have a net worth of not less than

22 $15,000,000. The net worth requirement set forth in

23 this paragraph shall be subject to periodic adjust24 ment for inflation pursuant to section 202(c)(2).
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1 (3) A foreign insurer may obtain approval to

2 write surplus lines insurance in the same manner as

3 a domestic insurer or it may obtain this approval if

4 it meets all of the requirements for a certificate of

5 solvency under section 202, except that the trust

6 fund required of such insurer under section 202

7 shall be satisfied if it consists of no less than

8 $15,000,000. The Commission may, in its discretion,

9 require an amount higher than $15,000,000 if it de10 termines a higher amount is necessary to adequately

11 protect United States policy holders. In determining

12 what amount is adequate, the Commission shall con13 sider such factors as the types and amounts of cov14 erage which the insurer writes in the United States

15 and the assets which comprise the trust and their

16 valuation. The trust fund established pursuant to

17 this paragraph shall comply with the establishment,

18 management, and examination requirements of sec19 tion 202(d)(2).

20 (4) An insurance exchange established under

21 the laws of a State may obtain approval to write

22 surplus lines insurance if it is federally certified.

23 Such exchange must maintain a net worth of not

24 less than $50,000,000 in the aggregate. In addition,

25 each individual syndicate of such exchange seeking
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1 to accept placement of surplus lines insurance must

2 meet either of the following requirements:

3 (A) For an insurance exchange which

4 maintains funds in the amount of at least

5 $12,000,000 for the protection of all exchange

6 policyholders, the syndicate shall maintain a

7 minimum net worth of not less than

8 $3,000,000.

9 (B) For an insurance exchange that does

10 not maintain funds in the amount of at least

11 $12,000,000 for the protection of all exchange

12 policyholders, the syndicate shall meet the mini13 mum net worth requirements set by the Com14 mission for qualification as a surplus lines in15 surer.

16 (5) Upon submission of an application for ap17 proval in the form prescribed by the Commission,

18 the Commission shall examine the information sub19 mitted and shall conduct such further examinations

20 and investigations, as it finds necessary, to deter21 mine whether the applicant satisfies the require22 ments of this section. Upon the conclusion of its ex23 amination and investigation, the Commission shall

24 publish its findings and determination and, if the
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1 applicant has met such requirements, the Commis2 sion shall issue the surplus lines approval.

3 (6) The Commission may revoke or suspend its

4 approval of a surplus lines insurer in accordance

5 with section 206. The Commission may, in its dis6 cretion, suspend or revoke only the insurer’s ap7 proval as a surplus lines insurer or both such ap8 proval and the insurer’s certificate of solvency.

9 (7) A nonadmitted insurer holding a surplus

10 lines approval issued by the Commission shall be an

11 eligible surplus lines insurer under the laws of all

12 States but shall remain subject to applicable State

13 law on a nondiscriminatory basis as to the types of

14 insurance that may be provided in a surplus line’s

15 market and as to the procedures to be followed in

16 selling in this market.

17 (b) STANDARDS FOR SURPLUS LINES LICENSEES.—

18 (1) Any person licensed as a surplus lines li19 censee in the State where the insured or risk is lo20 cated may procure coverage for the insured or risk

21 from any nonadmitted insurer holding a Federal

22 surplus lines approval, notwithstanding any contrary

23 provisions in State laws.

24 (2) Any surplus lines licensee making a place25 ment with a federally certified insurer approved
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1 under this section shall comply with all requirements

2 imposed upon such licensees under State law to the

3 same extent that such laws apply to the transaction

4 of surplus lines insurance placed with insurers eligi5 ble or approved under State law except to the extent

6 that such requirements are expressly preempted by

7 this Act.

8 (c) MISCELLANEOUS PROVISIONS.—

9 (1) Federally certified insurers approved pursu10 ant to this section to write insurance shall not par11 ticipate in any residual market mechanism or any

12 market assistance plan on the basis of insurance

13 provided under a Federal surplus lines approval.

14 (2) Coverages written by insurers approved pur15 suant to this section shall not be subject to restric16 tions or requirements imposed upon policy forms or

17 rates under State law.

18 (3) No insurance consumer in the United

19 States shall be required to seek coverage in any re20 sidual market mechanism as a precondition to seek21 ing coverage from an insurer approved pursuant to

22 this section.

23 (4) This section does not limit or in any way

24 restrict the ability of insurance consumers in the

25 United States to access surplus lines insurers pursu-
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1 ant to alternative, established means recognized by

2 the United States Constitution and the law of the

3 several States. Without limiting the generality of the

4 foregoing, this section should not be construed as

5 limiting the ability of insurance consumers in the

6 United States to procure insurance from the surplus

7 lines insurer of the consumer’s choice pursuant to

8 any—

9 (A) industrial insured provision;

10 (B) aviation insurance exemption;

11 (C) railroad insurance exemption;

12 (D) wet marine and transportation insur13 ance exemption;

14 (E) direct placement provision; or

15 (F) any other similar exemption recognized

16 by the law of the State in which the risk is lo17 cated.

18 SEC. 205. MEMBERSHIP IN NATIONAL INSURANCE PROTEC19 TION CORPORATION.

20 Each federally certified insurer shall be a member of

21 the National Insurance Protection Corporation which is

22 established by section 501. These insurers shall be subject

23 to assessments by the Corporation. Federally certified in24 surers that are approved surplus lines insurers as provided

25 in section 204 shall not participate in the National Insur-
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1 ance Protection Corporation for the purpose of business

2 written as a nonadmitted insurer pursuant to the surplus

3 lines law of any State.

4 SEC. 206. SUSPENSION AND REVOCATION OF FEDERAL

5 CERTIFICATE OF SOLVENCY OR STATE IN6 SURANCE LICENSE.

7 (a) SUSPENSION OR REVOCATION OF CERTIFICATE

8 OF SOLVENCY BY THE COMMISSION.—

9 (1) CERTIFICATE OF SOLVENCY.—The Commis10 sion shall suspend or revoke a Federal certificate of

11 solvency at any time the Commission determines the

12 standards for holding a certificate are no longer

13 being satisfied. The Commission shall provide the

14 opportunity for a hearing on the record before mak15 ing a determination to suspend or revoke such cer16 tification.

17 (2) EFFECT OF SUSPENSION OR REVOCA18 TION.—If the Commission suspends or revokes a

19 Federal certificate of solvency, an insurer will no

20 longer be a member of NIPC and will be prohibited

21 from selling insurance in the United States or its

22 territories.

23 (3) NOTICE OF SUSPENSION OR REVOCA24 TION.—The Commission shall notify the State or

25 country of domicile of a federally certified insurer of
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1 the suspension or revocation of that insurer’s certifi2 cate of solvency. This notification shall be made at

3 the earliest possible date.

4 (b) SUSPENSION OR REVOCATION OF STATE INSUR5 ANCE LICENSE BY STATE INSURANCE REGULATOR.—The

6 State insurance regulator shall suspend or revoke the

7 State insurance license of any insurer subject to regulation

8 for financial condition and solvency by the regulator’s

9 State if such regulator determines the national standards

10 established by the Commission under section 201 are no

11 longer being satisfied by the insurer. The State insurance

12 regulator shall follow the procedures of applicable State

13 law in suspending or revoking such license.

14 SEC. 207. RELATIONSHIP OF FEDERALLY CERTIFIED IN15 SURERS TO STATE INSURANCE REGULATION.

16 (a) PERMISSIBLE STATE REGULATION.—Except as

17 otherwise provided in this Act, every federally certified in18 surer shall be subject to State laws, rules, regulations, or19 ders, or actions which regulate insurers, including the fol20 lowing:

21 (1) Regulation of rates and policy forms.

22 (2) Regulation of unfair insurance trade prac23 tices and unfair claims settlement practices.

24 (3) Participation in an assigned risk plan, joint

25 underwriting association, or any similar mechanism
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1 designed to make insurance available to those unable

2 to obtain it in the voluntary market.

3 (4) Filing of copies of financial statements with

4 State insurance regulators. Each federally certified

5 insurer shall file with each State in which it trans6 acts the business of insurance a copy of the annual

7 and quarterly statements its files with the Commis8 sion. Such filings shall only be for information pur9 poses and shall not be used by any State for the

10 purpose of financial or solvency regulation.

11 (5) Liability for State taxes. No tax shall be ap12 plied to federally certified insurers on a basis that

13 discriminates between such insurers and insurers

14 regulated solely by a State. Assessments imposed on

15 federally certified insurers pursuant to title V shall

16 be credited against any State taxes levied against

17 such insurers, or shall be subject to recoupment

18 through rate filings, to the same extent that assess19 ments by State guaranty funds on insurers regulated

20 solely by a State are credited against State taxes or

21 recouped in rate filings.

22 (6) Regulation of insurance company incorpora23 tion, organization, corporate governance, voting

24 rights, and related matters by the insurer’s State of

25 domicile, including regulation pursuant to State cor-
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1 poration laws of general applicability, except that

2 such regulation shall not include regulation of finan3 cial condition or solvency.

4 (7) Registration with and designation of the

5 State insurance regulator as its agent solely for or

6 the purpose of receiving service of legal documents

7 or process.

8 (8) Requirements that insurers that it licenses

9 shall obtain a Federal certificate of solvency.

10 (9) Regulation of insurance producers, as that

11 term is defined by the National Association of Reg12 istered Agents and Brokers, except as provided by

13 title VI.

14 (b) PREEMPTION OF STATE LAWS.—The following

15 shall apply with respect to State laws, rules, regulations,

16 orders, or actions purporting to regulate federally certified

17 insurers:

18 (1) No State shall apply its laws, rules, regula19 tions, orders, or actions to a federally certified in20 surer or an applicant for a Federal certificate, or an

21 affiliate of either, on any basis different from that

22 applied to insurers regulated solely at the State

23 level.

24 (2) No State shall apply any law, rule, regula25 tion, order, or action to any insurer or insurance
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1 producer or any other intermediary procuring insur2 ance from or placing insurance with any federally

3 certified insurer, any applicant for a Federal certifi4 cate, or any affiliate of either, on a basis different

5 from that applied to insurers, insurance producers,

6 or intermediaries procuring insurance from or plac7 ing insurance with insurers that are regulated solely

8 at the State level.

9 (3) Federally certified insurers shall not be sub10 ject to any State regulation which pertains to sol11 vency or financial condition, including such regula12 tion exercised through the power to issue, suspend,

13 or revoke a license.

14 (4) Federally certified insurers shall remain

15 subject to State guaranty fund laws and assessments

16 to the extent provided by section 518(b).

17 (5) No State shall prevent or impede any feder18 ally certified insurer from withdrawing from any line

19 or subline of insurance, or from any market or terri20 tory, or from the entire State by threatening forfeit21 ure of licenses, certificates of authority, or other au22 thorizations to do business; limiting the cir23 cumstances under which withdrawal is permitted;

24 placing conditions on withdrawal; or otherwise; ex25 cept that where a State law, rule, regulation, order,
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1 or action is preempted because it places conditions

2 on withdrawal intended to prevent undue disruption

3 of the applicable insurance market, the Commission

4 shall determine before the withdrawal occurs wheth5 er withdrawal actually would cause undue disruption

6 and, if so, may impose reasonable conditions on

7 withdrawal, such as a transition period for the wind8 ing down of an insurer’s business, so as to avoid

9 such undue disruption while permitting withdrawal

10 within a reasonable time frame.

11 (6) No State shall regulate any federally cer12 tified insurer in a manner which would place that in13 surer’s business in such State in the applicable line

14 or subline of insurance in an unsafe or unsound fi15 nancial condition or require that insurer to engage

16 in a practice relating to the applicable line or subline

17 of insurance that would be financially unsafe or un18 sound.

19 (7) A federally certified insurer applying for a

20 State license shall not be required to demonstrate

21 that it previously has been licensed or has done busi22 ness for any minimum period of time.

23 (c) PREEMPTION AUTHORITY OF THE COMMIS24 SION.—
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1 (1) The Commission shall have authority, by

2 regulation or order, to specify the State laws, rules,

3 regulations, orders, and actions that are preempted

4 by this Act. Any federally certified insurer may peti5 tion the Commission for the issuance of such a regu6 lation or order. The Commission shall also have the

7 authority to stay the enforcement of any State law,

8 rule, regulation, order, or action until the Commis9 sion can determine whether there was a preemption

10 under this Act. Judicial review of any regulation,

11 order, or enforcement under this paragraph shall be

12 in the Court of Appeals for the District of Columbia

13 Circuit.

14 (2) When a State applies or threatens to apply

15 any law, rule, regulation, or order to a federally cer16 tified insurer, an applicant for a Federal certificate,

17 or any affiliate of either on any basis different than

18 that applied to insurers that are not so regulated, or

19 takes any action contrary to paragraphs (1) and (2)

20 of subsection (b), the Commission may stay the ap21 plication of that law, rule, regulation, order, or ac22 tion if the Commission determines that a federally

23 certified insurer is thereby subject to discrimination

24 by such State. Any federally certified insurer af25 fected by the application of such rule, regulation,
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1 order, or action may petition the Commission for a

2 stay or statement of preemption therefrom. Judicial

3 review of any Commission determination or stay

4 under this paragraph shall be in the Court of Ap5 peals for the District of Columbia Circuit.

6 (d) HIGHLY CAPITALIZED COMMERCIAL INSUR7 ERS.—

8 (1) Notwithstanding the authority of States to

9 require federally certified insurers to comply with

10 those laws and regulations specified in subsection

11 (a), a federally certified insurer that is designated as

12 highly capitalized by the Commission may provide

13 commercial insurance coverage to a large insurance

14 buyer, and in such circumstance, shall be exempt as

15 to that coverage from any State law or regulation

16 specified in paragraphs (1) and (2) of subsection

17 (a).

18 (2) The Commission shall be responsible for the

19 establishment, by regulation, of the standards appli20 cable to highly capitalized insurers in the issuance of

21 an insurance policy to a large insurance buyer and

22 the settlement of any claims related thereto.

23 (3) The Commission shall be the only Federal

24 Government agency with jurisdiction over complaints

25 related to the conduct of highly capitalized insurers
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1 as to the issuance of an insurance policy to a large

2 insurance buyer and the settlement of any claims re3 lated hereto. Each such policy must state, in a for4 mat approved by the Commission, that complaints

5 regarding the insurer are to be directed to the Com6 mission.

7 TITLE III—FEDERAL CERTIFI8 CATES TO PROVIDE REINSUR9 ANCE

10 SEC. 301. FEDERAL INSURANCE SOLVENCY COMMISSION

11 AUTHORITY TO CERTIFY PROVIDERS OF RE12 INSURANCE.

13 (a) IN GENERAL.—The Commission shall have the

14 authority to establish, by regulation, the standards and

15 procedures for granting certificates for professional rein16 surers under section 302 and certificates to provide rein17 surance for other reinsurers and insurers under section

18 303.

19 (b) COMMISSION DETERMINATION.—Upon submis20 sion of an application, the Commission shall examine the

21 information submitted and conduct such further examina22 tion and investigation, as it finds necessary, to determine

23 whether the applicant satisfies the requirements for a pro24 fessional reinsurer certificate under section 302 or a cer25 tificate to provide reinsurance under section 303. Upon
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1 conclusion of its examination and investigation, the Com2 mission shall publish its findings and determination. Upon

3 a determination that the applicant has satisfied the appli4 cable requirements of section 302 or 303, the Commission

5 shall issue the appropriate certificate.

6 (c) ANNUAL REPORTS.—The Commission shall re7 quire each holder of a certificate to submit an annual re8 port of its financial condition and an annual report on the

9 condition of any trust fund regulated under section

10 303(c).

11 (d) QUALIFIED FINANCIAL INSTITUTION.—The Com12 mission shall establish, by regulation, appropriate criteria

13 for becoming a qualified financial institution for purposes

14 of the establishment of a trust fund under section 303(c).

15 Foreign banks with a United States presence may apply

16 for acceptance.

17 SEC. 302. CERTIFICATION OF PROFESSIONAL REINSURERS.

18 (a) IN GENERAL.—The Commission is authorized to

19 certify and otherwise regulate professional reinsurers. A

20 professional reinsurer shall be subject to regulation solely

21 by the Commission as to the business of reinsurance in

22 the United States.

23 (b) ESTABLISHMENT OF STANDARDS.—The Commis24 sion shall, by regulation, establish standards and proce25 dures for the certification and regulation of professional
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1 reinsurers. Such standards shall give due consideration to

2 the public interest in providing secure reinsurance capac3 ity in the United States and to the need for promptly col4 lectible reinsurance recoverables.

5 (c) STANDARDS.—Certification standards for profes6 sional reinsurers promulgated by the Commission under

7 subsection (b) shall include the following:

8 (1) Minimum net worth requirements, risk9 based or otherwise, appropriate to the nature of the

10 reinsurance written by the different types and sizes

11 of reinsurers, except that the Commission shall set

12 the minimum at an amount not less than

13 $50,000,000 and shall establish additional net worth

14 requirements for appropriate categories of profes15 sional reinsurers based upon their operations, in16 cluding such factors as premium volume, volatility,

17 and loss development characteristics of the types of

18 reinsurance provided by such reinsurers. The Com19 mission shall adjust such minimum for inflation

20 every fifth year unless for good cause the Commis21 sion determines that it should be adjusted more fre22 quently.

23 (2) Appropriate standards for investments, re24 serves, and asset valuations relating to minimum net

25 worth, including percentage limitations for various
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1 categories of investments; except that investments in

2 excess of minimum net worth and reserves shall be

3 subject to the prudent person standard.

4 (3) Limitations on the net amount of exposure

5 that may be retained on a single risk, based on the

6 amount of net worth.

7 (4) Accounting standards and standards for re8 serve valuation that will promote strong and appro9 priate financial monitoring.

10 (5) Liquidity requirements appropriate to the

11 nature of the reinsurance written.

12 (6) Requirements for annual reports by inde13 pendent accountants of financial statements report14 ing financial condition and financial activities.

15 (7) Limitations and controls on the use of rein16 surance, and standards for ceding, reporting on, and

17 credit for such reinsurance.

18 (8) Requirements for certification of loss re19 serves by actuaries and reports of such certification.

20 (9) Disclosure of all subsidiary and affiliate re21 lationships and the identity of all persons which con22 trol the professional reinsurer.

23 (10) Regulation of financial transactions within

24 holding company systems.
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1 (11) Procedures for initial and special examina2 tions and for the annual financial review of financial

3 statements.

4 (12) Regulations under which a foreign insurer

5 or reinsurer may establish a United States branch

6 which may become a certified professional reinsurer.

7 (13) Minimum security deposit requirements for

8 United States branches of foreign insurers or rein9 surers that apply to become professional reinsurers.

10 (14) Appointment of an agent in the United

11 States upon whom may be served any lawful process

12 in any action, suit, or proceeding instituted by or on

13 behalf of any U.S. person and agreement that, in

14 the event such process may not be served upon the

15 appointed agent, process may be served upon the

16 Commission.

17 (15) Agreement, by a foreign professional rein18 surer, to submit to the jurisdiction and be bound by

19 the final order or judgment of any court of com20 petent jurisdiction in the United States.

21 (16) Procedures for ongoing monitoring and en22 forcement of compliance with Commission standards.

23 (17) Minimum standards as to the qualifica24 tions of the management of professional reinsurers.
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1 (18) Minimum standards governing the fidu2 ciary duties of officers and directors of professional

3 reinsurers.

4 (19) Submission of an outline of current and

5 projected operations in the United States dem6 onstrating that the methods of operation are reason7 able, prudent, and do not present an undue risk to

8 the public.

9 (20) Demonstration of sufficient data process10 ing capability and capacity to meet all data collec11 tion and reporting requirements of the Commission.

12 (21) Submission of biographical information,

13 which shall be updated annually, demonstrating that

14 all directors and senior officers possess sufficient ex15 perience and good character to manage business af16 fairs in a competent and trustworthy manner.

17 (22) Disclosure requirements, in addition to

18 those enumerated above, for information to be pro19 vided to the Commission and the public.

20 (23) Such other standards as the Commission

21 determines to be necessary to evaluate and maintain

22 the sound financial condition of federally certified

23 professional reinsurers.
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1 SEC. 303. CERTIFICATE FOR OTHER PROVIDERS OF REIN2 SURANCE.

3 (a) IN GENERAL.—The Commission is authorized to

4 issue a reinsurance certificate to insurers and to any rein5 surer that does not seek certification as a professional re6 insurer under section 302.

7 (b) ESTABLISHMENT OF QUALIFICATIONS.—The

8 Commission shall establish, by regulation, standards and

9 procedures for certification under this section.

10 (c) QUALIFICATIONS FOR CERTIFICATE.—To qualify

11 for a reinsurance certificate, an insurer or reinsurer must

12 meet one of the following 3 standards:

13 (1) The insurer or reinsurer shall have met the

14 national standards established under section 201

15 and have a State license to transact the business of

16 insurance or have a certificate of solvency issued by

17 the Commission under title II; and either—

18 (A) maintain a net worth which is not less

19 than a minimum set by the Commission

20 which—

21 (i) shall be no less than $5,000,000;

22 (ii) shall establish additional net

23 worth requirements for appropriate cat24 egories of reinsurers based upon their op25 erations, including such factors as pre26 mium volume, volatility, and loss develop-
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1 ment characteristics of the types of rein2 surance provided by such reinsurers; and

3 (iii) shall ensure that reinsurance obli4 gations will be met; or

5 (B) in the case of a financially sound ap6 plicant that does not meet the net worth dollar

7 standard of subparagraph (A), obtain a waiver

8 of this minimum dollar standard if the Commis9 sion concludes that the applicant is sufficiently

10 financially sound, is able to pay its reinsurance

11 obligations, and has sufficient expertise to pro12 vide the type of reinsurance that it intends to

13 offer.

14 An applicant with a State license must have been

15 doing business in its State of domicile for at least

16 3 years unless the Commission for good cause shown

17 waives such 3-year operating requirement. The Com18 mission shall adjust for inflation the minimum es19 tablished in subparagraph (A) every fifth year unless

20 the Commission determines for good cause that it

21 should be adjusted more frequently.

22 (2) The insurer or reinsurer shall be authorized

23 by the law of its domiciliary jurisdiction to assume

24 reinsurance; demonstrate to the Commission that it

25 has sufficient assets and management experience so
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1 that it can operate safely in the United States rein2 surance market in a way that will protect the public

3 interest; and maintain a trust fund in a qualified fi4 nancial institution which includes a trusteed surplus

5 for the protection of United States ceding insurers

6 and which is—

7 (A) for a single company, an amount not

8 less than its United States reinsurance liabil9 ities arising from reinsurance contracts entered

10 into after the date of enactment of this Act plus

11 $20,000,000;

12 (B) for an established group of individual

13 unincorporated underwriters regulated as a

14 group by its State or country of domicile, an

15 amount not less than the group’s United States

16 reinsurance liabilities arising from reinsurance

17 contracts entered into after the date of enact18 ment of this Act plus $100,000,000; or

19 (C) for a group of incorporated insurers

20 under common administration, and which has

21 continuously transacted an insurance or rein22 surance business outside the United States for

23 at least 10 years, in an amount not less than

24 the group’s United States reinsurance liabilities

25 arising from reinsurance contracts entered into
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1 after the date of enactment of this Act plus

2 $100,000,000.

3 The Commission shall require additional amounts to

4 be held in a trust established under this paragraph

5 as a condition for initial or continued certification if

6 the Commission determines that such additional

7 amounts are required for the protection of United

8 States ceding insurers.

9 (3) The insurer or reinsurer shall be authorized

10 by the laws of its domiciliary jurisdiction to assume

11 reinsurance and demonstrate to the Commission that

12 it has sufficient assets and management experience

13 so that it will operate safely in the United States re14 insurance market in a way that will protect the pub15 lic interest and in addition complies with the follow16 ing:

17 (A) Holders of certificates will be required

18 to fund their obligations to United States

19 ceding insurers pursuant to subsection (e) for

20 such ceding insurers to be able to count such

21 reinsurance as an asset or deduction from li22 abilities on the ceding insurer’s financial state23 ments.

24 (B) In the event the Commission deter25 mines that the funding required by subsection
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1 (e) is inadequate to protect United States

2 ceding insurers, the Commission may require,

3 as a condition for initial or continued certifi4 cation, additional security requirements, includ5 ing the establishment of a United States trust

6 fund for the exclusive protection of United

7 States ceding insurers. The Commission may

8 require such trust fund to be in any amount

9 that the Commission determines to be appro10 priate to protect United States ceding insurers.

11 (d) REQUIREMENTS FOR A TRUST FUND UNDER

12 SUBSECTION (c).—A trust fund required by paragraphs

13 (2) and (3) of subsection (c) shall be in a form approved

14 by the Commission and shall meet the following require15 ments for all new reinsurance provided after the date the

16 certificate to provide reinsurance was granted:

17 (1) The trust fund shall be exclusively for the

18 purpose of securing the payment of valid claims of

19 United States ceding insurers and their assigns and

20 successors in interest.

21 (2) The trust fund shall be established in a

22 qualified financial institution in a form approved by

23 the Commission. The Commission shall establish ac24 ceptable criteria for assets held in trust, which shall

25 include cash, securities, bonds, commercial paper,
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1 clean, irrevocable, unconditional, and automatically

2 renewable letters of credit issued by a qualified fi3 nancial institution, or any other appropriate assets,

4 whether United States or non-United States, the fair

5 market value of which can be readily ascertained

6 and which provide the stability necessary for ade7 quate protection of the trust beneficiaries.

8 (3) Assets may be held in trust by a qualified

9 financial institution the principal place of business of

10 which is outside the United States if the holder of

11 the certificate demonstrates that a beneficiary of the

12 trust can obtain immediate payment from a United

13 States branch, subsidiary, or representative office of

14 the institution.

15 (4) The trust instrument shall provide that

16 claims shall be paid with the concurrence of the

17 holder of the certificate or upon final order of any

18 court of competent jurisdiction in the United States.

19 The holder of the certificate may freely substitute

20 and withdraw assets in the trust so long as the value

21 of the assets maintained in the trust equals or ex22 ceeds the amount set forth in paragraph (2) or (3)

23 of subsection (c).

24 (5) The trustees of the trust shall report annu25 ally to the Commission and to the insurance com-
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1 missioner of each ceding insurer’s State of domicile,

2 in writing, setting forth the balance of the trust,

3 providing an actuary’s opinion as to the reasonable4 ness of the trust reserves, listing the trust’s invest5 ments at the preceding year end, and certifying the

6 date of termination of the trust if so planned, or cer7 tifying that the trust shall not expire as to new busi8 ness prior to the next following December 31. The

9 trust shall remain in effect as long as there are out10 standing obligations under the reinsurance agree11 ments to which the trust pertains.

12 (6) The trust instrument shall provide that, in

13 the event the holder of the certificate is placed in su14 pervision, rehabilitation, or liquidation, or its equiva15 lent by its State or country of domicile, or if the

16 Commission determines, pursuant to regulations

17 adopted by the Commission, that the condition of

18 the holder is such that further transaction of busi19 ness will be hazardous to United States creditors or

20 to the public, the Commission may take control of

21 the trust in the manner described in title VII.

22 (7) The trust shall be subject to annual review

23 and initial and special examination by the Commis24 sion in the same manner as the Commission may ex25 amine certified reinsurers.
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1 (e) REQUIREMENTS FOR THE FORM OF FUNDING

2 UNDER SUBSECTION (c).—The funds required by sub3 section (c)(3) may be in the form of—

4 (1) cash under the control of the ceding in5 surer;

6 (2) a clean, irrevocable, unconditional, and

7 automatically renewable letter of credit issued by a

8 qualified financial institution and held by the ceding

9 insurer; or

10 (3) other funding acceptable to the Commission.

11 (f) PREVIOUS REINSURANCE OBLIGATIONS.—As a

12 pre-condition for obtaining a certificate to provide reinsur13 ance on the basis of meeting the requirements of para14 graph (2) or (3) of subsection (c), the applicant shall be

15 required to demonstrate to the Commission that it has

16 adequately secured its reinsurance liabilities in existence

17 at the time of certification. The adequacy of the funding

18 of such previous reinsurance liabilities shall be subject to

19 the requirements of sections 402, 403, and 404 and shall

20 be reviewed by the Commission in determining the finan21 cial condition of the reinsurer in each annual review.

22 (g) ADDITIONAL REQUIREMENTS FOR A FOREIGN

23 APPLICANT.—Any foreign insurer or reinsurer applying

24 under this section for a reinsurance certificate shall meet

25 the following additional requirements:
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1 (1) Have been doing business in its country of

2 domicile for at least 3 years, or be an affiliate of an

3 insurer or reinsurer which has been doing business

4 in its country of domicile for at least 3 years, unless

5 the Commission, for good cause shown, waives this

6 3-year operating requirement.

7 (2) File an annual financial statement with its

8 domiciliary regulator and have established satisfac9 tory evidence of good repute and financial integrity.

10 (3) File annually with the Commission a copy

11 of the financial statement provided to its domiciliary

12 regulator (if appropriate, translated from its original

13 language) and a report showing the volume of writ14 ten premiums assumed from United States insurers

15 in the past year and such other information as the

16 Commission, in its sole discretion, requires.

17 (4) File with the Commission a list identifying

18 its officers and directors (or similar principals) along

19 with biographical information for each, and provide

20 an annual update of this information.

21 (5) Agree to allow the Commission to examine

22 its books and records and to waive any protection it

23 has under any secrecy laws of its domiciliary juris24 diction, except that such examinations will only take

25 place upon the Commission’s showing of good cause
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1 for concern about the financial soundness or sol2 vency of the subject entity.

3 (6) Appoint an agent in the United States upon

4 whom may be served any lawful process in any ac5 tion, suit, or proceeding instituted by or on behalf

6 of a domestic ceding insurer, and agree that, in the

7 event such process may not be served upon the ap8 pointed agent, process may be served upon the Com9 mission.

10 (7) Submit to the jurisdiction of any United

11 States court of competent jurisdiction for the resolu12 tion of any dispute arising out of a reinsurance

13 agreement with a domestic ceding insurer or to re14 spond to any allegations or charges made against it

15 by any United States Government official or agency

16 except that this paragraph does not override any

17 contractual agreement of the parties to resolve dis18 putes between them pursuant to other procedures.

19 SEC. 304. SUSPENSION AND REVOCATION OF FEDERAL

20 CERTIFICATE TO PROVIDE REINSURANCE.

21 (a) IN GENERAL.—The Commission shall suspend or

22 revoke the certificate of a professional reinsurer issued

23 under section 302 or a reinsurance certificate issued under

24 section 303 at any time the Commission determines the

25 standards for holding such certificate are no longer satis-
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1 fied. The Commission shall provide the opportunity for a

2 hearing on the record before making a determination to

3 suspend or revoke such certificate.

4 (b) NOTICE OF SUSPENSION OR REVOCATION.—

5 (1) The Commission shall notify the State or

6 country of domicile of a certified professional rein7 surer or holder of a reinsurance certificate that the

8 certificate has been suspended or revoked. Such no9 tification shall be made at the earliest possible date.

10 (2) The holder of a certificate that is suspended

11 or revoked under subsection (a) shall immediately

12 notify all insurers and reinsurers from which it has

13 accepted cessions of such suspension or revocation.

14 SEC. 305. CREDIT FOR REINSURANCE.

15 (a) IN GENERAL.—Notwithstanding any provision of

16 State law to the contrary, any insurer certified by the

17 Commission or regulated for financial condition by a State

18 may count reinsurance as an asset or a deduction from

19 its liabilities on its annual financial statement only if the

20 provider of reinsurance, at the time such statement is

21 filed—

22 (1) holds a Federal certificate as a professional

23 reinsurer under section 302;
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1 (2) holds a State insurance license or a Federal

2 certificate of solvency and is certified pursuant to

3 section 303(c)(1);

4 (3) maintains a United States trust fund and is

5 certified pursuant to section 303(c)(2); or

6 (4) is certified pursuant to section 303(c)(3)

7 and funds its obligations to ceding insurers and rein8 surers as required in section 303(e).

9 (b) LIMITATION ON CREDIT.—With regard to a rein10 surer certified pursuant to section 303(c)(3), a ceding in11 surer may count as an asset or deduction from liabilities

12 only that portion of the reinsurance which meets the

13 standards for funding under section 303(e). Such ceding

14 insurer may also not count as such an asset or deduction

15 any reinsurance secured by letters of credit, trust funds,

16 or other collateral if such sources of security are not trans17 ferred to it when due.

18 (c) CREDIT PENDING CERTIFICATION.—A United

19 States insurer may take credit for reinsurance from a rein20 surer that does not hold a professional reinsurer certificate

21 issued pursuant to section 302 or a reinsurance certificate

22 issued pursuant to section 303 only if—

23 (1) the reinsurer submits to the Commission a

24 complete application for a certificate within 30 days

25 of the coverage being placed;
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1 (2) the reinsurer places all premiums in trust in

2 a qualified financial institution pending consider3 ation of its application, and provides evidence to the

4 Commission that all premiums from United States

5 ceding insurers have been placed in such trust;

6 (3) the reinsurer funds any liabilities pursuant

7 to reinsurance assumed in a manner consistent with

8 the requirements of section 303(e) and submits to

9 the Commission proof of such funding;

10 (4) the reinsurance agreement expressly pro11 vides that it may be canceled from inception or at

12 any subsequent time at the request of the Commis13 sion if the provider’s application for a certificate is

14 denied;

15 (5) the reinsurer is authorized in its State or

16 country of domicile to do an insurance business and

17 either has been doing business in its State or coun18 try of domicile for at least 3 years or is an affiliate

19 of an insurer which has been doing business in its

20 State or country of domicile for at least 3 years, ex21 cept that this 3 year operating requirement may be

22 waived by the Commission for good cause; and

23 (6) the ceding insurer has not, within the pre24 vious 3 years, taken a credit for reinsurance ceded

25 to the reinsurer pursuant to this subsection.
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1 (d) PREEMPTION.—No State shall regulate credit for

2 reinsurance whether purchased by federally certified insur3 ers or insurers regulated for financial condition by a State.

4 The Commission shall have exclusive jurisdiction to regu5 late such credit.

6 (e) EXCEPTIONS.—Notwithstanding any other provi7 sion of this section, a ceding insurer may count as an asset

8 or deduction from liabilities—

9 (1) reinsurance of risks located in jurisdictions

10 within or without the United States where such rein11 surance is required by applicable law of that juris12 diction;

13 (2) reinsurance ceded to a reinsurer which is li14 censed by one or more States and which is ceded

15 to—

16 (A) a member of the same holding com17 pany system as the ceding insurer; or

18 (B) an underwriting pool of which the

19 ceding insurer is a member;

20 (3) risks ceded to a pool authorized or per21 mitted by a statute, regulation, or policy of the

22 United States or under an arrangement approved by

23 the Federal or a State government;

24 (4) risks of a parent or affiliate ceded to a pure

25 or group captive insurer or reinsurer where the cap-
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1 tive’s obligations are funded or collateralized as pro2 vided in subsection (d) or (e) of section 303; or

3 (5) risks ceded to a risk retention group au4 thorized by and operating pursuant to the Liability

5 Risk Retention Act of 1986 (15 U.S.C. 3901 et seq.)

6 if the risk retention group’s obligations are funded

7 or collateralized as provided in subsection (d) or (e)

8 of section 303.

9 (f) EFFECT OF LOSS OF CERTIFICATION.—In the

10 event that the Commission suspends or revokes a certifi11 cate issued pursuant to this title or such certificate is lost

12 for any other reason, a ceding insurer may not count rein13 surance as an asset or a deduction from its liabilities on

14 its annual financial statement for any cessions made after

15 the date the certification ceases. For those cessions before

16 the loss of certification under this Act—

17 (1) a ceding insurer may continue to count as

18 an asset or deduction any funds withheld from such

19 reinsurer; and

20 (2) a ceding insurer may also continue to count

21 as an asset or deduction any unfunded reinsurance

22 for 90 days or such longer period as approved by the

23 Commission.
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1 A ceding insurer affected by the suspension or revocation

2 of a certificate issued pursuant to this title shall imme3 diately notify the Commission of this fact.

4 (g) EFFECTIVE DATE OF THIS SECTION.—This sec5 tion shall apply to cessions which take place 2 years after

6 the date of enactment of this Act.

7 SEC. 306. RELATIONSHIP TO STATE LAW.

8 (a) PREEMPTION.—

9 (1) A professional reinsurer certified pursuant

10 to section 302 shall be exempt from the application

11 of any State law or regulation pertaining to the li12 censing or regulation of reinsurers or reinsurance

13 transactions.

14 (2) An insurer or reinsurer with a reinsurance

15 certificate issued pursuant to section 303 shall be

16 subject to insurance regulation by a State unless

17 that insurer or reinsurer has a Federal certificate of

18 solvency, in which case the application of State law

19 shall be only as that provided for federally certified

20 insurers under title II.

21 (3) Any insurer or reinsurer described in para22 graph (1) or (2) that maintains its corporate exist23 ence pursuant to State law shall be subject to appli24 cable State tax and corporate governance laws.

25 (b) NONDISCRIMINATION.—
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1 (1) With respect to any State law requiring evi2 dence of insurance or of financial responsibility, re3 insurance contracts made by a professional reinsurer

4 certified pursuant to section 302 or by the holder of

5 a reinsurance certificate issued pursuant to section

6 303 shall be accorded the same treatment as is ac7 corded to such contracts issued by insurers subject

8 to regulation for financial condition by that State.

9 (2) No State shall revoke, suspend, refuse to

10 issue, or refuse to renew any license, privilege, char11 ter, certificate, franchise, or any other right con12 ferred, guaranteed, or protected by law because an

13 insurer or reinsurer obtains or maintains a certifi14 cate to provide reinsurance from the Commission.

15 No tax, fee, or assessment of any kind may be im16 posed on an insurer or reinsurer certified by the

17 Commission in any manner or on any basis different

18 from that applied to other insurers by that State.

19 No corporate charter or franchise issued to an in20 surer or reinsurer certified by the Commission shall

21 be rendered invalid or subject to revocation, lapse, or

22 forfeiture merely by reason of the failure of an in23 surer or reinsurer certified by the Commission to ob24 tain a license or certificate of authority issued by a
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1 State in addition to the certificate issued by the

2 Commission.

3 SEC. 307. CONSTRUCTION.

4 Nothing in this title shall be construed to conflict

5 with or override the agreement of the parties to a reinsur6 ance agreement to arbitrate their disputes if such obliga7 tion is created in the reinsurance agreement and would

8 not impair the financial soundness of the holder of a rein9 surance certificate issued under this title.

10 TITLE IV—REGULATORY

11 ENFORCEMENT

12 SEC. 401. AUTHORITY TO CONDUCT FINANCIAL EXAMINA13 TIONS OF INSURERS AND REINSURERS

14 (a) FEDERALLY CERTIFIED INSURERS AND REIN15 SURERS.—The Commission shall conduct examinations of

16 federally certified insurers and reinsurers. In the case of

17 a certification or surplus lines approval granted on the

18 basis of a trust fund or funding, the examination shall

19 be of such trust fund or funding.

20 (b) INSURERS REGULATED FOR FINANCIAL CONDI21 TION BY A STATE.—The State insurance regulator shall

22 conduct the examination of insurers subject to State regu23 lation for financial condition.
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1 SEC. 402. PROCEDURES FOR FINANCIAL EXAMINATION OF

2 INSURERS AND REINSURERS

3 (a) COMMISSION ESTABLISHMENT OF PROCEDURES

4 FOR FINANCIAL EXAMINATIONS.—The Commission shall

5 establish, by regulation, procedures for an effective system

6 of examining the activities, operations, financial condition,

7 and affairs of insurers and reinsurers. The Commission

8 shall follow such procedures for federally certified insurers

9 and reinsurers and the State insurance regulator shall fol10 low such procedures for the examination of insurers under

11 the regulator’s responsibility.

12 (b) INITIAL APPLICATION AND EXAMINATION.—The

13 Commission or State insurance regulator shall conduct an

14 initial examination of every insurer or reinsurer that ap15 plies for a Federal certificate of solvency or State insur16 ance license to determine if the applicant satisfies the na17 tional standards established under section 201.

18 (c) MANDATORY REVIEW OF FINANCIAL STATEMENT

19 AND QUARTERLY UPDATE.—The Commission or State in20 surance regulator shall conduct a review of the annual fi21 nancial statement of each insurer or reinsurer to deter22 mine if the insurer or reinsurer continues to meet the na23 tional standards established under section 201 or if there

24 is reason to conduct a special examination under sub25 section (d). On a quarterly basis, each such insurer and

26 reinsurer shall file an abbreviated update of the informa-
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1 tion contained in its annual financial statement. Such

2 quarterly update shall be in the form established by the

3 Commission. The Commission shall require such informa4 tion to be included in the quarterly filing as will allow the

5 Commission or State insurance regulator to detect any sig6 nificant changes in the financial condition of the insurer

7 or reinsurer.

8 (d) SPECIAL EXAMINATIONS.—In addition to the

9 mandatory review of the financial statement and quarterly

10 updates under subsection (c), the Commission or State in11 surance regulatory shall conduct a special examination of

12 an insurer or reinsurer whenever the Commission or State

13 insurance regulator, in its sole discretion, determines that

14 the insurer or reinsurer may be financially impaired, in

15 a financially hazardous condition, or for any other reason.

16 In determining the need for such examination, the Com17 mission or State insurance regulator shall consider—

18 (1) whether the insurers’ or reinsurers’ capital

19 has fallen by a material amount;

20 (2) whether the results of the annual review or

21 a review of the quarterly filings under this Act show

22 that financial problems exist, such as reasonableness

23 of reserves and changes in rates of growth;

24 (3) whether the asset portfolio is of sufficient

25 value or liquidity to assure the insurer’s or reinsur-
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1 er’s ability to meet its outstanding obligations as

2 they mature;

3 (4) whether a material affiliate, subsidiary, or

4 reinsurer is financially impaired or in a financially

5 hazardous condition;

6 (5) whether there are material amounts of over7 due reinsurance recoverables;

8 (6) whether management has knowingly failed

9 to respond to inquiries relative to the condition of

10 the insurer or has knowingly furnished inadequate,

11 false, or misleading information;

12 (7) a significant increase in net premiums writ13 ten or in the ratio of net premiums to net worth;

14 and

15 (8) any other matters that the Commission has

16 determined to be relevant.

17 (e) SCOPE OF EXAMINATIONS.—

18 (1)(A) The initial and special examinations pro19 vided for under subsection (c) and (d) shall be con20 ducted in accordance with procedures and standards

21 established by the Commission by regulation and

22 shall include an on site examination when, in the

23 Commission’s or State insurance regulator’s sole dis24 cretion, necessary to assure proper review. These

25 regulations shall provide for a review of all the fi-
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1 nancial records of the insurer or reinsurer that are

2 relevant to determining the financial condition of the

3 insurer or reinsurer after the Federal certificate or

4 State insurance license has been obtained.

5 (B) In order to most efficiently conduct initial

6 examinations on applications for a Federal certifi7 cate of solvency, the Commission shall provide for an

8 expedited examination process if applicants show

9 strong financial condition based on the following

10 considerations:

11 (i) The financial history of applicants and,

12 if relevant, their holding companies, including

13 historical ability to sustain unforeseen losses.

14 (ii) The current financial ratings of appli15 cants, and, if relevant, their holding companies.

16 (iii) The level of capitalization and reserves

17 of applicants and, if relevant, their holding

18 companies.

19 (iv) Such other factors as the Commission

20 determines to be relevant.

21 (2) The annual review required under sub22 section (c) shall consist of a focused review of basic

23 financial information to ensure continuing compli24 ance with the national standards established under

25 section 201 and to ensure that the insurer or rein-
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1 surer remains in good financial condition. The an2 nual review shall include—

3 (A) a review of the insurer’s or reinsurer’s

4 audited financial statements, actuarial reports

5 of reserves, and management discussion and

6 analysis statement;

7 (B) an analysis of unusual variations in

8 annual results or unusual financial ratios in

9 documents described in subparagraph (A); and

10 (C) a review of management’s explanation

11 of questions concerning the documents de12 scribed in subparagraph (A) and of the unusual

13 variations of ratios described in subparagraph

14 (B).

15 The annual review shall be completed within 3

16 months of the filing of the insurer’s or reinsurer’s

17 annual report, or, if the Commission or State insur18 ance regulator has requested the management to

19 provide an explanation under subparagraph (C),

20 within one month after the additional explanation is

21 provided. The Commission or State insurance regu22 lator may extend these dates for good cause shown.

23 (f) COOPERATION WITH EXAMINATIONS.—

24 (1) In the course of an examination, each in25 surer, reinsurer, its holding company or affiliate
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1 from which information is sought, and its officers

2 and directors must provide to the Commission or

3 State insurance regulator timely access to all books,

4 records, accounts, papers, documents, and any or all

5 computer or other recordings relating to the prop6 erty, assets, liabilities, business, and operations of

7 the insurer or reinsurer being examined. The refusal

8 to submit to such examination or to provide such in9 formation shall be grounds for revocation or

10 nonrenewal of the Federal certificate or State license

11 involved. Any Commission proceedings for revocation

12 or nonrenewal of a certificate shall include the op13 portunity for a hearing on the record. A State insur14 ance regulator shall follow the appropriate proce15 dures of State law for revocation and non-renewal.

16 (2) After an examination is completed, the

17 Commission or State insurance regulator shall have

18 the authority to use and, if appropriate, to make

19 public any examination, report on the examination,

20 or any other information discovered or developed

21 during the course of any examination in the further22 ance of any legal or regulatory action which the

23 Commission or State insurance regulator may, in its

24 sole discretion, determine to be appropriate. Nothing

25 in this Act shall limit any protection from disclosure
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1 of proprietary information consistent with Federal or

2 State law.

3 (g) EXAMINATION REPORTS.—

4 (1) No later than 30 days following completion

5 of an examination under subsection (d) or (e) or the

6 annual review under subsection (c), the Commission

7 or State insurance regulator shall transmit a report

8 on the results to the insurer or reinsurer, together

9 with a notice which shall afford the insurer or rein10 surer a reasonable opportunity of not more than 30

11 days to make a written submission or rebuttal with

12 respect to any matters contained in the report.

13 (2) Within 30 days of the end of the period al14 lowed for the receipt of written submissions or

15 rebuttals, the Commission or State insurance regu16 lator shall fully consider the report, together with

17 any written submissions or rebuttals and any rel18 evant portions of the examiner’s workpapers, and

19 adopt the report as filed or with modifications.

20 (3) The insurer or reinsurer shall take any ac21 tion required by the Commission or State insurance

22 regulator to meet the requirements of this section

23 and to correct material deficiencies identified in the

24 examination report.
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1 SEC. 403. ACCOUNTING STANDARDS AND INDEPENDENT

2 ACCOUNTANTS.

3 (a) ACCOUNTING STANDARDS.—The financial state4 ments of insurers and reinsurers shall be prepared in con5 formity with generally accepted accounting principles. In6 surers and reinsurers that obtain and maintain certificates

7 of solvency or State insurance license on the basis of trust

8 fund or funding mechanisms shall prepare the financial

9 statements as to such trust funds or mechanisms in con10 formity with these principles. The Commission may estab11 lish, by regulation, additional disclosure requirements ap12 plicable to reports required to be filed with it.

13 (b) INDEPENDENT ACCOUNTANTS.—Every insurer

14 and reinsurer shall retain an independent certified public

15 accountant or, in the case of a foreign certified insurer

16 or reinsurer, another independent person who is qualified,

17 as determined by the Commission under subsection (k),

18 to audit the financial statements of such insurer or rein19 surer in accordance with generally accepted auditing

20 standards.

21 (c) CORPORATE FINANCIAL RECORDS AND ACCESS

22 OF INDEPENDENT ACCOUNTANTS.—Every insurer and re23 insurer shall keep its financial records pursuant to rules

24 and regulations adopted by the Commission under this

25 section. The insurer or reinsurer shall provide the inde26 pendent accountant full access to all books, records, and
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1 accounts that are relevant to preparing and auditing fi2 nancial statements and reports the insurer or reinsurer

3 submits to the Commission or the State insurance regu4 lator.

5 (d) OBLIGATIONS OF THE ACCOUNTANT.—If, in the

6 course of conducting any audit pursuant to this title, the

7 independent accountant detects or otherwise becomes

8 aware of information that the financial statements of the

9 insurer or reinsurer—

10 (1) are materially affected by irregularities;

11 (2) reveal an illegal act (whether or not per12 ceived to have a material effect on the insurer’s or

13 reinsurer’s financial statements or condition) has

14 been committed; or

15 (3) show that there is substantial doubt of the

16 insurer’s or reinsurer’s ability to continue to operate

17 as a going concern over the ensuing fiscal year;

18 the accountant shall comply with subsection (e).

19 (e) REPORT TO CORPORATE OFFICERS.—If the inde20 pendent accountant detects or becomes aware of informa21 tion described in subsection (d), the accountant shall, as

22 soon as practicable, inform the appropriate level of the in23 surer’s or reinsurer’s management and assure that the in24 surer’s or reinsurer’s audit committee or board of direc25 tors in the absence of such a committee, is adequately in-
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1 formed with respect to any condition described in sub2 section (d) that has been detected or otherwise come to

3 the attention of such accountant in the course of the audit,

4 unless the condition is clearly inconsequential.

5 (f) RESPONSE TO FAILURE TO TAKE REMEDIAL AC6 TION.—If, after 45 days, having first assured itself that

7 the audit committee or the board (in the absence of an

8 audit committee) is adequately informed with respect to

9 the condition described in subsection (d), the independent

10 accountant concludes that—

11 (1) any such condition has a material effect on

12 the financial statements of the insurer or reinsurer,

13 (2) senior management has not taken, and the

14 board of directors has not caused senior manage15 ment to take, timely and appropriate remedial ac16 tions with respect to such condition, and

17 (3) the failure to take remedial action is reason18 ably expected to warrant departure from a standard

19 auditor’s report, when made, or warrant resignation

20 from the audit engagement,

21 the independent accountant shall as soon as practicable

22 report its conclusions directly to the board of directors.

23 (g) NOTICE TO COMMISSION; RESPONSE TO FAILURE

24 TO NOTIFY.—An insurer or reinsurer the board of direc25 tors of which has received a report pursuant to subsection
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1 (f) shall inform the Commission or the State insurance

2 regulator by notice within 5 business days of receipt of

3 such report and shall furnish the independent accountant

4 making such report with a copy of the notice furnished

5 the Commission or the State insurance regulator. If the

6 accountant making such report shall fail to receive a copy

7 of such notice within the required 5-business-day period,

8 the accountant shall—

9 (1) resign from the engagement; or

10 (2) furnish to the Commission or the State in11 surance regulator a copy of its report (or the docu12 mentation of any oral report given) within the 5

13 business days following such failure to receive notice.

14 (h) REPORT AFTER RESIGNATION.—An independent

15 accountant electing resignation shall, within the 10 busi16 ness days following a failure by an insurer or reinsurer

17 to notify the Commission or the State insurance regulator

18 under subsection (g), furnish to the Commission or the

19 State insurance regulator a copy of the accountant’s re20 port (or the documentation of any oral report given).

21 (i) RELIEF FROM CIVIL LIABILITY.—No independent

22 accountant shall be liable in a private action for any find23 ing, conclusion, or statement expressed in a report made

24 pursuant to subsection (g) or (h), including any rules pro25 mulgated by the Commission pursuant thereto.
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1 (j) CIVIL PENALTIES IN CEASE-AND-DESIST PRO2 CEEDINGS.—If the Commission finds, after notice and op3 portunity for a hearing, that an independent accountant

4 has willfully violated subsection (g) or (h), the Commission

5 may impose a civil penalty against the accountant and any

6 other person that the Commission finds was a cause of

7 such violation. The State insurance regulator may take

8 such action as is authorized by State law.

9 (k) REGULATIONS AND STANDARDS.—

10 (1) The Commission shall establish, by regula11 tion, procedures to be followed by independent ac12 countants in complying with subsections (g) and (h).

13 (2) The Commission shall establish by regula14 tion, the standards and procedures by which a per15 son who is not a certified public accountant in the

16 United States may become qualified to act as an

17 independent accountant for a foreign insurer or rein18 surer under subsections (g) and (h). Such standards

19 shall be substantially similar or equivalent to those

20 for certified public accountants in the United States.

21 (3) Foreign insurers and reinsurers applying

22 for or holding a Federal certificate on the basis of

23 the trust fund or funding mechanisms of paragraphs

24 (2) and (3) of section 303(c), respectively, shall not

25 generally be required to reconstruct the financial
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1 statements filed with their domestic regulators to

2 conform to generally accepted accounting principles

3 in the United States, although the Commission may

4 generally require explanations of the accounting

5 practices of foreign domiciliaries.

6 (l) DEFINITIONS.—As used in this section, the term

7 ‘‘illegal act’’ means any action or omission to act that

8 might have an adverse material effect on the financial con9 dition of an insurer or reinsurer and that violates any law

10 or any rule or regulation having the force of law.

11 SEC. 404. ACTUARIES.

12 (a) REQUIREMENT TO USE QUALIFIED ACTUAR13 IES.—The Board of Directors of each insurer and rein14 surer shall appoint an actuary who is qualified to issue

15 an opinion on the reasonableness of the reserves of such

16 insurer or reinsurer. A qualified actuary is a person who

17 is a member in good standing of the American Academy

18 of Actuaries or someone who is otherwise qualified as de19 termined by the Commission. The Board of Directors of

20 the certified insurer or reinsurer shall notify the Commis21 sion or the State in surance regulator of the name of

22 the appointed actuary at the time of the appointment and

23 shall notify the Commission or such regulator within 10

24 days when an appointed actuary is dismissed, resigns, or

25 otherwise leaves the position.
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1 (b) STANDARDS FOR RESERVE ASSESSMENT.—Every

2 insurer and reinsurer shall have its actuarial liabilities

3 analyzed and its reserves, as defined by the Commission,

4 evaluated pursuant to rules and regulations adopted by

5 the Commission and shall file with its annual financial

6 statements a report describing the conclusions of the anal7 ysis. Such evaluation shall be done and such report of con8 clusions shall be written by the appointed actuary pursu9 ant to guidelines, standards, procedures, and forms to be

10 adopted by the Commission through its rulemaking proc11 ess. For an insurer or reinsurer certified or licensed on

12 the basis of a trust fund or funding mechanism, the actu13 ary’s report shall cover only those liabilities required to

14 be held within the trust funds or for the funding.

15 (c) ACCESS TO CORPORATE DOCUMENTS.—Every in16 surer or reinsurer shall provide its appointed actuary with

17 full access to all financial data of the insurer or reinsurer

18 that is relevant to evaluating reserves. The actuary shall

19 provide annually to the Board of Directors of the insurer

20 or reinsurer a written report of the actuarial analysis and

21 findings on which the evaluation of the reasonableness of

22 reserves was based. Such written report shall conform to

23 standards promulgated by the Actuarial Standards Board

24 and such other requirements as may be adopted through

25 rules of the Commission.
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1 (d) REPORT TO CORPORATE OFFICERS.—If at any

2 time, in the opinion of the appointed actuary, reserves fall

3 below the range of reasonable estimates, then the actuary

4 shall, within 10 days, notify in writing the chief executive

5 officer and the Chairman or the Board of Directors of this

6 opinion.

7 (e) REPORT BY THE CORPORATION.—If the chief ex8 ecutive officer and chairman of the Board of Directors of

9 an insurer or reinsurer receive a notice from the appointed

10 actuary under subsection (d), such officer and chairman

11 shall, within 90 days, either correct the deficiency or ob12 tain an assessment from an independent qualified actuary

13 of the reasonableness of the appointed actuary’s opinion.

14 If the opinion of the independent actuary is that the re15 serves are deficient, the insurer or reinsurer, within 45

16 days after receipt of such assessments, shall implement

17 a plan to correct the reserve deficiency. The appointed ac18 tuary and the independent actuary shall be provided with

19 written notice of the corrective actions taken. If a remedial

20 plan is not implemented within such 45 days, the chief

21 executive officer and chairman of the Board of Directors

22 shall immediately notify the Commission or the State in23 surance regulator in writing of the deficiency and shall

24 furnish to the Commission or such regulator in writing

25 true and complete copies of all actuarial reports, opinions,
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1 and assessments received by the insurer or reinsurer since

2 the last filed annual financial statement.

3 (f) REPORT BY THE ACTUARY.—If the chief executive

4 officer and chairman of the Board of Directors do not pro5 vide evidence to each actuary consulted that the remedial

6 plan has been implemented within the 135 days provided

7 in subsection (e), each such actuary shall immediately no8 tify the Commission or the State insurance regulator in

9 writing of the actuary’s opinion provided to the Board that

10 the reserves may be deficient.

11 (g) RELIEF FROM CIVIL LIABILITY.—An actuary

12 who in good faith complies with the reporting require13 ments of subsection (f) shall not be liable in any civil ac14 tion for damages attributable to such reporting.

15 (h) REGULATIONS.—The Commission shall issue reg16 ulations to be followed by property and casualty and life

17 and health insurers and reinsurers and by appointed actu18 aries in complying with this title.

19 SEC. 405. REGISTRATION OF INSURERS AND REINSURERS

20 IN HOLDING COMPANIES.

21 (a) REGISTRATION OF HOLDING COMPANY STA22 TUS.—Each insurer or reinsurer that is incorporated or,

23 in the case of a United States branch of a foreign insurer

24 or reinsurer, established pursuant to the laws of the Unit25 ed States or any State thereof, and is part of a holding
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1 company system shall file with the Commission, if the in2 surer or reinsurer is federally certified, or the State insur3 ance regulator, if the insurer or reinsurer is regulated for

4 financial condition by a State, information as to the struc5 ture and members of such system as provided by this sec6 tion. The Commission shall establish, by regulation, the

7 form and contents of the filings of such information.

8 (b) ALTERNATIVE REGISTRATION FOR FOREIGN IN9 SURERS OR REINSURERS.—Each foreign insurer or rein10 surer that is subject to holding company registration re11 quirements and standards adopted by statute or regula12 tion in the jurisdiction of its domicile which are substan13 tially similar to those established under this section shall

14 file with the Commission or State insurance regulator a

15 copy of its domiciliary registration. The Commission or

16 State insurance regulator shall determine if the foreign

17 registration requirements and standards of the jurisdiction

18 of domicile are substantially similar to those established

19 under subsection (a). If the Commission or State insur20 ance regulator determines that such filing is not substan21 tially similar, the foreign insurer or reinsurer shall file in22 formation as required by subsection (a).

23 (c) TIME OF REGISTRATION.—Any insurer or rein24 surer that is subject to registration under this section shall

25 register within 15 days after it becomes subject to reg-
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1 istration, and shall update this registration annually

2 thereafter at the time it files its annual statement with

3 the Commission or the State insurance regulator. The

4 Commission or the State insurance regulator for good

5 cause may extend the time for registration.

6 SEC. 406. ACQUISITION OF CONTROL OF OR MERGER WITH

7 AN INSURER OR REINSURER.

8 (a) FEDERALLY CERTIFIED INSURERS AND REIN9 SURERS.—The Commission shall review any acquisition of

10 control over or merger with a federally certified insurer

11 or reinsurer. No such acquisition or merger shall be con12 summated without first obtaining the approval of the

13 Commission. Any such acquisition or merger shall be dis14 approved if it would threaten the financial stability, sound15 ness, or solvency of such insurer or reinsurer. In the event

16 of a change of control of a foreign insurer or reinsurer

17 certified on the basis of a trust fund or funding mecha18 nism, the existing certification shall become contingent

19 upon the review of the impact of the transaction upon the

20 ability of such insurer or reinsurer to continue to meet

21 the standards for certification.

22 (b) INSURERS REGULATED FOR FINANCIAL CONDI23 TION BY A STATE.—The State insurance regulator shall

24 review any acquisition of control over or merger with an

25 insurer or reinsurer subject to State regulation for finan-
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1 cial condition. No such acquisition or merger shall be con2 summated without first obtaining the approval of the

3 State insurance regulator. Any such acquisition or merger

4 shall be disapproved if it would threaten the financial sta5 bility, soundness, and solvency of the insurer or reinsurer.

6 In the event of a change of control of a foreign insurer

7 or reinsurer licensed on the basis of a trust fund or fund8 ing mechanism, the existing license shall become contin9 gent upon the review of the impact of the transaction upon

10 the ability of such insurer or reinsurer to continue to meet

11 the standards for licensing

12 (c) PROCEDURES FOR REVIEW OF ACQUISITION AND

13 MERGER.—

14 (1) IN GENERAL.—The Commission shall estab15 lish, by regulation, the procedures and information

16 that must be provided to the Commission or the

17 State insurance regulator so that it may make a de18 cision as to the appropriateness of any acquisition or

19 merger. This information shall be provided to the

20 Commission or the State insurance regulator under

21 oath or affirmation.

22 (2) DISAPPROVAL.—In making a determination

23 to disapprove an acquisition or merger, the Commis24 sion or the State insurance regulator shall con25 sider—
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1 (A) the financial condition of the acquiring

2 person;

3 (B) the trustworthiness of the acquiring

4 person or any of its officers or directors;

5 (C) a plan for the proper and effective con6 duct of the insurer’s or reinsurer’s operations;

7 (D) the source of the funds or asset for the

8 acquisition;

9 (E) the fairness of any exchange of shares,

10 assets, cash, or other consideration for the

11 shares or assets to be received; and

12 (F) whether the acquisition is likely to be

13 hazardous or prejudicial to the insurer’s policy14 holders or the insurer’s or reinsurer’s share15 holders.

16 (d) NOTICE TO AFFECTED INSURER OR REIN17 SURER.—If a person intends to make an offer or enter

18 into an agreement to acquire control of or merge with an

19 insurer or reinsurer, such person shall provide to the af20 fected insurer or reinsurer, at the same time it files with

21 the Commission or the State insurance regulator under

22 this section, a copy of such filing.

23 (e) FILING REQUIREMENTS.—Any person, other than

24 the issuer, that —
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1 (1)(A) makes a tender offer for or a request or

2 invitation for tenders or a solicitation of proxies of

3 as to an insurer or reinsurer; or

4 (B) enters into any agreement to exchange se5 curities or, seeks to acquire, or acquires, in the open

6 market or otherwise, or solicits proxies for any vot7 ing security of an insurer or reinsurer when, after

8 the consummation thereof, such person would, di9 rectly or indirectly (or by conversion or by exercise

10 of any right to acquire) be in control of such insurer

11 or reinsurer; and

12 (2) intends to enter into an agreement to merge

13 with or otherwise to acquire control of an insurer or

14 reinsurer or any person with control thereof,

15 shall, at the time any such offer, request, or invitation is

16 made or any such agreement or merger is entered into,

17 or prior to the acquisition of such securities if no offer

18 or agreement is involved, file with the Commission or the

19 State insurance regulator the information required under

20 this section.

21 (f) APPROVAL OF ACQUISITION OR MERGER.—After

22 reviewing the information provided under this section, the

23 Commission or the State insurance regulator shall dis24 approve any acquisition or merger unless it finds, after

25 providing the opportunity for a hearing on the record, that
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1 the acquisition or merger would not threaten the financial

2 stability, financial soundness, or solvency of any affected

3 federally certified insurer or reinsurer, or substantially

4 lessen competition in any line of insurance. The State in5 surance regulator shall follow the procedures of applicable

6 State law in issuing a disapproval under this section.

7 (g) CONTROL DETERMINATION.—The Commission or

8 the State insurance regulator may determine upon appli9 cation that any person does not or will not upon the taking

10 of some proposed action control an insurer or reinsurer.

11 Such determination shall be made within 30 days or such

12 further period as the Commission may prescribe by regula13 tion. The good faith filing of the application by any person

14 shall relieve the applicant of complying with the require15 ments to obtain approval until the Commission or the

16 State insurance regulator has acted upon the application.

17 The Commission may prospectively revoke or modify the

18 determination, after notice and opportunity for a hearing

19 on the record, whenever a revocation or modification is

20 necessary to protect the financial condition of a federally

21 certified insurer or reinsurer. The State insurance regu22 lator may revoke or modify such a determination in ac23 cordance with the procedure of applicable State law.
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1 SEC. 407. SPECIAL PROCEDURES AS TO THE ACQUISITION

2 OF A FEDERALLY CERTIFIED INSURER OR

3 REINSURER.

4 (a) IN GENERAL.—Federally certified insurers or re5 insurers may be affiliated with insurers or reinsurers that

6 are not federally certified.

7 (b) EXCLUSIVE JURISDICTION OF THE COMMIS8 SION.—Acquisitions, mergers, and similar transactions

9 that involve only federally certified insurers or reinsurers

10 shall be subject to the approval of the acquisition, merger,

11 or similar transaction solely by the Commission.

12 (c) JURISDICTION OF THE COMMISSION AND STATE

13 INSURANCE REGULATORS.—The Commission or State in14 surance regulator may prohibit, refuse to approve, or ap15 prove, subject to any conditions the Commission sets, any

16 acquisition, merger, or similar transaction if such trans17 action involves both a federally certified insurer or rein18 surer and an insurer subject to regulation of financial con19 dition by a State.

20 SEC. 408. TRANSACTIONS WITHIN A HOLDING COMPANY

21 SYSTEM THAT INCLUDES AN INSURER OR RE22 INSURER.

23 (a) TRANSACTIONS WITHIN A HOLDING COMPANY

24 SYSTEM.— Transactions within a holding company system

25 which includes an insurer or reinsurer and with respect
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1 to such insurer or reinsurer shall be subject to the follow2 ing standards:

3 (1) The terms shall be fair and reasonable.

4 (2) Charges or fees for services performed shall

5 be reasonable.

6 (3) Expenses incurred and payment received

7 shall be allocated to the insurer or reinsurer in con8 formity with customary insurance accounting prac9 tices consistently applied.

10 (4) The books, accounts, and records of each

11 party to all such transactions shall be so maintained

12 as to clearly and accurately disclose the nature and

13 details of the transactions including such accounting

14 information as is necessary to support the reason15 ableness of the charges or fees to the respective par16 ties.

17 (5) The insurer’s or reinsurer’s net worth fol18 lowing any dividends or distributions to shareholder

19 affiliates shall be reasonable in relation to its out20 standing liabilities and adequate to its financial

21 needs.

22 (b) PRIOR APPROVAL.—The Commission’s or the

23 State insurance regulator’s prior approval shall be re24 quired for the following transactions between an insurer

25 or reinsurer and any affiliate within a holding company
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1 system if they involve 5 percent or more of the assets of

2 the federally certified insurer or reinsurer at the end of

3 the preceding year:

4 (1) Sales.

5 (2) Purchases.

6 (3) Exchanges.

7 (4) Loans or extensions of credit.

8 (5) Investments.

9 (c) PRIOR NOTIFICATION.—The following trans10 actions between an insurer or reinsurer and any affiliate

11 within a holding company system may not be entered into

12 unless such insurer or reinsurer has notified the Commis13 sion or the State insurance regulator at least 30 days prior

14 thereto, or such shorter period as the Commission or the

15 State insurance regulator may permit, and if the Commis16 sion or the State insurance regulator has not disapproved

17 such transaction within this period:

18 (1) Sales, purchases, loans, or extensions of

19 credit involving more than one-half of 1 percent but

20 less than 5 percent of the insurer’s or reinsurer’s as21 sets at last year-end.

22 (2) Reinsurance treaties or agreements in which

23 the reinsurance premium exceeds 5 percent of the

24 insured’s net worth at the end of the preceding year.
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1 (3) Rendering services on a regular or system2 atic basis.

3 (4) Any material transaction specified by regu4 lation of the Commission that may adversely affect

5 the interests of the insurer’s policyholders or share6 holders.

7 This subsection shall not be construed to authorize any

8 transaction which would otherwise be contrary to law.

9 SEC. 409. ENFORCEMENT AND PENALTIES.

10 (a) AUTHORITY OF THE COMMISSION AND STATE IN11 SURANCE REGULATORS.—

12 (1) ENFORCEMENT AND PENALTY AUTHORITY

13 OF THE COMMISSION.—The Commission shall have

14 enforcement and penalty authority as to federally

15 certified insurers and reinsurers for violations of this

16 Act.

17 (2) ENFORCEMENT AND PENALTY AUTHORITY

18 OF THE STATE INSURANCE REGULATOR.— The ap19 propriate State insurance regulator shall have en20 forcement and penalty authority as to violations of

21 this Act and as to the insurers licensed in the State

22 that do not hold a Federal certificate of solvency.

23 The State insurance regulator shall continue to have

24 any other enforcement and penalty powers author25 ized under State law as to such insurers.
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1 (3) JUDICIAL ACTIONS.—Judicial actions to en2 force this Act shall be before the appropriate Fed3 eral court unless the action involves the enforcement

4 by a State insurance regulator, in which case the ac5 tion shall be brought in the appropriate State court.

6 (b) CIVIL FINE.—The Commission may suspend or

7 revoke, after an opportunity for a hearing on the record,

8 the certificate of any federally certified insurer or rein9 surer which knowingly fails to comply with this Act. In

10 addition to, or in lieu of suspension or revocation, any cer11 tified insurer or reinsurer which knowingly violated this

12 Act or any foreign insurer that transacts the business of

13 insurance in violation of section 203(e) may be fined by

14 the Commission in an amount not to exceed $10,000 for

15 each violation. The State insurance regulator shall follow

16 the procedure of applicable State law in suspending or re17 voking an insurance license or seeking to impose a fine

18 on an insurer subject to State regulation for financial con19 dition for failure to comply with this Act.

20 (c) EARLY ADMINISTRATIVE INTERVENTION BY THE

21 COMMISSION OR STATE INSURANCE REGULATOR.—When22 ever it appears that any insurer or reinsurer may become

23 insolvent or financially impaired, or does not meet applica24 ble standards governing net worth or reserves or is other25 wise not in compliance with the requirements of this Act,
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1 the Commission or State insurance regulator may issue

2 an order requiring the insurer or reinsurer to take prompt

3 corrective action or imposing restrictions on the insurer’s

4 or reinsurer’s operations or management. Such orders

5 may require the insurer or reinsurer to increase its net

6 worth or reserves, stop writing new business, limit growth

7 in premiums, limit dividend payments, require the election

8 of new directors, or require the filing of a plan dem9 onstrating how the insurer or reinsurer will come into

10 compliance with the requirements of this Act.

11 (d) CEASE AND DESIST ORDERS.—Whenever it ap12 pears that any insurer or reinsurer or any director, officer,

13 employee, or other person has committed or is about to

14 commit a violation of the requirements of this Act as to

15 a federally certified insurer or reinsurer, the Commission

16 may, after providing the opportunity for a hearing on the

17 record, issue an order that such insurer or reinsurer not

18 take such action. The State insurance regulator may take

19 such action as to an insurer subject to State regulation

20 of financial condition under the procedures of applicable

21 State law.

22 (e) PROHIBITIONS AGAINST VOTING OF SECURI23 TIES.—A security which is the subject of any agreement

24 or arrangement regarding acquisition, or which is acquired

25 or to be acquired, in contravention of this Act may not
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1 be voted at any shareholder’s meeting, and may not be

2 counted for quorum purposes. Any action of shareholders

3 requiring the affirmative vote of a percentage of shares

4 may be taken as though such a security was not issued

5 and outstanding. Any action taken at any such meeting

6 shall not be invalidated by the voting of such security un7 less the action would materially affect control of the in8 surer or reinsurer or unless a court has so ordered.

9 (f) SEQUESTRATION OF VOTING SECURITIES.—In

10 any case where a person has acquired or is proposing to

11 acquire any voting securities in violation of the national

12 standards established under section 201, a court may, on

13 such notice as the court determines to be appropriate, and,

14 upon the application of the insurer or reinsurer or the

15 Commission or the State insurance regulator, seize or se16 quester any voting securities of the insurer or reinsurer

17 owned directly or indirectly by such person, and issue such

18 order with respect thereto as may be appropriate.

19 (g) PENALTIES FOR VIOLATIONS OF REGISTRATION

20 REQUIREMENTS.—After providing the opportunity for a

21 hearing on the record, the Commission may impose on any

22 federally certified insurer or reinsurer that fails, without

23 just cause, to file any registration statement as required

24 in this Act a civil fine of up to $10,000 for each day’s

25 delay. In determining the amount of the fine, the Commis-
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1 sion shall take into account the appropriateness of the civil

2 fine with respect to the gravity of the violation, the history

3 of previous violations, and such other matters as justice

4 may require. The State insurance regulator shall follow

5 the applicable State procedure to impose any such fine on

6 an insurer subject to State regulation for financial condi7 tion.

8 (h) PENALTIES FOR PROHIBITED TRANSACTIONS.—

9 After providing the opportunity for a hearing on the

10 record, the Commission may impose on a director or offi11 cer of a holding company system that involves a federally

12 certified insurer or reinsurer which knowingly violates this

13 Act, participates in, or assents to, such violation or who

14 knowingly permits any officer or other person—

15 (1) to engage in transactions having an adverse

16 material effect on the financial condition of a feder17 ally certified insurer or reinsurer; or

18 (2) to make investments which have not been

19 properly reported to the Commission; not been ap20 proved by the Commission, if such approval is re21 quired; or are otherwise not in compliance with this

22 title,

23 a civil fine of not more than $5,000 per violation. In deter24 mining the amount of the civil fine, the Commission shall

25 take into account the appropriateness of the forfeiture
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1 with respect to the gravity of the violation, the history of

2 previous violations, and such other matters as justice may

3 require. The State insurance regulator shall follow the ap4 plicable State procedure to impose any such fine on an

5 insurer subject to State regulation for financial condition.

6 SEC. 410. FEDERAL INSURER AND REINSURER EMPLOYEE

7 PROTECTION REMEDY.

8 (a) PROHIBITION AGAINST DISCRIMINATION

9 AGAINST EMPLOYEES.—No insurer or reinsurer may dis10 charge or otherwise discriminate against any employee

11 with respect to compensation, terms, conditions, or privi12 leges of employment because the employee (or any person

13 acting pursuant to the request of the employee) provided

14 information to the Commission, to the Attorney General,

15 or to a State insurance regulator regarding a possible vio16 lation of any law or regulation by the insurer or reinsurer

17 or any of its officers, directors, or employees.

18 (b) ENFORCEMENT.—Any employee or former em19 ployee who believes that the employee has been discharged

20 or discriminated against in violation of subsection (a) may

21 file a civil action in the appropriate United States district

22 court before the close of the 2-year period beginning on

23 the date of such discharge or discrimination. The com24 plainant shall also file a copy of the complaint initiating
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1 such action with the Commission or the State insurance

2 regulator.

3 (c) REMEDIES.—If the district court determines that

4 a violation of subsection (a) has occurred, it may order

5 the insurer which committed the violation—

6 (1) to reinstate the employee to the employee’s

7 former position, including any promotion withheld,

8 (2) to provide back pay,

9 (3) to pay compensation for any costs or losses

10 incurred because of a violation of subsection (a), in11 cluding attorneys’ fees, or

12 (4) take other appropriate actions, other than

13 general and punitive damages, to remedy any past

14 discrimination.

15 (d) LIMITATION.—The protections of this section

16 shall not apply to any employee who—

17 (1) deliberately causes or participates in the al18 leged violation of law or regulation, or

19 (2) knowingly or recklessly provides substan20 tially false information.

21 (e) FALSE ACCUSATION.—Any insurer or reinsurer

22 as to which a false accusation is made under this section

23 may bring an action against any employee who knowingly

24 or recklessly made such accusation. In such action, the

25 insurer or reinsurer may recover the costs incurred in de-
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1 fending against such accusation. The insurer or reinsurer

2 may also take appropriate action against the employee in3 volved with respect to the compensation, terms, conditions,

4 and privileges of employment, including termination, if its

5 action is successful.

6 TITLE V—NATIONAL INSURANCE

7 PROTECTION CORPORATION

8 SEC. 501. NATIONAL INSURANCE PROTECTION CORPORA9 TION.

10 There is established a body corporate to be known

11 as the National Insurance Protection Corporation. NIPC

12 shall be a nonprofit corporation and shall have succession

13 until dissolved by an Act of Congress. NIPC shall—

14 (1) not be an agency or establishment of the

15 United States Government; and

16 (2) except as otherwise provided in this Act, be

17 subject to, and have all the powers conferred upon

18 a nonprofit corporation by, the District of Columbia

19 Nonprofit Corporation Act (D.C. Code, sec. 29–1001

20 et seq.).

21 SEC. 502. PURPOSE.

22 The purpose of NIPC is to provide timely payment

23 and protection against losses due to, and, in appropriate

24 circumstances as set forth in this Act, provide continu25 ation of coverage in the event of, the financial impairment
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1 or insolvency of insurers which hold Federal certificates

2 of solvency by providing prompt fulfillment of insurance

3 benefits to the extent of NIPC’s obligation under this Act.

4 SEC. 503. RELATIONSHIP TO THE FEDERAL GOVERNMENT.

5 (a) ROLE OF THE FEDERAL INSURANCE SOLVENCY

6 COMMISSION.—NIPC shall be subject to the supervision

7 and oversight of the Commission.

8 (b) NIPC NOT COVERED BY FULL FAITH AND

9 CREDIT OF U.S. OR IN UNITED STATES BUDGET.—

10 (1) The obligations of NIPC shall not be

11 backed, directly or indirectly, by the full faith and

12 credit of the United States. NIPC shall receive no

13 financial assistance from or have any authority to

14 borrow from the United States.

15 (2) Funds held by or due to NIPC shall not be

16 included in the budget of the United States, nor may

17 the United States borrow or pledge such funds.

18 SEC. 504. MEMBERSHIP.

19 (a) IN GENERAL.—Each insurer holding a certificate

20 of solvency issued by the Commission under title II that

21 provides insurance subject to coverage under this title

22 shall be a member of NIPC so long as such certificate

23 has not been revoked or suspended by the Commission.

24 (b) EFFECT OF SUSPENSION OR REVOCATION.—

25 NIPC’s obligation to pay the covered claims of a federally
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1 certified insurer shall apply to claims under policies or

2 contracts effective prior to the revocation or suspension

3 of the insurer’s certificate of solvency. A member insurer

4 shall be subject to assessments based on financial impair5 ments or insolvencies on which the Commission takes ac6 tion when it is a member of NIPC.

7 (c) EXCEPTIONS.—

8 (1) Risk retention groups and captive insurers

9 that have certificates of solvency shall not be mem10 bers of NIPC.

11 (2) A federally certified insurer that obtains ap12 proval to provide surplus lines insurance under sec13 tion 203 shall not participate in NIPC for the pur14 pose of business written under that approval.

15 SEC. 505. CORPORATE POWERS.

16 NIPC shall have the power—

17 (1) to sue and be sued, in its corporate name

18 and through its own counsel;

19 (2) to adopt, alter, and use a corporate seal,

20 which shall be judicially noticed;

21 (3) to adopt, amend, and repeal, by its Board

22 of Directors, such bylaws and rules as may be nec23 essary or appropriate to carry out the purposes of

24 this Act, including bylaws relating to—

25 (A) the conduct of its business; and
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1 (B) the indemnity of its directors, officers,

2 and employees for liabilities and expenses actu3 ally and reasonably incurred by any such person

4 in connection with the defense or settlement of

5 an action or suit if such person acted in good

6 faith and in a manner reasonably believed to be

7 consistent with the purposes of this title;

8 (4) to adopt, amend, and repeal, by its Board

9 of Directors such rules as may be necessary or ap10 propriate to carry out the purposes of this title, in11 cluding rules relating to—

12 (A) the definition of terms used in this

13 title, other than those terms for which a defini14 tion is provided herein;

15 (B) the procedures for payment of losses,

16 loss adjustment expenses, and other obligations

17 of NIPC; and

18 (C) the exercise of all other rights and

19 powers granted to it by this Act;

20 (5) to conduct its business (including the carry21 ing on of operations and the maintenance of offices)

22 and to exercise all other rights and powers granted

23 to it by this Act in any State or other jurisdiction

24 without regard to any qualification, licensing, or
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1 other statutory requirement in such State or other

2 jurisdiction;

3 (6) to lease, purchase, accept gifts or donations

4 of or otherwise acquire, to own, hold, improve, use,

5 or otherwise deal in or with, and to sell, convey,

6 mortgage, pledge, lease, exchange or otherwise dis7 pose of any property, real, personal or mixed, or any

8 interest therein, wherever situated;

9 (7) to elect or appoint such officers, attorneys,

10 employees, and agents as may be required, to deter11 mine their qualifications, to define their duties, to

12 fix their salaries, require bonds for them, and fix the

13 penalty thereof;

14 (8) to enter into contracts, to execute instru15 ments, to incur liabilities, and to do any and all

16 other acts and things as may be necessary or inci17 dental to the conduct of its business and the exercise

18 of all other rights and powers granted to NIPC by

19 this Act;

20 (9) to provide continued coverage for other than

21 property and casualty insurance and to pay benefits

22 and claims owed by member insurers declared by the

23 Commission to be impaired or insolvent to the extent

24 and in the manner provided in this Act;
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1 (10) to investigate, adjust, and settle claims

2 covered by this title, and to challenge judicial deci3 sions and settlements affecting such claims;

4 (11) to levy and collect assessments upon its

5 members, in the manner and to the extent provided

6 elsewhere in this Act, to cover the administrative ex7 penses of NIPC, and to provide the funds necessary

8 to discharge the obligations of NIPC imposed by this

9 Act;

10 (12) to sue members for unpaid assessments

11 plus interest at a rate to be set forth in the bylaws;

12 (13) to manage and maintain the financial in13 tegrity of the funds established by this Act, includ14 ing the investment of assessments paid by members

15 and borrowing as necessary to fulfill NIPC’s guar16 anty obligations; and

17 (14) to provide advice and recommendations to

18 Congress, the courts and the Commission on matters

19 pertaining to insurer financial conditions, insolvency,

20 or otherwise addressed by this Act.

21 SEC. 506. BOARD OF DIRECTORS.

22 (a) POWERS.—The Board of Directors shall be the

23 governing body of NIPC and shall be vested with all pow24 ers necessary for the management and administration of

25 the affairs of the Corporation and the promotion of its
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1 purposes as authorized by this Act. The Board’s authority

2 shall be specified in the bylaws of NIPC.

3 (b) COMPOSITION.—The Board shall be composed of

4 7 members or such higher number as determined by the

5 Board and as approved by the Commission. All directors

6 shall be elected by the membership of NIPC and approved

7 by the Commission. The bylaws of NIPC shall require that

8 directors be selected in a manner fairly representing the

9 various types of insurers and lines of insurance as to

10 which NIPC has guaranty obligations.

11 (c) TERMS.—The term of each director shall, after

12 the first election, be for three years, with one-third of the

13 directors to stand for election each year. Directors may

14 be elected to serve for any number of terms.

15 (d) VACANCIES.—A vacancy in the Board shall be

16 filled in the same manner as the original appointment.

17 (e) COMPENSATION.—All matters relating to com18 pensation of directors shall be as provided in the bylaws

19 of NIPC.

20 (f) INITIAL APPOINTMENTS.—The Commission shall

21 appoint an initial Board to carry out the establishment

22 of the bylaws and the first elections of NIPC.
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1 SEC. 507. CHAIRPERSON AND VICE CHAIRPERSON.

2 (a) ELECTION.—The member insurers of NIPC shall

3 select the chairperson and vice chairperson from among

4 those candidates for the Board.

5 (b) INITIAL APPOINTMENTS.—The Commission shall

6 select the initial chairperson and vice chairperson from

7 among the initial appointments to the Board under section

8 506. The persons so selected shall carry out the authori9 ties of office until the first election by the member insur10 ers. They shall act to ensure that such election is sched11 uled at the earliest appropriate time.

12 SEC. 508. OFFICERS.

13 The officers of NIPC shall consist of a chairman, a

14 vice chairman, a president, a secretary, and a treasurer,

15 and may include one or more vice presidents and such

16 other officers and assistant officers as may be deemed nec17 essary, each of whom shall be elected or appointed at such

18 time and in such manner and for such terms not exceeding

19 three years as may be prescribed by bylaw. In the absence

20 of any such provision, all officers shall be elected or ap21 pointed annually by the Board of Directors.

22 SEC. 509. MEETINGS OF BOARD.

23 The Board of Directors shall meet at the call of its

24 Chairman, or as otherwise provided by the bylaws of

25 NIPC.
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1 SEC. 510. BYLAWS AND RULES.

2 (a) ADOPTION AND AMENDMENT OF BYLAWS.—The

3 Board of Directors of NIPC shall file with the Commission

4 a copy of the proposed bylaws or any proposed amendment

5 to the bylaws, accompanied by a concise general statement

6 of the basis and purpose of such proposal. The proposed

7 bylaws and each proposed amendment shall take effect 30

8 days after the date of the filing of a copy thereof with

9 the Commission, or upon such later date as NIPC may

10 designate or such earlier date as the Commission may de11 termine, unless—

12 (1) the Commission, by notice to NIPC setting

13 forth the reasons therefore, disapproves such pro14 posal as being contrary to the public interest or con15 trary to the purposes of this title; or

16 (2) the Commission finds that such proposal in17 volves a matter of such significant public interest

18 that public comment should be obtained, in which

19 case it may, after notifying NIPC in writing of such

20 finding, require that the procedures set forth in sub21 section (b) be followed with respect to such proposal,

22 in the same manner as if such proposed bylaw

23 change were a proposed rule change within the

24 meaning of such paragraph.

25 (b) ADOPTION AND AMENDMENT OF RULES.—
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1 (1) The Board of Directors of NIPC shall file

2 with the Commission, in accordance with its regula3 tions, a copy of any proposed rule or any proposed

4 amendment to a rule of NIPC accompanied by a

5 concise general statement of the basis and purpose

6 of such proposal. The Commission shall, upon the

7 filing of any proposal, publish notice thereof, to8 gether with the terms of substance of such proposal

9 or a description of the subjects and issues involved.

10 The Commission shall give interested persons an op11 portunity to submit written views, and arguments

12 with respect to such proposal. No proposed rule or

13 amendment shall take effect unless approved by the

14 Commission or otherwise permitted in accordance

15 with this paragraph.

16 (2) Within 35 days after the date of publication

17 of notice of the filing of a proposal, or within such

18 longer period as the Commission may designate of

19 not more than 90 days after such date if it finds

20 such longer period to be appropriate and publishes

21 its reasons for so finding, or as to which NIPC con22 sents, the Commission shall—

23 (A) by order approve such proposed rule or

24 amendment; or
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1 (B) institute proceedings to determine

2 whether such proposed rule or amendment

3 should be modified or disapproved.

4 (3) Proceedings instituted with respect to a pro5 posed rule or amendment pursuant to paragraph

6 (2)(B) shall include notice of the grounds for dis7 approval under consideration and opportunity for

8 hearing, and shall be concluded within 180 days

9 after the date of publication of notice of the filing

10 of such proposed rule or amendment. At the conclu11 sion of such proceedings, the Commission shall, by

12 order, approve or disapprove such proposed rule or

13 amendment. The Commission may extend the time

14 for conclusion of such proceedings for not more than

15 60 days if it finds good cause for such extension and

16 publishes its reasons for so finding, or for such

17 longer period as to which NIPC consents.

18 (4) The Commission shall approve a proposed

19 rule or amendment if it finds that it is in the public

20 interest and is consistent with the purposes of this

21 title, and any proposed rule or amendment so ap22 proved shall be given force and effect as if promul23 gated by the Commission. The Commission shall dis24 approve a proposed rule or amendment if it does not

25 make the finding referred to in the preceding sen-
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1 tence. The Commission shall not approve any pro2 posed rule change prior to 30 days after the date of

3 publication of notice of the filing thereof, unless the

4 Commission finds good cause for so doing and pub5 lishes its reasons for so finding.

6 (5) Notwithstanding any other provision of this

7 subsection, a proposed rule or amendment may take

8 effect—

9 (A) upon the date of filing with the Com10 mission, if such proposed rule or amendment, is

11 designated by NIPC as relating solely to mat12 ters which the Commission, consistent with the

13 public interest and the purposes of this sub14 section, determines by rule do not require the

15 procedures set forth in this paragraph; or

16 (B) upon such date as the Commission

17 shall for good cause determine, except that any

18 proposed rule or amendment which takes effect

19 under this subparagraph shall be filed promptly

20 thereafter and reviewed in accordance with

21 paragraph (1).

22 At any time within 60 days after the date of filing

23 of any proposed rule or amendment under subpara24 graph (A) or (B), the Commission may summarily

25 abrogate such rule or amendment and require that
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1 it be refiled and reviewed in accordance with this

2 paragraph, if the Commission finds that such action

3 is necessary or appropriate in the public interest, for

4 the protection of insurers or policyholders, or other5 wise in furtherance of the purposes of this title. Any

6 action of the Commission pursuant to the preceding

7 sentence shall not affect the validity or force of a

8 rule change during the period it was in effect and

9 shall not be subject to judicial review or be consid10 ered to be final agency action.

11 (c) ACTION REQUIRED BY THE COMMISSION.—The

12 Commission may, by such rules as it determines to be nec13 essary or appropriate to the public interest or to carry out

14 the purposes of this title, require NIPC to adopt, amend,

15 or repeal any NIPC bylaw or rule, whenever adopted.

16 (d) LEGAL EFFECT OF BYLAWS AND RULES.—The

17 bylaws and rules adopted pursuant to this section shall

18 be subject to judicial review in the same manner as the

19 regulations of the Commission.

20 SEC. 511. CONSULTATION WITH THE FEDERAL INSURANCE

21 SOLVENCY COMMISSION.

22 The Commission may, as appropriate, consult with

23 NIPC concerning the development of standards for regu24 lating the financial soundness and solvency of federally

25 certified insurers, the implementation of those standards,
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1 the detection and prevention of insurer insolvencies, the

2 commencement of rehabilitation and liquidation proceed3 ings, and resolution of those proceedings. The purpose of

4 this consultation shall be to provide the Commission the

5 benefit of the expert views of NIPC on matters pertaining

6 to financial regulation of its member insurers and to as7 sure that the Commission implements this Act in a man8 ner that does not impair the financial integrity of NIPC

9 guaranty funds.

10 SEC. 512. NIPC FUND.

11 (a) ESTABLISHMENT.—There is established a fund to

12 be known as the NIPC Fund (hereinafter referred to as

13 the ‘‘Fund’’). The Fund shall consist of all payments made

14 by members pursuant to assessments (other than amounts

15 paid directly to any lender pursuant to any pledge secur16 ing a borrowing by NIPC), interest received on bank ac17 counts or investments, amounts borrowed by NIPC pursu18 ant to section 515 and amounts recovered in litigation.

19 Moneys in the Fund shall be invested only in obligations

20 of the United States, in obligations guaranteed as to prin21 cipal and interest by the United States, and such other

22 items as are provided in the bylaws.

23 (b) USES.—The Fund shall be used to pay the ad24 ministrative expenses of NIPC and to pay covered claims.

25 The Fund may not be used or loaned for other purposes.
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1 SEC. 513. SCOPE OF GUARANTY.

2 (a) PROPERTY AND CASUALTY INSURANCE CLAIMS

3 COVERAGE.—Commercial and personal lines of property

4 and casualty insurance contracts written by member in5 surers shall be guaranteed under this title and paid

6 through the property and casualty claims division estab7 lished in section 514, except the following:

8 (1) Mortgage guaranty, financial guaranty, or

9 other forms of insurance offering protection against

10 investment risks.

11 (2) Fidelity or surety bonds, or any other bond12 ing obligations.

13 (3) Insurance of warranties or service contracts.

14 (4) Title insurance.

15 (5) Ocean marine insurance.

16 (6) Any insurance written or transacted on a

17 surplus lines basis.

18 (7) Insurance provided by captive insurers.

19 (8) Insurance provided by risk retention groups

20 established pursuant to the Liability Risk Retention

21 Act of 1986 (15 U.S.C. 3901 et seq.).

22 (9) Reinsurance, whether provided by a profes23 sional reinsurer having a Federal certificate under

24 section 302, a provider of reinsurance having a cer25 tificate under section 303, or any other provider.
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1 (10) Any policies that were written or issued on

2 any risks that are located outside of the United

3 States and its territories.

4 (11) Credit insurance, vendor’s single interest

5 insurance, collateral protection insurance, or any

6 similar insurance protecting the interests of a credi7 tor arising out of a creditor-debtor transaction.

8 (12) Any policy of commercial insurance issued

9 by a highly capitalized insurer to a large insurance

10 buyer as provided by this Act, except for third party

11 claims against such large business buyer which is in

12 reorganization or liquidation proceedings pursuant

13 to title 11, United States Code.

14 (13) Any policy issued by an insurer during a

15 period in which the insurer’s certificate of solvency

16 was revoked or suspended.

17 (b) LIFE AND HEALTH INSURANCE AND ANNUITY

18 CLAIMS COVERAGE.—Life and health insurance contracts

19 and annuity contracts written by member insurers shall

20 be covered by NIPC and paid through the life and health

21 claims division established in section 514, except the fol22 lowing:

23 (1) Any portion of a policy or contract not

24 guaranteed by the insurer, or under which the risk

25 is borne by the policy or contract holder.
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1 (2) Any portion of a policy or contract to the

2 extent that the rate of interest on which it is

3 based—

4 (A) averaged over the period of 4 years

5 prior to the date on which NIPC becomes obli6 gated with respect to such policy or contract,

7 exceeds a rate of interest determined by sub8 tracting two percentage points from Moody’s

9 Corporate Bond Yield Average for that same

10 four year period or for such lesser period if the

11 policy or contract was issued less than 4 years

12 before NIPC became obligated; and

13 (B) on and after the date on which NIPC

14 becomes obligated with respect to such policy or

15 contract, exceeds the rate of interest deter16 mined by subtracting three percentage points

17 from Moody’s Corporate Bond Yield Averages

18 most recently available.

19 (3) Any plan or program of an employer, asso20 ciation, or similar entity to provide life, health, or

21 annuity benefits to its employees or members to the

22 extent that such plan or programs is self-funded or

23 uninsured, including but not limited to benefits pay24 able by an employer, association, or similar entity

25 under—
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1 (A) a Multiple Employer Welfare Arrange2 ment as defined in section 514 of the Employ3 ment Retirement Income Security Act of 1974,

4 as amended;

5 (B) a minimum premium group insurance

6 plan;

7 (C) a stop-loss insurance plan; or

8 (D) an administrative services only con9 tract.

10 (4) Any portion of a policy or contract to the

11 extent that it provides dividends or experience rating

12 credits, or provides that any fees or allowances be

13 paid to any person, including the policy or contract

14 holder, in connection with the service to or adminis15 tration of such policy or contract.

16 (5) Any unallocated annuity contract issued to

17 an ongoing employee benefit plan protected under

18 the Pension Benefit Guaranty Corporation.

19 (6) Any portion of any unallocated annuity con20 tract which is not issued to or in connection with a

21 specific employee, union, or association of natural

22 persons benefit plan or a government lottery.

23 (7) Any policy issued by an insurer during a pe24 riod in which the insurer’s certificate of solvency was

25 revoked or suspended.
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1 SEC. 514. ASSESSMENTS.

2 (a) IN GENERAL.—All member insurers of NIPC

3 shall be subject to assessments as provided in this section.

4 (b) ASSESSMENTS TO CREATE THE FUND.—

5 (1) Initial assessments to create the fund shall

6 be made on an insurer at the time of certification,

7 on a pro rata basis both for the portion of the year

8 covered by the certificate and annually each year

9 thereafter until the funds meet the level established

10 by NIPC in its bylaws.

11 (2) NIPC shall assess an insurer, during the

12 first 4 years after it becomes a member of NIPC, an

13 annual assessment sufficient to assure that all NIPC

14 members proportionately share the burden of accu15 mulating sufficient funds during the first 10 years

16 for NIPC’s administrative expenses under subsection

17 (c) during such 10 years.

18 (c) ASSESSMENTS FOR ADMINISTRATIVE EX19 PENSES.—

20 (1) After the organization of NIPC, the Board

21 of Directors shall estimate the amount reasonably

22 necessary to establish the operations of NIPC to

23 provide for its ongoing staff and other administra24 tive expenses for the current year. The amount to be

25 assessed may vary for each division under subsection

26 (d) but shall be on the same basis for each member
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1 of the division on which the assessment is made. As2 sessments shall be levied in the same proportion that

3 the net direct written premiums written by each

4 member insurer in the preceding calendar year on

5 insurance covered by a NIPC guaranty bears to the

6 total such premiums of all division members. Fur7 ther, the Board of Directors may amend its bylaws

8 to modify this assessment procedure to reflect the

9 risk of insolvency of the members.

10 (2) The amounts assessed in accordance with

11 this subsection shall be due no later than 30 days

12 after the notice of the assessment is distributed to

13 members.

14 (d) ASSESSMENTS FOR COVERED CLAIMS.—

15 (1) NIPC shall establish separate claims divi16 sions for obligations related to covered claims of—

17 (A) property and casualty insurers, except

18 for those included in subparagraph (C);

19 (B) life and health insurers, except for

20 those included in subparagraph (C); and

21 (C) commercial insurance purchased from

22 highly capitalized insurers by large insurance

23 buyers.
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1 (2) NIPC shall establish separate claims ac2 counts within the claims divisions designated in

3 paragraphs (1)(A) and (1)(B) as follows:

4 (A) The claims division designated in para5 graph (1)(A) shall be separated into a personal

6 insurance account and a commercial insurance

7 account.

8 (B) The claims division designated in para9 graph (1)(B) shall be separated into a life in10 surance account, a health insurance account,

11 and an annuity account.

12 (3) Each claims division or account may borrow

13 funds from other claims divisions or accounts, with

14 any such borrowing first between accounts, and then

15 between divisions if the account in the same division

16 has insufficient funds to loan. If any funds are bor17 rowed between divisions or accounts, such funds, in18 cluding interest at a rate to be determined by the

19 Board of Directors, must be repaid from assess20 ments before funds can begin to accumulate in the

21 claims accounts that benefited from the borrowing.

22 This paragraph shall not be interpreted to prohibit

23 the borrowing claims account from paying covered

24 benefits or claims while such loans are outstanding.
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1 (4) Except as provided in subsection (d) with

2 respect to assessments related to commercial insur3 ance purchased from highly capitalized insurers,

4 each member insurer shall pay to NIPC on or before

5 the one hundred and twentieth day following Decem6 ber 31 a regular annual assessment calculated to

7 cover the predicted future obligations of the fund.

8 Such assessments shall be calculated as a percentage

9 of the net direct written premiums from the covered

10 lines of business of such member for the applicable

11 accounts during the preceding calendar year.

12 (5) The bylaws shall impose upon member in13 surers such additional special assessments as may be

14 necessary to make up any shortfall in an account

15 caused by the inadequacy of regular annual assess16 ments. Any assessments so made shall be in con17 formity with contractual obligations made by NIPC

18 in connection with any borrowing incurred by NIPC.

19 Any such assessment upon the members or any one

20 or more classes thereof shall be based upon the net

21 direct written premiums for the covered lines of

22 business in the claims divisions and claims accounts

23 specified in this section.

24 (e) STANDARDS FOR ASSESSMENTS.—
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1 (1) no assessment shall be made upon a mem2 ber otherwise than pursuant to this section,

3 (2) the total of all assessments made under

4 subsections (c) and (d) shall not exceed 1 percent of

5 net direct written premiums during any 12-month

6 period.

7 (f) DATE ASSESSMENTS DUE.—All assessments shall

8 be paid not more than 30 days after notice thereof is sent

9 by NIPC to the member unless the notice specifies that

10 the assessment or a portion thereof is not payable until

11 a later date.

12 (g) EFFECT OF ASSESSMENTS.—Assessments made

13 upon a member insurer under this title shall constitute

14 ordinary and necessary expenses in carrying on the busi15 ness of such member.

16 (h) INFORMATION TO SET ASSESSMENTS.—Each

17 member insurer shall file such information as NIPC shall

18 determine to be necessary or appropriate for the purpose

19 of making the assessments authorized by this section.

20 (i) UNDERPAYMENTS AND LATE PAYMENTS.—If a

21 member insurer fails to pay when due all or any part of

22 an assessment made upon such member, the unpaid por23 tion thereof shall bear interest at such rate as may be pro24 vided by the bylaws, and, in addition to such interest,

25 NIPC may impose such penalty charge as may be provided
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1 in the bylaws. Any such penalty shall not exceed 25 per2 cent of any unpaid portion of the assessment. NIPC may

3 waive such penalty charge in whole or in part in cir4 cumstances where it considers such waiver appropriate.

5 (j) CLAIMS PAYMENTS AND RECOVERIES.—

6 (1) Covered claims, including the direct ex7 penses of handling such covered claims, which NIPC

8 pays or becomes obligated to pay by reason of its

9 guaranty obligations shall be paid from one or more

10 claims divisions or accounts under procedures estab11 lished by the Board of Directors.

12 (2) Amounts recovered from any source as re13 imbursement, subrogation, or other recovery of

14 amounts previously paid out or incurred pursuant to

15 NIPC’s obligations shall be credited to the appro16 priate claims division and account which had been

17 charged with the claim.

18 (k) SPECIAL PROVISIONS.—Notwithstanding the pro19 visions of this section, all assessments under subsection

20 (d) for covered claims related to commercial insurance

21 purchased from highly capitalized insurers by large insur22 ance buyers shall be calculated and maintained separately

23 from the other claims accounts and shall be calculated to

24 reflect the risk of both such insurer and its insureds that

25 buy as large insurance buyers becoming insolvent.
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1 (l) RETURN OF EXCESS ASSESSMENTS.—If the

2 Fund, through investment returns, exceeds the level estab3 lished in the bylaws for 3 successive years, the Board shall

4 distribute the excess to the members on the same basis

5 as that on which the assessments were made.

6 SEC. 515. BORROWING AUTHORITY.

7 NIPC shall have the authority, in addition to that

8 described in section 514, to borrow as necessary and upon

9 prior approval of the Board of Directors. Any such bor10 rowing shall be made upon such terms and conditions as

11 the Board determines, except that any funds so borrowed

12 shall be repaid out of the assessments as collected and

13 the funds resulting from such collection shall not be ap14 plied to any purpose other than the payment of guaran15 teed claims until the borrowed funds have been repaid. To

16 secure the payment of principal and interest on any such

17 borrowings the Corporation may pledge future assess18 ments.

19 SEC. 516. FUNCTIONS OF THE FEDERAL INSURANCE SOL20 VENCY COMMISSION.

21 (a) ADMINISTRATIVE PROCEDURE.—Determinations

22 of the Commission, for purposes of making rules pursuant

23 to section 510, shall be made after appropriate notice and

24 opportunity for a hearing, and for submission of views of

25 interested persons, in accordance with the rulemaking pro-
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1 cedures specified in section 553 of title 5, United States

2 Code.

3 (b) ENFORCEMENT OF ACTIONS.—In the event of the

4 refusal of NIPC to commit its funds or otherwise to act

5 as required by this title, the Commission may apply to

6 the district court of the United States in which the prin7 cipal office of NIPC is located for an order requiring

8 NIPC to discharge its obligations under this title, and for

9 such other relief as the court may determine to be appro10 priate to carry out the purposes of this title.

11 (c) EXAMINATIONS AND REPORTS.—

12 (1) The Commission may make such examina13 tions and inspections of NIPC and require NIPC to

14 furnish it with such reports and records or copies

15 thereof as the Commission may consider necessary

16 or appropriate in the public interest or to effectuate

17 the purposes of this title.

18 (2) As soon as practicable after the close of

19 each fiscal year, NIPC shall submit to the Commis20 sion a written report relative to the conduct of its

21 business, and the exercise of the other rights and

22 powers granted by this title, during such fiscal year.

23 Such report shall include financial statements set24 ting forth the financial position of NIPC at the end

25 of such fiscal year and the results of its operations
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1 (including the source and application of its funds)

2 for such fiscal year. The financial statements so in3 cluded shall be examined by an independent account4 ant in the same manner as for the financial reports

5 of federally certified insurers under this Act, and

6 shall be accompanied by the report thereon by such

7 accountant. The Commission shall transmit such re8 port to the President and the Congress with such

9 comment thereon as the Commission determines to

10 be appropriate.

11 SEC. 517. NOTICE TO COMMISSION OF CHANGES IN CONDI12 TIONS IN INSURANCE MARKETS.

13 Whenever NIPC shall conclude from all the informa14 tion available to it that there have been developments in

15 the insurance markets, industry practices, investment

16 markets, the economy, regulatory supervision, or any

17 other factors that might have a negative impact on the

18 financial condition or solvency of federally certified insur19 ers and reinsurers, it shall give written notice to the Com20 mission of this conclusion along with any recommenda21 tions it may have to address the situation.

22 SEC. 518. LIABILITY OF THE MEMBER INSURERS.

23 (a) LIABILITY AS TO NIPC OBLIGATIONS.—The li24 ability of member insurers with respect to claims covered

25 by NIPC shall be limited to the assessments authorized
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1 in this title and the members shall have no other liability

2 under this Act as a member of NIPC for, or in connection

3 with, any act or omission of any other member insurer,

4 and shall have no liability for any indebtedness incurred

5 by NIPC or for any act or omission of any officer, agent,

6 or employee of NIPC.

7 (b) LIABILITY UNDER STATE GUARANTY FUNDS

8 AFTER OBTAINING A FEDERAL CERTIFICATE OF SOL9 VENCY.—

10 (1) A federally certified insurer shall remain

11 liable, notwithstanding its Federal certificate, for

12 any assessment for which it would have been liable

13 under any State guaranty fund law on account of

14 policies issued by an insurer against which a court

15 order of liquidation with a finding of insolvency has

16 been issued prior to the date when the federally cer17 tified insurer became a member of NIPC.

18 (2) A federally certified insurer shall have lim19 ited liability for assessments pursuant to State or20 ders of liquidation issued after it obtained a Federal

21 certificate. Such liability shall continue for each of

22 the 4 years following its obtaining a Federal certifi23 cate. Such assessments in such cases shall be re24 duced by 25 percent each year until they terminate

25 entirely in the fifth year. Assessments shall be based
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1 on the last 3 years of the insurer’s operations before

2 it obtained its Federal certificate.

3 (3) A federally certified insurer shall have no li4 ability for any assessments by State guaranty funds

5 on account of policies issued by an insurer against

6 which a court order of liquidation with a finding of

7 insolvency has been issued on or after the date such

8 insurer becomes federally certified.

9 (c) LIABILITY TO NIPC AFTER SURRENDER OF

10 FEDERAL CERTIFICATE OF SOLVENCY.—A federally cer11 tified insurer shall be subject to assessments based on the

12 time for which it was certified, except that, notwithstand13 ing anything to the contrary in sections 205(b) and

14 504(a), such insurer that surrenders its certification,

15 whether voluntarily or involuntarily, shall continue to be

16 liable on account of policies issued by other federally cer17 tified insurers against which a declaration of insolvency

18 was entered on or before the date of the insurer’s depar19 ture from NIPC. Upon decertification, the insurer shall

20 have continuing liability for a period of 4 years for the

21 amounts that would have been assessed had it remained

22 federally certified. Assessments shall be reduced by 25

23 percent each year until they terminate entirely in the fifth

24 year. Assessments shall otherwise be calculated in accord25 ance with section 514.
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1 SEC. 519. LIABILITY OF NIPC AND ITS DIRECTORS, OFFI2 CERS, AND EMPLOYEES.

3 (a) IN GENERAL.—NIPC shall not be deemed to be

4 an insurer within the meaning of any State law, rule, regu5 lation, or order regulating or taxing insurers or other enti6 ties engaged in the business of insurance, including provi7 sions imposing premium taxes, regulating insurer solvency

8 or financial condition, establishing guaranty funds and

9 levying assessments, or regulating claims settlement prac10 tices. The Corporation additionally shall be exempt from

11 all taxes, assessments or other levies imposed by the Unit12 ed States or any State, municipal, county, or local govern13 ment.

14 (b) LIABILITY OF NIPC, ITS DIRECTORS, OFFICERS,

15 AND EMPLOYEES.—Neither NIPC nor any of its directors,

16 officers, or employees shall have any liability to any person

17 for any action taken or omitted in good faith under or

18 in connection with any matter subject to this Act.

19 SEC. 520. ADVERTISING.

20 NIPC shall, by bylaw, prescribe the manner in which

21 a member insurer may display any sign (or include in any

22 advertisement or statement a provision) relating to the

23 protection of customers and any other protections afforded

24 by this Act. No member insurer may display any such sign

25 or include in any advertisement any such statement except

26 in accordance with such bylaws. NIPC may also, by bylaw,
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1 prescribe such minimal requirements as it considers nec2 essary and appropriate to require a member of NIPC to

3 provide public notice of its membership in NIPC.

4 SEC. 521. IMPROVEMENT OF INSOLVENCY PREVENTION

5 AND DETECTION.

6 NIPC shall assist the Commission in the development

7 of improved standards for financial requirements, report8 ing and examination, or other procedures, methods, or

9 techniques for avoiding insurance insolvencies and for pro10 moting early detection and protective action in the case

11 of insurers that are insolvent or approaching insolvency.

12 SEC. 522. GUARANTEE OBLIGATION OF NIPC.

13 (a) COVERAGE.—NIPC shall as guarantor be obli14 gated to pay covered benefits for claims upon a declaration

15 by the Commission that a member insurer is financially

16 impaired or insolvent. It shall pay all claims for which cov17 erage exists under this Act. The Commission shall adjust

18 for inflation the amount of benefits set by this section.

19 This adjustment shall be made every fifth year unless for

20 good cause the Commission determines that it should be

21 adjusted more frequently.

22 (b) MATTERS SUBJECT TO PAYMENT FROM THE

23 PROPERTY AND CASUALTY INSURANCE CLAIMS DIVI24 SION.—The guaranty obligation as to covered claims for
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1 property and casualty insurance shall be satisfied by pay2 ing to the claimant an amount as follows:

3 (1) The full amount of a covered claim for ben4 efits under a workers’ compensation insurance cov5 erage.

6 (2) Any amount in excess of $100, but limited

7 to $10,000 per policy for a covered claim for the re8 turn of unearned premium.

9 (3) An amount not exceeding $300,000 per

10 claim for all other covered claims which shall also

11 not exceed that part of the first $300,000 of the loss

12 or liability giving rise to the covered claim which the

13 insurer would have been obligated to pay under its

14 policy or policies but for the order of liquidation.

15 (c) MATTERS SUBJECT TO PAYMENT UNDER THE

16 LIFE AND HEALTH INSURANCE AND ANNUITY CLAIMS

17 DIVISION.—The guaranty obligation as to covered claims

18 for life and health insurance and annuity coverage shall

19 be satisfied by paying to the claimant an amount not ex20 ceeding the lesser of—

21 (1) the contractual obligations for which the in22 surer is liable or would have been liable if it were

23 not an impaired or insolvent insurer; or

24 (2) with respect to any one life, regardless of

25 the number of policies or contracts—
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1 (A) $300,000 in life insurance death bene2 fits, but not more than $100,000 in net cash

3 surrender and net cash withdrawal values for

4 life insurance;

5 (B) $100,000 in health insurance benefits,

6 including any net cash surrender and net cash

7 withdrawal values;

8 (C) $100,000 in the present value of annu9 ity benefits, including net cash surrender and

10 net cash withdrawal values;

11 (3) with respect to each individual participating

12 in a governmental retirement plan established under

13 section 401, 403(b), or 457 of the Internal Revenue

14 Code of 1986 covered by an unallocated annuity con15 tract or the beneficiaries of each such individual if

16 deceased, in the aggregate, $100,000 in present

17 value annuity benefits, including net case surrender

18 and net cash withdrawal values; or

19 (4) with respect to any one contract holder cov20 ered by any unallocated annuity contract not in21 cluded in paragraph (2)(C), $5,000,000 in benefits,

22 irrespective of the number of such contracts held by

23 that contract holder, except that in no event shall

24 NIPC be liable to expend more than $300,000 in the
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1 aggregate with respect to any one individual under

2 paragraphs (2) and (3).

3 (d) MANAGEMENT OF CLAIMS.—In order to perform

4 the obligations imposed by this section, NIPC shall—

5 (1) investigate claims brought against NIPC

6 and adjust, compromise, settle and pay covered

7 claims to the extent of NIPC’s obligation and deny

8 all other claims and may review settlements, releases

9 and judgments to which the insolvent insurer or its

10 insureds were parties to determine the extent to

11 which such settlements, releases, and judgments may

12 be properly contested;

13 (2) notify such persons as the Commission di14 rects under this Act;

15 (3) handle claims through its employees or

16 through one or more insurers or other persons des17 ignated as servicing facilities;

18 (4) reimburse each servicing facility for obliga19 tions of NIPC paid by the facility and for expenses

20 incurred by the facility while handling claims on be21 half of NIPC and shall pay the other expenses of

22 NIPC authorized by this Act; and

23 (5) be authorized to report information on sus24 pected fraud or civil violations to the Department of

25 Justice and to the Commission.
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1 (e) LIMITATIONS ON PAYMENTS.—In no event shall

2 NIPC be obligated to pay a claimant more than the in3 surer would have been obligated to pay, but for the order

4 of rehabilitation or liquidation, under the policy from

5 which the claim arose. Notwithstanding any other provi6 sion of this Act, NIPC shall not be obligated to pay any

7 part of any claim filed with the receiver in rehabilitation

8 or liquidation after the final date for the filing of claims

9 against the receiver.

10 SEC. 523. EFFECT OF PAID CLAIMS.

11 (a) ASSIGNMENT.—Any person whose claim is paid

12 by NIPC under this Act shall be deemed to have assigned

13 its rights under the policy to NIPC to the extent of its

14 payment from NIPC. Every insured or claimant seeking

15 the protection of this Act shall cooperate with NIPC to

16 the same extent as such person would have been required

17 to cooperate with the insolvent insurer. NIPC shall have

18 no cause of action against the insured of the insolvent in19 surer for any sums it has paid out except such causes of

20 action as the insolvent insurer would have had if such

21 sums had been paid by the insolvent insurer and except

22 as provided in subsection (b). In the case of an insolvent

23 insurer operating on a plan with assessment liability, pay24 ments of claims of NIPC shall not operate to reduce the
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1 liability of the insureds to the receiver for unpaid assess2 ments.

3 (b) RECOVERY.—NIPC shall have the right to re4 cover from the affiliate of an insolvent insurer the amount

5 of any liability obligations paid on behalf of such affiliate.

6 SEC. 524. NONDUPLICATION OF PAYMENT OF CLAIMS.

7 Any person having a claim against an insurer under

8 any provision in an insurance policy, other than a policy

9 of an insolvent insurer, which is also a covered claim, shall

10 be required to exhaust first its rights under such policy.

11 Any amount payable on a covered claim under this Act

12 shall be reduced by the amount of any recovery under such

13 insurance policy.

14 SEC. 525. REPORTS ON PAYMENT OF CLAIMS.

15 (a) ANNUAL AND OTHER REPORTS ON CLAIMS.—

16 NIPC shall file with the Commission an annual statement,

17 and such other statements as the Commission directs, of

18 the covered claims paid by NIPC and estimates of antici19 pated claims on NIPC.

20 (b) EXAMINATION OF NIPC RECORDS.—The Com21 mission shall permit access by NIPC to such of the insol22 vent insurer’s records which are necessary to carry out

23 NIPC’s functions under this Act with regard to covered

24 claims. In addition, the Commission shall provide NIPC
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1 with copies of such records upon request and at NIPC’s

2 expense.

3 SEC. 526. STAY OF PROCEEDINGS.

4 All proceedings in which the insolvent member in5 surer is a party or is obligated to defend a party in any

6 court shall be stayed for 6 months and such additional

7 time thereafter as may be determined by the court from

8 the date the insolvency is determined to permit proper de9 fense by NIPC of all pending causes of action. As to any

10 covered claim arising from a judgment under any decision

11 verdict or finding based on the default of the insolvent

12 insurer or its failure to defend an insured, NIPC, either

13 on its own behalf or on behalf of such insured, may apply

14 to have such judgment, order, decision, verdict or finding

15 set aside by the same court or administrator that made

16 such judgment, order, decision, verdict, or finding and

17 shall be permitted to defend such claim on the merits.

18 SEC. 527. JUDICIAL REVIEW.

19 (a) JURISDICTION.—The appropriate United States

20 district court shall have exclusive jurisdiction over litiga21 tion involving NIPC, including—

22 (1) disputes between NIPC and its member in23 surers that arise under this Act;

24 (2) controversies between NIPC and claimants

25 seeking NIPC guaranty fund coverage; and
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1 (3) suits brought by NIPC under this Act and

2 against persons affiliated with the insolvent insurer.

3 Suits brought in State court involving NIPC shall be

4 deemed to have arisen under Federal law and therefore

5 subject to jurisdiction in the appropriate United States

6 district court.

7 (b) EXHAUSTION OF REMEDIES.—A claimant must

8 exhaust the administrative remedies before NIPC and the

9 Commission as to a claim before it may seek judicial re10 view of the decision on the claim.

11 TITLE VI—NATIONAL ASSOCIA12 TION OF REGISTERED

13 AGENTS AND BROKERS

14 SEC. 601. NATIONAL ASSOCIATION OF REGISTERED

15 AGENTS AND BROKERS.

16 There is established a body corporate to be known

17 as the ‘‘National Association of Registered Agents and

18 Brokers’’. NARAB shall be a nonprofit corporation and

19 shall have succession until dissolved by an Act of

20 Congress. NARAB shall—

21 (1) not be an agency or establishment of the

22 United States Government; and

23 (2) except as otherwise provided in this Act, be

24 subject to, and have all the powers conferred upon

25 a nonprofit corporation by, the District of Columbia
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1 Nonprofit Corporation Act (D.C. Code, sec. 29–1001

2 and fol.).

3 SEC. 602. PURPOSE.

4 The purpose of NARAB is to provide a mechanism

5 by which the multi-State services of State-licensed insur6 ance producers may be more efficiently provided to policy7 holders, while preserving the right of States to license,

8 supervise, and discipline insurance producers.

9 SEC. 603. RELATIONSHIP TO THE FEDERAL GOVERNMENT.

10 NARAB shall be subject to the supervision and over11 sight of the Commission. Funds held by or due to NARAB

12 shall not be included in the budget of the United States

13 nor may the United States borrow or pledge such funds.

14 SEC. 604. MEMBERSHIP.

15 (a) IN GENERAL.—All State-licensed insurance

16 agents, brokers, surplus lines brokers, insurance consult17 ants, and limited insurance representatives (hereinafter

18 referred to as ‘‘insurance producers’’) are eligible for

19 membership in NARAB.

20 (b) AUTHORITY TO ESTABLISH MEMBERSHIP CRI21 TERIA.—NARAB shall have the authority to establish

22 membership criteria that—

23 (1) bear a reasonable relationship to the pur24 poses for which NARAB was established; and
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1 (2) do not unfairly limit the access of smaller

2 agencies to NARAB membership.

3 (c) CLASSES OF MEMBERSHIP.—NARAB shall have

4 the authority to establish separate classes of membership,

5 with separate criteria, where it reasonably determines that

6 performance of different duties requires different levels of

7 education, training, or experience. NARAB shall have the

8 authority to establish separate categories of membership

9 for individuals and for other persons.

10 (d) MEMBERSHIP CRITERIA.—NARAB shall have the

11 authority to establish membership criteria to establish the

12 integrity, personal qualifications, education, training, and

13 experience of members, and any criteria reasonably inci14 dental thereto.

15 (e) ANNUAL RENEWAL.—Membership in NARAB

16 shall be renewed on an annual basis and may be subject

17 to reasonable continuing education requirements.

18 (f) SUSPENSION AND REVOCATION.—NARAB shall

19 have the authority to inspect and examine its members

20 to determine compliance with NARAB criteria and to sus21 pend or revoke membership upon a showing that—

22 (1) applicable membership criteria are no longer

23 being met, or

24 (2) a member has been subject to disciplinary

25 proceedings under the jurisdiction of a State insur-
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1 ance regulator and NARAB concludes that retention

2 of membership would not be in the public interest.

3 SEC. 605. CORPORATE POWERS.

4 NARAB shall have the power—

5 (1) to sue and be sued, in its corporate name

6 and through its own counsel in any State, Federal

7 or other court;

8 (2) to adopt, alter, and use a corporate seal,

9 which shall be judicially noticed;

10 (3) to adopt, amend, and repeal, by its Board

11 of Directors, such bylaws and rules as may be nec12 essary or appropriate to carry out the purposes of

13 this title, including bylaws relating to—

14 (A) the conduct of its business; and

15 (B) the indemnity of its directors, officers,

16 and employees for liabilities and expenses actu17 ally and reasonably incurred by any such person

18 in connection with the defense or settlement of

19 an action or suit if such person acted in good

20 faith and in a manner reasonably believed to be

21 consistent with the purposes of this title;

22 (4) to adopt, amend, and repeal, by its Board

23 of Directors such rules as may be necessary or ap24 propriate to carry out the purposes of this title, in25 cluding rules relating to—
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1 (A) the definition of terms used in this

2 title, other than those terms for which a defini3 tion is provided herein;

4 (B) the procedures for payment of

5 NARAB assessments; and

6 (C) the exercise of all other rights and

7 powers granted to it by this title;

8 (5) to conduct its business (including the carry9 ing on of operations and the maintenance of offices)

10 and to exercise all other rights and powers granted

11 to it by this title in any State or other jurisdiction

12 without regard to any qualification, licensing, or

13 other statutory requirement in such State or other

14 jurisdiction;

15 (6) to lease, purchase, accept gifts or donations

16 of or otherwise acquire, to own, hold, improve, use,

17 or otherwise deal in or with, and to sell, convey,

18 mortgage, pledge, lease, exchange or otherwise dis19 pose of any property, real, personal or mixed, or any

20 interest therein, wherever situated;

21 (7) to elect or appoint such officers, attorneys,

22 employees, and agents as may be required, to deter23 mine their qualifications, to define their duties, to

24 fix their salaries, require bonds for them, and fix the

25 penalty thereof;
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1 (8) to enter into contracts, to execute instru2 ments, to incur liabilities, and to do any and all

3 other acts and things as may be necessary or inci4 dental to the conduct of its business and the exercise

5 of all other rights and powers granted to NARAB by

6 this title;

7 (9) to suspend or revoke NARAB membership

8 in the manner provided elsewhere in this title;

9 (10) to levy and collect assessments upon its

10 members, in the manner and, to the extent provided

11 elsewhere in this Act, to cover the administrative ex12 penses of NARAB in a manner that does not un13 fairly discriminate against smaller insurance produc14 ers;

15 (11) to provide advice and recommendations to

16 Congress, the courts and the Commission on matters

17 pertaining to the regulation and practices of insur18 ance producers.

19 SEC. 606. BOARD OF DIRECTORS.

20 (a) POWERS.—The Board of Directors shall be the

21 governing body of NARAB and shall be vested with all

22 powers necessary for the management and administration

23 of the affairs of the Corporation and the promotion of its

24 purposes as authorized by this title. The Board’s authority

25 shall be specified in the bylaws of NARAB.
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1 (b) COMPOSITION.—The Board shall be composed of

2 7 members or such higher number as determined by the

3 Board and as approved by the Commission. All directors

4 shall be elected by the membership of NARAB. The by5 laws of NARAB shall require that directors be selected

6 in a manner fairly representing the various types of insur7 ance producers who are eligible to become NARAB mem8 bers.

9 (c) TERMS.—The term of each director shall, after

10 the first election, be for 3 years, with one-third of the di11 rectors to stand for election each year. Directors may be

12 elected to serve for any number of terms.

13 (d) VACANCIES.—A vacancy in the Board shall be

14 filled in the same manner as the original appointment.

15 (e) COMPENSATION.—All matters relating to com16 pensation of directors shall be as provided in the bylaws

17 of NARAB.

18 (f) INITIAL APPOINTMENTS.—The Commission shall

19 appoint an initial Board to carry out the establishment

20 of the bylaws and the first elections of NARAB.

21 SEC. 607. CHAIRPERSON AND VICE CHAIRPERSON.

22 (a) ELECTION.—The members of NARAB shall se23 lect the chairperson and vice chairperson from among

24 those candidates for the Board.
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1 (b) INITIAL APPOINTMENTS.—The Commission shall

2 select the initial chairperson and vice chairperson from

3 among the initial appointments to the Board under section

4 606. The persons so selected shall carry out the authori5 ties of office until the first election by the member insur6 ers. They shall act to ensure that such election is sched7 uled at the earliest appropriate time.

8 SEC. 608. OFFICERS.

9 The officers of NARAB shall consist of a chairman,

10 a vice chairman, a president, a secretary, and a treasurer,

11 and may include one or more vice presidents and such

12 other officers and assistant officers as may be deemed nec13 essary, each of whom shall be elected or appointed at such

14 time and in such manner and for such terms not exceeding

15 3 years as may be prescribed by bylaw. In the absence

16 of any such provision, all officers shall be elected or

17 appointed annually by the Board of Directors.

18 SEC. 609. MEETINGS OF BOARD.

19 The Board of Directors shall meet at the call of its

20 Chairman, or as otherwise provided by the bylaws of

21 NARAB.

22 SEC. 610. BYLAWS, RULES, AND DISCIPLINARY ACTION.

23 (a) ADOPTION AND AMENDMENT OF BYLAWS.—The

24 Board of Directors of NARAB shall file with the Commis25 sion a copy of the proposed bylaws or any proposed
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1 amendment to the bylaws, accompanied by a concise gen2 eral statement of the basis and purpose of such proposal.

3 The proposed bylaws and each proposed amendment shall

4 take effect 30 days after the date of the filing of a copy

5 thereof with the Commission, or upon such later date as

6 NARAB may designate or such earlier date as the

7 Commission may determine, unless—

8 (1) the Commission, by notice to NARAB set9 ting forth the reasons therefore, disapproves such

10 proposal as being contrary to the public interest or

11 contrary to the purposes of this title; or

12 (2) the Commission finds that such proposal in13 volves a matter of such significant public interest

14 that public comment should be obtained, in which

15 case it may, after notifying NARAB in writing of

16 such finding, require that the procedures set forth in

17 subsection (b) be followed with respect to such pro18 posal, in the same manner as if such proposed bylaw

19 change were a proposed rule change within the

20 meaning of such paragraph.

21 (b) ADOPTION AND AMENDMENT OF RULES.—

22 (1) The Board of Directors of NARAB shall file

23 with the Commission, in accordance with its regula24 tions, a copy of any proposed rule or any proposed

25 amendment to a rule of NARAB accompanied by a
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1 concise general statement of the basis and purpose

2 of such proposal. The Commission shall, upon the

3 filing of any proposal, publish notice thereof, to4 gether with the terms of substance of such proposal

5 or a description of the subjects and issues involved.

6 The Commission shall give interested persons an op7 portunity to submit written views, and arguments

8 with respect to such proposal. No proposed rule or

9 amendment shall take effect unless approved by the

10 Commission or otherwise permitted in accordance

11 with this paragraph.

12 (2) Within 35 days after the date of publication

13 of notice of the filing of a proposal, or within such

14 longer period as the Commission may designate of

15 not more than 90 days after such date if it finds

16 such longer period to be appropriate and publishes

17 its reasons for so finding, or as to which NARAB

18 consents, the Commission shall—

19 (A) by order approve such proposed rule or

20 amendment; or

21 (B) institute proceedings to determine

22 whether such proposed rule or amendment

23 should be modified or disapproved.

24 (3) Proceedings instituted with respect to a pro25 posed rule or amendment pursuant to paragraph (2)
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1 shall include notice of the grounds for disapproval

2 under consideration and opportunity for hearing and

3 shall be concluded within 180 days after the date of

4 publication of notice of the filing of such proposed

5 rule or amendment. At the conclusion of such pro6 ceedings, the Commission shall, by order, approve or

7 disapprove such proposed rule or amendment. The

8 Commission may extend the time for conclusion of

9 such proceedings for not more than 60 days if it

10 finds good cause for such extension and publishes its

11 reasons for so finding, or for such longer period as

12 to which NARAB consents.

13 (4) The Commission shall approve a proposed

14 rule or amendment if it finds that it is in the public

15 interest and is consistent with the purposes of this

16 title, and any proposed rule or amendment so ap17 proved shall be given force and effect as if promul18 gated by the Commission. The Commission shall dis19 approve a proposed rule or amendment if it does not

20 make the finding referred to in the preceding sen21 tence. The Commission shall not approve any pro22 posed rule change prior to 30 days after the date of

23 publication of notice of the filing thereof, unless the

24 Commission finds good cause for so doing and pub25 lishes its reasons for so findings.
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1 (5) Notwithstanding any other provision of this

2 subsection, a proposed rule or amendment may take

3 effect—

4 (A) upon the date of filing with the Com5 mission, if such proposed rule or amendment is

6 designated by NARAB as relating solely to

7 matters which the Commission, consistent with

8 the public interest and the purposes of this sub9 section, determines by rule do not require the

10 procedures set forth in this paragraph; or

11 (B) upon such date as the Commission

12 shall for good cause determine, except that any

13 proposed rule or amendment, which takes effect

14 under this subparagraph, shall be filed prompt15 ly thereafter and reviewed in accordance with

16 paragraph (1).

17 At any time within 60 days after the date of filing

18 of any proposed rule or amendment under subpara19 graph (A) or (B), the Commission may summarily

20 abrogate such rule or amendment and require that

21 it be refiled and reviewed in accordance with this

22 paragraph, if the Commission finds that such action

23 is necessary or appropriate in the public interest, for

24 the protection of insurance producers or policy25 holders, or otherwise in furtherance of the purposes
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1 of this title. Any action of the Commission pursuant

2 to the preceding sentence shall not affect the validity

3 or force of a rule change during the period it was

4 in effect and shall not be subject to judicial review

5 or be considered to be final agency action.

6 (c) ACTION REQUIRED BY THE COMMISSION.—The

7 Commission may, by such rules as it determines to be nec8 essary or appropriate to the public interest or to carry out

9 the purposes of this title, require NARAB to adopt,

10 amend, or repeal any NARAB bylaw or rule, whenever

11 adopted.

12 (d) LEGAL EFFECT OF BYLAWS AND RULES.—The

13 bylaws and rules adopted pursuant to this section shall

14 be subject to judicial review in the same manner as the

15 regulations of the Commission.

16 (e) DISCIPLINARY ACTION BY NARAB.—In any pro17 ceeding to determine whether membership shall be denied,

18 suspended, revoked, and not renewed (hereinafter referred

19 to as ‘‘disciplinary action’’), NARAB shall bring specific

20 charges, notify such member of, and give the member an

21 opportunity to defend against such charges and keep a

22 record. A determination to take disciplinary action shall

23 be supported by a statement setting forth—

24 (1) any act or practice in which such member

25 has been found to have engaged;
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1 (2) the specific provision of this title, the rules

2 or regulations thereunder, or the rules of NARAB

3 which any such act or practice is deemed to violate;

4 and

5 (3) the sanction imposed and the reason there6 for.

7 (f) COMMISSION REVIEW OF DISCIPLINARY AC8 TION.—If NARAB orders any disciplinary action, it shall

9 promptly notify the Commission. Such disciplinary action

10 shall be subject to review by the Commission on its own

11 motion, or upon application by any person aggrieved

12 thereby filed within 30 days after the date such notice was

13 filed with the Commission and received by such aggrieved

14 person or within such longer period as the Commission

15 may determine. Application to the Commission for review,

16 or the institution of review by the Commission on its own

17 motion, shall not operate as a stay of disciplinary action

18 unless the Commission otherwise orders. In any proceed19 ing to review such action, after notice and the opportunity

20 for hearing, the Commission shall—

21 (1) determine whether the action should be

22 taken;

23 (2) affirm, modify, or rescind the disciplinary

24 sanction; or

25 (3) remand to NARAB for further proceedings.
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1 The Commission shall also have the authority to dismiss

2 a proceeding to review disciplinary action if the Commis3 sion finds that the specific grounds on which the action

4 is based exist in fact; that the action is in accordance with

5 applicable rules and regulations; and that such rules and

6 regulations are, and were, applied in a manner consistent

7 with the purposes of this title.

8 SEC. 611. CONSULTATION WITH THE FEDERAL INSURANCE

9 SOLVENCY COMMISSION.

10 The Commission shall, as appropriate, consult with

11 NARAB concerning the regulation and activities of insur12 ance producers. The purpose of this consultation shall be

13 to provide the Commission the benefit of the expert views

14 of the NARAB on these matters.

15 SEC. 612. BORROWING AUTHORITY.

16 NARAB shall have the authority to borrow as nec17 essary and upon prior approval of the Board of Directors.

18 Any such borrowing shall be made upon such terms and

19 conditions as the board determines, except that any funds

20 so borrowed shall be repaid out of the assessments as col21 lected. To secure the payment of principal and interest

22 on any such borrowings the Corporation may pledge future

23 assessments.
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1 SEC. 613. ASSESSMENTS.

2 All insurance producers that are members of NARAB

3 shall be subject to assessments for the costs of considering

4 their applications, on acceptance as members, and annu5 ally each year thereafter. Such assessments shall be set

6 by NARAB by rule and shall cover the costs of operation

7 of NARAB.

8 SEC. 614. FUNCTIONS OF THE FEDERAL INSURANCE SOL9 VENCY COMMISSION.

10 (a) ADMINISTRATIVE PROCEDURE.—Determinations

11 of the Commission, for purposes of making rules pursuant

12 to section 610, shall be made after appropriate notice and

13 opportunity for a hearing and for submission of views of

14 interested persons, in accordance with the rulemaking pro15 cedures specified in section 553 of title 5, United States

16 Code.

17 (b) EXAMINATIONS AND REPORTS.—

18 (1) The Commission may make such examina19 tions and inspections of NARAB and require

20 NARAB to furnish it with such reports and records

21 or copies thereof as the Commission may consider

22 necessary or appropriate in the public interest or to

23 effectuate the purposes of this title.

24 (2) As soon as practicable after the close of

25 each fiscal year, NARAB shall submit to the Com26 mission a written report relative to the conduct of
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1 its business, and the exercise of the other rights and

2 powers granted by this title, during such fiscal year.

3 Such report shall include financial statements set4 ting forth the financial position of NARAB at the

5 end of such fiscal year and the results of its oper6 ations (including the source and application of its

7 funds) for such fiscal year. The financial statements

8 so included shall be examined by an independent ac9 countant in the same manner as for the financial re10 ports of federally certified insurers under this Act,

11 and shall be accompanied by the report thereon by

12 such accountant. The Commission shall transmit

13 such report to the President and the Congress with

14 such comment thereon as the Commission deter15 mines to be appropriate.

16 SEC. 615. LIABILITY OF NARAB AND ITS DIRECTORS, OFFI17 CERS, AND EMPLOYEES.

18 (a) IN GENERAL.—NARAB shall not be deemed to

19 be an insurer or insurance producer within the meaning

20 of any State law, rule, regulation, or order regulating or

21 taxing insurers, insurance producers, or other entities en22 gaged in the business of insurance, including provisions

23 imposing premium taxes, regulating insurer solvency or fi24 nancial condition, establishing guaranty funds and levying

25 assessments, or requiring claims settlement practices. The
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1 Corporation additionally shall be exempt from all taxes,

2 assessments, or other levies imposed by any State, munici3 pal, county, or local government.

4 (b) LIABILITY OF NARAB, ITS DIRECTORS, OFFI5 CERS, AND EMPLOYEES.—Neither NARAB nor any of its

6 directors, officers, or employees shall have any liability to

7 any person for any action taken or omitted in good faith

8 under or in connection with any matter subject to this

9 title.

10 SEC. 616. RELATIONSHIP TO STATE LAW.

11 (a) IN GENERAL.—Except as set forth in subsection

12 (b), all State laws, regulations, provisions, or actions pur13 porting to regulate insurance producers shall remain in

14 full force and effect.

15 (b) PREEMPTION OF STATE LAWS.—State laws, reg16 ulations, provisions or actions purporting to regulate in17 surance producers shall be preempted in the following

18 instances:

19 (1) No State shall impede the activities of, take

20 any action against, or apply any provision of law or

21 regulation to, any insurance producers because that

22 insurance producer or any affiliates plan to become,

23 has applied to become, or is, a member of NARAB.

24 (2) No State shall impose any requirement

25 upon a member of NARAB that has the effect of
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1 limiting that member’s activities because of its resi2 dence or place of operations including, but not lim3 ited to, any requirement that a licensed insurance

4 producer be a resident of a particular State or any

5 requirement that it comply with the conditions of a

6 counter-signature law.

7 (3) No State shall impose any requirement

8 upon a member of NARAB that is different than the

9 criteria for NARAB membership or renewal thereof.

10 (4) No State shall implement the procedures of

11 its system of licensing or renewing the licenses of in12 surance producers in a manner different than

13 NARAB authority, as set forth in section 617.

14 (c) PREEMPTION AUTHORITY.—The State laws, reg15 ulations, provisions, and actions enumerated in subsection

16 (b) shall be preempted on the date of the enactment of

17 this Act. Where it is unclear whether State laws or regula18 tions fall into the categories enumerated in subsection (b),

19 the Commission shall have the authority, by regulation,

20 to define those State laws and regulations that have been

21 preempted by this Act. The Commission shall also have

22 the authority to issue, after the opportunity for a hearing

23 on the record, an order that stays the effect of any State

24 law or regulation which is preempted until the Commission
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1 can complete the issuance of a regulation defining such

2 preemption.

3 SEC. 617. COORDINATION WITH OTHER REGULATORS.

4 (a) COORDINATION WITH STATE INSURANCE REGU5 LATORS.—NARAB shall have the authority, subject to

6 Commission review, to—

7 (1) issue uniform insurance producer applica8 tions and renewal applications that may be used to

9 apply for the issuance or removal of State licenses,

10 while preserving the ability of each State to impose

11 such conditions on the issuance or renewal of a

12 license as are consistent with section 616,

13 (2) establish a central clearinghouse through

14 which NARAB members may apply for the issuance

15 or renewal of licenses in multiple States, and

16 (3) establish a national database for the collec17 tion of regulatory information concerning the activi18 ties of insurance producers.

19 (b) COORDINATION WITH THE NATIONAL ASSOCIA20 TION OF SECURITIES DEALERS.—NARAB shall coordi21 nate with the National Association of Securities Dealers

22 in order to ease any administrative burdens that fall on

23 persons that are members of both associations, consistent

24 with the purposes of this title and the Federal securities

25 laws.
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1 SEC. 618. JUDICIAL REVIEW.

2 (a) JURISDICTION.—The appropriate United States

3 district court shall have exclusive jurisdiction over litiga4 tion involving NARAB, including disputes between

5 NARAB and its members that arise under this title. Suits

6 brought in State court involving NARAB shall be deemed

7 to have arisen under Federal law and therefore be subject

8 to jurisdiction in the appropriate United States district

9 court.

10 (b) EXHAUSTION OF REMEDIES.—An aggrieved per11 son must exhaust the administrative remedies before

12 NARAB before it may seek judicial review of the NARAB

13 decision.

14 TITLE VII—REHABILITATION

15 AND LIQUIDATION

16 SEC. 701. JURISDICTION.

17 (a) RECEIVERSHIP.—(1) The Commission shall act

18 as receiver of any federally certified insurer or reinsurer

19 for purposes of rehabilitation or liquidation and shall be

20 appointed as receiver in proceedings instituted in accord21 ance with this title.

22 (2) The appropriate State insurance regulator shall

23 act as receiver of any insurer or reinsurer which does not

24 have a Federal certificate. Such regulator may request the

25 Commission to act as receiver in its place.
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1 (b) ADMINISTRATIVE INTERVENTION.—The Commis2 sion and the appropriate State insurance regulator shall

3 administratively seize an insurer or reinsurer under their

4 jurisdiction if the financial condition of such insurer or

5 reinsurer is substantially and imminently threatened and

6 the seizure is in accordance with this title.

7 (c) COURT.—The United States district courts shall

8 have exclusive jurisdiction of proceedings to appoint a re9 ceiver of an insurer or reinsurer and of disputes regarding

10 administrative intervention and, following appointment of

11 a receiver, to supervise a rehabilitation or liquidation in

12 conformity with this title.

13 SEC. 702. PETITION FOR APPOINTMENT.

14 (a) FILING OF PETITION.—A proceeding to appoint

15 the receiver shall be commenced by the filing of a petition,

16 by the Commission or by the appropriate State insurance

17 regulator, seeking such appointment in the appropriate

18 United States district court.

19 (b) RECOMMENDATION OF THE NATIONAL INSUR20 ANCE PROTECTION CORPORATION.—In determining

21 whether to file a petition for receivership as to a federally

22 certified insurer, the Commission may consult with NIPC

23 concerning the advisability of filing such petition, concern24 ing whether the petition should be for rehabilitation or
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1 liquidation, and concerning such other matters as the

2 Commission determines appropriate.

3 SEC. 703. ORDER APPOINTING COMMISSION RECEIVER.

4 (a) IN GENERAL.—An order appointing a receiver as

5 provided by section 701 shall—

6 (1) specify whether the receiver is to act to re7 habilitate or to liquidate the insurer or reinsurer;

8 and

9 (2) require financial status reports which in10 clude a listing of all funds received or disbursed by

11 the receiver during the period covered by the report

12 to be filed within 6 months of the court order of

13 receivership and quarterly thereafter.

14 (b) STATE REGULATED INSURERS AND REINSUR15 ERS.—If the insurer or reinsurer holds a State insurance

16 license, a copy of the reports shall be served upon the in17 surance regulators of the State of the insurer or reinsur18 er’s domicile and of each State in which it is or was li19 censed or transacted any insurance business.

20 SEC. 704. EFFECT OF ORDER.

21 (a) TRANSFERS.—The order appointing the receiver

22 shall have the effect of immediately transferring to the re23 ceiver the possession and control and the unconditional

24 right to possession and control of all of the business, as25 sets, and affairs of the insurer or reinsurer.
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1 (b) CONTRACTS.—The entry of an order appointing

2 a receiver shall not constitute an anticipatory breach of

3 any contract of the insurer or reinsurer or provide ground

4 for revocation or cancellation of any such contract other

5 than by the receiver.

6 (c) LEGAL REMEDIES.—The receiver is vested with

7 all rights of action—

8 (1) held by the insurer or reinsurer in receiver9 ship; and

10 (2) raised on behalf of policyholders and credi11 tors.

12 SEC. 705. APPLICABILITY OF RECEIVERSHIP TO FOREIGN

13 INSURERS AND REINSURERS.

14 The Commission shall be appointed as receiver under

15 this Act for a foreign insurer or reinsurer to the extent

16 of its assets, operations, and business in the United

17 States. To the extent that such assets are insufficient to

18 cover claims against a foreign insurer or reinsurer, the re19 ceiver may bring an action in the United States district

20 court with jurisdiction over the receivership to recover

21 amounts due and owing.

22 SEC. 706. INJUNCTIONS AND ORDERS.

23 The Commission may at any time apply for such re24 straining orders, preliminary and permanent injunctions,

25 and other orders as may be deemed necessary to prevent—
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1 (1) the transaction of further business by or on

2 behalf of the insurer or reinsurer;

3 (2) the transfer of property of or on behalf of

4 the insurer or reinsurer;

5 (3) interference with the receiver or with a pro6 ceeding under this Act;

7 (4) waste of the assets of the insurer or rein8 surer;

9 (5) dissipation and transfer of bank accounts of

10 the insurer or reinsurer;

11 (6) the institution or further prosecution of any

12 actions or proceedings against the insurer or rein13 surer, the receiver, or any reinsurer of the insurer

14 or reinsurer except when such reinsurer has a valid

15 contractual obligation to pay reinsurance proceeds to

16 a party other than the insurer or reinsurer;

17 (7) the obtaining of preferences, judgments, at18 tachments, garnishments, or liens against the in19 surer or reinsurer or its assets;

20 (8) the levying of execution against the insurer

21 or reinsurer or its assets;

22 (9) the making of any sale or deed for

23 nonpayment of taxes or assessments that would less24 en the value of the assets of the insurer or reinsurer;
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1 (10) the withholding from the receiver of books,

2 accounts, documents, or other records relating to the

3 business of the insurer or reinsurer; or

4 (11) any other threatened or contemplated ac5 tion that might lessen the value of the insurer’s or

6 reinsurer’s assets or prejudice the rights of policy7 holders, creditors, or shareholders, or the adminis8 tration of any proceeding under this Act.

9 The Court shall not require the receiver to submit a bond

10 or other security as a condition of issuing an order under

11 this section.

12 SEC. 707. ACTIONS BY AND AGAINST THE RECEIVER.

13 (a) AUTOMATIC STAY.—The entry of the order of the

14 district court appointing the receiver for an insurer or re15 insurer shall operate as a stay of—

16 (1) every action or proceeding in any State or

17 Federal court, and

18 (2) every administrative proceeding,

19 in which the insurer or reinsurer is a party, or is obligated

20 to defend a party, for 90 days to enable the receiver, guar21 anty associations, and insureds to obtain representation

22 and prepare for further proceedings. The district court,

23 upon application of the receiver, guaranty associations,

24 and insureds, shall grant injunctions and orders directed

25 to any and all courts, persons, and parties as necessary
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1 to confirm or secure such stays of proceedings, or to ex2 tend any such stay upon a showing by the applicant that

3 additional time is necessary for it to participate com4 petently in the further conduct of the action or proceeding.

5 Any decision, verdict, or finding based on the default of

6 the insurer or reinsurer or on the failure of the receiver

7 or any guaranty association to defend an insured shall,

8 upon application by the receiver or guaranty association,

9 be set aside by the court or administrator that entered

10 such decision, verdict, or finding.

11 (b) PENDING LITIGATION.—The receiver shall take

12 such action respecting all pending litigation in which the

13 insurer or reinsurer is a party as it deems necessary in

14 the interests of justice for the protection of creditors,

15 policyholders, and the public.

16 (c) PRESERVATION OF ACTIONS.—No statute of limi17 tations or defense of laches shall run with respect to any

18 cause of action by or against an insurer or reinsurer be19 tween the filing of a petition for appointment of the re20 ceiver and the order granting or denying that petition. Any

21 action against the insurer or reinsurer that might have

22 been commenced when the petition was filed may be com23 menced within 90 days after the order appointing the re24 ceiver has been entered or the petition is denied. The re25 ceiver may within one year, or such longer time as applica-
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1 ble law may permit, institute an action on behalf of an

2 insurer or reinsurer upon any cause of action against

3 which the period of limitation fixed by applicable law has

4 not expired at the time of the filing of the petition.

5 SEC. 708. JURISDICTION OVER ACTIONS BY AND AGAINST

6 RECEIVER; TRANSFER.

7 The appropriate district court of the United States

8 shall have exclusive jurisdiction over cases brought by the

9 receiver pursuant to this title. All cases pending or there10 after initiated against the estate of the insurer or rein11 surer or against the receiver shall be filed with or trans12 ferred to the district court with jurisdiction over the

13 receivership proceedings.

14 SEC. 709. EXPENSES OF ESTABLISHING RECEIVERSHIP.

15 (a) PAYMENT.—All expenses of the receiver or of any

16 person acting under its authority and direction—

17 (1) in the taking possession of the insurer or

18 reinsurer in receivership,

19 (2) of conducting the proceedings placing the

20 insurer or reinsurer in receivership,

21 (3) of obtaining the appointment of the re22 ceiver, and

23 (4) in the administration of the receivership

24 and in the conduct of all proceedings related to the

25 receivership,
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1 shall be paid out of the funds or assets of the covered

2 entity as a Class 1 expense as described in section 743.

3 (b) EXPENSES.—In the event that the estate of the

4 entity does not contain sufficient cash or liquid assets to

5 defray the costs incurred, the receiver may pay the costs

6 so incurred from its general funds. Any amounts so ad7 vanced for expenses of establishing the receivership and

8 for its administration shall be repaid to the receiver as

9 administrative expenses when sufficient assets are

10 liquidated.

11 SEC. 710. PROCEEDINGS AGAINST CULPABLE PERSONS.

12 If it appears to the receiver in a rehabilitation or liq13 uidation proceeding that there has been criminal or

14 tortious conduct, or breach of any contractual or fiduciary

15 obligation detrimental to the insurer or reinsurer by any

16 officer, manager, agent, broker, employee or other person,

17 the receiver may pursue all appropriate legal remedies on

18 behalf of the insurer or reinsurer in receivership.

19 SEC. 711. SPECIAL DEPOSITS.

20 Any deposit of an insurer or reinsurer for which the

21 Commission is receiver and that is held by a State insur22 ance regulator shall be transferred to the Commission

23 upon entry of the receivership order.
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1 SEC. 712. AUDITS.

2 Any insurer or reinsurer in receivership that has

3 more than $500,000 in assets shall be audited annually

4 by an independent outside certified public accountant ap5 proved by the court. The cost of the audit shall be paid

6 from the assets of the insurer or reinsurer in receivership.

7 SEC. 713. STANDING OF GUARANTY ASSOCIATIONS.

8 NIPC and any guaranty association shall have stand9 ing to appear in any court proceeding concerning the reha10 bilitation or liquidation of an insurer or reinsurer if such

11 association has paid guaranty obligations for which it has

12 not been reimbursed or is or may become liable for as

13 guarantor of obligations of the insurer or reinsurer in

14 rehabilitation or liquidation.

15 SEC. 714. PROHIBITED AND VOIDABLE TRANSFERS PRIOR

16 TO PETITION FOR RECEIVERSHIP.

17 (a) PROHIBITED TRANSFERS.—No insurer or rein18 surer shall make any transfer of its property with the ef19 fect of giving to or enabling any creditor or policyholder

20 to obtain a greater percentage of the creditor’s debt than

21 any other creditor of the same class.

22 (b) VOIDABLE TRANSFERS.—Any transfer of prop23 erty which gives or enables any creditor or policyholder

24 to obtain a greater percentage of the creditor’s debt than

25 any other creditor or policyholder in the same class may
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1 be avoided by the receiver if the insurer or reinsurer was

2 insolvent at the time of the transfer and either—

3 (1) the transfer was made within 4 months be4 fore the filing of a petition for receivership; or

5 (2) the creditor receiving such transfer was—

6 (A) an officer of the insurer or reinsurer;

7 (B) any person other than an officer who

8 was in fact in a position of influence over the

9 insurer or reinsurer comparable to that of an

10 officer;

11 (C) any shareholder holding directly or in12 directly more than 5 percent of any class of any

13 equity security issued by the insurer or rein14 surer; or

15 (D) any other person with whom the in16 surer or reinsurer did not deal at arm’s length.

17 The 4-month period referred to in paragraph (1) shall not

18 expire until 4 months after the date of the recording or

19 the registering of the transfer if by law such recording

20 or registering is required.

21 (c) LIABILITY FOR TRANSFERS.—Every director, of22 ficer, employee, stockholder, member, or any other person,

23 acting on behalf of an insurer or reinsurer in receivership,

24 who, within 2 years prior to the filing of the petition for

25 receivership, shall knowingly participate in the making of
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1 any transfer prohibited by subsection (a) and every person

2 receiving any property of, or cash surrender from, such

3 insurer or reinsurer or the benefit thereof, as a result of

4 a transaction voidable under subsection (b) shall be jointly

5 and severally liable therefor and shall be bound to account

6 to the receiver.

7 (d) AVOIDANCE OF TRANSFERS.—The receiver may

8 avoid any transfer of the property of such insurer or rein9 surer which any creditor, stockholder, or member might

10 have avoided and may recover the property so transferred

11 or its value from the person to whom it was transferred

12 unless the transferee was a bona fide holder for value prior

13 to the date of the entry of the order of receivership. Such

14 property may be recovered or its value collected from

15 whomever may have received it except a bona fide holder

16 for value.

17 (e) REINSURANCE TRANSACTIONS.—Any transaction

18 which consists of the termination or reduction in coverage

19 or limits of a reinsurance contract that meets all of the

20 following conditions shall be voidable:

21 (1) The transaction was agreed upon or made

22 effective or executed prior to the expiration of 180

23 days from the date of which the reinsurance origi24 nally became effective.
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1 (2) The transaction released the assuming rein2 surer, in whole or in part, from its obligation to pay

3 its originally specified share of those losses which

4 had occurred prior to the time of the transaction but

5 which had not been paid by the ceding insurer or

6 reinsurer.

7 (3) Any part of the transaction was effected

8 within 1 year prior to the filing of the petition for

9 receivership.

10 (4) The ceding insurer or reinsurer did not re11 ceive fair consideration for the transaction based on

12 information available to such insurer or reinsurer at

13 the time of the transaction.

14 The receiver or the court may avoid such transaction at

15 any time within 180 days after such application for receiv16 ership by tender to the assuming reinsurer of any money

17 or other consideration which passed to the ceding insurer

18 or reinsurer in connection with such transaction. If such

19 transaction has been avoided, the receiver or the court

20 may enforce the reinsurance contract as it existed prior

21 to such transaction, both as to losses prior to such trans22 action and as to losses occurring after such transaction

23 and prior to the appointment of the receiver. If the court

24 finds that such transaction was made in bad faith by the

25 assuming reinsurer, or with intent to obtain a preference
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1 among creditors, or with knowledge that any sums or

2 other property paid in such transaction would not be ap3 plied to the use and benefit of the ceding insurer or rein4 surer or its policyholders, then the return tender shall not

5 be a condition to the avoidance of the transaction.

6 (f) PRESUMPTION.—For purposes of this section, the

7 insurer or reinsurer is presumed to be insolvent on and

8 during the 4-month period immediately preceding the date

9 of the filing of the petition for receivership.

10 (g) TRANSFERS COVERED.—For purposes of this sec11 tion, a transfer shall include a preference, lien, convey12 ance, assignment, or encumbrance.

13 (h) EXCEPTIONS.—The receiver may not avoid a

14 transfer under this section—

15 (1) to the extent that such a transfer was—

16 (A) intended by the insurer or reinsurer in

17 receivership and the creditor to or for the bene18 fit of which such transfer was made to be a

19 contemporaneous exchange for new value given

20 to such insurer or reinsurer; and

21 (B) in fact, a substantially contempora22 neous exchange; or

23 (2) to the extent that such transfer was—
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1 (A) in payment of a debt incurred by such

2 insurer or reinsurer in the ordinary course of

3 business or financial affairs with the transferee;

4 (B) made in the ordinary course of busi5 ness or financial affairs with the transferee;

6 and

7 (C) made according to ordinary business

8 terms.

9 SEC. 715. VOIDABLE PREFERENCES TO CULPABLE OFFI10 CERS.

11 (a) VOIDABLE EXECUTIVE BENEFITS.—Any reim12 bursement of a fine related to the insurer or reinsurer in

13 receivership, or any payment of a fee or bonus or any pre14 payment of compensation or defense costs by such insurer

15 or reinsurer which are paid to or for the benefit of a cul16 pable executive officer of such insurer or reinsurer and

17 which are not in the ordinary course of business, shall be

18 voidable if paid within 4 months prior to the filing of a

19 complaint under this article.

20 (b) APPLICABILITY.—For purposes of subsection (a),

21 payment shall be in the ordinary course of business if it

22 is—

23 (1) part of the executive’s annual salary paid

24 not more than a month in advance or is compensa25 tion for valid travel and entertainment expenses;
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1 (2) made pursuant to a retirement plan which

2 is qualified (or is intended to be qualified) under

3 section 401 of the Internal Revenue Code of 1986

4 or other nondiscriminatory benefit plan;

5 (3) made pursuant to a bona fide deferred com6 pensation or arrangement;

7 (4) made pursuant to a bona fide bonus plan

8 based on superior performance; or

9 (5) made by reason of the death or disability of

10 the officer.

11 (c) CULPABILITY.—An executive officer shall be cul12 pable if the receiver finds that such officer—

13 (1) is substantially responsible for the condition

14 which caused such insurer or reinsurer to be placed

15 in receivership;

16 (2) has committed a fraudulent act or omission,

17 or breach of trust or insider abuse with respect to

18 the insurer or reinsurer resulting in a material ad19 verse financial impact to such; or

20 (3) has materially violated applicable Federal or

21 State insurance laws or regulations and that such

22 violation has had an adverse material impact on the

23 financial condition of such insurer or reinsurer.
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1 SEC. 716. FRAUDULENT TRANSFER AFTER PETITION FOR

2 RECEIVERSHIP.

3 (a) IN GENERAL.—Any transfer of real property of

4 an insurer or reinsurer made after the filing of a petition

5 for receivership to a person acting in good faith shall be

6 valid against the receiver if made for a present fair equiva7 lent value, or, if not made for a present fair equivalent

8 value, then to the extent of the present consideration actu9 ally paid therefor, for which amount the transferee shall

10 have a lien on the property so transferred. The commence11 ment of a receivership proceeding shall be constructive no12 tice upon the recording of a copy of the petition for or

13 order of receivership with the recorder of deeds in the

14 county where any real property in question is located. The

15 exercise by a court of the United States or any State or

16 jurisdiction to authorize or effect a judicial sale of real

17 property of the insurer or reinsurer in receivership within

18 any county in any State shall not be impaired by the pend19 ency of such a proceeding unless the copy is recorded in

20 the county before the consummation of the judicial sale.

21 (b) OTHER ACTIONS.—After a petition for receiver22 ship has been filed and before either the receiver takes

23 possession of the property of the insurer or reinsurer or

24 an order of receivership is granted—

25 (1) a transfer of any of the property of such in26 surer or reinsurer, other than real property, made to
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1 a person acting in good faith shall be valid against

2 the receiver if made for a present fair equivalent

3 value, or, if not made for a present fair equivalent

4 value, then to the extent of the present consideration

5 actually paid therefor, for which amount the trans6 feree shall have a lien on the property so trans7 ferred;

8 (2) a person indebted to or holding property of

9 such insurer or reinsurer may, if acting in good

10 faith, pay the indebtedness or deliver the property,

11 or any part thereof, to such insurer or reinsurer or

12 upon its order, with the same effect as if the petition

13 were not pending; and

14 (3) a person having actual knowledge of the

15 pending receivership shall be deemed not to act in

16 good faith.

17 A person asserting the validity of a transfer under this

18 subsection shall have the burden of proof.

19 (c) LIABILITY.—Every person receiving any property

20 from an insurer or reinsurer in receivership or any benefit

21 thereof which is a fraudulent transfer under subsection (a)

22 shall be personally liable therefor and shall be bound to

23 account to the receiver.
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1 (d) CONSTRUCTION.—Nothing in this title shall im2 pair the negotiability of currency or negotiable instru3 ments.

4 SEC. 717. CLAIMS OF HOLDERS OF VOIDABLE TRANSFERS.

5 (a) IN GENERAL.—No claims of a creditor which has

6 received or acquired a voidable preference, lien, convey7 ance, transfer, assignment, or encumbrance shall be al8 lowed unless the creditor surrenders the preference, lien,

9 conveyance, transfer, assignment, or encumbrance. If the

10 avoidance is effected by a proceeding in which a final judg11 ment has been entered, the claim shall not be allowed un12 less the money is paid or the property is delivered to the

13 receiver within 30 days from the date of the entering of

14 the final judgment, except that the court having jurisdic15 tion over the receivership may allow further time if there

16 is an appeal or other continuation of the proceeding.

17 (b) FILING.—A claim allowable under subsection (a)

18 by reason of the avoidance, whether voluntary or involun19 tary, of a preference, lien, conveyance, transfer, assign20 ment, or encumbrance, may be filed as an excused late

21 filing under section 736 if filed within 30 days from the

22 date of the avoidance or within the further time allowed

23 by the court under subsection (a).
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1 SEC. 718. COOPERATION OF AN INSURER’S OR REINSUR2 ER’S OFFICERS, OWNERS, AND EMPLOYEES.

3 (a) COOPERATION.—Any officer, manager, director,

4 trustee, owner, employee, or agent of any insurer or rein5 surer in receivership, or any other person with authority

6 over or in charge of any segment of such insurer or rein7 surer’s affairs, shall cooperate with the receiver in any

8 proceeding under this Act or any investigation preliminary

9 to such proceeding.

10 (b) CONSTRUCTION.—This section shall not be con11 strued to abridge otherwise existing legal rights, including

12 the right to resist a petition for rehabilitation or liquida13 tion.

14 (c) PENALTIES.—

15 (1) Any person who fails to cooperate with the

16 Commission in violation of subsection (a) is subject

17 to the imposition of a civil penalty not to exceed

18 $10,000, and shall be subject to the suspension or

19 revocation of any insurance certificate issued by the

20 Commission. Such fine, suspension, or revocation

21 may be imposed only after the person has had an

22 opportunity for a hearing on the record. The Com23 mission may recommend to any State insurance reg24 ulator the suspension or revocation of any insurance

25 license issued by such State as a further penalty for

26 violation of this section.
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1 (2) If the receiver is a State insurance regu2 lator, such regulator may, in addition to any author3 ity under State law to impose penalties, petition the

4 Commission for the imposition of a penalty under

5 this section for failure to cooperate with such regu6 lator.

7 (d) DEFINITIONS.—For purposes of this section—

8 (1) the term ‘‘person’’ includes any person or

9 entity who exercises control, directly or indirectly

10 over activities of the insurer or reinsurer through

11 any holding company or other affiliate of the insurer

12 or reinsurer; and

13 (2) the term ‘‘to cooperate’’ includes—

14 (A) replying promptly in writing to any in15 quiry from the receiver requesting such a reply;

16 and

17 (B) making available to the receiver any

18 books, accounts, documents, or other records or

19 information or property of or pertaining to the

20 insurer or reinsurer and in its possession, cus21 tody, or control.

22 SEC. 719. ADMINISTRATIVE SEIZURE.

23 (a) IN GENERAL.—The receiver may issue an admin24 istrative order to seize an insurer or reinsurer when the

25 receiver has reason to believe that—
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1 (1) there exists any ground that would justify

2 a court order for receivership against the insurer or

3 reinsurer; and

4 (2) the interests of policyholders, creditors, or

5 the public will be endangered by delay.

6 (b) EFFECT OF ORDER.—Upon issuance of the ad7 ministrative seizure order by the receiver, it shall take pos8 session and control of all the property, books, accounts,

9 documents, and other records of the insurer or reinsurer,

10 and the premises it occupies. The receiver may, through

11 such order, enjoin the insurer or reinsurer, its officers, di12 rectors, managers, agents, and employees from disposition

13 of any property of the insurer or reinsurer and from the

14 further transaction of any business except upon written

15 consent of the receiver.

16 (c) DURATION OF ORDER.—The receiver shall specify

17 in its order the duration of the seizure, which shall be such

18 time as is necessary for the receiver to ascertain the actual

19 condition of the insurer or reinsurer, except that absent

20 approval by the district court, the order shall not extend

21 beyond 60 days. On its own initiative or upon request of

22 the insurer or reinsurer, the receiver may hold such hear23 ings as it deems necessary, after notice as it deems appro24 priate, and may extend, shorten, or modify the terms of

25 the order.
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1 (d) EFFECT ON CONTRACTS.—Entry of an order

2 under this section shall not constitute an anticipatory

3 breach of any contract of the insurer or reinsurer.

4 (e) PETITION TO TERMINATE ORDER.—An insurer

5 or reinsurer subject to an order under this section may

6 petition the appropriate district court, at any time after

7 the issuance of the order, for a hearing and review of the

8 order. The district court shall hold such hearing to deter9 mine the reasonableness of the issuance and terms of the

10 order not more than 15 days after the filing of such peti11 tion. A hearing under this subsection shall be held pri12 vately, unless the court, after hearing argument from the

13 parties, orders otherwise.

14 (f) CONFIDENTIALITY OF ORDER.—The seizure and

15 judicial review thereof shall be confidential except as is

16 necessary for the receiver to obtain compliance with the

17 order. All records and documents of the insurer or rein18 surer and the receiver and all court records and docu19 ments, so far as they pertain to or are a part of the sei20 zure, or the judicial review thereof, shall remain confiden21 tial. The confidentiality of the seizure and judicial pro22 ceedings shall continue until the court, after hearing argu23 ments from the parties, shall order otherwise.

24 (g) DETERMINATION ON RECEIVERSHIP.—Prior to

25 termination of the order, the receiver shall determine
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1 whether to proceed with a complaint for receivership or

2 release the insurer or reinsurer.

3 (h) ADMINISTRATIVE EXPENSES.—No order shall be

4 entered by the receiver or the district court releasing the

5 insurer or reinsurer unless the receiver’s expenses of the

6 seizure have been paid by the insurer or reinsurer or a

7 reasonable plan for repayment has been agreed upon.

8 SEC. 720. GROUNDS FOR REHABILITATION.

9 (a) IN GENERAL.—The Commission or the appro10 priate State insurance regulator may apply by petition to

11 the appropriate United States district court for an order

12 authorizing the rehabilitation of an insurer or reinsurer

13 on any one or more of the following grounds:

14 (1) The insurer or reinsurer is in such condition

15 that the further transaction of business would be

16 hazardous financially to its policyholders, creditors,

17 or the public.

18 (2) There is reasonable cause to believe that

19 there has been embezzlement from the insurer or re20 insurer, wrongful sequestration or diversion of its

21 assets, or forgery, fraud affecting it or other illegal

22 conduct in, by, or with respect to it that if estab23 lished would endanger assets in an amount threaten24 ing the solvency of the insurer or reinsurer.
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1 (3) The insurer or reinsurer has failed to re2 move any person who in fact has executive authority,

3 whether an officer, manager, agent, employee, or

4 other person, if the person has been found after no5 tice and hearing by the Commission or the appro6 priate State insurance regulator to be dishonest or

7 untrustworthy in a way affecting the insurer’s or re8 insurer’s business.

9 (4) Control of the insurer or reinsurer, whether

10 by stock ownership or otherwise, and whether direct

11 or indirect, is in a person found after the oppor12 tunity for a hearing on the record to be

13 untrustworthy.

14 (5) Any person who in fact has executive au15 thority in the insurer or reinsurer, whether an offi16 cer, manager, agent, director or trustee, employee,

17 or other person, has refused to be examined under

18 oath by the Commission or the appropriate State in19 surance regulator concerning its affairs, and after

20 reasonable notice of the fact, the insurer or rein21 surer has failed promptly and effectively to termi22 nate the employment and status of the person and

23 all such person’s influence on management.

24 (6) After demand by the Commission or the ap25 propriate State insurance regulator under this Act,
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1 the insurer or reinsurer has failed to promptly make

2 available for examination any of its own property,

3 books, accounts, documents, or other records, those

4 of any affiliate, or those of any person having execu5 tive authority in the insurer or reinsurer so far as

6 they pertain to it.

7 (7) Without first obtaining the written consent

8 of the Commission or the appropriate State insur9 ance regulator, the insurer or reinsurer has trans10 ferred, or attempted to transfer, in a manner in vio11 lation of any solvency regulation or order of the

12 Commission or such regulator, substantially its en13 tire property or business, or has entered into any

14 transaction the effect of which is to merge, consoli15 date, or reinsure substantially its entire property or

16 business in or with the property or business of any

17 other person.

18 (8) Within the previous 4 years the insurer or

19 reinsurer has willfully violated its charter or articles

20 of commission, its bylaws, any Federal or State in21 surance law, or any valid order of the Commission

22 or appropriate State insurance regulator.

23 (9) The insurer or reinsurer has failed to pay

24 within 60 days after the due date any obligation to

25 any State or any political subdivision thereof or any
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1 judgment entered in any State if the court in which

2 such judgment was entered had jurisdiction over

3 such subject matter, except that such nonpayment

4 shall not be a ground until 60 days after any good

5 faith effort by the entity to contest the obligation

6 has been terminated, whether it is before the Com7 mission, the appropriate State insurance regulator

8 or in the courts, or the insurer or reinsurer has sys9 tematically attempted to compromise or renegotiate

10 previously agreed settlements with its creditors on

11 the ground that is financially unable to pay its obli12 gations in full.

13 (10) The insurer or reinsurer has failed to file

14 its annual report or other financial report required

15 by statute within the time allowed by law and, after

16 written demand by the Commission or appropriate

17 State insurance regulator, has failed to give an ade18 quate explanation immediately.

19 (11) The board of directors or the holders of a

20 majority of the shares of the insurer or reinsurer

21 which are entitled to vote, or a majority of those in22 dividuals entitled to the control of it, request or con23 sent to rehabilitation under this title.

24 (12) The insurer or reinsurer has concealed, re25 moved, altered, destroyed, or failed to establish and
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1 maintain books, records, documents, accounts,

2 vouchers, or other pertinent materials adequate for

3 the determination of its financial condition by exam4 ination or has failed to properly administer claims

5 and to maintain claim records which are adequate

6 for the determination of its outstanding claims liabil7 ity.

8 (13) The insurer or reinsurer has neglected or

9 refused to comply with an order of the Commission

10 or the appropriate State insurance regulator to

11 make good within the time prescribed by law any de12 ficiency, whenever its capital and minimum required

13 surplus, if a stock company, or its required surplus,

14 if a company other than stock, has become impaired.

15 (14) The insurer or reinsurer is found to be in

16 such condition that it could not meet the require17 ments for organization and authorization as required

18 by applicable law, except as to the amount of the

19 original surplus required of a stock company and ex20 cept as to the amount of the surplus required of a

21 mutual company in excess of the minimum surplus

22 required to be maintained.

23 (15) The insurer or reinsurer has not organized

24 and obtained a certificate authorizing it to com-
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1 mence the transaction of its business within the pe2 riod of time prescribed by applicable statute.

3 (16) The insurer’s or reinsurer’s certificate of

4 authority has been revoked or none was ever issued.

5 (b) DETERMINATION TO SEEK REHABILITATION.—

6 The Commission shall file a petition for rehabilitation

7 rather than liquidation only if it determines, in its sole

8 discretion, that there is a realistic probability that the in9 surer or reinsurer involved can be rehabilitated.

10 SEC. 721. REHABILITATION ORDERS.

11 An order to rehabilitate an insurer or reinsurer shall

12 direct the receiver forthwith to take possession of the as13 sets of the entity and to administer them under the gen14 eral supervision of the United States district court which

15 ordered the rehabilitation. The filing or recording of the

16 order with the clerk of the court or recorder of deeds of

17 the county in which the principal business of the insurer

18 or reinsurer is conducted, or the county in which its prin19 cipal office or place of business is located, shall impart

20 the same notice as a deed, bill of sale, or other evidence

21 of title duly filed or recorded with the recorder of deeds

22 would have imparted.
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1 SEC. 722. POWERS AND DUTIES OF THE RECEIVER IN REHA2 BILITATION.

3 (a) POWERS.—The receiver may take such action as

4 it deems necessary or appropriate to reform and rehabili5 tate the insurer or reinsurer for which it has been ap6 pointed receiver in rehabilitation. The receiver shall have

7 all the powers of the directors, officers, and managers,

8 whose authority shall be suspended except as they are re9 delegated by the receiver. The receiver shall have full

10 power to direct and manage, hire, and discharge employ11 ees subject to any contract rights they may have and to

12 deal with the property and business of the insurer or rein13 surer and to carry on its business.

14 (b) PLAN.—If the receiver determines that reorga15 nization, consolidation, conversion, reinsurance, merger,

16 or other transformation of the insurer or reinsurer is ap17 propriate, the receiver shall prepare a plan to effect such

18 changes. Upon application of the receiver for approval of

19 the plan, and after such notice and hearings as the court

20 may prescribe, the United States district court which pre21 sided over the rehabilitation may either approve or dis22 approve the plan proposed or may modify it and approve

23 it as modified. Any plan approved under this subsection

24 shall be, in the judgment of the court, fair and equitable

25 to all parties concerned. If the plan is approved, the re26 ceiver shall carry out the plan.
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1 (c) ADVISORY COMMITTEE.—The receiver may, with

2 the approval of the court, appoint an advisory committee

3 of policyholders, claimants, or other creditors, including,

4 as appropriate, NIPC and any guaranty associations

5 which have standing under section 713, if the receiver de6 termines such a committee to be necessary. If an advisory

7 committee is appointed for a federally certified insurer, it

8 shall include NIPC. Such committee shall serve at the

9 pleasure of the receiver and shall serve without compensa10 tion other than reimbursement for reasonable travel and

11 per diem living expenses incurred in attending meetings

12 for such committee.

13 SEC. 723. TERMINATION OF REHABILITATION.

14 (a) TERMINATION OF REHABILITATION.—The re15 ceiver or the directors of an insurer or reinsurer in reha16 bilitation may at any time petition the court for an order

17 terminating the rehabilitation on the ground that the in18 surer or reinsurer is rehabilitated and may safely

19 recommence the transaction of an insurance or reinsur20 ance business. If any such petition by the directors is de21 nied, another such petition may not be made by the direc22 tors for at least 6 months. The court may order payment

23 from the estate of the insurer or reinsurer of such costs

24 and other expenses of such petition and rehabilitation as

25 justice may require. If the court finds that—
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1 (1) rehabilitation has been accomplished,

2 (2) grounds for rehabilitation no longer exist,

3 and

4 (3) the insurer or reinsurer may safely

5 recommence the transaction of an insurance or rein6 surance business,

7 the court shall order that the insurer or reinsurer be re8 stored to possession of its property and the control of its

9 business. The court may also make such finding and issue

10 such order at any time upon its own motion.

11 (b) TERMINATION OF REHABILITATION TO INITIATE

12 LIQUIDATION.—

13 (1) If the payment of policy obligations of an

14 insurer is suspended in substantial part for a period

15 of 6 months at any time after the appointment of

16 the receiver for rehabilitation of the insurer and the

17 receiver has not filed an application for approval of

18 a plan under section 720(b), the receiver shall peti19 tion the court for an order of liquidation on grounds

20 of insolvency.

21 (2) Whenever the receiver believes further at22 tempts to rehabilitate an insurer or reinsurer would

23 not be in the best interests of its creditors, policy24 holders, or the public, or would be futile, the receiver

25 may petition the court for an order of liquidation.
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1 The court shall permit the directors of the insurer

2 or reinsurer to take such actions as are reasonably

3 necessary to defend against the petition and may

4 order payment from the estate of such costs and

5 other expenses of defense as justice may require.

6 SEC. 724. GROUNDS FOR LIQUIDATION.

7 The Commission or State insurance regulator may

8 petition the appropriate United States district court for

9 an order directing the liquidation of an insurer or rein10 surer at any time, including during or at the termination

11 of the rehabilitation under section 723, on the basis that—

12 (1) one or more of the conditions for rehabilita13 tion set forth in section 720 exists; and

14 (2) the Commission or State insurance regu15 lator determines that an effort at rehabilitation

16 would not be in the best interests of its policy17 holders, creditors, and the public or that an effort

18 at rehabilitation would be futile.

19 SEC. 725. LIQUIDATION ORDERS.

20 (a) IN GENERAL.—If a receiver is ordered to liq21 uidate an insurer or reinsurer, it shall have possession and

22 control over all of the assets, property, contracts, and

23 rights of action of such insurer or reinsurer and all of its

24 books and records, wherever located. The filing or record25 ing of the order with the clerk of the court and the re-
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1 corder of deeds of the county in which the insurer or rein2 surer’s principal office or place or business is located, or,

3 in the case of real estate, with the recorder of deeds of

4 the county where the property is located, shall impart the

5 same notice as a deed, bill of sale, or other evidence of

6 title duly filed or recorded with that recorder of deeds

7 would have imparted.

8 (b) FIXING OF RIGHTS AND LIABILITIES.—Upon is9 suance of the order, the rights and liabilities of the insurer

10 or reinsurer in liquidation and of its creditors, policy11 holders, shareholders, members, and all other persons in12 terested in its estate shall become fixed as of the date of

13 entry of the order of liquidation, except as provided in sec14 tions 726 and 738 or as otherwise provided by the court

15 for good cause shown.

16 (c) FOREIGN INSURER OR REINSURER.—An order to

17 liquidate the business of a foreign insurer or reinsurer

18 shall be in the same terms and have the same legal effect

19 as an order to liquidate an insurer or reinsurer licensed

20 in the United States, except that the assets, operations,

21 and business in the United States shall be the only assets,

22 operations, and business included in the order.

23 (d) INSOLVENCY.—At the time of petitioning for an

24 order of liquidation, or at any time thereafter, the receiver

25 may petition the court for a judicial declaration of insol-
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1 vency. After providing such notice and hearing as it deems

2 proper, the court may make the declaration.

3 (e) PLAN.—

4 (1) Within 5 days of the appointment of the re5 ceiver or, if the appointment is appealed, within 5

6 days after the initiation of an appeal of an order of

7 liquidation, which order has not been stayed, the re8 ceiver shall present for the court’s approval a plan

9 for the continued performance of the insurer’s policy

10 claims obligations, including the duty to defend

11 insureds under liability insurance policies, during the

12 pendency of an appeal. Such plan shall provide for

13 the continued performance and payment of policy

14 claims obligations in the normal course of events,

15 notwithstanding the grounds alleged in support of

16 the order of liquidation, including the ground of in17 solvency. In the event the insurer’s financial condi18 tion will not, in the judgment of the receiver, sup19 port the full performance of all policy claims obliga20 tions during the pendency of the appeal, the plan

21 may, on the basis of hardship, prefer the claims of

22 certain policyholders and claimants over creditors

23 and interested parties as well as other policyholders

24 and claimants, as the receiver finds to be fair and

25 equitable considering the relative circumstances of
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1 such policyholders and claimants. The court shall ex2 amine the plan submitted by the receiver and if it

3 finds the plan to be in the best interests of the par4 ties, the court shall approve the plan. No action

5 shall lie against the receiver based on preference in

6 a plan approved by the court.

7 (2) The plan shall not supersede or affect the

8 obligations of NIPC or of any insurance guaranty

9 association.

10 (3) The plan shall provide for equitable adjust11 ments to be made by the receiver to any distribu12 tions of assets of the insurer or reinsurer to NIPC

13 to any guaranty associations if the receiver pays

14 claims from assets of its estate which would other15 wise be the obligations of NIPC or any particular

16 guaranty association so that NIPC and all guaranty

17 associations equally benefit on a pro rata basis from

18 the assets of such estate. In the event an order of

19 liquidation is set aside upon appeal, the insurer or

20 reinsurer shall not be released from liquidation pro21 ceedings unless and until all funds advanced by the

22 receiver, NIPC, and any guaranty association, in23 cluding reasonable administrative expenses relating

24 to obligations of the company, shall be repaid in full,

25 together with interest at the rate provided in section
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1 3717 of title 31, United States Code, or until a re2 payment plan has been agreed to by the receiver and

3 any affected guaranty associations.

4 SEC. 726. CONTINUANCE OF COVERAGE.

5 (a) IN GENERAL.—Any policy, including bonds and

6 other noncancellable business, in effect at the time of issu7 ance of an order of liquidation shall continue in force only

8 for the earlier of—

9 (1) a period of 30 days from the date of entry

10 of the liquidation order;

11 (2) the date of expiration of the policy coverage;

12 (3) the date when the insured has replaced the

13 insurance coverage with equivalent insurance in an14 other insurer or otherwise terminated the policy;

15 (4) the effective date the receiver has effected

16 a transfer of the policy obligation; or

17 (5) the date proposed by the receiver and ap18 proved by the court to cancel coverage.

19 (b) TERMINATION.—An order of liquidation under

20 section 725 shall terminate coverages at the time specified

21 in subsection (a) for purposes of any statute.

22 (c) APPLICABILITY TO POLICIES OF LIFE AND

23 HEALTH INSURANCE.—

24 (1) Policies of life or health insurance or annu25 ities shall continue in force for such period and
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1 under such terms as are provided for by NIPC or

2 appropriate guaranty association.

3 (2) Policies of life or health insurance or annu4 ities or any period of coverage of such policies not

5 covered by NIPC or any guaranty association shall

6 terminate under subsections (a) and (b).

7 SEC. 727. DISSOLUTION OF AN INSURER OR REINSURER.

8 The receiver may petition for an order dissolving the

9 corporate existence of an insurer or reinsurer, or its Unit10 ed States branch in the case of a foreign insurer or rein11 surer, at the time the receiver applies for a liquidation

12 order. The court shall order dissolution of the insurer or

13 reinsurer upon petition by the receiver upon or after the

14 granting of a liquidation order.

15 SEC. 728. POWERS OF THE LIQUIDATOR.

16 (a) IN GENERAL.—The receiver shall have the follow17 ing powers in liquidation:

18 (1) To collect all assets, debts, and moneys due

19 and claims belonging to the insurer or reinsurer in

20 liquidation, wherever located, and for this purpose—

21 (A) to institute timely action in other juris22 dictions in order to forestall garnishment and

23 attachment proceedings against such debts;

24 (B) to do such other acts as are necessary

25 or expedient to collect, conserve, or protect its
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1 assets or property, including the power to sell,

2 compound, compromise, or assign debts for pur3 poses of collection upon such terms and condi4 tions as the receiver deems best; and

5 (C) to pursue any creditor’s remedies

6 available to enforce the receiver’s claims.

7 (2) To acquire, encumber, lease, improve, sell,

8 transfer, abandon, or otherwise dispose of or deal

9 with, any property of the insurer or reinsurer at its

10 market value or upon such terms and conditions as

11 are fair and reasonable.

12 (3) To execute, acknowledge, and deliver any

13 deed, assignment, release, and other instrument nec14 essary or proper to effectuate any sale of property

15 or other transaction in connection with the liquida16 tion.

17 (4) To conduct public and private sales of the

18 property of the insurer or reinsurer and to agree to

19 a merger with another insurer or reinsurer.

20 (5) To use assets of the estate under a liquida21 tion order to transfer policy obligations to a solvent

22 insurer or reinsurer if the transfer can be arranged

23 without prejudice to applicable priorities.

24 (6) To audit the books and records of the hold25 ing company (when applicable), affiliates, and all
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1 agents of the insurer or reinsurer insofar as those

2 records relate to its business activities.

3 (7) To hold hearings, to subpoena witnesses to

4 compel their attendance, to administer oaths, to ex5 amine any person under oath, and, in connection

6 therewith, to require the production of any books,

7 papers, records, or other documents which the re8 ceiver deems relevant to the liquidation.

9 (8) To remove any record and property of the

10 insurer or reinsurer to such place as may be conven11 ient for the purposes of efficient and orderly execu12 tion of the liquidation.

13 (9) To prosecute any action or right of action

14 which may exist on behalf of the creditors, policy15 holders, or shareholders of the insurer or reinsurer

16 against any of its officers or any other person.

17 (10) To borrow money on the security of the in18 surer’s or reinsurer’s assets or without security and

19 to execute and deliver all documents necessary to

20 that transaction for the purpose of facilitating the

21 liquidation. Any such funds borrowed may be repaid

22 as an administrative expense.

23 (11) To enter into such contracts as are nec24 essary to carry out the order to liquidate and to af-
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1 firm or disavow any contract to which the insurer or

2 reinsurer is a party.

3 (12) To continue to prosecute and to institute

4 in the name of the insurer or reinsurer or in its own

5 name any suit and other legal proceeding and to

6 abandon the prosecution of claims it deems not to be

7 in the best interests of the insurer or reinsurer, its

8 policyholders, or creditors. If the insurer or rein9 surer is dissolved, the receiver shall have the power

10 to apply to any court for leave to substitute itself for

11 the insurer or reinsurer as party to any action or

12 proceeding.

13 (13) To deposit in one or more banks such

14 sums as are required for meeting current adminis15 trative expenses and dividend distributions.

16 (14) To invest all sums not currently needed.

17 (15) To file any necessary documents for re18 cording in the office of any recorder of deeds or

19 record office wherever property of the insurer or re20 insurer is located.

21 (16) To assert all defenses available as against

22 third persons, including statutes of limitation, stat23 utes of frauds, and the defense of usury. A waiver

24 of any defense by the insurer or reinsurer after a pe-
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1 tition in liquidation has been filed shall not bind the

2 receiver.

3 (17) To exercise and enforce all the rights, rem4 edies, and powers of any creditor, shareholder, pol5 icyholder, or member, including any power to avoid

6 any transfer or lien that may be given by the law

7 and that is not included in sections 714, 715, and

8 716.

9 (18) To intervene in any proceeding wherever

10 instituted that may affect the insurer or reinsurer or

11 its assets.

12 (19) To exercise all powers now held or here13 after conferred upon a receiver by the laws of the

14 United States.

15 (20) To defray from the funds or assets of the

16 insurer or reinsurer all expenses of taking possession

17 of, conserving, conducting, liquidating, disposing of,

18 or otherwise dealing with, the business and property

19 of the insurer or reinsurer. In the event that the

20 property of the insurer or reinsurer does not contain

21 sufficient cash or liquid assets to defray the costs in22 curred, the receiver may pay the costs so incurred

23 from its general funds. Any amounts so advanced

24 for expenses of administration shall be repaid to the
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1 receiver as administrative expenses when sufficient

2 assets are liquidated.

3 (21) To appoint, with the approval of the court,

4 an advisory committee of policyholders, claimants, or

5 other creditors, including, as appropriate, NIPC and

6 any guaranty associations which have standing

7 under section 713, if the receiver determines such a

8 committee to be necessary. If an advisory committee

9 is appointed for a federally certified insurer, it shall

10 include NIPC. Such committee shall serve without

11 compensation other than reimbursement for reason12 able travel and per diem living expenses incurred in

13 attending committee meetings.

14 (b) CONTINUED DEFENSE ON PENDING CASES.—

15 The obligation of the insurer or reinsurer to defend or con16 tinue the defense of any claim or suit required under a

17 liability policy shall terminate on the entry of an order

18 of receivership, except during the appeal of an order of

19 liquidation, except that NIPC and the appropriate guar20 anty association shall defend or continue the defense of

21 insurers against claims or suits under covered liability

22 policies, in accordance with the terms of said policies.
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1 SEC. 729. NOTICE TO CREDITORS AND OTHERS.

2 (a) IN GENERAL.—Unless the court otherwise di3 rects, the receiver shall give or cause to be given notice

4 of a liquidation order as soon as possible—

5 (1) to the insurance regulator of each State in

6 which the insurer or reinsurer is domiciled, licensed,

7 or transacting the business of insurance;

8 (2) to NIPC or any guaranty association which

9 is or may become obligated as a result of the liq10 uidation;

11 (3) to all agents or brokers of the insurer or re12 insurer;

13 (4) to all persons known or reasonably expected

14 to have claims against the insurer or reinsurer, in15 cluding all current policyholders, at their last known

16 address as indicated by the records of the insurer or

17 reinsurer; and

18 (5) by publication in a newspaper of general

19 circulation in the county in which the insurer or re20 insurer has its principal place of business and in

21 such other locations as the receiver determines to be

22 appropriate.

23 (b) NOTICE TO CLAIMANTS.—Except as otherwise es24 tablished by the receiver with approval of the court, notice

25 to potential claimants under subsection (a) shall require

26 claimants to file with the receiver their claims together
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1 with proper proofs thereof on or before a date the receiver

2 shall specify in the notice. All claimants shall have a duty

3 to keep the receiver informed of any changes of address.

4 (c) GUARANTY ASSOCIATION.—

5 (1) Notice under subsection (a) to agents of an

6 insurer and to potential claimants who are policy7 holders shall include, where applicable, notice that

8 coverage by NIPC or guaranty associations may be

9 available for all or part of policy benefits in accord10 ance with this Act or applicable guaranty laws.

11 (2) The receiver shall promptly provide to

12 NIPC and guaranty associations such information

13 concerning the identities and addresses of such pol14 icyholders and their policy coverages as may be with15 in the receiver’s possession or control, and otherwise

16 cooperate with NIPC and guaranty associations to

17 assist them in providing to such policyholders timely

18 notice of NIPC’s or the guaranty association’s cov19 erage of policy benefits, including, as applicable, cov20 erage of claims and continuation or termination of

21 coverages.

22 (d) DISTRIBUTION OF ASSETS.—If notice is given in

23 accordance with this section, the distribution of assets of

24 the insurer or reinsurer under section 745 shall be conclu-
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1 sive with respect to all claimants, whether or not they re2 ceived notice.

3 SEC. 730. DUTIES OF AGENTS.

4 Every person who receives notice that an insurer

5 which the person represents as an agent is the subject of

6 a liquidation order shall, within 30 days of such notice,

7 provide to the receiver the information in the agent’s

8 records related to any policy or reinsurance agreement is9 sued by the insurer or reinsurer through the agent. The

10 provision of information pursuant to this section shall not

11 infringe in any way on any preexisting property rights that

12 an agent has in such information, such as the ownership

13 of insurance expiration lists. The information provided

14 pursuant to this section may not be used by any person

15 other than the agent to solicit renewal of any policy issued

16 by the insurer (or its successor), other insurance or any

17 other products, or a change in the agent of record.

18 SEC. 731. SETOFFS.

19 (a) IN GENERAL.—Mutual debts or mutual credits,

20 whether arising out of one or more reinsurance or other

21 contracts between the insurer or reinsurer in receivership

22 and another person shall be set off and the balance only

23 shall be allowed or paid.

24 (b) LIMITATIONS ON SETOFF.—No setoff shall be al25 lowed in favor of a person if—
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1 (1) the circumstances creating the obligation of

2 the insurer or reinsurer in receivership occurred

3 after the effective date of the cancellation or termi4 nation of policies in effect at the time of the entry

5 of the receivership order;

6 (2) the obligation of the insurer or reinsurer to

7 the person was purchased by or transferred to the

8 person with the intent of its being used as a setoff;

9 (3) the obligation of the insurer or reinsurer is

10 owed to an affiliate of the person or to any other en11 tity or association other than the person;

12 (4) the obligation of the person is owed to an

13 affiliate of the insurer or reinsurer, or to any other

14 person;

15 (5) the obligation of the person is to pay an as16 sessment levied against the members or subscribers

17 of the insurer or reinsurer, or is to pay a balance

18 upon a subscription to the capital stock of the in19 surer or reinsurer, or is in any other way in the na20 ture of a capital contribution; or

21 (6) the obligations between the person and the

22 insurer or reinsurer arise out of transactions where

23 either the person or the insurer or reinsurer has as24 sumed risks and obligations from the other party
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1 and then has ceded back to that party substantially

2 the same risks and obligations.

3 (c) DEBTS DUE AND PAYABLE.—The receiver shall

4 provide persons claiming a setoff with accounting state5 ments identifying debts which are due and payable. Where

6 a person owes amounts which are due and payable, against

7 which the person asserts setoff of mutual credits which

8 may become due and payable from the insurer or reinsurer

9 in receivership in the future, the person shall promptly pay

10 to the receiver the amounts due and payable. Notwith11 standing section 745, the receiver shall promptly and fully

12 refund, to the extent of the person’s prior payments, any

13 mutual credits that become due and payable to the person

14 by the insurer or reinsurer in receivership.

15 SEC. 732. OBLIGATION OF A REINSURER.

16 In the event of a receivership, the reinsurance

17 recoverables due under any reinsurance contract shall be

18 payable by the assuming reinsurer directly to the receiver.

19 Subject to the right of setoff and verification of coverage

20 under the relevant contract, the assuming reinsurer shall

21 pay its share of the loss at the time that the amount of

22 the claim is ultimately determined in the liquidation pro23 ceeding. The receiver shall, within a reasonable time after

24 the initiation of the receivership, provide the assuming re25 insurer with claim information in accordance with the re-
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1 insurance contracts. During the pendency of any such

2 claim, the assuming reinsurer may investigate the claim

3 and, at its own expense, interpose in the proceeding where

4 the claim is to be adjudicated any defenses which it may

5 deem available to the ceding insurer or reinsurer, or its

6 receiver. Expenses of investigation and defense incurred

7 by the assuming reinsurer shall be chargeable against the

8 ceding insurer or reinsurer as part of the administrative

9 expense of liquidation, in proportion to the benefit accru10 ing to the ceding insurer or reinsurer solely as a result

11 of the defense undertaken by the assuming reinsurer. The

12 reinsurance proceeds shall be payable as provided in the

13 agreement, except when such assuming reinsurer has a

14 valid contractual obligation to pay reinsurance proceeds

15 to a party other than the ceding insurer or reinsurer.

16 SEC. 733. REINSURER’S LIABILITY.

17 The amount recoverable by the receiver from a rein18 surer shall not be reduced as a result of delinquency pro19 ceedings regardless of any provision in the reinsurance

20 contract or other agreement. Payment made directly to an

21 insured or other creditor shall not diminish the reinsurer’s

22 obligation to such ceding insurer’s or reinsurer’s estate ex23 cept when such reinsurer has a valid contractual obligation

24 to pay reinsurance proceeds to a party other than the in25 surer or reinsurer.
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1 SEC. 734. RECOVERY OF PREMIUMS OWED.

2 (a) RESPONSIBILITIES AND RIGHTS OF AGENTS AND

3 SIMILAR PERSONS.—An agent, broker, premium finance

4 company, or any other person, other than the insured, re5 sponsible for the collection or payment of a premium shall

6 be obligated to pay any collected, earned premium held

7 by such person at any time of the order of liquidation and

8 shall fulfill contractual obligations, as they have been cus9 tomarily required to be performed during the course of

10 the relationship with the insurer, to collect and pay earned

11 premiums to the insurer. Such person shall not be obli12 gated to—

13 (1) collect or pay unearned premiums, or

14 (2) pay to the receiver commissions due the in15 surer on earned premiums.

16 (b) RESPONSIBILITIES AND RIGHTS OF INSURED.—

17 (1) An insured shall be obligated to pay any

18 earned premium due, but shall not be obligated to

19 pay any unearned premium. An insured shall be en20 titled to any collected, unearned premium that an

21 agent, broker, premium finance company, or any

22 other person has collected from that insured and

23 that at the time of the order of liquidation has not

24 been paid to the insurer. The insured may direct

25 such person to return the unearned premium or to
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1 use such unearned premium to secure replacement

2 coverage.

3 (2) An insured shall be obligated to continue

4 paying premiums or annuity considerations due on

5 life or health insurance policies or annuities that are

6 continued under section 726(c).

7 (c) DEFINITIONS.—For purposes of this section, the

8 following definitions apply:

9 (1) The term ‘‘earned premium’’ means that

10 portion of an insurance premium covering the

11 unexpired term of the policy prior to the cancellation

12 or renewal of coverage.

13 (2) The term ‘‘unearned premium’’ means that

14 portion of an insurance premium covering the term

15 of the policy subsequent to the cancellation or

16 nonrenewal of coverage.

17 (3) The term ‘‘uncollected premium’’ means

18 that portion of an insurance premium for an insur19 ance policy that an agent, broker, premium finance

20 company, or similar person has a legal obligation to

21 collect from an insured but has not yet received.

22 SEC. 735. RECEIVER’S PROPOSAL TO DISTRIBUTE ASSETS.

23 (a) APPLICATION.—Within 120 days of a final deter24 mination of insolvency and the issuance by a district court

25 of a liquidation order, the receiver shall make application
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1 to the court for approval of a proposal to disburse funds

2 as appropriate out of marshalled assets of an insurer in

3 liquidation from time to time as such assets become avail4 able to NIPC and to guaranty associations having obliga5 tions because of such liquidation. If the receiver deter6 mines that there are insufficient assets to disburse, the

7 application required by this subsection shall be considered

8 satisfied by a filing by the receiver stating the reason for

9 this determination.

10 (b) CONTENT OF PROPOSAL.—A proposal under sub11 section (a) shall at least include provisions for—

12 (1) reserving amounts for the payment of ex13 penses of administration and the payment of claims

14 of secured creditors to the extent of the value of the

15 security held, and claims falling within the priorities

16 established by section 743 for Classes 1 and 2;

17 (2) disbursement of the funds marshalled to

18 date and subsequent disbursement of funds as they

19 become available; and

20 (3) equitable allocation of disbursements to the

21 guaranty associations for reimbursement of costs ad22 vanced or guarantee obligations paid.

23 (c) DISBURSEMENTS.—The receiver’s proposal under

24 subsection (a) may provide for disbursements to NIPC

25 and to the guaranty associations for amounts estimated
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1 to be the amounts of covered claim payments to be made

2 in the future by NIPC and by the guaranty associations

3 for which claims could be asserted against the insurer. The

4 receiver shall account to the court from time to time as

5 to the application of such advances, the claims’ obligations

6 paid, and the investment yield on the advances, which

7 shall be applied as if part of the advances.

8 (d) NOTICE.—Notice of an application under sub9 section (a) shall be given to the State insurance regulator

10 of each of the States in which the insurer in liquidation

11 is domiciled, licensed, or doing business, and to NIPC and

12 to any appropriate guaranty associations. Any such notice

13 shall be deemed to have been given when deposited in the

14 United States mails, first class postage prepaid, at least

15 30 days before submission of an application under sub16 section (a) to the court. Action on the application may

17 be taken by the court if the notice has been given and

18 if the receiver’s proposal complies with paragraphs (1) and

19 (2) of subsection (b).

20 SEC. 736. FILING OF CLAIMS.

21 (a) FORM FOR FILING.—Proof of all claims shall be

22 filed with the receiver in the form required by section 737

23 on or before the last day for filing specified in the notice

24 required under section 729.
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1 (b) EXCUSED LATE FILED CLAIMS.—The receiver

2 may permit a claimant making a late filing to share in

3 distributions, whether past or future, as if it were not late

4 to the extent that any such payment will not prejudice

5 the orderly administration of the receivership, under any

6 of the following circumstances:

7 (1) A transfer to a creditor was avoided under

8 sections 714, 715, and 716, or was voluntarily sur9 rendered under section 717, and the filing satisfies

10 the conditions of such section.

11 (2) The valuation under section 742 of security

12 held by a secured creditor shows a deficiency, which

13 is filed within 30 days after the valuation.

14 (3) The receiver shall permit late filed claims to

15 share in distributions, whether past or future, as if

16 they were not late, if such claims are claims of

17 NIPC or a guaranty association for reimbursement

18 of claims paid or expenses incurred, or both, subse19 quent to the last day for filing where such payments

20 were made and expenses incurred as provided by

21 law.

22 (c) OTHER LATE FILED CLAIMS.—The receiver may

23 consider any claim filed which is not covered by subsection

24 (b), and permit the claimant to receive distributions which

25 are subsequently declared on any claims of the same or
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1 lower priority if the payment does not prejudice the or2 derly administration of the receivership. The late-filing

3 claimant shall receive, at each such distribution, the same

4 percentage of the amount allowed on its claim as is then

5 being paid to claimants of any lower priority. Such claim6 ant shall not share in any distributions made or declared

7 prior to the filing of said claim.

8 SEC. 737. PROOF OF CLAIM.

9 (a) IN GENERAL.—Proof of claim shall consist of a

10 statement signed by the claimant that includes all of the

11 following that are applicable:

12 (1) The basis of the claim including the consid13 eration given for it.

14 (2) The identity and amount of the security on

15 the claim.

16 (3) The payments made on the debt, if any.

17 (4) The sum claimed is justly owing and there

18 is no setoff, counterclaim, or defense to the claim.

19 (5) Any right of priority of payment or other

20 specific right asserted by the claimants.

21 (6) A copy of the written instrument which is

22 the foundation of the claim. If such instrument has

23 been lost or destroyed, a statement of such fact and

24 of the circumstances of such loss or destruction shall

25 be filed under oath with the claim.
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1 (7) The name and address of the claimant and

2 the attorney who represents the claimant, if any.

3 The proof of claim requirement of this subsection shall

4 be satisfied if a policyholder who does not know or have

5 reason to know of the existence of actual or potential

6 claims by the policyholder states the intention to reserve

7 the right to assert all future claims that are covered by

8 the policy.

9 (b) CONSIDERATION.—Except as provided in the last

10 sentence of subsection (a), no claim need be considered

11 if it does not contain all the information required by sub12 section (a) which may be applicable. The receiver may re13 quire that a prescribed form be used and may require that

14 other information and documents be included.

15 (c) ADDITIONAL INFORMATION.—At any time the re16 ceiver may request the claimant to present information or

17 evidence supplementary to the information required under

18 subsection (a) and may take statements under oath, re19 quire production of affidavits or depositions, or otherwise

20 obtain additional information or evidence.

21 (d) EFFECT OF JUDGMENT.—A judgment entered

22 against an insured of an insurer or reinsurer after the

23 date of the entry of a receivership shall not be considered

24 by the receiver as conclusive evidence of liability or of the

25 value of any claim against the insurer or reinsurer. If any
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1 such judgment exceeds the receiver’s valuation of the

2 claim, the amount of excess shall be classified as a Class

3 5 priority in accordance with section 743.

4 (e) EFFECT OF DEFAULT OR COLLUSIVE JUDG5 MENT.—A judgment entered against an insured of an in6 surer or reinsurer or against the insurer or reinsurer itself

7 that is taken by default or collusion prior to or subsequent

8 to the date of the entry of the receivership order shall not

9 be considered by the receiver as evidence of liability or of

10 the value of the claim.

11 (f) CLAIMS.—All claims of NIPC and a guaranty as12 sociation shall be in such form and contain such substan13 tiation as determined by the receiver.

14 SEC. 738. CONTINGENT AND IMMATURE CLAIMS.

15 (a) CONTINGENT CLAIMS.—A claim may be allowed

16 even if contingent if it is filed in accordance with section

17 736. It may be allowed and may participate in all distribu18 tions declared after it is filed to the extent that it does

19 not prejudice the orderly administration of the receiver20 ship.

21 (b) CONTINGENT THIRD PARTY CLAIMS.—The claim

22 of a third party which is contingent only on its first ob23 taining a judgment against the insured shall be considered

24 as if there were no such contingency. A contingent claim

25 may be allowed—
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1 (1) if it may be reasonably inferred from the

2 proof presented upon such claim that the person

3 would be able to obtain a judgment upon such cause

4 of action against such insured;

5 (2) if such person shall furnish suitable proof,

6 unless the court for good cause shown shall other7 wise direct, that no further valid claims against the

8 insurer or reinsurer arising out of this cause of ac9 tion other than those already presented can be

10 made; and

11 (3) if the total liability of the insurer or rein12 surer to all claimants arising out of the same act of

13 its insured shall be no greater than its total liability

14 would be were it not in receivership.

15 (c) IMMATURE CLAIMS.—Claims that are due except

16 for the passage of time shall be treated as other claims

17 are treated, except that such claims may be discounted

18 at the legal rate of interest.

19 SEC. 739. VALUATION OF CLAIMS.

20 (a) THIRD PARTY CLAIMS.—Whenever any third

21 party asserts a cause of action against an insured of an

22 insurer or reinsurer in receivership, the third party may

23 file a claim with the receiver.

24 (b) INSURED’S CONTINGENT CLAIMS.—Any insured

25 under a liability insurance policy shall have the right to
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1 file a contingent claim pursuant to the following proce2 dures:

3 (1) The court, at the time of the entry of the

4 order of receivership, shall fix the final date for the

5 filing of information or evidence by which an

6 insured’s contingent claim may be fixed in an

7 amount certain, but in no event shall such date be

8 more than 3 years after the last day fixed for the

9 filing of proofs of claim. Such date may be extended

10 by the court upon the petition of the receiver should

11 it be determined that such extension will not delay

12 the distribution of the insurer’s or reinsurer’s assets.

13 (2) No contingent claim of an insured shall be

14 allowed unless such claim is fixed in an amount cer15 tain and the insured claimant presents evidence of

16 payment of such claim to the receiver on or before

17 the last day fixed by the court.

18 (3) An insured may include as part of his con19 tingent claim reasonable attorney’s fees for services

20 rendered subsequent to the date that the insurer’s or

21 reinsurer’s obligation, if any, to defend or continue

22 the defense of the claim terminated if such attor23 ney’s fees have actually be paid to the insured and

24 evidence of payment has been presented to the re25 ceiver.
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1 (c) SEVERAL CLAIMS.—If several claims founded

2 upon one policy are filed, whether by third parties or as

3 claims by the insured under this section, and the aggre4 gate allowed amount of the claims to which the same limit

5 of liability in the policy is applicable exceeds that limit,

6 each claim as allowed shall be reduced in the same propor7 tion so that the total equals the policy limit.

8 (d) PRESENTMENT OF CLAIM.—No claim may be

9 presented under this section if it has been paid or is obli10 gated to be paid by NIPC and any guaranty association.

11 SEC. 740. DISPUTED CLAIMS.

12 (a) DENIAL OF CLAIM.—When a claim is denied in

13 whole or in part by the receiver, written notice of the de14 termination shall be given to the claimant or its attorney

15 by first class mail at the address shown in the proof of

16 claim. Within 60 days from the mailing of the notice, the

17 claimant may file its objections with the receiver. If no

18 such filing is made, the claimant may not further object

19 to the determination.

20 (b) ACTION ON CLAIM.—Whenever objections are

21 filed with the receiver and the receiver does not alter its

22 denial of the claim as a result of the objections, the re23 ceiver shall ask the court for a hearing as soon as prac24 ticable and give notice of the hearing by first class mail

25 to the claimant or its attorney and to any other person
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1 directly affected, not less than 10 days before the date

2 of the hearing. The matter may be heard by the court or

3 by a court-appointed master who shall submit findings of

4 fact and a recommended decision.

5 SEC. 741. CLAIMS OF SURETY.

6 Whenever a creditor whose claim against an insurer

7 or reinsurer in receivership is secured, in whole or in part,

8 by the undertaking of another person and the creditor fails

9 to file and prove that claim, the other person may do so

10 in the creditor’s name and shall be subrogated to the

11 rights of the creditor, whether the claim has been filed

12 by the creditor or by the other person in the creditor’s

13 name, to the extent that it discharges the undertaking.

14 In the absence of an agreement with the creditor to the

15 contrary, the other person shall not be entitled to any dis16 tribution until the amount paid to the creditor on the un17 dertaking plus the distributions paid on the claim from

18 the insurer’s or reinsurer’s estate to the creditor equals

19 the amount of the entire claim of the creditor. Any excess

20 received by the creditor shall be held by it in trust for

21 such other person. The term ‘‘other person’’ as used in

22 this section is not intended to apply to the receiver, NIPC,

23 or to a guaranty association.
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1 SEC. 742. SECURED CREDITORS’ CLAIMS.

2 (a) IN GENERAL.—A creditor with a secured claim

3 may collect its debt—

4 (1) by converting the security into money ac5 cording to the terms of the agreement pursuant to

6 which the security was delivered to the creditors; or

7 (2) by agreement, arbitration, or compromise

8 between the creditor and the receiver.

9 (b) INSUFFICIENT SECURITY.—If the security held

10 by a creditor is valued pursuant to subsection (a) and such

11 value is insufficient to extinguish the debt to the creditor,

12 then such insufficiency shall be classified and paid as an

13 unsecured claim. If the claimant surrenders its security

14 to the receiver, the entire claim shall be classified as an

15 unsecured claim.

16 SEC. 743. PRIORITY OF DISTRIBUTION.

17 The priority of distribution of claims from the estate

18 of an insurer or reinsurer in receivership shall be in ac19 cordance with the order in which each class of claims is

20 herein set forth. Every claim in each class shall be paid

21 in full or adequate funds shall be retained for such pay22 ment before the members of the next class receive any pay23 ment. No subclasses shall be established within any class.

24 The order of distribution of claims shall be as follows:

25 (1) Class 1—The costs and expenses of admin26 istration during receivership, including—
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1 (A) the actual and necessary costs of pre2 serving or recovering the assets of the insurer

3 or reinsurer;

4 (B) compensation for all authorized serv5 ices rendered in the receivership, including rea6 sonable compensation to the receiver as ap7 proved by the court to cover the portion of the

8 total expenses of the receiver which are reason9 ably related to the conduct of the receivership

10 of the insurer or reinsurer without provision for

11 any profit to the receiver;

12 (C) any necessary filing fees;

13 (D) the fees and mileage payable to wit14 nesses;

15 (E) reasonable attorney’s fees and other

16 professional services rendered in the receiver17 ship; and

18 (F) the reasonable expenses of the Na19 tional Insurance Protection Corporation or a

20 guaranty association in handling claims on be21 half of the insurer or reinsurer.

22 (2) Class 2—Reasonable compensation to em23 ployees for services performed to the extent that

24 they do not exceed 2 months of monetary compensa25 tion and represent payment for services performed
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1 within one year before the filing of the petition for

2 receivership. Principal officers and directors shall

3 not be entitled to the benefit of this priority except

4 as otherwise approved by the receiver and the court.

5 (3) Class 3—All claims under insurance policies

6 and insurance contracts issued by the insurer, in7 cluding claims of NIPC and any guaranty associa8 tion for claims paid on behalf of the insurer and un9 earned premiums and other premium refunds.

10 Claims under this category include all claims under

11 life insurance and annuity policies, whether for

12 death proceeds, annuity proceeds, or investment

13 values.

14 (4) Class 4—Claims for any amount due an as15 suming reinsurer or ceding insurer for sums due

16 under reinsurance contracts entered into with the in17 surer or reinsurer in receivership.

18 (5) Class 5—Claims for punitive or exemplary

19 damages and any claim for any amount due an in20 surer, insurance pool, or underwriting association as

21 subrogated recoveries, contribution, indemnification,

22 or otherwise. All other claims of general creditors

23 not falling within any other priority under this sec24 tion, including claims for taxes and debts due the
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1 Federal Government or any State or local govern2 ment.

3 (6) Class 6—Claims filed late and all other

4 claims other than claims under Classes 7 and 8.

5 (7) Class 7—Surplus or contribution notes, or

6 similar obligations.

7 (8) Class 8—Proprietary claims of sharehold8 ers, members, or other owners in their capacity as

9 such.

10 SEC. 744. RECEIVER’S RECOMMENDATIONS TO THE COURT.

11 (a) IN GENERAL.—The receiver shall review all

12 claims duly filed in receivership and shall make such fur13 ther investigation as it shall deem necessary. If the insurer

14 has issued annuities or life insurance policies, the receiver

15 shall report the persons to whom, according to the records

16 of the insurer, amounts are owed as cash value or other

17 investment value. The receiver may compound, com18 promise, or in any other manner negotiate the amount for

19 which claims will be recommended to the court. Unre20 solved disputes shall be determined under section 740. As

21 soon as practicable, it shall periodically present to the

22 court a report of the claims against the insurer or rein23 surer with its recommendations. The report shall include

24 the name and address of each claimant and the amount

25 of the claim finally recommended, if any.
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1 (b) ALLOWANCE OF CLAIM.—The court may approve,

2 disapprove, or modify the claims as recommended by the

3 receiver. No claim under a policy of insurance shall be al4 lowed for an amount in excess of the applicable policy lim5 its.

6 SEC. 745. DISTRIBUTION OF ASSETS.

7 Under the direction of the court, the receiver shall

8 pay distributions in a manner that will assure the proper

9 recognition of priorities and a reasonable balance between

10 the expeditious completion of the receivership and the pro11 tection of unliquidated and undetermined claims, including

12 third party claims. Distribution of assets in kind may be

13 made at valuations set by agreement between the receiver

14 and the creditor and approved by the court.

15 SEC. 746. UNCLAIMED AND WITHHELD FUNDS.

16 All unclaimed funds subject to distribution remaining

17 in the receiver’s possession at the time it applies to the

18 court for discharge, including the amount distributable to

19 any creditor, shareholder, member, or other person who

20 is unknown or cannot be found, shall be paid into the

21 court and disposed of as under chapter 129 of title 28,

22 United States Code.

23 SEC. 747. TERMINATION OF PROCEEDINGS.

24 (a) IN GENERAL.—When all assets justifying the ex25 pense of collection and distribution have been collected and
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1 distributed, the receiver shall apply to the court for dis2 charge. The court may grant the discharge and make any

3 other order, including an order to dispose of any remain4 ing funds that are uneconomic to distribute, by paying

5 said funds into the court and disposing of same pursuant

6 to chapter 129 of title 28, United States Code.

7 (b) REOPENING.—After a receivership proceeding has

8 been terminated and the receiver discharged, the receiver

9 or other interested party may at any time petition the dis10 trict court to reopen the proceedings for good cause, in11 cluding the discovery of additional assets. If the court is

12 satisfied that there is justification for reopening, it shall

13 so order.

14 SEC. 748. DISPOSITION OF RECORDS DURING AND AFTER

15 TERMINATION OF RECEIVERSHIP.

16 Whenever it shall appear to the receiver that the

17 records of any insurer or reinsurer subject to receivership

18 are no longer useful, it may recommend to the court and

19 the court shall direct which records should be retained for

20 future reference and which should be destroyed. The re21 ceiver shall provide for those records which the court or22 ders to be retained. The court shall order that sufficient

23 funds for this and other administrative purposes be re24 served by the receiver. Any funds remaining after payment

25 of all such administrative expenses shall be paid into the
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1 court and disposed of pursuant to chapter 129 of title 28,

2 United States Code.

3 SEC. 749. TRANSITION PERIOD.

4 (a) IN GENERAL.—This title shall take effect on the

5 date of enactment of this Act.

6 (b) COMMISSION AUTHORITY TO ACT AS RECEIVER

7 FOR STATE-REGULATED INSURERS AND REINSURERS.—

8 The Commission shall have the authority to contract with

9 any State insurance regulator to assume the responsibility

10 of administering receiverships in existence prior to the ef11 fective date in subsection (a). In such case, the applicable

12 State law shall apply to the receivership.

13 TITLE VIII-DEFINITIONS

14 SEC. 801. DEFINITIONS.

15 For purposes of this Act:

16 (1) The term ‘‘accident and health insurance’’

17 means insurance against death or personal injury by

18 accident and insurance against sickness, ailment or

19 bodily injury, but does not include insurance provid20 ing benefits pursuant to any workers’ compensation

21 law.

22 (2) The term ‘‘admitted insurer’’ means an in23 surer licensed to do an insurance business pursuant

24 to a certificate of authority issued by any State, ex25 cept that with respect to certificates of authority is-
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1 sued by one or more States, an insurer shall be ad2 mitted insurer only with respect to risks located in

3 a State which has issued a certificate of authority to

4 the insurer.

5 (3) The term ‘‘affiliate’’ means an entity which

6 controls, is under the control of, or under common

7 control with, another entity.

8 (4) The term ‘‘authorized’’ means that the en9 tity has received the approval of the relevant govern10 mental authority to engage in the activity described.

11 (5) The term ‘‘aviation insurance’’ means insur12 ance on aircraft owned or operated by manufactur13 ers of aircraft, or on aircraft operated in commercial

14 flight, or cargo of that aircraft, or against liability,

15 other than workers compensation and employers li16 ability, arising out of the ownership, maintenance or

17 use of that aircraft.

18 (6) The term ‘‘captive insurer’’ means any pure

19 captive insurer or group captive insurer. For pur20 poses of this paragraph, the term ‘‘pure captive in21 surer’’ means any company that insures risks of its

22 parent or affiliates. The term ‘‘group captive in23 surer’’ means any company that insures risks of its

24 owners or affiliates.
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1 (7) The term ‘‘ceding insurer’’ means an in2 surer which agrees to reinsure all or part of a risk

3 it has contractually undertaken.

4 (8) The term ‘‘certificate of authority’’ means

5 evidence issued by any State that an insurer is li6 censed to transact an insurance business within that

7 State.

8 (9) The term ‘‘certified reinsurer’’ means a re9 insurer certified pursuant to section 302 or 303.

10 (10) The term ‘‘claimant’’ means any insured,

11 or their successor in interest, making a claim on an

12 insurance policy or any person instituting a claim

13 covered by such policy.

14 (11) The term ‘‘commercial insurance’’ means

15 any line of property and casualty insurance except

16 private passenger automobile and homeowner’s in17 surance.

18 (12) The term ‘‘Commission’’ means the Fed19 eral Insurance Solvency Commission.

20 (13) The term ‘‘contractual obligation’’ means

21 any obligation under a policy or contract or certifi22 cate under a group policy or contract, or portion

23 thereof for which coverage is provided.

24 (14) The term ‘‘control’’ means the possession,

25 direct or indirect, of the power to direct or cause the
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1 direction of the management and policies of a per2 son, whether through the ownership of voting securi3 ties, by contract other than a commercial contract

4 for goods or nonmanagement services, or otherwise,

5 unless the power is the result of an official position

6 with or corporate office held by the person. Control

7 shall be presumed to exist if any person, directly or

8 indirectly, owns, controls, holds with the power to

9 vote, or holds proxies representing, 10 percent or

10 more of the voting securities of any person. This

11 presumption may be rebutted by a showing that con12 trol does not exist in fact. The Commission may,

13 after furnishing all persons in interest notice and op14 portunity to comment, determine that control exists

15 in fact, notwithstanding the absence of a presump16 tion to that effect.

17 (15) The term ‘‘creditor’’ means a person hav18 ing any claim, whether matured or unmatured, liq19 uidated or unliquidated, secured or unsecured, abso20 lute, fixed, or contingent.

21 (16) The term ‘‘declaration of insolvency’’

22 means an order entered by a United States District

23 Court pursuant to section 725(d).

24 (17) The term ‘‘direct placement’’ means a

25 placement in which an insured procures insurance
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1 from a nonadmitted insurer without utilizing the

2 services of a surplus lines licensee licensed by the

3 State in which the insured resides or the insured

4 risk is located.

5 (18) The term ‘‘doing business’’ includes any of

6 the following acts, whether effected by mail or other7 wise:

8 (A) The issuance or delivery of contracts

9 of insurance.

10 (B) The issuance or delivery of any con11 tract of guaranty or suretyship as a vocation

12 and not merely incidental to any other legiti13 mate business or activity of the guarantor or

14 surety.

15 (C) The solicitation of applications for

16 such contracts, or other negotiations prelimi17 nary to the execution of such contracts;

18 (D) The receipt or collection of premiums,

19 membership fees, assessments, or other consid20 eration for such contracts.

21 (E) The transaction of matters subsequent

22 to execution of such contracts and arising out

23 of them.

24 (F) The transaction of business in sub25 stance equivalent to subparagraphs (A) through
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1 (E) in a manner designed to evade laws regard2 ing the regulation of insurance.

3 (G) Operating under a license or certificate

4 of authority or a certificate of solvency issued

5 by the Commission or by a State insurance reg6 ulator.

7 (19) The term ‘‘domestic insurer or reinsurer’’

8 means an entity which is domiciled in the United

9 States and is authorized by the Commission or a

10 State to conduct the business of insurance or rein11 surance within the States, territories, or possessions

12 of the United States. It includes the duly licensed

13 United States branch of a foreign insurer or rein14 surer.

15 (20) The term ‘‘domiciliary State’’ means the

16 State in which an insurer or reinsurer is incor17 porated or organized.

18 (21) The term ‘‘eligible surplus lines insurer’’

19 means a nonadmitted insurer with which a surplus

20 lines licensee may place surplus lines insurance

21 under this Act.

22 (22) The term ‘‘fair consideration’’ means con23 sideration given for property or an obligation—

24 (A) when in exchange for such property or

25 obligation, as a fair equivalent therefor, and in
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1 good faith, property is conveyed or services are

2 rendered or an obligation is incurred or an an3 tecedent debt is satisfied; or

4 (B) when such property or obligation is re5 ceived in good faith to secure a present advance

6 or antecedent debt in an amount not

7 disproportionally small as compared to the

8 value of the property or obligation obtained.

9 (23) The term ‘‘financial impairment’’ means a

10 member insurer which is not an insolvent insurer,

11 and which is—

12 (A) determined by the Commission to be

13 potentially unable to fulfill its contractual obli14 gations; or

15 (B) placed under an order of rehabilitation

16 or conservation by a court of competent juris17 diction.

18 (24) The term ‘‘financial statement’’ means any

19 financial statement which an insurer is required by

20 law to file with its principal regulatory agency or, if

21 none is so required, the insurer’s annual financial

22 report.

23 (25) The term ‘‘foreign country’’ means any ju24 risdiction not in any State.
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1 (26) The term ‘‘foreign insurer or reinsurer’’

2 means an entity which is domiciled outside the Unit3 ed States and is authorized to conduct the business

4 of insurance or reinsurance by a jurisdiction, coun5 try, territory, or possession outside the United

6 States.

7 (27) The term ‘‘general assets’’ means all prop8 erty, real, personal, or otherwise, not specifically

9 mortgaged, pledged, deposited, or otherwise encum10 bered for the security or benefit of specified persons

11 or classes of persons. As to specifically encumbered

12 property, the term ‘‘general assets’’ includes all such

13 property or its proceeds in excess of the amount nec14 essary to discharge the sum secured thereby.

15 (28) The term ‘‘guaranty association’’ means

16 any property, casualty, worker’s compensation, life,

17 health, and any other association established for the

18 payment of claims of an insurer in receivership.

19 (29) The term ‘‘highly capitalized insurer’’

20 means an insurer that maintains at all times a mini21 mum net worth or trusteed surplus of at least

22 $50,000,000 (to be subject to periodic adjustment

23 for inflation pursuant to section 202(c)(2)).
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1 (30) The term ‘‘holding company’’ means any

2 person or entity which directly or indirectly controls

3 an insurer.

4 (31) The term ‘‘holding company system’’

5 means a holding company together with its con6 trolled insurers, reinsurers, and other controlled ac7 tivities.

8 (32) The term ‘‘insolvency’’ or ‘‘insolvent’’

9 means that an insurer or reinsurer is unable to pay

10 its obligations when they are due or that its admit11 ted assets (as determined under this Act or its State

12 of regulation) do not exceed its liabilities plus the

13 greater of—

14 (A) any net worth required by law for its

15 organization; or

16 (B) the total par or stated value of its au17 thorized and issued capital stock.

18 For purposes of this paragraph, the term ‘‘liabil19 ities’’ shall include specific requirements imposed by

20 the Commission upon the insurer or reinsurer at the

21 time of certification or subsequent thereto.

22 (33) The term ‘‘insurer’’ means any corpora23 tion, association, society, order, firm, company, part24 nership, individual, or aggregation of individuals

25 which is subject to examination or supervision by the
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1 Commission or any State insurance regulator, or

2 which is doing or represents an insurance business.

3 (34) The term ‘‘large insurance buyer’’ means

4 a purchaser with assets in excess of liabilities of at

5 least $10,000,000 as of December 31 of the preced6 ing year (to be subject to periodic adjustment for in7 flation pursuant to section 202(c)(2)) and where—

8 (A) the purchaser certifies to the insurer,

9 under standards established by the Commission,

10 that it meets the net worth requirement;

11 (B) the insurer maintains such certifi12 cation in its files; and

13 (C) the insurer submits to the Commission

14 in its annual report a list of all such large in15 surance purchasers.

16 (35) The term ‘‘life insurance’’ means insur17 ance upon the lives of human beings and insurance

18 pertaining thereto.

19 (36) The term ‘‘market assistance plan’’ means

20 any plan, other than a residual market plan, estab21 lished by a State to assist insurance consumers to

22 procure coverage from admitted insurers.

23 (37) The term ‘‘member insurer’’ means an in24 surer which is a member of the National Insurance

25 Protection Corporation.
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1 (38) The term ‘‘NARAB’’ means the National

2 Association of Registered Agents and Brokers.

3 (39) The term ‘‘net direct written premiums’’

4 means direct gross premiums written on insurance

5 policies to which title V applies, less returned pre6 miums thereon and dividends paid or credited to pol7 icyholders on such direct business. ‘‘Net direct writ8 ten premiums’’ does not include premiums on con9 tracts between insurers and reinsurers.

10 (40) The term ‘‘net reinsurance premium’’

11 means premiums paid for reinsurance to which this

12 title applies less premiums paid to another reinsurer.

13 (41) The term ‘‘net worth’’ means, with respect

14 to an insurer, the excess of total assets over liabil15 ities of an insurer, which is the sum of all net worth

16 accounts minus any impairment thereof.

17 (42) The term ‘‘NIPC’’ means the National In18 surance Protection Corporation.

19 (43) The term ‘‘nonadmitted insurer’’ means an

20 insurer not licensed to do an insurance business pur21 suant to a certificate of authority issued by a State,

22 except that an insurer holding a certificate of au23 thority issued by one or more States may be a

24 nonadmitted insurer with respect to risks located in
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1 any State in which the insurer does not hold a cer2 tificate of authority.

3 (44) The term ‘‘personal lines insurer’’ means

4 any property and casualty insurance issued for non5 commercial personal, family, or household purposes.

6 (45) The term ‘‘property and casualty insur7 ance’’ means insurance against loss of, damage to,

8 loss of income or extra expense incurred because of

9 loss of, or damage to, property; insurance against

10 third party liability claims caused by negligence or

11 imposed by statute or contract; insurance providing

12 benefits pursuant to any workers’ compensation law.

13 (46) The term ‘‘professional reinsurer’’ means a

14 reinsurer, including the United States branch of a

15 foreign reinsurer which, as its exclusive business,

16 contracts to indemnify insurers against loss or obli17 gations contractually undertaken by the insurer, and

18 retains substantial net risk for its own account. Re19 gardless of how such business is regulated for other

20 purposes, a professional reinsurer may undertake co21 surety obligations if—

22 (A) the lead surety is licensed by a State;

23 (B) the obligations of such co-surety are

24 not covered by any State guaranty fund; and
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1 (C) premiums for such obligations are sub2 ject to State premium taxes.

3 (47) The term ‘‘qualified financial institution’’

4 means any financial institution that—

5 (A) is organized, or in the case of a United

6 States branch or office of a foreign banking or7 ganization licensed, under the laws of the Unit8 ed States or any State thereof;

9 (B) is regulated, supervised, and examined

10 by Federal or State authorities having regu11 latory authority over banks and trust compa12 nies; and

13 (C) has been determined by the Commis14 sion to meet such standards of financial condi15 tion and strength as are considered necessary

16 for the protection of the public.

17 (48) The term ‘‘railroad insurance’’ means in18 surance on operations of railroads engaged in trans19 portation in interstate commerce and their property

20 used in those operations.

21 (49) The term ‘‘receiver’’ means the Commis22 sion or the appropriate State insurance regulator

23 acting in the capacity of rehabilitator or liquidator

24 of an insurer or reinsurer.
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1 (50) The term ‘‘receivership’’ means the reha2 bilitation or liquidation of an insurer or reinsurer.

3 (51) The term ‘‘reinsurance’’ means the as4 sumption by the reinsurer of all or part of a risk

5 originally undertaken by the ceding insurer, but does

6 not mean the substitution of one insurer for another

7 through a novation.

8 (52) the term ‘‘reinsurer’’ means an insurer

9 which contracts to indemnify a ceding insurer for all

10 or part of a risk originally undertaken by the ceding

11 insurer. ‘‘Reinsurer’’ shall not include any entity

12 that is more than 25 percent owned or financially

13 controlled by any State, by a foreign government, or

14 by any political subdivision, instrumentality, or

15 agency of either, if—

16 (A) such government, subdivision, instru17 mentality, or agency provides financial support

18 to the business of insurance of the entity and

19 thereby enables it to compete unfairly for busi20 ness with other reinsurers; or

21 (B) such ownership or control provides the

22 insurer with sovereign immunity.

23 (53) The term ‘‘residual market’’ means an as24 signed risk plan, joint underwriting association, or

25 any similar mechanism designed to make insurance
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1 available to those unable to obtain it in the vol2 untary market.

3 (54) The term ‘‘secured claim’’ means any

4 claim secured by mortgage, trust, deed, pledge, de5 posit as security, escrow, or otherwise, but does not

6 include claims against general assets.

7 (55) The term ‘‘special deposit claim’’ means

8 any claim secured by a deposit made pursuant to

9 statute for the security or benefit of a limited class

10 or classes of persons, but does not include any claim

11 secured by general assets.

12 (56) The term ‘‘State’’ means any State, the

13 District of Columbia, the Commonwealth of Puerto

14 Rico, the Northern Mariana Islands, the Virgin Is15 lands, American Samoa, and the Trust Territory of

16 the Pacific Islands.

17 (57) The term ‘‘State insurance regulator’’

18 means the principal insurance regulatory authority

19 of a State.

20 (58) The term ‘‘State law’’ means the constitu21 tion and statutes of any State and any regulation,

22 rule, or requirement promulgated pursuant to statu23 tory authority.

24 (59) The term ‘‘surplus lines insurance’’ means

25 any insurance permitted to be placed through a sur-
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1 plus lines licensee with a nonadmitted insurer eligi2 ble to accept such insurance pursuant to section

3 203.

4 (60) The term ‘‘surplus lines licensee’’ means

5 an individual partnership, firm, association, or cor6 poration licensed in one or more States to place sur7 plus lines insurance with nonadmitted insurers eligi8 ble to accept such insurance.

9 (61) The term ‘‘transfer’’ includes the sale and

10 every other and different mode, direct or indirect, of

11 disposing of or of parting with property or with an

12 interest therein, disposing of or of parting with the

13 possession thereof, or fixing a lien upon property or

14 upon an interest therein, absolutely, conditionally, or

15 voluntarily, by or without judicial proceedings. The

16 retention of a security title to property delivered to

17 a debtor shall be deemed a transfer suffered by the

18 debtor.

19 (62) The term ‘‘trusteed surplus’’ means the

20 fair market value of the amount placed in trust by

21 a reinsurer for the exclusive benefit of its ceding in22 surers, minus any incurred losses.

23 (63) The term ‘‘United States branch’’ means

24 the business unit through which business is trans25 acted in the United States by an insurer, including
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1 the assets and liabilities of such insurer within the

2 United States pertaining to such business and the

3 management powers pertaining to such business.

4 (64) The term ‘‘United States reinsurance li5 abilities’’ means the amount reflected as an asset or

6 deduction from liabilities on the financial statement

7 of a domestic insurer for reinsurance recoverable

8 from a domestic or foreign insurer or reinsurer.

9 (65) The term ‘‘wet marine and transportation

10 insurance’’ means—

11 (A) insurance upon vessels, crafts, hulls,

12 and of interests therein or with relation thereto;

13 (B) insurance of marine builders’ risks,

14 marine war risks, and contracts of marine pro15 tection and indemnity insurance;

16 (C) insurance of freights and disburse17 ments pertaining to a subject of insurance com18 ing within this subsection; and

19 (D) insurance of personal property and in20 terests therein, in the course of exportation

21 from or importation into any country, or in the

22 course of transportation coastwide or on inland

23 waters, including transportation by land, water,

24 or air from point of origin to final destination;

25 in connection with any and all risks or perils of
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1 navigation, transit or transportation; and while

2 being prepared for and while awaiting ship3 ment; and during any delays, transshipment, or

4 reshipment incident thereto.

5 TITLE IX—TECHNICAL AND

6 CONFORMING AMENDMENTS

7 SEC. 901. EXECUTIVE SCHEDULE TECHNICAL AND CON8 FORMING AMENDMENTS.

9 (a) TITLE 5.—

10 (1) Section 5314 of title 5, United States Code,

11 is amended by adding at the end the following:

12 ‘‘Chairman, Federal Insurance Solvency Com13 mission.’’.

14 (2) Section 5315 of such title is amended by

15 adding at the end the following:

16 ‘‘Members, Federal Insurance Solvency Com17 mission.’’.

18 (b) SECURITIES EXCHANGE ACT OF 1934.—Section

19 15A of the Securities Exchange Act of 1934 (15 U.S.C.

20 78o–3) is amended by adding at the end the following:

21 ‘‘(j) COORDINATION WITH NARAB.—Each reg22 istered national securities association shall coordinate with

23 the National Association of Registered Agents and Bro24 kers established under section 601 of the Federal Insur25 ance Solvency Act of 1993 in order to ease any adminis-
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1 trative burdens that fall on persons that are members of

2 both associations, consistent with the purposes of such Act

3 and this Act.

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