II

103D CONGRESS

1ST SESSION S. 1619

To create the Insurance Regulatory Commission.

IN THE SENATE OF THE UNITED STATES

NOVEMBER 4 (legislative day, NOVEMBER 2), 1993

Mr. METZENBAUM introduced the following bill; which was read twice and

referred to the Committee on Commerce, Science, and Transportation

A BILL

To create the Insurance Regulatory Commission.

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.

4 This Act may be cited as the ‘‘Insurance Protection

5 Act of 1993’’.

6 SEC. 2. TABLE OF CONTENTS.

Sec. 1. Short title.

Sec. 2. Table of contents.

TITLE I—INSURANCE REGULATORY COMMISSION

Sec. 101. Insurance Regulatory Commission.

Sec. 102. Powers of the Commission; compensation; personnel.

Sec. 103. Office and place of meeting.

Sec. 104. Definitions.

Sec. 105. Delegation of functions by the Commission.

Sec. 106. Rules and regulations.

Sec. 107. Investigative powers of the Commission.
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Sec. 108. Annual and special reports.

Sec. 109. Assessments to pay expenses.

Sec. 110. State accreditation.

Sec. 111. Examination of State insurance departments.

Sec. 112. Examination of insurance companies.

Sec. 113. Central depository for insurance data.

Sec. 114. Referral of matters to enforcement authorities.

Sec. 115. Securities Valuation Office.

TITLE II—FEDERAL MINIMUM STANDARDS

Sec. 201. Rules and regulations.

Sec. 202. Minimum capital and surplus requirements.

Sec. 203. Accounting practices and procedures.

Sec. 204. Standards and Commissioner’s authority for companies deemed to be

in hazardous financial condition.

Sec. 205. Insurance holding company systems.

Sec. 206. Risk limitations.

Sec. 207. Investment regulations.

Sec. 208. Admissible assets.

Sec. 209. Liabilities and reserves.

Sec. 210. Independent CPA audits.

Sec. 211. Qualified actuarial analysis.

Sec. 212. Transfer of policies.

Sec. 213. Restrictions on ownership and transfer of ownership.

Sec. 214. Consumer disclosure.

Sec. 215. Consumer protection.

Sec. 216. Real estate valuation.

Sec. 217. Reinsurance.

Sec. 218. Surplus notes.

Sec. 219. State insurance department resources.

Sec. 220. Other standards.

Sec. 221. Insurance Advisory Committee.

TITLE III—REINSURANCE

Sec. 301. Commission authority.

Sec. 302. Office of Reinsurance Regulation.

Sec. 303. Personnel.

Sec. 304. Powers and duties of Director.

Sec. 305. Rules and regulations.

Sec. 306. Budget and financial reports.

Sec. 307. Information, records, and meetings.

Sec. 308. Annual report by the Director.

Sec. 308A. License of professional reinsurers.

Sec. 308B. License for other providers of reinsurance.

Sec. 308C. Suspension and revocation of Federal license to provide reinsurance.

Sec. 308D. Credit for reinsurance.

Sec. 308E. Relationship to State law.

Sec. 309. Financial reports by reinsurers.

Sec. 309A. Accounting standards and independent accountants.

Sec. 310. Examinations.

Sec. 310A. Actuaries.

Sec. 311. Limitation on subsequent employment.

Sec. 312. Exchange of information.

Sec. 313. Arbitration clauses.
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Sec. 314. Reinsurance intermediaries.

Sec. 315. Appointment of receivers.

Sec. 316. Order appointing receiver.

Sec. 317. Effect of order.

Sec. 318. Jurisdiction over property of reinsurer.

Sec. 319. Examinations.

Sec. 320. Expenses of establishing receivership.

Sec. 321. Compensation of receiver and employees.

Sec. 322. Standing of guaranty associations.

Sec. 323. Applicability of receivership to foreign reinsurer.

Sec. 324. Stay of actions.

Sec. 325. Cooperation of officers, owners and employees.

Sec. 326. Injunctions and orders.

Sec. 327. Pending litigation.

Sec. 328. Conflicts of interest and financial disclosure.

Sec. 329. Proceeding against culpable persons.

Sec. 330. Liability protection for receivers.

Sec. 331. Powers of examination; subpoenas.

Sec. 333. Grounds for the appointment of receiver for rehabilitation.

Sec. 334. Rehabilitation orders.

Sec. 335. Powers of receiver for purposes of rehabilitation.

Sec. 336. Termination of the receivership for rehabilitation.

Sec. 337. Liquidation.

Sec. 338. Liquidation orders.

Sec. 339. Powers of the Director as receiver for liquidation.

Sec. 340. Dissolution of reinsurer.

Sec. 341. Obligation of reinsurer.

Sec. 342. Reinsurer’s liability.

Sec. 343. Notice to creditors and others.

Sec. 344. Proof of claims.

Sec. 345. Payment of claims.

Sec. 346. Duties of agents and intermediaries.

Sec. 347. Fraudulent transfers.

Sec. 348. Voidable preferences and liens.

Sec. 349. Setoffs.

Sec. 350. Recovery of premiums owed.

Sec. 351. Priority of distribution.

Sec. 352. Unclaimed and withheld funds.

Sec. 353. Termination of proceedings.

Sec. 354. Construction.

Sec. 355. Limitation on transaction of reinsurance.

Sec. 356. Preemption.

Sec. 357. Existing licenses and contracts.

Sec. 358. Protection of confidential information.

TITLE IV—NATIONAL INSURANCE GUARANTY CORPORATION

Sec. 401. Establishment of the Corporation.

Sec. 402. Definitions.

Sec. 403. Board of directors.

Sec. 404. Duties and responsibilities of the Board.

Sec. 405. National Insurance Guaranty Fund.

Sec. 406. Corporate powers.

Sec. 407. Membership.

Sec. 408. Assessments.
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Sec. 409. Exchange of information.

Sec. 410. Liability of Directors and Officers of the Corporation.

Sec. 411. Tax exemption.

Sec. 412. Reports by the Corporation.

Sec. 413. Preemption.

TITLE V—LIQUIDATION OF MEMBER INSURERS

Sec. 501. Corporation as liquidator.

Sec. 502. Definitions.

Sec. 503. Petition for appointment.

Sec. 504. Order appointing corporation liquidator.

Sec. 505. Effect of order.

Sec. 506. Jurisdiction over property of insurer.

Sec. 507. Stay of actions.

Sec. 508. Cooperation of officers, owners and employees.

Sec. 509. Evidence of wrongdoing.

Sec. 510. Continuance of coverage.

Sec. 511. Powers of the Corporation as liquidator.

Sec. 512. Notice to creditors and others.

Sec. 513. Proof of claims.

Sec. 514. Payment of claims.

Sec. 515. Duties of agents.

Sec. 516. Fraudulent transfers.

Sec. 517. Voidable preferences and liens.

Sec. 518. Setoffs and counterclaims.

Sec. 519. Recovery of premiums owed.

Sec. 520. Priority of distribution.

Sec. 521. Unclaimed and withheld funds.

Sec. 522. Termination of proceedings.

Sec. 523. Study by the Board.

Sec. 524. Preemption.

TITLE VI—CRIMINAL AND CIVIL PENALTIES

Sec. 601. Short title.

Sec. 602. Crimes by or affecting persons engaged in the business of insurance

whose activities affect interstate commerce.

Sec. 603. Miscellaneous amendments to title 18, United States Code.

1 TITLE I—INSURANCE

2 REGULATORY COMMISSION

3 SEC. 101. INSURANCE REGULATORY COMMISSION.

4 (a) ESTABLISHMENT.—There is established an Insur5 ance Regulatory Commission (hereinafter referred to as

6 the ‘‘Commission’’) to be composed of 5 commissioners to

7 be appointed by the President, by and with the advice and

8 consent of the Senate.
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1 (b) CHAIRMAN.—The President shall designate 1 of

2 the members as Chairman of the Commission.

3 (c) POLITICAL PARTIES.—Not more than 3 of such

4 commissioners shall be members of the same political

5 party, and in making appointments members of different

6 political parties shall be appointed alternately as nearly

7 as may be practicable.

8 (d) FULL-TIME EMPLOYMENT.—No commissioner

9 shall engage in any other business, vocation, or employ10 ment than that of serving as commissioner, nor shall any

11 commissioner participate, directly or indirectly, in any in12 surance company operations or transactions of a character

13 subject to regulation by the Commission pursuant to this

14 title.

15 (e) TERMS.—Each commissioner shall hold office for

16 a term of 5 years and until his successor is appointed and

17 has qualified, except that—

18 (1) a commissioner shall not continue to serve

19 beyond the expiration of the next session of Con20 gress subsequent to the expiration of the fixed term

21 of office;

22 (2) any commissioner appointed to fill a va23 cancy occurring prior to the expiration of the term

24 for which his predecessor was appointed shall be ap25 pointed for the remainder of such term; and
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1 (3) the terms of office of the commissioners

2 first taking office after the enactment of this title

3 shall expire as designated by the President at the

4 time of nomination, 1 at the end of the year, 1 at

5 the end of 2 years, 1 at the end of 3 years, 1 at the

6 end of 4 years, and 1 at the end of 5 years, after

7 the date of the enactment of this title.

8 (f) AGENCY OF THE UNITED STATES.—The Commis9 sion shall be deemed to be an agency of the United States

10 for purposes of subchapter II of chapter 5 and chapter

11 7 of title 5, United States Code.

12 SEC. 102. POWERS OF THE COMMISSION; COMPENSATION;

13 PERSONNEL.

14 (a) HEARINGS.—The Commission may hold such

15 hearings, sit and act at such times and places, take such

16 testimony, and receive such evidence as the Commission

17 considers advisable to carry out the purposes of this Act.

18 (b) INFORMATION FROM FEDERAL AGENCIES.—The

19 Commission may secure directly from any Federal depart20 ment or agency such information as the Commission con21 siders necessary to carry out the provisions of this Act.

22 Upon request of the Chairman of the Commission, the

23 head of such department or agency shall furnish such in24 formation to the Commission.
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1 (c) POSTAL SERVICES.—The Commission may use

2 the United States mails in the same manner and under

3 the same conditions as other departments and agencies of

4 the Federal Government.

5 (d) COMPENSATION OF MEMBERS.—Each member of

6 the Commission shall be compensated in an amount equal

7 to that prescribed for level IV of the Executive Schedule

8 under section 5315 of title 5, United States Code.

9 (e) TRAVEL EXPENSES.—The members of the Com10 mission shall be allowed travel expenses, including per

11 diem in lieu of subsistence, at rates authorized for employ12 ees of agencies under subchapter I of chapter 57 of title

13 5, United States Code, while away from their homes or

14 regular places of business in the performance of services

15 for the Commission.

16 (f) APPOINTMENTS; COMPENSATION.—The Chair17 man of the Commission may appoint and fix the com18 pensation of an executive director and other personnel as

19 may be necessary to carry out this Act.

20 (g) DETAIL OF GOVERNMENT EMPLOYEES.—Any

21 Federal Government employee may be detailed to the

22 Commission without reimbursement, and such detail shall

23 be without interruption or loss of civil service status or

24 privilege.
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1 (h) PROCUREMENT OF TEMPORARY AND INTERMIT2 TENT SERVICES.—The Chairman of the Commission may

3 procure temporary and intermittent services under section

4 3109(b) of title 5, United States Code, at rates for individ5 uals which do not exceed the daily equivalent of the annual

6 rate of basic pay prescribed for level V of the Executive

7 Schedule under section 5316 of such title.

8 SEC. 103. OFFICE AND PLACE OF MEETING.

9 The principal office of the Commission shall be in the

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

11 and exercise all its powers at any other place. The Com12 mission may, by one or more of its members, or by such

13 examiners as it may designate, prosecute any inquiry nec14 essary to its duties in any part of the United States.

15 SEC. 104. DEFINITIONS.

16 As used in this Act, the term:

17 (1) ‘‘State insurance department’’ means a

18 State governmental bureau charged with the admin19 istration of insurance laws.

20 (2) ‘‘Insurer’’ means the party to an insurance

21 arrangement who undertakes to indemnify for losses,

22 provide pecuniary benefits or render services, but

23 does not include an employee benefit plan qualified

24 under section 1001 of title 29, United States Code.
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1 (3) ‘‘Insurance’’ means a contract whereby a

2 person undertakes to indemnify another person or to

3 pay another person a specified amount upon deter4 minable contingencies.

5 (4) ‘‘Interstate Insurance License’’ means a

6 certification of authority for an insurer to do busi7 ness in interstate commerce issued by a State which

8 is accredited by the Insurance Regulatory Commis9 sion pursuant to the provisions of this title.

10 (5) ‘‘Person’’ means an individual, a corpora11 tion, a partnership, an association, a joint stock

12 company, a trust, an unincorporated organization, or

13 any similar entity or any combination of the fore14 going acting in concert.

15 (6) ‘‘State’’ means the 50 States, the District

16 of Columbia, Puerto Rico, Guam, the Virgin Islands

17 and any district, territory or other separately gov18 erned political subdivision under the authority of the

19 United States.

20 (7) ‘‘Reinsurance’’ means a type of insurance

21 that involves acceptance by an insurer of all or a

22 part of the risk of loss covered by another insurer.

23 (8) ‘‘Reinsurer’’ means an insurer that assumes

24 all or part of the insurance or reinsurance written

25 by another insurer.
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1 SEC. 105. DELEGATION OF FUNCTIONS BY THE COMMIS2 SION.

3 (a) AUTHORITY TO DELEGATE.—The Commission

4 shall have the authority to delegate, by published order

5 or rule, any of its functions to a division of the Commis6 sion, an individual Commissioner, an administrative law

7 judge, or an employee or employee board, including func8 tions with respect to hearing, determining, ordering, cer9 tifying, reporting, or otherwise acting as to any work,

10 business, or matter. Nothing in this section shall be

11 deemed to supersede the provisions of section 556(b) of

12 title 5, United States Code, or to authorize the delegation

13 of the function of rule making as defined in subchapter

14 II of chapter 5 of title 5, United States Code, with ref15 erence to general rules as distinguished from rules of par16 ticular applicability, or of the making of any rule.

17 (b) REVIEW.—With respect to the delegation of any

18 of its functions, as provided in subsection (a) of this sec19 tion, the Commission shall retain a discretionary right to

20 review the action of any such division of the Commission,

21 individual Commissioner, administrative law judge, em22 ployee, or employee board, upon its own initiative or upon

23 petition of a party to or intervenor in such action, within

24 such time and in such manner as the Commission by rule

25 shall prescribe. The vote of one member of the Commis26 sion shall be sufficient to bring any such action before the
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1 Commission for review. A person or party shall be entitled

2 to review by the Commission if adversely affected by action

3 at a delegated level.

4 (c) ACTION OF COMMISSION.—If the right to exercise

5 such review is declined, or if no such review is sought with6 in the time stated in the rules promulgated by the Com7 mission, then the action of any such division of the Com8 mission, individual Commissioner, administrative law

9 judge, employee, or employee board, shall, for all purposes,

10 including appeal or review thereof, be deemed the action

11 of the Commission.

12 SEC. 106. RULES AND REGULATIONS.

13 The Commission shall promulgate rules and regula14 tions necessary to carry out its responsibilities under this

15 Act.

16 SEC. 107. INVESTIGATIVE POWERS OF THE COMMISSION.

17 The Commission shall have the power to gather and

18 compile information concerning, and to investigate from

19 time to time the organization, business, conduct, practices

20 and management of any person, partnership, or corpora21 tion engaged in the business of insurance.

22 SEC. 108. ANNUAL AND SPECIAL REPORTS.

23 The Commission shall have the power to require, by

24 general or special orders or by subpoena, any person en25 gaged in the business of insurance, to file with the Com-
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1 mission in such form as the Commission may prescribe

2 annual or special, or both annual and special, reports, or

3 answers in writing to specific questions, furnishing to the

4 Commission such information as it may require as to the

5 organization, business, conduct, practices, management,

6 and relation to other corporations, partnerships, and indi7 viduals of the respective persons, partnerships, and cor8 porations filing such reports or answers in writing. Such

9 reports and answers shall be made under oath, or other10 wise, as the Commission may prescribe, and shall be filed

11 with the Commission within such reasonable period as the

12 Commission may prescribe, unless additional time be

13 granted in any case by the Commission.

14 SEC. 109. ASSESSMENTS TO PAY EXPENSES.

15 (a) ASSESSMENTS.—The Commission shall have the

16 authority to levy semiannually upon insurers, including re17 insurers, in proportion to their premiums, an assessment

18 sufficient to pay the estimated expenses of the Commis19 sion and the salaries of its members and employees for

20 the half year succeeding the levying of such assessment,

21 together with any deficit carried forward from the preced22 ing half year. The formula for the assessment shall be de23 termined by the Commission.

24 (b) LOANS.—(1) At the time of the establishment of

25 the Commission and thereafter if, in the judgment of the
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1 Commission, a loan to finance the activity of the Commis2 sion is required, the Secretary of the Treasury shall make

3 such loans as are required, but loans under this paragraph

4 shall not exceed in the aggregate $20,000,000 outstanding

5 at one time. Each loan under this paragraph shall be made

6 on such terms as may be fixed by agreement between the

7 Commission and the Secretary of the Treasury. The

8 amount of the loan shall be a liability of the Commission.

9 (2) Interest shall accrue to the Treasury on the

10 amount of any outstanding loans made to the Commission

11 pursuant to paragraph (b)(1) of this section on the basis

12 of the average daily amount of such outstanding loans de13 termined at the close of each fiscal year with respect to

14 such year, and the Commission shall pay the interest so

15 accruing into the Treasury as miscellaneous receipts annu16 ally from the fund. The Secretary of the Treasury shall

17 determine the applicable interest rate in advance.

18 (3) So long as any loans to the fund are outstanding,

19 the Commission shall from time to time, not less often

20 than annually, determine whether the balance in the fund

21 is in excess of the amount which, in its judgment, is need22 ed to meet the requirements of the fund and shall pay

23 such excess to the Secretary of the Treasury, to be cred24 ited against the loans to the Commission.
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1 SEC. 110. STATE ACCREDITATION.

2 (a) CERTIFICATIONS.—The Commission shall have

3 the authority to certify State insurance departments.

4 (b) STANDARDS.—The Commission shall grant cer5 tification to those States which the Commission deter6 mines—

7 (1) meet the standards promulgated by the

8 Commission pursuant this Act, and

9 (2) effectively implement such standards.

10 (c) LICENSES.—A State certified pursuant to sub11 section (b) may issue an interstate insurance license to

12 an insurer domiciled in that State. Each such license is13 sued by the State shall bear a seal authorized by the Com14 mission.

15 (d) FAILURE TO OBTAIN CERTIFICATION.—No in16 surer domiciled in a State which is not certified by the

17 Commission may conduct the business of insurance in

18 interstate commerce.

19 (e) EFFECTIVE DATE.—The provisions of this section

20 shall not apply in a State until 1 year after the date such

21 standards are first established by the Commission. For a

22 State which is not scheduled to meet in a legislative ses23 sion in the year following the establishment of the stand24 ards by the Commission, the date specified in this sub25 section is the first day of the first calendar quarter begin26 ning after the close of the first legislative session of the
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1 State legislature that begins on or after January 1 of the

2 year next following establishment of the standards by the

3 Commission. For the purposes of the previous sentence,

4 in the case of a State that has a 2-year legislative session,

5 each year of such session shall be deemed to be a separate

6 regular session of the State legislature.

7 (f) TIME PERIOD.—The Commission shall provide a

8 time period for an insurer domiciled in a State which ei9 ther is not initially accredited or which has its accredita10 tion revoked to transfer its domicile to an accredited State.

11 SEC. 111. EXAMINATION OF STATE INSURANCE DEPART12 MENTS.

13 (a) EXAMINATION.—Prior to certifying a State, the

14 Commission shall examine the State Insurance Depart15 ment with regard to whether that Department meets the

16 requirements of section 110.

17 (b) CONTINUED EXAMINATION.—After initially cer18 tifying a State, the Commission may, on its own initiative

19 or at the request of any State Insurance Department,

20 order an examination of a State Insurance Department

21 with regard to whether that Department continues to meet

22 the requirements of section 110.

23 (c) REFUSAL TO ACCREDIT.—The Commission may

24 refuse to accredit or may revoke the accreditation of any
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1 State which the Commission finds, pursuant to an exam2 ination, fails to meet the requirements of section 110.

3 SEC. 112. EXAMINATION OF INSURANCE COMPANIES.

4 (a) SPECIAL EXAMINATIONS.—The Commission may

5 order special examinations of any insurer which holds an

6 interstate insurance license. The examination shall be con7 ducted by examiners chosen by the Commission. The Com8 mission shall in all cases approve the form of the examina9 tion. The expenses of all examinations may, in the discre10 tion of the Commission, be assessed against the insurer

11 examined, and when so assessed, shall be paid by the in12 surer examined. Copies of the reports of such examina13 tions may, in the discretion of the Commission, be fur14 nished to the State Insurance Departments, to officers

15 and directors, or receivers of the insurer, and to any per16 sons as the Commission shall deem appropriate.

17 (b) STANDARDS.—The Commission shall establish

18 standards for determining which insurers to examine.

19 (c) ADDITIONAL REQUIREMENTS.—The Commission

20 may, on the basis of an examination of an insurer, request

21 that the State Insurance Department of the State which

22 issued the interstate insurance license to such insurer ex23 amine the insurer, and may further suggest that the State

24 take certain actions the Commission deems necessary to

25 assure the soundness of the insurer.
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1 SEC. 113. CENTRAL DEPOSITORY FOR INSURANCE DATA.

2 (a) ANNUAL STATEMENTS; PERIODIC REPORTS.—

3 The Commission shall collect the annual statements and

4 other periodic reports of all insurers holding interstate in5 surance licenses. These statements and reports shall be

6 available to the public. The Commission shall compile in7 formation from these statements and reports in a data

8 base for the purpose of studying the insurance industry.

9 (b) DATA BASE.—The Commission shall maintain a

10 data base on information concerning any State or Federal

11 regulatory and legal actions involving any person engaged

12 in the business of insurance. The Commission shall gather

13 any such information from State Insurance Departments

14 and any other source of information.

15 (c) INFORMATION TO BE MADE PUBLIC.—(1) The

16 Commission shall—

17 (A) make public, from time to time, such por18 tions of the information obtained by it as are in the

19 public interest;

20 (B) make annual and special reports to the

21 Congress and submit therewith recommendations for

22 additional legislation; and

23 (C) provide for the publication of its reports

24 and decisions in such form and manner as may be

25 best adapted for public information and use.
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1 (2) The Commission shall not have authority to make

2 public any information it determines is a trade secret or

3 any commercial or financial information which is obtained

4 from any person and which the Commission determines

5 is privileged or confidential, except that the Commission

6 may disclose such information to officers and employees

7 of appropriate Federal law enforcement agencies or to any

8 officer or employee of any State law enforcement agency

9 upon the prior certification of an officer of any such Fed10 eral or State law enforcement agency that such informa11 tion will be maintained in confidence and will be used only

12 for official law enforcement purposes.

13 SEC. 114. REFERRAL OF MATTERS TO ENFORCEMENT AU14 THORITIES.

15 The Commission shall refer to the Department of

16 Justice or to the appropriate State enforcement authori17 ties any information or matters which it deems warrant

18 investigation for possible civil or criminal enforcement ac19 tion.

20 SEC. 115. SECURITIES VALUATION OFFICE.

21 (a) ESTABLISHMENT OF OFFICE.—The Commission

22 shall establish a Securities Valuation Office (hereinafter

23 referred to as the ‘‘SVO’’).

24 (1) The SVO shall value such assets as required

25 by the Commission.
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1 (2) The SVO shall establish quality ratings for

2 such assets as required by the Commission.

3 (3) The SVO shall publish a Valuations of Se4 curities Manual containing the market prices and

5 SVO quality ratings for all securities owned by in6 surers.

7 (b) RULES AND REGULATIONS.—The Commission

8 shall promulgate such rules and regulations as are nec9 essary to provide a source for uniform prices and quality

10 ratings of assets held by insurers. Such rules and regula11 tions shall require—

12 (1) valuations for all securities including, but

13 not limited to stocks, bonds, warrants, options and

14 financial futures contracts;

15 (2) that all insurers holding an interstate insur16 ance license file with the SVO such financial and

17 other documentation as the Commission deems nec18 essary for determining a value for admissible assets

19 held by the insurer; and

20 (3) insurers to use SVO prices and ratings in

21 preparing their annual statements to be filed with

22 State and Federal regulatory authorities.

23 (c) RESERVES.—The Commission shall promulgate

24 rules and regulations requiring life insurers and fraternal

25 benefits societies to establish and maintain a mandatory
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1 reserve for all assets based on the values and quality rat2 ings of the SVO.

3 (d) APPEALS PROCESS.—The Commission shall pro4 mulgate rules and regulations providing for an appeals

5 process by which any person can challenge an SVO price

6 or quality rating.

7 (e) MINIMUM STANDARDS.—The Commission shall

8 promulgate rules and regulations establishing minimum

9 standards for banks that issue letters of credit for reinsur10 ance purposes. Banks meeting these standards shall be

11 published in a list to be prepared by the SVO in order

12 to assist insurance regulatory officials in the evaluation

13 of reinsurance credits claimed by ceding insurers.

14 TITLE II—FEDERAL MINIMUM

15 STANDARDS

16 SEC. 201. RULES AND REGULATIONS.

17 The Commission shall establish, by regulation, stand18 ards for implementation by accredited State Insurance

19 Departments. The Commission shall establish initial

20 standards within 12 months following the date of the en21 actment of this Act.

22 SEC. 202. MINIMUM CAPITAL AND SURPLUS REQUIRE23 MENTS.

24 (a) MINIMUM CAPITAL.—The Commission shall re25 quire all insurers to maintain at all times minimum
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1 amounts of capital and surplus necessary for insurers to

2 engage in the business of insurance.

3 (b) ADDITIONAL CAPITAL AND SURPLUS.—The Com4 mission shall require all insurers to maintain such addi5 tional capital and surplus, based upon the type, volume

6 and nature of insurance business transacted, as are re7 quired to assure the solidity of the insurer.

8 (c) RISK.—The Commission shall determine the ap9 propriateness of requiring each insurer to maintain

10 amounts of capital and surplus depending upon the risk

11 associated with that insurer.

12 SEC. 203. ACCOUNTING PRACTICES AND PROCEDURES.

13 (a) ANNUAL STATEMENTS.—The Commission shall

14 create and maintain uniform annual statement forms for

15 insurers. All insurers doing business in interstate com16 merce shall file the appropriate annual statement form

17 with the appropriate State and Federal authorities.

18 (b) ACCOUNTING PROCEDURES.—The Commission

19 shall prescribe accounting procedures and practices for in20 surers to follow in preparing the annual statement form

21 required by subsection (a).
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1 SEC. 204. STANDARDS AND COMMISSIONER’S AUTHORITY

2 FOR COMPANIES DEEMED TO BE IN HAZARD3 OUS FINANCIAL CONDITION.

4 (a) IDENTIFICATION.—The Commission shall estab5 lish standards for State Insurance Departments to use in

6 identifying insurers found to be in such condition as to

7 render the continuance of their business hazardous to the

8 public or to holders of their policies or certificates of insur9 ance.

10 (b) CORRECTIVE ACTION.—The Commission shall de11 fine the authority of a State Insurance Department to

12 order a company to take necessary corrective action or

13 cease and desist certain practices which, if not corrected,

14 could place the company in a hazardous financial condi15 tion.

16 SEC. 205. INSURANCE HOLDING COMPANY SYSTEMS.

17 (a) DEFINITIONS.—For purposes of this section:

18 (1) The term ‘‘affiliate’’ means a person that

19 directly, or indirectly through one or more

20 intermediaries, controls, or is controlled by, or is

21 under common control with, the person specified.

22 (2) The term ‘‘insurance holding company sys23 tem’’ means two or more affiliated persons, one or

24 more of which is an insurer.

25 (b) FINANCIAL CONDITION.—The Commission shall

26 establish such requirements as necessary to ensure effec-
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1 tive and comprehensive regulation of the financial condi2 tion of an insurer in a holding company system. These

3 requirements shall address but are not limited to

4 intrasystem transactions involving the insurer, mergers

5 and acquisitions of insurers, investments in subsidiaries,

6 registration of members of the system and disclosure and

7 verification by examination of matters which may affect

8 the financial status of an insurer in the system.

9 SEC. 206. RISK LIMITATIONS.

10 The Commission shall prescribe the amount of risk

11 which may be retained by a property and liability company

12 for an individual risk based upon the insurer’s capital and

13 surplus.

14 SEC. 207. INVESTMENT REGULATIONS.

15 (a) DIVERSIFICATION.—The Commission shall re16 quire a diversified investment portfolio for all insurers.

17 (b) REQUIREMENTS.—Such requirement shall include

18 limitations as to type and issue of investment, percentage

19 limitations for certain investments such as non-investment

20 grade bonds and investments involving real estate and real

21 estate mortgages, and minimum levels of liquidity.

22 SEC. 208. ADMISSIBLE ASSETS.

23 (a) ASSETS.—The Commission shall prescribe assets

24 which may be admitted, authorized or allowed as assets

25 in the financial statement of insurers.
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1 (b) VALUE OF ASSETS.—The Commission shall pre2 scribe methods for establishing the value of such assets

3 which will enable the most accurate estimates to be made.

4 SEC. 209. LIABILITIES AND RESERVES.

5 (a) LIABILITIES AND RESERVES.—The Commission

6 shall prescribe requirements for the establishment of li7 abilities and reserves resulting from insurance contracts

8 issued by an insurer.

9 (b) LIFE RESERVES.—The requirements established

10 pursuant to subsection (a) shall include, but should not

11 be limited to, requirements for life reserves; active life re12 serves and unearned premium reserves; liabilities for

13 claims and losses unpaid; and for claims incurred but not

14 reported.

15 SEC. 210. INDEPENDENT CPA AUDITS.

16 (a) ANNUAL AUDITS.—The Commission shall require

17 annual audits by qualified independent certified public ac18 countants of the financial statements reporting the finan19 cial condition and the results of operations of all insurers.

20 (b) NOTIFICATIONS.—The requirements in sub21 section (a) shall require the insurer furnishing the annual

22 audited financial reports to require the independent cer23 tified public accountant to immediately notify in writing

24 an executive officer and all directors of the insurer of the

25 final determination by that independent certified public
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1 accountant that the insurer has materially misstated its

2 financial condition as reported to the Commission as of

3 the balance sheet date currently under examination or that

4 the insurer does not meet the minimum capital and sur5 plus required by law as of that date. The insurer shall

6 furnish such notification to the Commission within 5 days

7 of receipt thereof.

8 SEC. 211. QUALIFIED ACTUARIAL ANALYSIS.

9 The Commission shall require an opinion on life and

10 health policy and claim reserves and loss and loss adjust11 ment expense reserves by a qualified actuary or specialist

12 on an annual basis for all insurers.

13 SEC. 212. TRANSFER OF POLICIES.

14 (a) APPROVAL OF THE DIRECTOR.—Prior approval

15 of the Commission is required for any transaction where

16 an insurer assumes or transfers obligations or risks on

17 contracts of insurance under an assumption reinsurance

18 agreement. The Commission shall have not more than 30

19 days in which to approve or reject such application. If the

20 Commission approves such request, the Commission shall

21 issue to the insurer an ‘‘Approval of Assumption Reinsur22 ance’’ certificate.

23 (b) FACTORS TO BE CONSIDERED.—In reviewing an

24 application to assume or transfer obligations or risks on

25 contracts of insurance under an assumption reinsurance
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1 agreement, the Commission shall consider the following

2 factors:

3 (1) the financial condition of the transferring

4 insurer and assuming insurer and the effect the

5 transaction will have on the financial condition of

6 the assuming insurer and the transferring insurer;

7 (2) the managerial expertise and experience of

8 those persons who will control the operations of the

9 assuming insurer;

10 (3) the plans or proposals the assuming insurer

11 has with respect to the administration of the policies

12 subject to the proposed transfer;

13 (4) whether the transfer is fair and reasonable

14 to the policyholders of both companies;

15 (5) whether an administrative or judicial pro16 ceeding has been instituted against the transferring

17 or assuming insurer for purposes of liquidating, re18 organizing or conserving such insurer and whether

19 the transfer of the contracts of insurance is in the

20 best interest of the policyholders;

21 (6) whether the contracts of insurance that are

22 the subject of the transfer provide that notice shall

23 be given to policyholders of a potential transfer of

24 policy; and
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1 (7) whether the disclosure required by sub2 section (c) to the policyholders to be transferred is

3 fair, adequate and not misleading to the policy4 holders.

5 (c) REQUIREMENTS FOR A TRANSFER.—No transfer

6 of obligations or risks on contracts of insurance under an

7 assumption reinsurance agreement shall take place until—

8 (1) the transferring insurer gives advance writ9 ten notice of the potential transfer to each policy10 holder and provides each policyholder and the Com11 mission with information on the financial stability

12 and managerial capability of the assuming insurer

13 including but not limited to—

14 (i) all ratings issued within the previous 3

15 years by a nationally recognized rating agency,

16 the transferring insurer and the assuming in17 surer;

18 (ii) the financial statements of the trans19 ferring insurer and the assuming insurer for

20 the 3 previous years;

21 (iii) where the policies being transferred in22 volve at least 5 percent of the reserve liability

23 of either the transferring insurer and the as24 suming insurer, pro forma financial statements

25 forecasting the effect of the transfer on the
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1 transferring insurer and on the assuming in2 surer; and

3 (iv) an option by a disinterested third

4 party expert that such transfer is fair and in

5 the best interests of the policyholders being

6 transferred, the policyholders who remain with

7 the transferring company, and the policyholders

8 of the assuming company; and

9 (2) each policyholder has affirmatively con10 sented in writing to the policy transfer.

11 (d) PROHIBITED TRANSFERS; SERVICING CON12 TRACTS; LIABILITY.—No assumption reinsurance agree13 ment shall be effective unless a policyholder has specifi14 cally consented to the transfer under subsection (c) of this

15 section. Each policyholder who has consented to the as16 sumption reinsurance agreement, may have their contract

17 of insurance assumed by another insurer. If a policy hold18 er has not consented to the assumption reinsurance agree19 ment, such contracts of insurance shall not be transferred.

20 The transferring insurer may enter into a contract with

21 the assuming insurer wherein the assuming insurer agrees

22 to provide the administrative servicing of those contacts

23 of insurance not transferred. The transferring insurer

24 shall remain directly liable to the policyholders for those

25 contracts of insurance that are not transferred.
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1 (e) STATE INSURANCE DEPARTMENTS.—Any li2 censed insurer which enters into an assumption reinsur3 ance agreement shall file or cause to be filed a ‘‘Approval

4 of Assumption Reinsurance’’ certificate.

5 (f) EXCEPTIONS.—The Commission may establish ex6 ceptions to the requirements of subsections (b) and (c)

7 where the transfer is part of a conservatorship, receiver8 ship, or liquidation process approved by judicial order.

9 SEC. 213. RESTRICTIONS ON OWNERSHIP AND TRANSFER

10 OF OWNERSHIP.

11 The Commission shall restrict ownership and control

12 of an insurer to persons with appropriate qualifications

13 and good character. These requirements shall require that

14 any transfer of ownership be subject to a review of the

15 qualifications and character of persons who will own or

16 control the insurer.

17 SEC. 214. CONSUMER DISCLOSURE.

18 (a) INFORMATION REQUIRED.—The Commission

19 shall prescribe the information which must be provided by

20 representatives of the insurer to a consumer prior to the

21 purchase of any insurance policy or certificate. Such infor22 mation shall—

23 (1) inform the consumer of the rights and obli24 gations of the parties to the agreement;
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1 (2) convey information, understandable to the

2 consumer, that will enable the consumer to make

3 meaningful cost and coverage comparisons of similar

4 policies offered by other insurers and of different

5 policies of the same insurer;

6 (3) with regard to life insurance policies, convey

7 to the consumer information regarding the relation8 ship of premiums to the accumulation of interest;

9 (4) convey to the consumer existing public in10 formation concerning the financial solidity of the in11 surer; and

12 (5) include any other information which the

13 Commission deems necessary to fully inform the

14 consumer.

15 (b) REVOCATIONS.—The Commission shall establish

16 requirements which allow a consumer to revoke the agree17 ment within a reasonable amount of time following accept18 ance.

19 (c) CLARITY OF CONTRACTS.—The Commission shall

20 establish requirements for the simplification and, where

21 appropriate, the standardization of insurers’ contracts for

22 the benefit of consumers.

23 (d) GOOD FAITH.—The Commission shall require

24 that each individual who sells or offers to sell an insurance

25 policy has a duty of good faith and fair dealing to the
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1 purchaser or potential purchaser of such policy. Such re2 quirements shall require that such an individual not know3 ingly make any misleading representation or fraudulent

4 comparison of any policy or insurer for the purpose of in5 ducing any person to purchase a policy or use undue pres6 sure to induce the purchase of a policy.

7 SEC. 215. CONSUMER PROTECTION.

8 (a) INFORMED DECISIONS.—The Commission shall

9 require that State Insurance Departments provide infor10 mation that will assist consumers in making informed de11 cisions when purchasing from insurers. The Commission

12 may require such assistance to include programs like toll

13 free telephone service for consumer information on insur14 ers and policies, counseling programs and buyer guides.

15 (b) CONSUMER COMPLAINTS.—The Commission shall

16 require that State Insurance Departments devote ade17 quate resources to handling consumer complaints and to

18 providing other consumer assistance. The Commission

19 shall also require that Departments maintain data on

20 consumer complaints.

21 (c) MARKET CONDUCT EXAMINATIONS.—The Com22 mission shall prescribe standards for market conduct ex23 aminations.
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1 SEC. 216. REAL ESTATE VALUATION.

2 (a) MARKET VALUE.—The Commission shall require

3 that real estate holdings held as assets by insurers be val4 ued at market value on a regular basis.

5 (b) MATERIALITY.—Such requirements shall provide

6 for the weighing of the materiality of the asset against

7 the costs of determining the market value of the asset.

8 In promulgating a standard for materiality the Commis9 sion shall consider the real estate holding as a percentage

10 of an insurer’s net worth and as a percentage of the insur11 er’s other real estate holdings.

12 SEC. 217. REINSURANCE.

13 (a) CREDITS.—The Commission shall prescribe re14 quirements under which a ceding insurer may be allowed

15 credit for reinsurance either as an asset or as a deduction

16 from liability.

17 (b) VALID LICENSES.—Such requirements shall re18 quire that no credit be allowed except where the reinsurer

19 has a valid license issued pursuant to the provisions of

20 this Act.

21 (c) LEGITIMACY.—Such requirements shall establish

22 standards with regard to whether the reinsurance is legiti23 mate. In promulgating standards as to the legitimacy of

24 a reinsurance agreement the Commission shall consider a

25 variety of factors including, but not limited to, whether—
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1 (1) the primary effect of the reinsurance agree2 ment is to transfer deficiency reserves or excess in3 terest reserves to the books of the reinsurer for a

4 ‘‘risk charge’’ and the agreement does not provide

5 for significant participation by the reinsurer in one

6 or more of the following risks: mortality, morbidity,

7 investment or surrender benefit;

8 (2) the reserve credit taken by the ceding in9 surer is not in compliance with the insurance laws,

10 rules or regulations, including actuarial interpreta11 tions or standards, adopted by the Federal or State

12 authorities;

13 (3) the reserve credit taken by the ceding in14 surer is greater than the underlying reserve of the

15 ceding company supporting the policy obligations

16 transferred under the reinsurance agreement;

17 (4) the ceding insurer is required to reimburse

18 the reinsurer for negative experience under the rein19 surance agreement, except that neither offsetting ex20 perience refunds against prior years losses nor pay21 ment by the ceding insurer of an amount equal to

22 prior years losses upon voluntary termination of in23 force reinsurance by that ceding insurer shall be

24 considered such reimbursement to the reinsurer for

25 negative experience;
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1 (5) the ceding insurer can be deprived of sur2 plus at the reinsurer’s option or automatically upon

3 the occurrence of some event, such as the insolvency

4 of the ceding insurer, except that termination of the

5 reinsurance agreement by the reinsurer for non-pay6 ment of reinsurance premiums shall not be consid7 ered to be such a deprivation of surplus;

8 (6) the ceding insurer must, at specific points

9 in time scheduled in the agreement, terminate or

10 automatically recapture all or part of the reinsur11 ance ceded;

12 (7) no cash payment is due from the reinsurer,

13 throughout the lifetime of the reinsurance agree14 ment, with all settlements prior to the termination

15 date of the agreement made only in a ‘‘reinsurance

16 account’’, and no funds in such account are available

17 for the payment of benefits;

18 (8) the reinsurance agreement involves the pos19 sible payment by the ceding insurer to the reinsurer

20 of amounts other than from income reasonably ex21 pected from the reinsured policies; and

22 (9) the reinsurance would allow an insurer oth23 erwise in hazardous financial condition to continue

24 to transact business to the detriment of consumers.
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1 SEC. 218. SURPLUS NOTES.

2 The Commission shall restrict the use of surplus

3 notes and other financial devices where the Commission

4 determines such devices would allow an insurer otherwise

5 in hazardous financial condition to continue to transact

6 business to the detriment of consumers.

7 SEC. 219. STATE INSURANCE DEPARTMENT RESOURCES.

8 The Commission shall prescribe standards for the

9 adequacy of resources for State insurance departments. In

10 prescribing such standards the Commission shall consider

11 a variety of factors including, but not limited to, the fol12 lowing:

13 (1) The number of insurers domiciled in the

14 State.

15 (2) The annual amount of premiums collected

16 by insurers licensed in the State.

17 (3) The number of examiners necessary to ade18 quately regulate.

19 (4) The number of qualified actuaries necessary

20 to adequately regulate.

21 (5) The number of consumer complaints and in22 quiries received by the department.

23 (6) The adequacy of any other resource nec24 essary to effectively regulate insurance in the State.
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1 SEC. 220. OTHER STANDARDS.

2 The Commission shall establish such other require3 ments as it deems necessary to ensure the effective regula4 tion of insurance by the States.

5 SEC. 221. INSURANCE ADVISORY COMMITTEE.

6 (a) ESTABLISHMENT OF COMMITTEE.—There is es7 tablished the Insurance Advisory Committee (hereinafter

8 referred to as the ‘‘Advisory Committee’’).

9 (b) MEMBERSHIP.—(1) The Advisory Committee

10 shall consist of 13 members as follows:

11 (A) Secretary of Commerce.

12 (B) Secretary of the Treasury.

13 (C) Director of the Office of Reinsurance Regu14 lation (established by section 302 of this Act).

15 (D) Two members appointed by the Chairman

16 of the Commission from the members of the Com17 mission.

18 (E) Five members appointed by the Chairman

19 of the Commission from among State insurance reg20 ulators.

21 (F) Two members appointed by the Chairman

22 of the Commission, with a demonstrated understand23 ing of insurance and reinsurance regulation, and of

24 whom, one shall be an insurance broker and one a

25 commercial risk manager.
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1 (G) One member appointed by the Chairman of

2 the Commission who shall be a consumer representa3 tive.

4 (2) Members of the Advisory Committee designated

5 by clauses (A), (B), and (C) shall serve ex officio.

6 (3) The Chairman of the Commission shall designate

7 a chairman and a vice chairman of the Advisory Commit8 tee from among the members thereof.

9 (c) FUNCTIONS.—It shall be the function of the Advi10 sory Committee to—

11 (1) investigate and study issues and problems

12 relating to the Federal regulation of insurance and

13 reinsurance;

14 (2) evaluate the advisability of proposals with

15 respect to such issues and problems;

16 (3) investigate the role and impact of insurance

17 and reinsurance and the insurance and reinsurance

18 markets on interstate and international commerce

19 and regulation; and

20 (4) prepare and submit to the President, the

21 Congress, and the Commission their findings and

22 any recommendations for legislative or administra23 tive action.

24 (d) TERM.—Members of the Advisory Committee,

25 other than those serving ex officio, shall be appointed for
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1 a period of 5 years. No person who is appointed while a

2 full-time employee of a State or the Federal Government

3 shall serve in such position after he ceases to be so em4 ployed.

5 (e) QUORUM.—Five members of the Advisory Com6 mittee shall constitute a quorum, but a lesser number may

7 conduct meetings.

8 (f) MEETINGS.—The first meeting of the Advisory

9 Committee shall be called by the Chairman of the Commis10 sion and shall be held within 90 days after the date of

11 enactment of this title. The Advisory Committee shall

12 meet at such times and places as it or the Commission

13 may fix and determine, but shall hold at least 4 regularly

14 scheduled meetings a year. Special meetings may be held

15 at the call of the Chairman or any 3 members of the Advi16 sory Committee, or at the call of the Commission. The

17 Chairman shall preside at all meetings, and the Vice

18 Chairman shall preside in the absence or disability of the

19 Chairman. In the absence of both the Chairman and the

20 Vice Chairman, the Director may appoint any member to

21 act as Chairman pro tempore.

22 (g) VACANCY.—A vacancy on the Advisory Commit23 tee resulting from the death or resignation of a member

24 shall not affect its powers and shall be filled in the same

25 manner in which the original appointment was made.
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1 (h) PAY.—

2 (1) NONGOVERNMENT EMPLOYEES.—Each

3 member of the Advisory Committee who is not other4 wise employed by the Federal Government or State

5 government shall be entitled to receive the daily

6 equivalent of the annual rate of basic pay payable

7 for level IV of the Executive Schedule under section

8 5315 of title 5, United States Code, for each day

9 (including travel time) during which he or she is en10 gaged in the actual performance of duties as a mem11 ber of the Advisory Committee.

12 (2) GOVERNMENT EMPLOYEES.—A member of

13 the Advisory Committee who is an officer or em14 ployee of the Federal Government or State govern15 ment shall serve without additional compensation.

16 (3) TRAVEL.—Members of the Advisory Com17 mittee shall be reimbursed for travel, subsistence,

18 and other necessary expenses incurred by them in

19 the performance of their duties.

20 (i) POWERS OF THE ADVISORY COMMITTEE.—

21 (1) HEARINGS AND MEETINGS.—The Advisory

22 Committee or, on authorization of the Advisory

23 Committee, a member of the Advisory Committee,

24 may hold such hearings, at such time and places,

25 take such testimony, and receive such evidence, as
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1 the Advisory Committee considers appropriate. The

2 Advisory Committee or a member of the Advisory

3 Committee may administer oaths or affirmations to

4 witnesses appearing before it.

5 (2) FACILITIES AND SUPPORT SERVICES.—The

6 Administrator of General Services shall provide to

7 the Advisory Committee on a reimbursable basis

8 such facilities and support services as the Advisory

9 Committee may request. Upon request of the Advi10 sory Committee, the head of a Federal department

11 or agency may make any of the facilities or services

12 of the agency available to the Advisory Committee to

13 assist the Advisory Committee in carrying out its

14 duties under this title.

15 (3) MAILS.—The Advisory Committee may use

16 the United States mails in the same manner and

17 under the same conditions as other Federal depart18 ments and agencies of the United States.

19 (4) EXPERTS AND CONSULTANTS.—The Advi20 sory Committee may procure temporary and inter21 mittent services of experts and consultants under

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

23 (j) WRITTEN REPORT.—The Advisory Committee

24 shall submit to the Congress and the President, a yearly

25 written report. The report shall contain a detailed state-
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1 ment of the findings and conclusions of the Advisory Com2 mittee, together with its recommendations for such legisla3 tive (including tax legislation) and administrative action

4 as it considers appropriate. The first report shall be due

5 not later than 6 months after the date of enactment of

6 this title. All subsequent reports shall be due on January

7 1, of each year.

8 (k) TERMINATION.—The Advisory Committee shall

9 cease to exist on a date that is 5 years after the date of

10 enactment of this title unless otherwise extended by Con11 gress.

12 TITLE III—REINSURANCE

13 SEC. 301. COMMISSION AUTHORITY.

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

15 authority to establish, by regulation, the standards and

16 procedures for granting a license to professional reinsurers

17 under section 308A and other reinsurers and insurers in

18 the business of providing reinsurance under section 308B

19 (collectively may be referred to as ‘‘reinsurers’’).

20 (b) RULES AND REGULATIONS.—The Commission

21 shall duly consider any proposals for rules and regulations

22 submitted by the Director of the Office of Reinsurance

23 Regulation and shall promulgate such rules and regula24 tions as it deems warranted.
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1 (c) ANNUAL REPORTS.—The Commission through

2 regulations shall require each holder of a license to con3 duct the business of reinsurance to submit an annual re4 port of its financial condition and an annual report on the

5 condition of any trust fund regulated under this Act.

6 (d) QUALIFIED FINANCIAL INSTITUTION.—The Com7 mission shall establish, by regulation, appropriate criteria

8 for becoming a qualified financial institution for purposes

9 of the establishment of a trust fund under section

10 308B(c). Foreign banks with a United States presence

11 may apply for acceptance.

12 (e) NATIONAL SOLVENCY STANDARDS.—The Com13 mission shall establish national standards for the financial

14 soundness and solvency of all insurers or reinsurers that

15 seek a reinsurance license under this title.

16 (f) CERTIFICATE OF SOLVENCY.—The Commission is

17 authorized to issue a Federal certificate of solvency to an

18 insurer or reinsurer pursuant to the financial standards

19 and procedures adopted by the Commission if the Commis20 sion determines that the insurer or reinsurer meets such

21 standards.

22 SEC. 302. OFFICE OF REINSURANCE REGULATION.

23 (a) OFFICE.—There is hereby established within the

24 Insurance Regulatory Commission an Office of Reinsur-
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1 ance Regulation (hereinafter referred to as the ‘‘Reinsur2 ance Office’’).

3 (b) DIRECTOR.—

4 (1) APPOINTMENT.—The Chairman of the

5 Commission shall appoint and fix the compensation

6 of a Director of the Office of Reinsurance Regula7 tion (hereinafter referred to as the ‘‘Director’’) from

8 among individuals who—

9 (A) are citizens of the United States,

10 (B) have a demonstrated understanding of

11 financial institution management or oversight,

12 and

13 (C) have a demonstrated understanding of

14 the insurance and reinsurance industries, and

15 insurance and reinsurance regulation.

16 (2) LIMITATION.—An individual may not be ap17 pointed as Director if the individual has served as

18 an officer or director of a reinsurance company, or

19 as an officer or director of a reinsurance

20 intermediary management or brokerage company at

21 any time during the 2-year period preceding the

22 nomination of such individual for appointment.

23 (3) TERM.—The Director shall be appointed for

24 a term of 5 years.
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1 (4) VACANCY.—A vacancy in the position of Di2 rector shall be filled in the same manner as the

3 original appointment was made under subsection (b)

4 of this section.

5 (5) SERVICE AFTER THE END OF THE TERM.—

6 A Director may serve after the expiration of the

7 term for which the Director was appointed until a

8 successor has been appointed.

9 SEC. 303. PERSONNEL.

10 (a) DEPUTY DIRECTOR.—

11 (1) IN GENERAL.—The Reinsurance Office shall

12 have a Deputy Director who shall be appointed, and

13 whose compensation shall be fixed, by the Commis14 sion from among individuals who—

15 (A) are citizens of the United States,

16 (B) have a demonstrated understanding of

17 financial institution management or oversight,

18 and

19 (C) have a demonstrated understanding of

20 the insurance and reinsurance industries, and

21 insurance and reinsurance regulation.

22 (2) LIMITATION.—An individual may not be ap23 pointed as Deputy Director if the individual has

24 served as an officer or director of a reinsurance com25 pany, or as an officer or director of a reinsurance
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1 management or brokerage company at any time dur2 ing the 2-year period immediately preceding the ap3 pointment of such individual as Deputy Director.

4 (3) POWERS, FUNCTIONS, AND DUTIES.—The

5 Deputy Director shall—

6 (A) have such powers, functions, and du7 ties as the Director or Commission shall pre8 scribe, and

9 (B) serve as Acting Director in the event

10 of the death, resignation, sickness, or absence

11 of the Director, until the return of the Director

12 or the appointment of a successor.

13 (b) OTHER EMPLOYEES.—The Director, with the ap14 proval of the Commission, may appoint and fix the com15 pensation of employees and agents necessary to carry out

16 the functions of the Director and the reinsurance office.

17 (c) CONFLICT OF INTEREST.—The Director, the

18 Deputy Director, officers, and employees of the reinsur19 ance office shall not be financially interested, directly or

20 indirectly, in any reinsurance or insurance company, any

21 insurance or reinsurance management or brokerage com22 pany, or in any reinsurance or insurance transaction ex23 cept as a policyholder or claimant under a policy.

24 (d) OUTSIDE EXPERTS AND CONSULTANTS.—Not25 withstanding any provision of law limiting pay or com-
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1 pensation, the Director may, with the approval of the

2 Commission, appoint and compensate such outside experts

3 and consultants as the Director determines necessary to

4 assist the work of the Office.

5 SEC. 304. POWERS AND DUTIES OF DIRECTOR.

6 (a) DUTIES.—The Director shall administer the Re7 insurance Office and enforce the provisions of and execute

8 the duties imposed by this title and delegated by the

9 Commission. The Director shall also ensure that reinsur10 ers licensed under this Act are adequately capitalized and

11 operating safely in the United States.

12 (b) LICENSES.—When required, the Director shall

13 issue licenses to transact reinsurance business. The Direc14 tor may refuse to issue or may revoke such licenses pursu15 ant to the requirements of this Act. Such licenses shall

16 bear a seal of the Commission.

17 (c) INVESTIGATIONS.—The Director shall conduct

18 such examinations and investigations on reinsurance mat19 ters, as are required to determine whether a person has

20 violated any provision of this title or for the purpose of

21 securing information useful in the lawful administration

22 of any such provision.

23 (d) ADDITIONAL RULES AND REGULATIONS.—The

24 Director shall propose to the Commission any rules and
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1 regulations necessary for effectuating any provision of this

2 title.

3 (e) RECORDS.—The Director shall maintain records

4 of official transactions of the Reinsurance Office, examina5 tions, investigations and proceedings. Such records and re6 insurance filings shall be open to public inspections, except

7 as deemed necessary by the Director.

8 (f) REPORTS.—The Director shall annually prepare

9 a report for delivery to the Commission and the Congress

10 with respect to the work of the Reinsurance Office, rec11 ommendations for legislative or administrative action, pro12 posals for rules and regulations affecting reinsurance and

13 matters affecting the Reinsurance Office, and such other

14 pertinent information and matters as the Director deems

15 proper.

16 (g) WRONGFUL ACTS.—The Director shall refer to

17 the Commission any information concerning criminal or

18 tortious conduct, or breach of any contractual or fiduciary

19 obligation or any other wrongdoing by any officer, man20 ager, agent, broker, employee or other person related to

21 the reinsurer.

22 (h) REVOCATION OF LICENSES.—The Director may

23 suspend or revoke the license of any reinsurer which vio24 lates the provisions of this Act. In addition to, or in lieu

25 of suspension or revocation, the Director may fine any re-
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1 insurer which violates the provisions of this Act in an

2 amount not to exceed $100,000 per violation.

3 (i) RESEARCH.—The Director shall conduct research

4 and financial analysis of the reinsurance industry and any

5 other research and analysis deemed appropriate by the Di6 rector.

7 (j) HEARINGS.—The Director shall hold hearings

8 consistent with the requirements of subchapter II of chap9 ter 5 and chapter 7 of title 5, United States Code, for

10 any purpose deemed necessary and within the scope of this

11 Act.

12 (k) ASSESSMENTS.—The Director shall levy and col13 lect assessments and other fees imposed pursuant to this

14 Act.

15 SEC. 305. RULES AND REGULATIONS.

16 In addition to any other rules and regulations the

17 Commission deems necessary for the effective regulation

18 of reinsurance, the Commission shall promulgate rules and

19 regulations—

20 (1) requiring a license, issued by the Director,

21 to conduct the business of reinsurance in the United

22 States;

23 (2) establishing minimum levels of capital and

24 surplus necessary for reinsurers to transact busi25 ness;
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•S 1619 IS

1 (3) requiring, where appropriate, the establish2 ment of irrevocable trust accounts in qualified Unit3 ed States financial institutions adequate for the pay4 ment of the claims of their United States policy

5 holders and ceding insurers, their assigns and suc6 cessors in interest;

7 (4) requiring that all reinsurers agree to submit

8 to the jurisdiction and be bound by the final order

9 or judgment of any court of competent jurisdiction

10 in the United States;

11 (5) requiring the Director to review the busi12 ness plan of all reinsurers seeking a license to see

13 that the reinsurer’s methods of operation are reason14 able, prudent and do not present a threat to the

15 public;

16 (6)(i) defining standards for identifying reinsur17 ers found to be in such condition as to render the

18 continuance of their business hazardous to the pub19 lic, and (ii) defining the authority of the Reinsur20 ance Office to order a company to take necessary

21 corrective action or cease and desist certain practices

22 which, if not corrected, could place the company in

23 a hazardous financial condition;

24 (7) requiring compliance with regulations

25 adopted pursuant to section 201 of this Act;
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•S 1619 IS

1 (8) requiring that all directors and senior offi2 cers of a reinsurer possess appropriate qualifications

3 and good character;

4 (9) requiring a diversified investment portfolio;

5 (10) prescribing assets which may be admitted,

6 authorized or allowed as assets in the statutory fi7 nancial statement;

8 (11) restricting the credit that may be allowed

9 to licensed reinsurers, either as asset or as a reduc10 tion of liabilities for retrocessions reinsurers not li11 censed to do business in the United States; and

12 (12) prescribing disciplinary authority to be ex13 ercised by the Director.

14 SEC. 306. BUDGET AND FINANCIAL REPORTS.

15 (a) FINANCIAL OPERATING PLANS AND FORE16 CASTS.—Before the beginning of each fiscal year, the Di17 rector shall submit to the Commission a copy of the Rein18 surance Office’s financial operating plans and forecasts.

19 (b) REPORTS OF ADMINISTRATIVE OPERATIONS.—As

20 soon as practicable after the end of each fiscal year and

21 each quarter, the Director shall submit to the Commission

22 a copy of the report of the results of the operations of

23 the Office during such period.

24 (c) AUDITS.—
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•S 1619 IS

1 (1) IN GENERAL.—The Comptroller General of

2 the United States shall audit the operations of the

3 Reinsurance Office in accordance with generally ac4 cepted Government auditing standards. All books,

5 records, accounts, reports, files, and property be6 longing to or used by the Reinsurance Office shall

7 be made available to the Comptroller General.

8 (2) FREQUENCY.—Audits shall be conducted

9 annually for the first 2 years following the effective

10 date of the title and as appropriate thereafter.

11 SEC. 307. INFORMATION, RECORDS, AND MEETINGS.

12 For purposes of subchapter II of chapter 5 of title

13 5, United States Code, the Reinsurance Office and the

14 Commission shall, with respect to activities under this Act,

15 be considered agencies responsible for the regulation or

16 supervision of financial institutions.

17 SEC. 308. ANNUAL REPORT BY THE DIRECTOR.

18 Not later than June 15 of the calendar year next fol19 lowing the calendar year in which this Act is enacted, and

20 on or before June 15 of each year thereafter, the Director

21 shall submit to the Commission a written report which

22 shall include—

23 (1) a description of the actions taken, and being

24 undertaken, by the Director to carry out this Act;
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•S 1619 IS

1 (2) a description of the financial condition of

2 the reinsurance market, including the results and

3 conclusions of the annual examinations of reinsurers;

4 and

5 (3) an assessment of the extent to which rein6 surers are achieving their purpose of providing rein7 surance to the United States insurance market.

8 SEC. 308A. LICENSE OF PROFESSIONAL REINSURERS.

9 (a) IN GENERAL.—The Commission through the Di10 rector is authorized to license and otherwise regulate pro11 fessional reinsurers. A professional reinsurer shall be sub12 ject to regulation solely by the Commission as to the busi13 ness of reinsurance in the United States.

14 (b) ESTABLISHMENT OF STANDARDS.—The Commis15 sion in consultation with the Director shall, by regulation,

16 establish standards and procedures for the licensing and

17 regulation of professional reinsurers. Such standards shall

18 give due consideration to the public interest in providing

19 secure reinsurance capacity in the United States and to

20 the need for promptly collectible reinsurance recoverables.

21 (c) STANDARDS.—Licensing standards for profes22 sional reinsurers promulgated by the Commission under

23 subsection (b) shall include the following:

24 (1) Minimum net worth requirements, risk25 based or otherwise, appropriate to the nature of the
53

•S 1619 IS

1 reinsurance written by the different types and sizes

2 of reinsurers, except that the Commission shall set

3 the minimum at an amount not less than

4 $50,000,000 and shall establish additional net worth

5 requirements for appropriate categories of profes6 sional reinsurers based upon their operations, in7 cluding such factors as premium volume, volatility,

8 and loss development characteristics of the types of

9 reinsurance provided by such reinsurers. The Com10 mission shall adjust such minimum for inflation

11 every fifth year unless for good cause the Commis12 sion determines that it should be adjusted more fre13 quently.

14 (2) Appropriate standards for investments, re15 serves, and asset valuations relating to minimum net

16 worth, including percentage limitations for various

17 categories of investments; except that investments in

18 excess of minimum net worth and reserves shall be

19 subject to the prudent person standard.

20 (3) Limitations on the net amount of exposure

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

22 amount of net worth.

23 (4) Accounting standards and standards for re24 serve valuation that will promote strong and appro25 priate financial monitoring.
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•S 1619 IS

1 (5) Liquidity requirements appropriate to the

2 nature of the reinsurance written.

3 (6) Requirements for annual reports by inde4 pendent accountants of financial statements report5 ing financial condition and financial activities.

6 (7) Limitations and controls on the use of rein7 surance, and standards for ceding, reporting on, and

8 credit for such reinsurance.

9 (8) Requirements for certification of loss re10 serves by actuaries and reports of such certification.

11 (9) Disclosure of all subsidiary and affiliate re12 lationships and the identity of all persons which con13 trol the professional reinsurer.

14 (10) Regulation of financial transactions within

15 holding company systems.

16 (11) Procedures for initial and special examina17 tions and for the annual financial review of financial

18 statements.

19 (12) Regulations under which a foreign insurer

20 or reinsurer may establish a United States branch

21 which may become a certified professional reinsurer.

22 (13) Minimum security deposit requirements for

23 United States branches of foreign insurers or rein24 surers that apply to become professional reinsurers.
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•S 1619 IS

1 (14) Appointment of an agent in the United

2 States upon whom may be served any lawful process

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

4 behalf of any person in the United States, and an

5 agreement that, in the event such process may not

6 be served upon the appointed agent, process may be

7 served upon the Director.

8 (15) Agreement, by a foreign professional rein9 surer, to submit to the jurisdiction and be bound by

10 the final order or judgment of any court of com11 petent jurisdiction in the United States.

12 (16) Procedures for ongoing monitoring and en13 forcement of compliance with Commission standards.

14 (17) Minimum standards as to the qualifica15 tions of the management of professional reinsurers.

16 (18) Minimum standards governing the fidu17 ciary duties of officers and directors of professional

18 reinsurers.

19 (19) Submission of an outline of current and

20 projected operations in the United States dem21 onstrating that the methods of operation are reason22 able, prudent, and do not present an undue risk to

23 the public.
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•S 1619 IS

1 (20) Demonstration of sufficient data process2 ing capability and capacity to meet all data collec3 tion and reporting requirements of the Commission.

4 (21) Submission of biographical information,

5 which shall be updated annually, demonstrating that

6 all directors and senior officers possess sufficient ex7 perience and good character to manage business af8 fairs in a competent and trustworthy manner.

9 (22) Disclosure requirements, in addition to

10 those enumerated above, for information to be pro11 vided to the Director and the public.

12 (23) Such other standards as the Commission

13 determines to be necessary to evaluate and maintain

14 the sound financial condition of federally certified

15 professional reinsurers.

16 SEC. 308B. LICENSE FOR OTHER PROVIDERS OF REINSUR17 ANCE.

18 (a) IN GENERAL.—The Commission through the Di19 rector is authorized to issue a reinsurance license to insur20 ers and to any reinsurer that does not seek certification

21 as a professional reinsurer under section 308A.

22 (b) ESTABLISHMENT OF QUALIFICATIONS.—The

23 Commission shall establish, by regulation, standards and

24 procedures for licensing under this section.
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•S 1619 IS

1 (c) QUALIFICATIONS FOR CERTIFICATE.—To qualify

2 for a reinsurance license, an insurer or reinsurer must

3 meet one of the following 3 standards:

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

5 national standards established under this Act and

6 have a State license to transact the business of in7 surance or have a certificate of solvency issued by

8 the Commission under and either—

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

10 than a minimum set by the Commission

11 which—

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

13 (ii) shall establish additional net

14 worth requirements for appropriate cat15 egories of reinsurers based upon their op16 erations, including such factors as pre17 mium volume, volatility, and loss develop18 ment characteristics of the types of rein19 surance provided by such reinsurers; and

20 (iii) shall ensure that reinsurance obli21 gations will be met; or

22 (B) in the case of a financially sound ap23 plicant that does not meet the net worth dollar

24 standard of subparagraph (A), obtain a waiver

25 of this minimum dollar standard if the Commis-
58

•S 1619 IS

1 sion concludes that the applicant is sufficiently

2 financially sound, is able to pay its reinsurance

3 obligations, and has sufficient expertise to pro4 vide the type of reinsurance that it intends to

5 offer.

6 An applicant with a State license must have been

7 doing business in its State of domicile for at least

8 3 years unless the Commission for good cause

9 shown, pursuant to regulations, waives such 3-year

10 operating requirement. The Commission shall adjust

11 for inflation the minimum established in subpara12 graph (A) every fifth year unless the Commission

13 determines for good cause that it should be adjusted

14 more frequently.

15 (2) The insurer or reinsurer shall be authorized

16 by the law of its domiciliary jurisdiction to assume

17 reinsurance; demonstrate to the Director that it has

18 sufficient assets and management experience so that

19 it can operate safely in the United States reinsur20 ance market in a way that will protect the public in21 terest; and maintain a trust fund in a qualified fi22 nancial institution which includes a trusteed surplus

23 for the protection of United States ceding insurers

24 and which is—
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•S 1619 IS

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

2 less than its United States reinsurance liabil3 ities arising from reinsurance contracts entered

4 into after the date of enactment of this Act plus

5 $20,000,000;

6 (B) for an established group of individual

7 unincorporated underwriters regulated as a

8 group by its State or country of domicile, an

9 amount not less than the group’s United States

10 reinsurance liabilities arising from reinsurance

11 contracts entered into after the date of enact12 ment of this Act plus $100,000,000; or

13 (C) for a group of incorporated insurers

14 under common administration, and which has

15 continuously transacted an insurance or rein16 surance business outside the United States for

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

18 the group’s United States reinsurance liabilities

19 arising from reinsurance contracts entered into

20 after the date of enactment of this Act plus

21 $100,000,000.

22 The Commission shall require additional amounts to

23 be held in a trust established under this paragraph

24 as a condition for initial or continued license if the

25 Commission determines that such additional
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•S 1619 IS

1 amounts are required for the protection of United

2 States ceding insurers.

3 (3) The insurer or reinsurer shall be authorized

4 by the laws of its domiciliary jurisdiction to assume

5 reinsurance and demonstrate to the Director that it

6 has sufficient assets and management experience so

7 that it will operate safely in the United States rein8 surance market in a way that will protect the public

9 interest and in addition complies with the following:

10 (A) Holders of licenses will be required to

11 fund their obligations to United States ceding

12 insurers pursuant to subsection (e) for such

13 ceding insurers to be able to count such rein14 surance as an asset or deduction from liabilities

15 on the ceding insurer’s financial statements.

16 (B) In the event the Director determines

17 that the funding required by subsection (e) is

18 inadequate to protect United States ceding in19 surers, the Director may require, as a condition

20 for initial or continued license, additional secu21 rity requirements, including the establishment

22 of a United States trust fund for the exclusive

23 protection of United States ceding insurers.

24 The Commission may require such trust fund to

25 be in any amount that the Commission deter-
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•S 1619 IS

1 mines to be appropriate to protect United

2 States ceding insurers.

3 (d) REQUIREMENTS FOR A TRUST FUND UNDER

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

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

6 by the Commission and shall meet the following require7 ments for all new reinsurance provided after the date the

8 license to provide reinsurance was granted:

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

10 purpose of securing the payment of valid claims of

11 United States ceding insurers and their assigns and

12 successors in interest.

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

14 qualified financial institution in a form approved by

15 the Commission. The Commission shall establish ac16 ceptable criteria for assets held in trust, which shall

17 include cash, securities, bonds, commercial paper,

18 clean, irrevocable, unconditional, and automatically

19 renewable letters of credit issued by a qualified fi20 nancial institution, or any other appropriate assets,

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

22 market value of which can be readily ascertained

23 and which provide the stability necessary for ade24 quate protection of the trust beneficiaries.
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•S 1619 IS

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

2 financial institution the principal place of business of

3 which is outside the United States if the holder of

4 the license demonstrates that a beneficiary of the

5 trust can obtain immediate payment from a United

6 States branch, subsidiary, or representative office of

7 the institution.

8 (4) The trust instrument shall provide that

9 claims shall be paid with the concurrence of the

10 holder of the license or upon final order of any court

11 of competent jurisdiction in the United States. The

12 holder of the license may freely substitute and with13 draw assets in the trust so long as the value of the

14 assets maintained in the trust equals or exceeds the

15 amount set forth in paragraph (2) or (3) of sub16 section (c).

17 (5) The trustees of the trust shall report annu18 ally to the Director and to the insurance commis19 sioner of each ceding insurer’s State of domicile, in

20 writing, setting forth the balance of the trust, pro21 viding an actuary’s opinion as to the reasonableness

22 of the trust reserves, listing the trust’s investments

23 at the preceding year end, and certifying the date of

24 termination of the trust if so planned, or certifying

25 that the trust shall not expire as to new business
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•S 1619 IS

1 prior to the next following December 31. The trust

2 shall remain in effect as long as there are outstand3 ing obligations under the reinsurance agreements to

4 which the trust pertains.

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

6 the event the holder of the license is placed in super7 vision, rehabilitation, or liquidation, or its equivalent

8 by its State or country of domicile, or if the Director

9 determines, pursuant to regulations adopted by the

10 Commission, that the condition of the holder is such

11 that further transaction of business will be hazard12 ous to United States creditors or to the public, the

13 Director may take control of the trust.

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

15 and initial and special examination by the Director

16 in the same manner as the Director may examine

17 certified reinsurers.

18 (e) REQUIREMENTS FOR THE FORM OF FUNDING

19 UNDER SUBSECTION (c).—The funds required by sub20 section (c)(3) may be in the form of—

21 (1) cash under the control of the ceding in22 surer;

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

24 automatically renewable letter of credit issued by a
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•S 1619 IS

1 qualified financial institution and held by the ceding

2 insurer; or

3 (3) other funding acceptable to the Commission.

4 (f) PREVIOUS REINSURANCE OBLIGATIONS.—As a

5 pre-condition for obtaining a license to provide reinsurance

6 on the basis of meeting the requirements of paragraph (2)

7 or (3) of subsection (c), the applicant shall be required

8 to demonstrate to the Director that it has adequately se9 cured its reinsurance liabilities in existence at the time of

10 licensing. The adequacy of the funding of such previous

11 reinsurance liabilities shall be subject to the requirements

12 of this Act and shall be reviewed by the Director in deter13 mining the financial condition of the reinsurer in each an14 nual review.

15 (g) ADDITIONAL REQUIREMENTS FOR A FOREIGN

16 APPLICANT.—Any foreign insurer or reinsurer applying

17 under this section for a reinsurance license shall meet the

18 following additional requirements:

19 (1) Have been doing business in its country of

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

21 insurer or reinsurer which has been doing business

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

23 the Director, for good cause shown, pursuant to reg24 ulations, waives this 3-year operating requirement.
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•S 1619 IS

1 (2) File an annual financial statement with its

2 domiciliary regulator and have established satisfac3 tory evidence of good repute and financial integrity.

4 (3) File annually with the Director a copy of

5 the financial statement provided to its domiciliary

6 regulator (if appropriate, translated from its original

7 language) and a report showing the volume of writ8 ten premiums assumed from United States insurers

9 in the past year and such other information as the

10 Director, in its sole discretion, requires.

11 (4) File with the Director a list identifying its

12 officers and directors (or similar principals) along

13 with biographical information for each, and provide

14 an annual update of this information.

15 (5) Agree to allow the Director to examine its

16 books and records and to waive any protection it has

17 under any secrecy laws of its domiciliary jurisdiction,

18 except that such examinations will only take place

19 upon the Director’s showing of good cause for con20 cern about the financial soundness or solvency of the

21 subject entity.

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

23 whom may be served any lawful process in any ac24 tion, suit, or proceeding instituted by or on behalf

25 of a domestic ceding insurer, and agree that, in the
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•S 1619 IS

1 event such process may not be served upon the ap2 pointed agent, process may be served upon the Di3 rector.

4 (7) Submit to the jurisdiction of any United

5 States court of competent jurisdiction for the resolu6 tion of any dispute arising out of a reinsurance

7 agreement with a domestic ceding insurer or to re8 spond to any allegations or charges made against it

9 by any United States Government official or agency

10 except that this paragraph does not override any

11 contractual agreement of the parties to resolve dis12 putes between them pursuant to other procedures.

13 SEC. 308C. SUSPENSION AND REVOCATION OF FEDERAL LI14 CENSE TO PROVIDE REINSURANCE.

15 (a) IN GENERAL.—The Commission through the Di16 rector shall suspend or revoke the certificate of a profes17 sional reinsurer issued under section 308A or a reinsur18 ance certificate issued under section 308B at any time the

19 Director determines the standards for holding such license

20 are no longer satisfied. The Director shall provide the op21 portunity for a hearing on the record before making a de22 termination to suspend or revoke such certificate.

23 (b) NOTICE OF SUSPENSION OR REVOCATION.—

24 (1) The Director shall notify the State or coun25 try of domicile of a licensed professional reinsurer or
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•S 1619 IS

1 holder of a reinsurance license that the license has

2 been suspended or revoked. Such notification shall

3 be made at the earliest possible date.

4 (2) The holder of a license that is suspended or

5 revoked under subsection (a) shall immediately no6 tify all insurers and reinsurers from which it has ac7 cepted cessions of such suspension or revocation.

8 SEC. 308D. CREDIT FOR REINSURANCE.

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

10 State law to the contrary, any insurer certified by the Di11 rector or regulated for financial condition by a State may

12 count reinsurance as an asset or a deduction from its li13 abilities on its annual financial statement only if the pro14 vider of reinsurance, at the time such statement is filed—

15 (1) holds a Federal license as a professional re16 insurer under section 308A;

17 (2) holds a State insurance license or a Federal

18 certificate of solvency and is licensed pursuant to

19 section 308B(c)(1);

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

21 licensed pursuant to section 308B(c)(2); or

22 (4) is licensed pursuant to section 308B(c)(3)

23 and funds its obligations to ceding insurers and rein24 surers as required in section 308B(e).
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•S 1619 IS

1 (b) LIMITATION ON CREDIT.—With regard to a rein2 surer licensed pursuant to section 308B(c)(3), a ceding

3 insurer may count as an asset or deduction from liabilities

4 only that portion of the reinsurance which meets the

5 standards for funding under section 308B(e). Such ceding

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

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

8 or other collateral if such sources of security are not trans9 ferable to it when due.

10 (c) CREDIT PENDING CERTIFICATION.—A United

11 States insurer may take credit for reinsurance from a rein12 surer that does not hold a professional reinsurer license

13 issued pursuant to section 308A or a reinsurance license

14 issued pursuant to section 308B only if—

15 (1) the reinsurer submits to the Director a

16 complete application for a license within 30 days of

17 the coverage being placed;

18 (2) the reinsurer places all premiums in trust in

19 a qualified financial institution pending consider20 ation of its application, and provides evidence to the

21 Director that all premiums from United States

22 ceding insurers have been placed in such trust;

23 (3) the reinsurer funds any liabilities pursuant

24 to reinsurance assumed in a manner consistent with
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•S 1619 IS

1 the requirements of section 308B(e) and submits to

2 the Director proof of such funding;

3 (4) the reinsurance agreement expressly pro4 vides that it may be canceled from inception or at

5 any subsequent time at the request of the Director

6 if the provider’s application for a license is denied;

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

8 country of domicile to do an insurance business and

9 either has been doing business in its State or coun10 try of domicile for at least 3 years or is an affiliate

11 of an insurer which has been doing business in its

12 State or country of domicile for at least 3 years, ex13 cept that this 3-year operating requirement may be

14 waived by the Director for good cause pursuant to

15 regulations; and

16 (6) the ceding insurer has not, within the pre17 vious 3 years, taken a credit for reinsurance ceded

18 to the reinsurer pursuant to this subsection.

19 (d) PREEMPTION.—No State shall regulate credit for

20 reinsurance whether purchased by federally certified insur21 ers or insurers regulated for financial condition by a State.

22 The Commission through the Director shall have exclusive

23 jurisdiction to regulate such credit.
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•S 1619 IS

1 (e) EXCEPTIONS.—Notwithstanding any other provi2 sion of this section, a ceding insurer may count as an asset

3 or deduction from liabilities—

4 (1) reinsurance of risks located in jurisdictions

5 within or without the United States where such rein6 surance is required by applicable law of that juris7 diction;

8 (2) reinsurance ceded to a reinsurer which is li9 censed by one or more States and which is ceded

10 to—

11 (A) a member of the same holding com12 pany system as the ceding insurer; or

13 (B) an underwriting pool of which the

14 ceding insurer is a member;

15 (3) risks ceded to a pool authorized or per16 mitted by a statute, regulation, or policy of the

17 United States or under an arrangement approved by

18 the Federal or a State government;

19 (4) risks of a parent or affiliate ceded to a pool

20 or group captive insurer or reinsurer where the cap21 tive’s obligations are funded or collateralized as pro22 vided in subsection (d) or (e) of section 308B; or

23 (5) risks ceded to a risk retention group au24 thorized by and operating pursuant to the Liability

25 Risk Retention Act of 1986 (15 U.S.C. 3901 et seq.)
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•S 1619 IS

1 if the risk retention group’s obligations are funded

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

3 of section 308B.

4 (f) EFFECT OF LOSS OF LICENSE.—In the event that

5 the Director suspends or revokes a license issued pursuant

6 to this title or such license is lost for any other reason,

7 a ceding insurer may not count reinsurance as an asset

8 or a deduction from its liabilities on its annual financial

9 statement for any cessions made after the date the certifi10 cation ceases. For those cessions before the loss of license

11 under this Act—

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

13 an asset or deduction any funds withheld from such

14 reinsurer; and

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

16 as an asset or deduction any unfunded reinsurance

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

18 Director.

19 A ceding insurer affected by the suspension or revocation

20 of a license issued pursuant to this title shall immediately

21 notify the Director of this fact.

22 (g) EFFECTIVE DATE OF THIS SECTION.—This sec23 tion shall apply to cessions which take place 2 years after

24 the date of enactment of this Act.
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•S 1619 IS

1 SEC. 308E. RELATIONSHIP TO STATE LAW.

2 (a) PREEMPTION.—

3 (1) A professional reinsurer certified pursuant

4 to section 308A shall be exempt from the application

5 of any State law or regulation pertaining to the li6 censing or regulation of reinsurers or reinsurance

7 transactions.

8 (2) An insurer or reinsurer with a reinsurance

9 license issued pursuant to section 308B shall be sub10 ject to insurance regulation by a State, unless that

11 insurer or reinsurer has a Federal certificate of sol12 vency.

13 (3) Any insurer or reinsurer described in para14 graph (1) or (2) that maintains its corporate exist15 ence pursuant to State law shall be subject to appli16 cable State tax and corporate governance laws.

17 (b) NONDISCRIMINATION.—

18 (1) With respect to any State law requiring evi19 dence of insurance or of financial responsibility, re20 insurance contracts made by a professional reinsurer

21 licensed pursuant to section 308A or by the holder

22 of a reinsurance license issued pursuant to section

23 308B shall be accorded the same treatment as is ac24 corded to such contracts issued by insurers subject

25 to regulation for financial condition by that State.
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•S 1619 IS

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

2 issue, or refuse to renew any license, privilege, char3 ter, certificate, franchise, or any other right con4 ferred, guaranteed, or protected by law because an

5 insurer or reinsurer obtains or maintains a certifi6 cate to provide reinsurance from the Director. No

7 tax, fee, or assessment of any kind may be imposed

8 on an insurer or reinsurer certified by the Director

9 in any manner or on any basis different from that

10 applied to other insurers by that State. No corporate

11 charter or franchise issued to an insurer or reinsurer

12 licensed by the Director shall be rendered invalid or

13 subject to revocation, lapse, or forfeiture merely by

14 reason of the failure of an insurer or reinsurer li15 censed by the Director to obtain a license or certifi16 cate of authority issued by a State in addition to the

17 license issued by the Director.

18 SEC. 309. FINANCIAL REPORTS BY REINSURERS.

19 (a) IN GENERAL.—The Director shall conduct exami20 nations of reinsurers licensed under section 308A and in21 surers and reinsurers licensed under section 308B that

22 have a Federal solvency certificate. Each reinsurer shall

23 provide to the Director annual and, as deemed appropriate

24 by the Director, quarterly reports of its financial condition

25 and operations which shall be in such form, contain such
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•S 1619 IS

1 information, and be made on such dates, as the Director

2 may require.

3 (b) INSURERS OR REINSURERS REGULATED FOR FI4 NANCIAL CONDITION BY A STATE.—The State insurance

5 regulator shall conduct the examination of insurers or re6 insurers subject to State regulation for financial condition.

7 (c) CONTENTS OF ANNUAL REPORT.—Each annual

8 report shall include—

9 (1) financial statements;

10 (2) any supplemental information or alternative

11 presentation that the Director may require; and

12 (3) a report signed by the reinsurer’s chief ex13 ecutive officer and chief accounting or financial offi14 cer, that assesses, as of the reinsurer’s most recent

15 fiscal year—

16 (A) the effectiveness of the reinsurer’s in17 ternal audit control structure and procedures;

18 (B) the reinsurer’s compliance with des19 ignated safety and soundness laws and require20 ments; and

21 (C) any other information required by the

22 Director.

23 (d) FINANCIAL EXAMINATIONS.—The Commission

24 shall establish, by regulation, procedures for an effective

25 system of examining the activities, operations, financial
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•S 1619 IS

1 condition and affairs of insurers and reinsurers. The Di2 rector shall follow such procedures for reinsurers licensed

3 under section 308A and insurers or reinsurers licensed

4 under section 308B that have a Federal solvency certifi5 cate and State insurance regulators shall follow such pro6 cedures for the examination of insurers or reinsurers

7 under the regulator’s responsibility.

8 (e) ANNUAL INDEPENDENT AUDITS OF FINANCIAL

9 STATEMENTS.—

10 (1) AUDITS REQUIRED.—Each reinsurer shall

11 have an annual independent audit made of its finan12 cial statements by an independent certified public

13 accountant in accordance with accounting standards

14 determined by the Commission.

15 (2) SCOPE OF AUDIT.—In conducting an audit

16 under this subsection, an independent certified pub17 lic accountant shall determine and report on whether

18 the financial statements—

19 (A) are presented fairly in accordance with

20 accounting principles determined by the Com21 mission; and

22 (B) to the extent determined necessary by

23 the Director, comply with such other disclosure

24 requirements as may be imposed under sub25 section (b).
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•S 1619 IS

1 (f) REVIEW OF AUDITS.—At the request of the Direc2 tor and the Commission, the Comptroller General of the

3 United States, may review any audit of a financial state4 ment conducted under this section. Upon such request a

5 reinsurer and its auditors shall provide all books, ac6 counts, financial records, reports, files, workpapers, and

7 property that the Director or the Comptroller General con8 siders necessary to the performance of any review under

9 this subsection.

10 (g) CERTIFICATION OF ANNUAL AND QUARTERLY

11 REPORTS.—

12 (1) DECLARATION.—Annual and quarterly re13 ports shall contain a declaration by the chief execu14 tive officer of the reinsurer that the report is true

15 and correct to the best of his or her knowledge and

16 belief.

17 (2) ATTESTATION.—The correctness of the an18 nual and quarterly report shall be attested by the

19 signature of at least 3 of the directors or executive

20 officers of the reinsurer other than the officer mak21 ing the declaration required above. Such attestation

22 shall include a declaration that the report has been

23 examined by them and to the best of their knowledge

24 and belief is true and correct.
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1 (h) SPECIAL REPORTS.—The Director may require

2 special reports from a reinsurer, in such form and contain3 ing such information as the Director may prescribe, on

4 dates fixed by the Director, whenever in the Director’s

5 judgment, such reports are necessary for the Director to

6 carry out the purposes of this Act.

7 SEC. 309A. ACCOUNTING STANDARDS.

8 The financial statements of insurers and reinsurers

9 shall be prepared in conformity with accounting principles

10 determined by the Commission. Insurers and reinsurers

11 that obtain and maintain Federal certificates of solvency

12 or State insurance license on the basis of trust fund or

13 funding mechanisms shall prepare the financial state14 ments as to such trust funds or mechanisms in conformity

15 with these principles. The Commission may establish, by

16 regulation, additional disclosure requirements applicable

17 to reports required to be filed with it.

18 SEC. 310. EXAMINATIONS.

19 (a) IN GENERAL.—The Director shall conduct a full

20 scope examination of the affairs, transactions, accounts,

21 records and assets of each licensed reinsurer to assure the

22 solidity and proper functioning of the reinsurer. In addi23 tion, the Director may conduct an examination under this

24 section whenever the Director determines that an exam25 ination is necessary to determine the condition of the rein-
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1 surer for the purpose of ensuring its financial safety and

2 soundness.

3 (b) INITIAL APPLICATION AND EXAMINATION.— The

4 Director or State insurance regulator shall conduct an ini5 tial examination of every insurer or reinsurer that applies

6 for a Federal certificate of solvency or State insurance li7 cense to determine if the applicant satisfies the national

8 standards established under this Act.

9 (c) EXAMINATION OF HOLDING COMPANY, AFFILI10 ATES, AND SUBSIDIARIES.—In connection with examina11 tions of a reinsurer, examiners selected or approved by the

12 Director shall make such examinations of the affairs of

13 holding companies, and all affiliates and subsidiaries of

14 such reinsurer as shall be necessary to disclose fully the

15 relations between the reinsurer and its holding company,

16 affiliates or subsidiaries and the effect of such relations

17 upon the affairs of the reinsurer. The expense of examina18 tion of such holding company, affiliates, and subsidiaries

19 of any reinsurer shall be assessed against the reinsurer

20 and, when so assessed, shall be paid by the reinsurer. The

21 refusal to give any information requested in the course of

22 the examination, or to permit such examination, or to pay

23 any expense so assessed, is grounds for suspension or re24 fusal of, or nonrenewal of any license or authority held

25 by the reinsurer to engage in any business subject to the
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1 Director’s authority. Any such proceeding for suspension,

2 revocation or refusal of any license or authority shall be

3 conducted pursuant to a hearing.

4 (d) INFORMATION PROVIDED TO EXAMINER.—Each

5 reinsurer, its officers, directors, agents or other persons

6 from whom information is sought must provide to the ex7 aminers appointed under subsection (b) timely, convenient

8 and free access at all reasonable hours at its office to all

9 books, records, accounts, papers, documents and any or

10 all computer or other recordings relating to the property,

11 assets, business and affairs of the reinsurer being exam12 ined. The officers, directors, employees, agents of the rein13 surer and other persons from whom information is sought,

14 must facilitate the examination and aid in the examination

15 so far as it is in their power to do so. The refusal of any

16 reinsurer, by its officers, directors, employees, agent or

17 other persons, to submit to examination or to comply with

18 any reasonable written request of the examiners shall be

19 grounds for suspension or refusal of, or nonrenewal of any

20 license or authority held by the reinsurer to engage in any

21 business subject to the Director’s approval. Any such pro22 ceeding for suspension, revocation or refusal of any license

23 or authority shall be conducted pursuant to a hearing.

24 (e) EXAMINATION REPORT.—
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1 (1) FILING OF EXAMINATION REPORT.—No

2 later than 60 days following completion of an exam3 ination, the examiner in charge shall file with the

4 Director a verified written report of examination

5 under oath. Upon receipt of the verified report, the

6 Director shall transmit the report to the reinsurer

7 examined, together with notice which shall afford the

8 reinsurer examined, a reasonable opportunity of not

9 more than 30 days to make a written submission or

10 rebuttal with respect to any matters contained in the

11 examination report.

12 (2) ADOPTION OF REPORT ON EXAMINATION.—

13 Within 30 days of the end of the period allowed for

14 the receipt of written submissions or rebuttals, the

15 Director shall fully consider and review the report,

16 together with any written submissions or rebuttals

17 and any relevant portions of the examiner’s

18 workpapers and enter an order—

19 (A) adopting the examination report as

20 filed or with modification or corrections. If the

21 examination report reveals that the reinsurer is

22 operating in violation of any law, regulation, or

23 prior order of the Director, the Director may

24 refer such violation to the Commission, or order

25 the reinsurer to take any action the Director
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1 considers necessary and appropriate to cure

2 such violation; or

3 (B) rejecting the examination report with

4 directions to the examiners to reopen the exam5 ination for purposes of obtaining additional

6 data, documentation or information, and

7 refiling the report pursuant to paragraph (1) of

8 this subsection.

9 (f) LAW APPLICABLE TO EXAMINERS.—The Director

10 and each examiner shall have the same authority and each

11 examiner shall be subject to the same disclosures, prohibi12 tions, obligations, and penalties as are applicable to exam13 iners employed by the Federal Reserve banks.

14 (g) EXPENSES.—Each reinsurer shall pay to the Di15 rector the expense attendant to conducting the examina16 tion.

17 (h) TECHNICAL EXPERTS.—The Director may obtain

18 the services of any technical experts the Director considers

19 appropriate to provide temporary technical assistance re20 lating to an examination under this Act. The Director

21 shall describe, in the record of each examination, the na22 ture and extent of any such temporary technical assist23 ance.

24 (i) PRESERVATION OF RECORDS BY PHOTOG25 RAPHY.—
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1 (1) IN GENERAL.—The Director may cause any

2 record, paper, or document to be copied or photo3 graphed, in a manner that complies with the mini4 mum standards of quality approved for permanent

5 photographic records by the National Institute of

6 Standards and Technology.

7 (2) DEEMED AS ORIGINALS.—Such copies or

8 photographs shall be deemed to be an original record

9 for all purposes, including introduction in evidence

10 in all State and Federal courts or administrative

11 agencies.

12 (3) PRESERVATION.—Any such photograph or

13 copy shall be preserved as the Director shall pre14 scribe, and the original may be destroyed.

15 (j) PUBLICATION AND USE.—

16 (1) PUBLIC DISCLOSURE.—Upon the adoption

17 of the examination report under subsection (f), the

18 Director shall continue to hold the content of the ex19 amination report as private and confidential infor20 mation for a period of 60 days except to the extent

21 provided in paragraph (2) below. Thereafter, the Di22 rector may open the report for public inspection so

23 long as no court of competent jurisdiction has stayed

24 its publication.
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1 (2) DISCLOSURE FOR ENFORCEMENT PUR2 POSES.—Nothing in this Act shall prevent or be con3 strued as prohibiting the Director from disclosing

4 the content of an examination report, preliminary

5 examination report or results, of any matter relating

6 thereto, to a State insurance department, to the in7 surance department of another country, or to Fed8 eral or State law enforcement officials at any time,

9 as long as such agency or office receiving the report

10 or matters relating thereto agrees in writing to hold

11 it confidential and in a manner consistent with this

12 Act.

13 (3) DISCLOSURE TO CONGRESS.—This section

14 may not be construed to authorize the withholding

15 of any information from, or to prohibit the disclo16 sure of any information to, the Congress or any

17 committee or subcommittee thereof.

18 (k) IMMUNITY FROM LIABILITY.—

19 (1) THE DIRECTOR.—No cause of action shall

20 arise nor shall liability be imposed against the Direc21 tor, the Director’s authorized representatives or any

22 examiner appointed by the Director for any state23 ments made or conduct performed in good faith

24 while carrying out the provisions of this Act.
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1 (2) OTHER PERSONS.—No cause of action shall

2 arise, nor shall liability be imposed against any per3 son for the act of communicating or delivering infor4 mation or data to the Director or the Director’s au5 thorized representative or examiner pursuant to an

6 examination made under this Act, if such act of

7 communication or delivery was performed in good

8 faith and without fraudulent intent or the intent to

9 deceive.

10 SEC. 310A. ACTUARIES.

11 (a) REQUIREMENT TO USE QUALIFIED ACTUAR12 IES.—The Board of Directors of each insurer and rein13 surer shall appoint an actuary who is qualified to issue

14 an opinion on the reasonableness of the reserves of such

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

16 is a member in good standing of the American Academy

17 of Actuaries or someone who is otherwise qualified as de18 termined by the Commission. The Board of Directors of

19 the certified insurer or reinsurer shall notify the Director

20 or the State insurance regulator of the name of the ap21 pointed actuary at the time of the appointment and shall

22 notify the Director or such regulator within 10 days when

23 an appointed actuary is dismissed, resigns, or otherwise

24 leaves the position.
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1 SEC. 311. LIMITATION ON SUBSEQUENT EMPLOYMENT.

2 (a) IN GENERAL.—Neither the Director nor any

3 former officer or employee of the Office may accept com4 pensation from any reinsurer during the 2-year period be5 ginning on the date of separation from employment by the

6 Reinsurance Office.

7 (b) APPLICABILITY.—The limitation contained in

8 subsection (a) applies only to any former officer or em9 ployee who, while employed by the Office, was com10 pensated at a rate in excess of the lowest rate for a posi11 tion classified higher than GS–15 of the General Schedule

12 under section 5107 of title 5, United States Code.

13 SEC. 312. EXCHANGE OF INFORMATION.

14 At the request of the Director, State insurance de15 partments and other State authorities shall furnish the

16 Director with any records, reports, results of examination,

17 or other information in their possession relevant to mat18 ters under this Act.

19 SEC. 313. ARBITRATION CLAUSES.

20 In the event of any difference of opinion between the

21 reinsurer and the ceding insurer with respect to the inter22 pretation of an agreement or contract to transfer obliga23 tions or risks of contract of insurance, such disagreements

24 shall be resolved by arbitration under the Federal Arbitra25 tion Act.
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1 SEC. 314. REINSURANCE INTERMEDIARIES.

2 (a) REQUIREMENTS.—A reinsurer shall not engage

3 the services of any person, firm, association or corporation

4 to act as a reinsurance intermediary broker or manager,

5 either directly or indirectly, unless such intermediary is

6 licensed by the Director.

7 (b) INTERMEDIARY LICENSE.—

8 (1) IN GENERAL.—The Director may issue a re9 insurance intermediary’s license to any person, firm,

10 association or corporation who or which has com11 plied with the rules and regulations adopted by the

12 Commission.

13 (2) FIRMS OR ASSOCIATION.—Any such license

14 issued to a firm or association and any employees

15 designated to act as reinsurance intermediaries

16 under such license, shall be named in the application

17 and any supplements to the application.

18 (3) CORPORATIONS.—Any such license issued to

19 a corporation shall authorize all of the officers and

20 any designated employees and directors of the cor21 poration to act as reinsurance intermediaries on be22 half of such corporation, and all such persons shall

23 be named in the application and any supplements to

24 the application.

25 (c) WRITTEN APPLICATIONS.—
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1 (1) IN GENERAL.—Before a reinsurance

2 intermediary’s license shall be issued or renewed, the

3 prospective licensee shall properly file with the Di4 rector a written application that shall be in such

5 form or forms and supplements as the Director pre6 scribes, and pay a fee in an amount determined by

7 the Director.

8 (2) EXPIRATION.—Every reinsurance

9 intermediary’s license shall expire on the thirty-first

10 day of August next following the date of issue.

11 (3) RENEWALS.—If an application for renewal

12 has been filed with the Director before September 1

13 of the year of expiration, license sought to be re14 newed shall continue in full force and effect either

15 until the issuance by the Director of the renewal li16 cense applied for, or until five days after the Direc17 tor has refused to issue such renewal license and

18 given notice of such refusal to the applicant.

19 (4) REFUSAL TO RENEW.—Before refusing to

20 renew any such license, the Director shall notify the

21 applicant of the Director’s intention and shall give

22 such applicant an opportunity for a hearing.

23 (d) REFUSAL TO ISSUE A LICENSE.—The Director

24 may refuse to issue a reinsurance intermediary’s license

25 if, in his judgment, the applicant or any member, prin-
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1 cipal, officer or director of such applicant, is not trust2 worthy and competent to act as a reinsurance

3 intermediary, or that any controlling person of such appli4 cant is not trustworthy to act as a reinsurance

5 intermediary, or that any of the foregoing has given cause

6 for revocation or suspension of such license, or has failed

7 to comply with any prerequisite for the issuance of such

8 license.

9 (e) EXAMINATIONS.—A reinsurance intermediary

10 shall be subject to examination by the Director as often

11 as may be deemed necessary by the Director to assure

12 compliance with this section and any rules and regulations

13 promulgated under this title. The Director shall have ac14 cess to all books, accounts and records of the reinsurance

15 intermediary in a form usable to the Director.

16 (f) WRITTEN CONTRACT.—Transactions between a

17 reinsurance intermediary broker or manager and the rein18 surer it represents in such capacity shall only be entered

19 into pursuant to a written authorization, specifying the re20 sponsibilities of each party and shall be specifically ap21 proved by the reinsurer’s board of directors. At least 30

22 days before a reinsurer assumes or cedes business through

23 a reinsurance intermediary or broker, a copy of the ap24 proved contract shall be filed with the Director for ap25 proval.
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1 (g) FIDUCIARY RESPONSIBILITY.—Every reinsurance

2 intermediary acting as such shall be responsible, in a fidu3 ciary capacity, for all funds received or collected in such

4 capacity, and shall not, without the express consent of the

5 principals, mingle any such funds with the intermediary’s

6 own funds held by the intermediary in any other capacity.

7 SEC. 315. APPOINTMENT OF RECEIVERS.

8 (a) JURISDICTION.—The Director shall act as a re9 ceiver for a reinsurer licensed under section 308A and

10 those insurers or reinsurers licensed under section 308B

11 who have a Federal certificate for solvency (hereinafter re12 ferred collectively as ‘‘reinsurers’’), for purposes of reha13 bilitation and liquidation when appointed as a receiver in

14 proceedings instituted in accordance with the provisions

15 of this Act. The United States District Court courts shall

16 have exclusive jurisdiction of proceedings to appoint the

17 Director as receiver for a reinsurer.

18 (b) PETITION FOR APPOINTMENT.—

19 (1) THE FILING OF A PETITION.—A proceeding

20 to appoint the Director as receiver of a reinsurer

21 shall be commenced by the filing of a petition seek22 ing such appointment in the appropriate United

23 States district court for the district in which the re24 insurer has its principal office or domicile, or in the
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1 United States District Court for the District of Co2 lumbia.

3 (2) WHO MAY FILE.—A petition may be filed by

4 the Director.

5 (3) QUALIFICATIONS.—The receiver shall be—

6 (A) the Director or any person or other

7 governmental agency acting under the Direc8 tor’s authority; and

9 (B) any person acting under the Director’s

10 authority that—

11 (i) has no claim against, or financial

12 interest in, the reinsurer or other basis of

13 conflict of interest; and

14 (ii) has the financial and management

15 expertise necessary to direct the operations

16 and affairs of the reinsurer.

17 (c) JUDICIAL REVIEW.—

18 (1) TIMING AND JURISDICTION.—A reinsurer

19 for which a receiver is appointed may bring an ac20 tion in the United States district court, in the dis21 trict in which the court ordered the appointment of

22 a receiver, for an order requiring the Director to ter23 minate the appointment of the receiver. The court,

24 upon the merits, may dismiss such action, or may

25 direct the Director to terminate the appointment of
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1 the receiver. Such an action may be commenced no

2 later than 20 days after the date in which the court

3 ordered an appointment of a receiver.

4 (2) CONSENSUAL APPOINTMENTS.—The ap5 pointment of a receiver under subsection (b) pursu6 ant to consent of the reinsurer shall not be subject

7 to judicial review under this subsection.

8 (3) STANDARD OF REVIEW.—A decision of the

9 Director to appoint a receiver may be set aside

10 under this subsection only if the court finds that the

11 decision was arbitrary, capricious, an abuse of dis12 cretion, or otherwise not in accordance with applica13 ble laws.

14 (4) LIMITATION ON JURISDICTION.—Except as

15 otherwise provided in this subsection, no court may

16 take any action regarding the removal of a receiver

17 or otherwise restrain or affect the exercise of powers

18 or functions of a receiver.

19 SEC. 316. ORDER APPOINTING RECEIVER.

20 (a) IN GENERAL.—An order appointing a receiver

21 shall specify whether the receiver is to act to rehabilitate

22 or to liquidate the reinsurer.

23 (b) REGULAR ACCOUNTING TO COURT.—The order

24 appointing the Director as receiver shall require regular

25 accounting to the court of the receiver’s administration of
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•S 1619 IS

1 the reinsurer’s assets including, but not limited to, a list2 ing of all funds received or disbursed by the receiver dur3 ing the period covered by the report. Accounting shall be

4 at such intervals as the court specifies in its order or by

5 rule, but no less frequently than every quarter.

6 (c) COPY OF REPORT TO STATE INSURANCE REGU7 LATOR.—A copy of the accounting reports shall be pro8 vided to the appropriate State insurance regulators in the

9 State where the reinsurer transacts any reinsurance busi10 ness.

11 SEC. 317. EFFECT OF ORDER.

12 (a) TRANSFER OF CONTROL.—The order appointing

13 the Director as receiver shall have the effect of imme14 diately transferring to the receiver the possession and con15 trol and the unconditional right to possession and control

16 of all the business, assets, contract and rights of action,

17 books, records, and affairs of the reinsurer, wherever lo18 cated.

19 (b) NO BREACH OF CONTRACT.—The entry of any

20 order appointing the Director as receiver shall not con21 stitute an anticipatory breach of any contract of the rein22 surer, nor provide grounds for revocation or cancellation

23 of any such contract other than by the receiver.

24 (c) RIGHTS AND LIABILITIES.—Upon issuance of the

25 order under subsection (a), the rights, and liabilities of
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1 the reinsurer and of its creditors, and all other persons

2 interested in its estate, shall be fixed as of the date of

3 entry of the order.

4 SEC. 318. JURISDICTION OVER PROPERTY OF REINSURER.

5 The filing of a petition under section 315 shall imme6 diately vest the district court with exclusive jurisdiction

7 over the reinsurer and its property wherever located and

8 over all parties to the proceedings by which the receiver

9 acquired the right to possession and control of the busi10 ness, assets and affairs of the reinsurer and shall suspend

11 the further jurisdiction of other courts and administrative

12 bodies with respect to such proceeding.

13 SEC. 319. EXAMINATIONS.

14 The Director may examine and supervise a reinsurer

15 in receivership during the period in which the reinsurer

16 continues to operate as a going concern.

17 SEC. 320. EXPENSES OF ESTABLISHING RECEIVERSHIP.

18 All expenses of the receiver or any person acting

19 under the receiver’s authority and direction in the taking

20 possession of the reinsurer and of conducting the proceed21 ings placing it in receivership, of obtaining the appoint22 ment of the Director as receiver, in the administration of

23 the receivership, and in the conduct of all proceedings re24 lated to it, shall be paid out of the funds or assets of the

25 reinsurer.
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1 SEC. 321. COMPENSATION OF RECEIVER AND EMPLOYEES.

2 A receiver and professional employees (other than

3 Federal employees) shall be compensated for activities

4 conducted as receiver. Compensation may not be provided

5 in amounts greater than the compensation paid to employ6 ees of the Federal Government for similar services.

7 SEC. 322. STANDING OF GUARANTY ASSOCIATIONS.

8 Any guaranty association shall have standing to ap9 pear in any court proceeding concerning the rehabilitation

10 or liquidation of a reinsurer if such association has paid

11 guaranty obligations for which it has not been reimbursed

12 or is or may become liable for as guarantor of obligations

13 of the reinsurer in rehabilitation or liquidation.

14 SEC. 323. APPLICABILITY OF RECEIVERSHIP TO FOREIGN

15 REINSURER.

16 The Director shall be appointed as receiver under this

17 Act for a foreign reinsurer or insurer licensed under sec18 tion 308A or 308B to the extent of its assets, operations,

19 and business in the United States. To the extent that such

20 assets are insufficient to cover claims against the foreign

21 reinsurer or insurer, the Director may bring an action in

22 the United States district court with jurisdiction over the

23 receivership to recover amounts due and owing.

24 SEC. 324. STAY OF ACTIONS.

25 (a) IN GENERAL.—The entry of an order appointing

26 the Director as receiver shall operate as a stay of the com-
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1 mencement or continuation of any action or proceeding in

2 any Federal or State court, or any administrative or other

3 proceeding, against the insolvent reinsurer or against an

4 insured of the insurer on a claim for which the reinsurer

5 may be liable, or against the Director as receiver, except

6 as provided in subsection (b).

7 (b) JUDICIAL RELIEF FROM STAY.—The district

8 court shall have power to grant relief from the stay pro9 vided in subsection (a) in such cases, and upon such

10 terms, as the court determines to be consistent with the

11 preservation of assets and the efficient administration of

12 the estate of the reinsurer. Such relief may be granted

13 upon the application of any party in interest, and may

14 be granted as to particular cases or as to classes of cases

15 as may be prescribed by the court’s order.

16 (c) ACTIONS BY THE RECEIVER.—Upon issuance of

17 an order appointing the Director as receiver, the Director

18 may within 2 years from such order, or such other longer

19 time as applicable law may permit, institute an action or

20 proceeding on behalf of the estate of the reinsurer upon

21 any cause of action against which the period of limitation

22 fixed by applicable law has not expired at the time of the

23 filing of the petition upon which such order is entered.

24 (d) STATUTE OF LIMITATIONS.—No statute of limi25 tations or defense of laches shall run with respect to any
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1 cause of action against a reinsurer between the filing of

2 a petition for receivership and the denial of the petition.

3 Any action against the reinsurer that might have been

4 commenced when the petition was filed may be commenced

5 within 60 days after the petition is denied.

6 SEC. 325. COOPERATION OF OFFICERS, OWNERS AND EM7 PLOYEES.

8 Any officer, manager, director, trustee, owner, em9 ployee or agent of any reinsurer, or any other person with

10 authority over or in charge of any segment of the reinsur11 er’s affairs including any person who exercises control di12 rectly or indirectly over activities of the reinsurer through

13 any holding company or other affiliate of the reinsurer,

14 shall cooperate with the receiver. For purposes of this sec15 tion, the term ‘‘cooperate’’ shall include, but shall not be

16 limited to, the following:

17 (1) To reply promptly in writing to any inquiry

18 from the receiver requesting such a reply.

19 (2) To make available to the receiver any books,

20 accounts, documents, or other records or information

21 or property of or pertaining to the reinsurer and in

22 the possession, custody or control of such persons.

23 SEC. 326. INJUNCTIONS AND ORDERS.

24 (a) IN GENERAL.—The United States District Court

25 upon application of the Director, as receiver, may grant
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1 injunctions and orders directed to any and all courts, per2 sons, and parties as necessary to confirm or secure such

3 stays of proceedings, or to extend any such stay upon a

4 showing by the Director that additional time is necessary

5 for it to participate completely in the further conduct of

6 the action or proceeding.

7 (b) TYPES OF INJUNCTIONS.—The Director, as re8 ceiver, may at any time apply for such restraining orders,

9 preliminary and permanent injunctions, and other orders

10 as may be deemed necessary and proper to prevent—

11 (1) the transaction of further business by or on

12 behalf of the reinsurer;

13 (2) the transfer of property by or on behalf of

14 the reinsurer;

15 (3) interference with the receiver or with a pro16 ceeding under this Act;

17 (4) waste of the reinsurer’s assets;

18 (5) dissipation and transfer of bank accounts of

19 the reinsurer;

20 (6) the institution or further prosecution of any

21 actions or proceedings against the reinsurer or the

22 receiver;

23 (7) the obtaining of preferences, judgments, at24 tachments, garnishments or liens against the rein25 surer, or its assets;
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1 (8) the levying of execution against the rein2 surer, or its assets;

3 (9) the making of any sale or deed for

4 nonpayment of taxes or assessments that would less5 en the value of the assets of the reinsurer;

6 (10) the withholding from the receiver of books,

7 accounts, documents, or other records relating to the

8 reinsurer; or

9 (11) any other threatened or contemplated ac10 tion that might lessen the value of the reinsurer’s

11 assets or prejudice the rights of creditors, sharehold12 ers, or the administration of any proceeding under

13 this title.

14 (c) BONDS OR OTHER SECURITY.—The court shall

15 not require the receiver to submit a bond or other security

16 as a condition of issuing an order under this section.

17 (d) PAYMENT OF CREDITORS.—The Director may re18 quire a receiver to set aside and make available for pay19 ment to creditors any amounts that the Director deter20 mines may safely be used for such purpose. All creditors

21 who are similarly situated shall be treated in a similar

22 manner.

23 SEC. 327. PENDING LITIGATION.

24 The Director shall take such action respecting all

25 pending litigation as it deems necessary in the interests
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1 of justice and for the protection of creditors and the pub2 lic.

3 SEC. 328. CONFLICTS OF INTEREST AND FINANCIAL DIS4 CLOSURE.

5 A receiver shall be subject to any laws and regula6 tions relating to conflicts of interest and financial disclo7 sure that apply to employees of the Office.

8 SEC. 329. PROCEEDING AGAINST CULPABLE PERSONS.

9 If it appears to the receiver that there has been crimi10 nal or tortious conduct, or breach of any contractual or

11 fiduciary obligation detrimental to the reinsurer by any

12 officer, manager, agent broker, employee or other person,

13 the receiver may refer such matter to the Commission.

14 SEC. 330. LIABILITY PROTECTION FOR RECEIVERS.

15 (a) FEDERAL AGENCIES AND EMPLOYEES.—In any

16 case in which a receiver appointed under this title is a

17 Federal agency or an officer or employee of the Federal

18 Government, the provisions of chapters 161 and 171 of

19 title 28, United States Code, shall apply with respect to

20 the liability of the receiver for acts or omissions performed

21 pursuant to and in the course of the duties and respon22 sibilities of the receivership.

23 (b) OTHER RECEIVERS.—In any case where the re24 ceiver is not a receiver described in subsection (a), the re25 ceiver shall not be personally liable for damages in tort
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1 or otherwise for acts or omissions performed pursuant to

2 and in the course of the duties and responsibilities of the

3 receivership, unless such acts or omissions constitute gross

4 negligence or any form of intentional tortious conduct or

5 criminal conduct.

6 (c) INDEMNIFICATION.—The Director, with the ap7 proval of the Commission, may indemnify the receiver on

8 such terms as the Commission considers appropriate.

9 SEC. 331. POWERS OF EXAMINATION; SUBPOENAS.

10 The Director may take depositions, subpoena wit11 nesses or documentary evidence, administer oaths and ex12 amine under oath any person being examined or relative

13 to the subject of any hearing or investigation. The sub14 poena shall be served in the same manner as if issued by

15 the Commission.

16 SEC. 332. GROUNDS FOR THE APPOINTMENT OF RECEIVER

17 FOR REHABILITATION.

18 (a) IN GENERAL.—The Director may, after providing

19 written notice under subsection (c), file a petition in a

20 United States District Court to be appointed a receiver

21 of a reinsurer for purposes of rehabilitation upon a deter22 mination in writing that—

23 (1) the reinsurer is not likely to pay its obliga24 tions in the normal course of business;
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1 (2) the reinsurer has incurred or is reasonably

2 likely to incur losses that would deplete substantially

3 all of its capital and is unlikely that the reinsurer

4 will replenish its capital within a reasonable period;

5 (3) the reinsurer has concealed or is concealing

6 books, papers, records, or assets of the reinsurer

7 that are material to the discharge of the Director’s

8 responsibilities under this subtitle, or has refused or

9 is refusing to submit such books, papers, records, or

10 information regarding the affairs of the reinsurer for

11 inspection to the Director upon request;

12 (4) the reinsurer has willfully violated, or is

13 willfully violating, a final cease-and-desist order;

14 (5) the reinsurer is in such condition that the

15 further transaction of business would be hazardous

16 financially to its creditors, or the public;

17 (6) there is reasonable cause to believe that

18 there has been embezzlement from the reinsurer,

19 wrongful sequestration or diversion of its assets, or

20 forgery, fraud affecting it or other illegal conduct in,

21 by, or with respect to it that if established would en22 danger assets in an amount threatening the solvency

23 of the reinsurer;

24 (7) without first obtaining the written consent

25 of the Director, the reinsurer has transferred, or at-
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1 tempted to transfer, in a manner in violation of any

2 solvency regulation or order of the Commission, sub3 stantially its entire property or business, or has en4 tered into any transaction the effect of which is to

5 merge, consolidate, or reinsure substantially its en6 tire property or business in or with the property or

7 business of any other person;

8 (8) the reinsurer has failed to file its annual re9 port or other financial report required by statute

10 within the time allowed by law and, after written de11 mand by the Director, has failed to give an adequate

12 explanation immediately;

13 (9) the reinsurer has neglected or refused to

14 comply with an order of the Director to cure within

15 the time prescribed by the Director any deficiency,

16 whenever its capital and minimum required surplus,

17 is below statutory requirements; and

18 (10) the reinsurer is found to be in such condi19 tion that it could not meet the requirements for or20 ganization and authorization as required by applica21 ble law.

22 (b) CONSENT OF THE REINSURER.—Notwithstand23 ing subsection (a), the Director may file a petition to be

24 appointed a receiver for a reinsurer, if a majority of the

25 members of its board of directors or a majority of its
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1 shareholders by an affirmative vote consent to such ap2 pointment.

3 (c) NOTICE.—Upon making a determination under

4 subsection (a) of this subsection to file a petition to be

5 appointed a receiver for a reinsurer, or upon consent of

6 the reinsurer under subsection (b) to such an appoint7 ment, the Director shall provide written notice to the rein8 surer—

9 (1) that the Director will seek to be appointed

10 as receiver for the reinsurer for purposes of rehabili11 tation; and

12 (2) stating the reasons for the appointment of

13 such receiver.

14 SEC. 333. REHABILITATION ORDERS.

15 An order to rehabilitate a reinsurer shall direct the

16 receiver forthwith to take possession of the assets of the

17 entity and to administer them under the general super18 vision of the United States District Court which ordered

19 the rehabilitation. The filing or recording of the order with

20 the clerk of the court or recorder of deeds of the county

21 in which the principal business of the insurer of reinsurer

22 is conducted, or the county in which its principal office

23 or place of business is located, shall impart the same no24 tice as a deed, bill of sale, or other evidence of title duly
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1 filed or recorded with the recorder of deeds would have

2 imparted.

3 SEC. 334. POWERS OF RECEIVER FOR PURPOSES OF REHA4 BILITATION.

5 (a) GENERAL POWERS.—A receiver shall have all the

6 powers of the shareholders, directors, and officers of the

7 reinsurer under receivership and may operate the rein8 surer in the name of the reinsurer. The receiver may take

9 such action as it deems necessary or appropriate to reform

10 and revitalize or rehabilitate the reinsurer. It shall have

11 full power to direct and manage, to hire and discharge

12 employees subject to any contract rights they may have,

13 and to deal with the property of the reinsurer.

14 (b) REORGANIZATION, CONSOLIDATION, MERGER

15 AND OTHER TRANSFORMATION.—If the receiver deter16 mines that reorganization, consolidation, merger, or other

17 transformation of the reinsurer is appropriate, it shall pre18 pare a plan to effect such changes. Upon application of

19 the receiver for approval of the plan, and after such notice

20 and hearings as the court may prescribe, the court may

21 either approve or disapprove the plan proposed, or may

22 modify it and approve it as modified. Any plan approved

23 under this section shall be, in the judgment of the court,

24 fair and equitable to all parties concerned. If the plan is

25 approved, the receiver shall carry out the plan.
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1 (c) ADDITIONAL POWER.—A receiver may avoid any

2 security interest taken by a creditor with the intent to

3 hinder, delay, or defraud the reinsurer.

4 (d) LIMITATIONS.—A receiver shall be subject to any

5 rules, regulations, and orders issued from time to time by

6 the Director and, except as otherwise specifically provided

7 in rules, regulations, or orders, shall have the same rights

8 and privileges and be subject to the same duties, restric9 tions, penalties, conditions, and limitations applicable to

10 directors, officers, or employees of the reinsurer.

11 (e) ENFORCEMENT OF CONTRACTS.—

12 (1) IN GENERAL.—A receiver may enforce any

13 contract described in paragraph (2), notwithstanding

14 any provision of the contract providing for the termi15 nation, default, acceleration or other exercise of

16 rights upon, or solely by reason of, the insolvency of

17 the reinsurer or the appointment of a receiver.

18 (2) ENFORCEABLE CONTRACTS.—Any contract

19 shall be enforceable under paragraph (1), if the re20 ceiver—

21 (A) determines that the continued enforce22 ability of the contract is necessary to achieve

23 the purpose of receivership; and

24 (B) specifically provides for the enforce25 ability of the contract in a regulation or order,
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1 issued for the purpose of this subsection, which

2 describes such contract.

3 (3) APPLICABILITY.—This subsection and any

4 regulation issued under this subsection shall apply

5 only to contracts entered into, modified, extended, or

6 renewed after the effective date of the regulation or

7 order.

8 SEC. 335. TERMINATION OF THE RECEIVERSHIP FOR REHA9 BILITATION.

10 (a) DISCRETIONARY.—At any time the receiver deter11 mines that termination of a receivership for purposes of

12 rehabilitation is in the public interest and may safely be

13 accomplished, the receiver may file a petition in United

14 States District Court to terminate the receivership and

15 permit the reinsurer to resume the transaction of business

16 subject to such terms, conditions and limitations as the

17 receiver may prescribe.

18 (b) TERMS.—Any terms, conditions, and limitations

19 imposed by the receiver upon termination of a receivership

20 shall be enforceable and reviewable.

21 (c) PETITION THE COURT.—

22 (1) The receiver or the board of directors of the

23 reinsurer may at any time petition the district court

24 for an order terminating the receivership for pur25 poses of rehabilitation on the grounds that the rein-
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1 surer may safely recommence the transaction of

2 business.

3 (2) If any such petition is denied, another such

4 petition shall not be made by the board of directors

5 of the reinsurer for at least 6 months. The district

6 court may order payment from the estate of the re7 insurer of the costs and other expenses of such peti8 tion.

9 (3) If the district court finds that rehabilitation

10 has been accomplished and that the reinsurer may

11 safely return to the transaction of the reinsurance

12 business under the control of its owners and direc13 tors, it shall order that the reinsurer and its owners

14 be restored to possession of its property and the con15 trol of the business.

16 SEC. 336. LIQUIDATION.

17 (a) ORDER.— Whenever the receiver believes further

18 efforts to rehabilitate the reinsurer would substantially in19 crease the risk of financial loss or would be futile, it may

20 petition the district court for an order of liquidation. The

21 district court shall permit the directors of the reinsurer

22 to take such actions as are reasonably necessary to defend

23 against the petition and may order the payment from the

24 estate of the reinsurer of such costs and other expenses

25 of defense as the court deems appropriate.
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1 (b) GROUNDS FOR LIQUIDATION.—The receiver may

2 petition the district court for an order directing it to liq3 uidate the reinsurer on the grounds—

4 (1) that the reinsurer is insolvent (and unable

5 to pay debts as they become due); or

6 (2) that the reinsurer is in such condition that

7 the further transaction of business would be hazard8 ous, financially or otherwise.

9 (c) RECEIVER.—A court order to liquidate the busi10 ness of the reinsurer shall appoint the Director as receiver

11 for liquidation.

12 SEC. 337. LIQUIDATION ORDERS.

13 (a) IN GENERAL.—The filing or recording of the

14 order of liquidation with the clerk of the court and the

15 recorder of deeds of the county in which the reinsurer’s

16 principal office or place of business is located, or, in the

17 case of real estate, with the recorder of deeds of the county

18 where the property is located, shall impart the same notice

19 as a deed, bill of sale, or other evidence of title duly filed

20 or recorded with that recorder of deeds would have im21 parted.

22 (b) FIXING OF RIGHTS AND LIABILITIES.—Upon is23 suance of the order, the rights and liabilities of the rein24 surer in liquidation and of its creditors, shareholders,

25 members, and all other persons interested in its estate
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1 shall become fixed as of the date of entry of the order

2 of liquidation.

3 (c) FOREIGN INSURER OR REINSURER.—An order to

4 liquidate the business of a foreign insurer or reinsurer

5 shall be in the same terms and have the same legal effect

6 as an order to liquidate an insurer or reinsurer licensed

7 in the United States, except that the assets, operations,

8 and business in the United States shall be the only assets,

9 operations, and business included in the order.

10 SEC. 338. POWERS OF THE DIRECTOR AS RECEIVER FOR

11 LIQUIDATION.

12 The Director as receiver shall have the power—

13 (1) to employ employees, agent, attorney, actu14 aries, accountant, appraisers, consultants and such

15 other personnel as it may deem necessary to conduct

16 the liquidation;

17 (2) to appoint, with the approval of the court,

18 an advisory committee of representatives of claim19 ants, creditors, and other persons or groups with

20 substantial interest in the liquidation proceeding, if

21 such committee be deemed necessary;

22 (3) to audit the books and records of the hold23 ing company (when applicable), affiliates, and all

24 agents of the reinsurer insofar as those records re25 late to the business activities of the reinsurer;
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1 (4) to collect all assets, debts and moneys due

2 and claims belonging to the reinsurer, wherever lo3 cated;

4 (5) to conduct public and private sales of the

5 property of the reinsurer;

6 (6) to continue to prosecute and to institute in

7 the name of the reinsurer or in its own name any

8 and all suits and other legal proceedings, and to

9 abandon the prosecution of claims it deems unprofit10 able to pursue further;

11 (7) to assert all defenses available to the rein12 surer as against third persons, including statutes of

13 limitation and statutes of fraud and the defense of

14 usury. A waiver of any defense by the reinsurer after

15 a petition for liquidation has been filed shall not

16 bind the Director;

17 (8) to promulgate rules and regulations with

18 the approval of the Commission regarding the allow19 ance or disallowance of claims and providing for ad20 ministrative determination of claims and review of

21 such determination;

22 (9) to acquire, encumber, lease, improve, sell,

23 transfer, abandon, or otherwise dispose of or deal

24 with, any property of the reinsurer at its market
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1 value or upon such terms and conditions as are fair

2 and reasonable;

3 (10) to execute, acknowledge, and deliver any

4 deed, assignment, release, and other instrument nec5 essary or proper to effectuate any sale of property

6 or other transaction in connection with the liquida7 tion;

8 (11) to hold hearings, to subpoena witnesses to

9 compel their attendance, to administer oaths, to ex10 amine any person under oath, and, in connection

11 therewith, to require the production of any books,

12 papers, records, or other documents which the re13 ceiver deems relevant to the liquidation;

14 (12) to remove any record and property of the

15 reinsurer to such place as may be convenient for the

16 purposes of efficient and orderly execution of the liq17 uidation;

18 (13) to prosecute any action or right of action

19 which may exist on behalf of the creditors, or share20 holders of the reinsurer against any of its officers or

21 any other person;

22 (14) to borrow money on the security of the re23 insurer’s assets or without security and to execute

24 and deliver all documents necessary to that trans25 action for the purpose of facilitating the liquidation.
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1 Any such funds borrowed may be repaid as an ad2 ministrative expense;

3 (15) to enter into such contracts as are nec4 essary to carry out the order to liquidate and to af5 firm or disavow any contract to which the reinsurer

6 is a party;

7 (16) to deposit in one or more banks such sums

8 as are required for meeting current administrative

9 expenses and dividend distributions;

10 (17) to invest all sums not currently needed;

11 (18) to file any necessary documents for record12 ing in the office of any recorder of deeds or record

13 office wherever property of the reinsurer is located;

14 (19) to exercise and enforce all the rights, rem15 edies, and powers of any creditor, shareholder, or

16 member, including any power to avoid any transfer

17 or lien that may be given by the law;

18 (20) to intervene in any proceeding wherever in19 stituted that may affect the reinsurer or its assets;

20 and

21 (21) to exercise all powers now held or here22 after conferred upon a receiver by the laws of the

23 United States.
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1 SEC. 339. DISSOLUTION OF REINSURER.

2 The receiver may petition for an order dissolving the

3 corporate existence of a reinsurer, or its United States

4 branch in the case of a foreign insurer or reinsurer, at

5 the time the receiver applies for a liquidation order. The

6 court shall order dissolution of the reinsurer upon petition

7 by the receiver upon or after the granting of a liquidation

8 order.

9 SEC. 340. OBLIGATION OF REINSURER.

10 In the event of a receivership, the reinsurance

11 recoverables due under any reinsurance contract shall be

12 payable by the reinsurer directly to the receiver. Subject

13 to the right of setoff and verification of coverage under

14 the relevant contract, the assuming reinsurer shall pay its

15 share of the loss at the time that the amount of the claim

16 is ultimately determined in the liquidation proceeding. The

17 receiver shall, within a reasonable time after the initiation

18 of the receivership, provide the assuming reinsurer with

19 claim information in accordance with the reinsurance con20 tracts. During the pendency of any such claim, the assum21 ing reinsurer may investigate the claim and, at its own

22 expense, interpose in the proceeding where the claim is

23 to be adjudicated any defenses which it may deem avail24 able to the ceding insurer or reinsurer, or its receiver. Ex25 penses of investigation and defense incurred by the assum26 ing reinsurer shall be chargeable against the ceding in-
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1 surer or reinsurer as part of the administrative expense

2 of liquidation, in proportion to the benefit accruing to the

3 ceding insurer or reinsurer solely as a result of the defense

4 undertaken by the assuming reinsurer. The reinsurance

5 proceeds shall be payable as provided in the agreement,

6 except when such assuming reinsurer has a valid contrac7 tual obligation to pay reinsurance proceeds to a party

8 other than the ceding insurer or reinsurer.

9 SEC. 341. REINSURER’S LIABILITY.

10 The amount recoverable by the receiver from a rein11 surer shall not be reduced as a result of delinquency pro12 ceedings regardless of any provision in the reinsurance

13 contract or other agreement. Payment made directly to an

14 insured or other creditor shall not diminish the reinsurer’s

15 obligation to such ceding insurer’s or reinsurer’s estate ex16 cept when such reinsurer has a valid contractual obligation

17 to pay reinsurance proceeds to a party other than the in18 surer or reinsurer.

19 SEC. 342. NOTICE TO CREDITORS AND OTHERS.

20 (a) NOTICE OF LIQUIDATION.—The Director shall

21 give or cause to be given notice of the liquidation order

22 as soon as possible—

23 (1) by first class mail and either by telegram or

24 telephone to the State Insurance Department of
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1 each jurisdiction in which the reinsurer is doing

2 business;

3 (2) by first class mail to all insurance agents or

4 brokers of the reinsurer;

5 (3) by first class mail to all persons known or

6 reasonably expected to have claims against the rein7 surer, at their last known address as indicated by

8 the records of the reinsurer; and

9 (4) by publication in a newspaper of general

10 circulation in such other locations as the receiver

11 deems appropriate.

12 (b) FILING CLAIMS.—Except as otherwise established

13 by the receiver with approval of the court, notice to poten14 tial claimants under this Act shall require claimants to

15 file with the receiver their claims together with proper

16 proof, by a date specified in the notice which shall be not

17 less than 90 days after the publication of such notice. All

18 claimants shall have a duty to keep the liquidator in19 formed of any changes of address.

20 SEC. 343. PROOF OF CLAIMS.

21 The Commission shall promulgate rules and regula22 tions regarding—

23 (1) the filing of claims;
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•S 1619 IS

1 (2) information that must be contained in a

2 proof of claim, including any written instruments or

3 other documents that support the claim;

4 (3) third-party claims;

5 (4) secured creditor’s claims;

6 (5) claims of surety; and

7 (6) disputed claims.

8 SEC. 344. PAYMENT OF CLAIMS.

9 (a) PAYMENT OF CLAIMS BY DIRECTOR.—In the case

10 of a liquidation of any insolvent reinsurer, payment of

11 claims against the reinsurer shall be made by the Director

12 as soon as possible, either by cash or any other means

13 determined by the rules and regulations promulgated by

14 the Commission.

15 (b) DISPUTED CLAIMS.—In the case of any disputed

16 claim relating to an reinsurer, the Director may resolve

17 such disputed claims in accordance with regulations pro18 mulgated by the Commission. If the Commission has not

19 promulgated procedures for resolving disputed claims, the

20 Director may require the final determination of a court

21 of competent jurisdiction before paying any such claims.

22 (c) JUDICIAL REVIEW OF FINAL DETERMINATION.—

23 Final determination made by the Director shall be

24 reviewable in accordance with chapter 7 of title 5, United

25 States Code (5 U.S.C. 701 et seq.), the United States
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1 Court of Appeals for the District of Columbia or the Court

2 of Appeals for the Federal Judicial Circuit where the dis3 trict court that ordered the liquidation is located. Any re4 quest for review of a final determination by the Director

5 shall be filed with the appropriate circuit court of appeals

6 not later than 60 days after such determination is ordered.

7 SEC. 345. DUTIES OF AGENTS AND INTERMEDIARIES.

8 Every person who receives notice that a reinsurer

9 which the person represents as an agent or intermediary

10 is the subject of a liquidation order shall within 30 days

11 of such notice provide to the Director the information in

12 the agency’s or intermediary’s records related to any con13 tract agreed to by the reinsurer through the agent.

14 SEC. 346. FRAUDULENT TRANSFERS.

15 (a) IN GENERAL.—Every transfer made and every

16 obligation incurred by a reinsurer within 3 years prior to

17 the filing of a successful petition for liquidation under this

18 Act is fraudulent as to then existing and future creditors

19 if made or incurred without fair consideration, or with ac20 tual intent to hinder, delay, or defraud either existing or

21 future creditors. A transfer made or an obligation incurred

22 by an insurer ordered to be liquidated under this Act,

23 which is fraudulent under this section, may be avoided by

24 the liquidator, except as to a person who in good faith

25 is a purchaser, lienor, or obligee for a present fair equiva-
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1 lent value, and except that any purchaser, lienor or obli2 gee, who in good faith has given a consideration less than

3 fair for such transfer, lien or obligation, may retain the

4 property, lien or obligation as security for repayment. The

5 court may, on due notice, order any such transfer or obli6 gation to be preserved for the benefit of the estate, and

7 in that event, the receiver shall succeed to and may enforce

8 the rights of the purchaser, lienor, or obligee.

9 (b) PERSONAL LIABILITY.—Every person receiving

10 any property from the reinsurer or any benefit thereof

11 which is a fraudulent transfer under this title shall be per12 sonally liable and shall be bound to account to the liquida13 tor.

14 (c) REGULATIONS BY COMMISSION.—The Commis15 sion shall promulgate such rules and regulations that are

16 necessary to implement this section.

17 SEC. 347. VOIDABLE PREFERENCES AND LIENS.

18 (a) IN GENERAL.—A preference is a transfer of any

19 of the property of a reinsurer to or for the benefit of a

20 creditor, for or on account of an antecedent debt, made

21 by the reinsurer within 1 year before the filing of a suc22 cessful petition for liquidation under this Act, the effect

23 of which transfer may be to enable the creditor to obtain

24 a greater percentage of his debt than another creditor of

25 the same class would receive. If a liquidation order is en-
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1 tered while the reinsurer is already subject to a receiver2 ship order, then such transfers shall be deemed pref3 erences if made within 1 year before the filing of the suc4 cessful petition for receivership, or within 2 years before

5 the filing of the successful petition for liquidation, which6 ever time is shorter.

7 (b) RECOVERY OF PROPERTY.—Where the preference

8 is voidable, the receiver may recover the property or, if

9 it has been converted, its value, from any person who has

10 received or converted the property; except where a bona

11 fide purchaser or lienor has given less than fair value, he

12 shall have a lien upon the property to the extent of the

13 consideration actually given by him. Where a preference

14 by way of lien or security title is voidable, the court may

15 on due notice order the lien or title to be preserved for

16 the benefit of the estate, in which even the lien or title

17 shall pass to the liquidator.

18 (c) REGULATIONS BY THE COMMISSION.—The Com19 mission shall promulgate rules and regulations specifying

20 the circumstances under which a preference may be

21 voided.

22 SEC. 348. SETOFFS.

23 (a) IN GENERAL.—Mutual debts or mutual credits,

24 whether arising out of one or more reinsurance or other

25 contracts between the reinsurer in receivership and an-
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1 other person shall be set off and the balance only shall

2 be allowed or paid.

3 (b) LIMITATIONS ON SETOFF.—No setoff shall be al4 lowed in favor of a person if—

5 (1) the circumstances creating the obligation of

6 the insurer or reinsurer in receivership occurred

7 after the effective date of the cancellation or termi8 nation of policies in effect at the time of the entry

9 of the receivership order;

10 (2) the obligation of the insurer or reinsurer to

11 the person was purchased by or transferred to the

12 person with the intent of its being used as a setoff;

13 (3) the obligation of the insurer or reinsurer is

14 owed to an affiliate of the person or to any other en15 tity or association other than the person;

16 (4) the obligation of the person is owed to an

17 affiliate of the insurer or reinsurer, or to any other

18 person;

19 (5) the obligation of the person is to pay an as20 sessment levied against the members or subscribers

21 of the insurer or reinsurer, or is to pay a balance

22 upon a subscription to the capital stock of the in23 surer or reinsurer, or is in any other way in the na24 ture of a capital contribution; or
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1 (6) the obligations between the person and the

2 insurer or reinsurer arise out of transactions where

3 either the person of the insurer or reinsurer has as4 sumed risks and obligations from the other party

5 and then has ceded back to that party substantially

6 the same risks and obligations.

7 (c) DEBTS DUE AND PAYABLE.—The receiver shall

8 provide persons claiming a setoff with the accounting

9 statements identifying debts which are due and payable.

10 Where a person owes amounts which are due and payable,

11 against which the person asserts setoff of mutual credits

12 which may become due and payable from the insurer or

13 reinsurer in receivership in the future, the person shall

14 promptly pay to the receiver the amounts due and payable.

15 The receiver shall promptly and fully refund, to the extent

16 of the person’s prior payments, any mutual credits that

17 become due and payable to the person by the insurer or

18 reinsurer in receivership.

19 SEC. 349. RECOVERY OF PREMIUMS OWED.

20 The Commission shall promulgate the rules and regu21 lations regarding the recovery of premiums owed to a rein22 surer that is being liquidated by the Director.

23 SEC. 350. PRIORITY OF DISTRIBUTION.

24 The priority of distribution of claims from the rein25 surer’s estate shall be in accordance with the order in
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1 which each class of claims is herein set forth. Every claim

2 in each class shall be paid in full or adequate funds re3 tained for such payment before the members of the next

4 class receive any payment. No subclasses shall be estab5 lished within any class. The order of distribution of claims

6 shall be:

7 (1) CLASS 1.—The costs and expenses of ad8 ministration during liquidation, including but not

9 limited to—

10 (A) the actual and necessary costs of pre11 serving or recovering the assets of the insurer;

12 (B) compensation for all authorized serv13 ices rendered in the liquidation, including rea14 sonable compensation to the receiver as ap15 proved by the court to cover the portion of the

16 total expenses of the receiver which are reason17 ably related to the conduct by it of the rehabili18 tation or liquidation of the reinsurer, without

19 provision for any profit to the receiver;

20 (C) any necessary filing fees;

21 (D) the fees and mileage payable to wit22 nesses; and

23 (E) reasonable attorney’s fees and other

24 professional services rendered in the rehabilita25 tion and liquidation.
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1 (2) CLASS 2.—Reasonable compensation to em2 ployees for services performed to the extent that

3 they do not exceed 2 months of monetary compensa4 tion and represent payment for services performed

5 within 1 year before the filing of the petition for liq6 uidation. Principal officers and directors shall not be

7 entitled to the benefit of this priority except as oth8 erwise approved by the receiver and the court. Such

9 priority shall be in lieu of any similar priority which

10 may be authorized by law as to wages or compensa11 tion of employees.

12 (3) CLASS 3.—All claims under reinsurance

13 contracts issued by the reinsurer, unearned pre14 miums and other premium refunds.

15 (4) CLASS 4.—Claims for any amount due an

16 assuming reinsurer or ceding insurer for sums due

17 under reinsurance contracts entered into with the re18 insurer in receivership.

19 (5) CLASS 5.—Claims for punitive or exemplary

20 damages and any claim for any amount due an in21 surer, insurance pool, or underwriting association as

22 subrogated recoveries, contribution, indemnification,

23 or otherwise. All other claims of general creditors

24 not falling within any other priority under this sec25 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, and premium refunds on assess7 able policies.

8 (8) CLASS 8.—The claims of stockholders or

9 other owners in their capacity as shareholders.

10 SEC. 351. UNCLAIMED AND WITHHELD FUNDS.

11 All unclaimed funds subject to distribution remaining

12 in the receiver’s possession at the time it applies to the

13 court for discharge including the amount distributable to

14 any creditor, shareholder, or other person who is unknown

15 or cannot be found, shall be paid into the court and dis16 posed of as under chapter 129 of title 28, United States

17 Code.

18 SEC. 352. TERMINATION OF PROCEEDINGS.

19 (a) BUSINESS CONCLUDED.—When all business re20 garding the liquidation of a reinsurer has been concluded,

21 the Director as receiver shall apply to the court for dis22 charge.

23 (b) PETITION TO REOPEN.—After the liquidation

24 proceeding has been terminated and the receiver dis25 charged, the Director or other interested party may at any
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1 time petition the district court to reopen the proceedings

2 for good cause, including the discovery of additional as3 sets. If the court is satisfied that there is justification for

4 reopening, it shall so order.

5 SEC. 353. CONSTRUCTION.

6 Nothing in this Act may be construed as being in con7 flict with any treaty or other international agreement to

8 which the United States is a party.

9 SEC. 354. LIMITATION ON TRANSACTION OF REINSURANCE.

10 No insurer or reinsurer shall transact the business

11 of reinsurance in the United States without complying

12 with the applicable provisions of this Act.

13 SEC. 355. PREEMPTION.

14 This Act is intended to preempt all State laws regu15 lating reinsurers.

16 SEC. 356. EXISTING LICENSES AND CONTRACTS.

17 (a) DISCLAIMER.—No provision of this title shall

18 apply with respect to the transaction of reinsurance until

19 2 years following the date of enactment.

20 (b) CONTRACTS.—No provision of this title shall be

21 deemed to modify or invalidate any contract lawfully in

22 force prior to 2 years following the date of enactment of

23 this title.
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1 SEC. 357. PROTECTION OF CONFIDENTIAL INFORMATION.

2 Section 1905 of title 18, United States Code, is

3 amended by inserting ‘‘a consultant to the Office of Rein4 surance Regulation’’ after ‘‘or agency thereof,’’.

5 TITLE IV—NATIONAL INSUR6 ANCE GUARANTY CORPORA7 TION

8 SEC. 401. ESTABLISHMENT OF THE CORPORATION.

9 (a) IN GENERAL.—There is hereby established a non10 profit Corporation to be known as the ‘‘National Insur11 ance Guaranty Corporation’’ (herein referred to as ‘‘the

12 Corporation’’) which shall be an instrumentality of the

13 United States.

14 (b) STATUS.—The Corporation shall be deemed to be

15 an agency of the United States for purposes of subchapter

16 II of chapter 5 and chapter 7 of title 5, United States

17 Code, when it is acting as a corporation. The Corporation

18 shall also be deemed to be an agency of the United States

19 when it is acting as a liquidator of an insolvent member

20 insurer.

21 (c) DUTIES.—The Corporation shall—

22 (1) provide a program for the payment of cov23 ered claims under certain life, health, and property

24 and casualty insurance policies, and any other insur25 ance policies deemed appropriate by the Board of

26 Directors;
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1 (2) assess the cost of such program among

2 member insurers;

3 (3) provide a uniform national system of admin4 istration for the liquidation of insolvent member in5 surers; and

6 (4) perform any other function authorized

7 under this title.

8 (d) GOVERNMENT ASSISTANCE.—The Corporation

9 shall receive no financial assistance, direct or indirect from

10 the United States except as provided by section 416 of

11 this title.

12 (e) AUDIT BY THE GENERAL ACCOUNTING OF13 FICE.—The financial transactions of the Corporation shall

14 be subject to audit by the General Accounting Office.

15 SEC. 402. DEFINITIONS.

16 As used in this title, the term:

17 (1) ‘‘Member insurer’’ or ‘‘insurer’’ means an

18 insurer which has an interstate insurance license.

19 (2) ‘‘State insurance regulator’’ means State

20 Insurance Department.

21 SEC. 403. BOARD OF DIRECTORS.

22 (a) MANAGEMENT.—The management of the Cor23 poration shall be vested in a Board of Directors consisting

24 of 7 members. The members shall be the 5 members of
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1 the Insurance Regulatory Commission, the Secretary of

2 the Treasury, and the Comptroller of the Currency.

3 (b) CHAIRPERSON.—The Chairperson of the Cor4 poration shall be the Chairperson of the Insurance Regu5 latory Commission.

6 (c) COMPENSATION AND EXPENSES.—Members of

7 the Board of Directors shall receive allowances in accord8 ance with subchapter I of chapter 57 of title 5, United

9 States Code, for necessary expenses of travel, lodging, and

10 subsistence incurred in attending meetings and other ac11 tivities of the Corporation, as set forth in the bylaws is12 sued by the Corporation. Members of the Board of Direc13 tors shall receive no additional pay by reason of service

14 on such Board.

15 (d) VACANCY.—In the event of a vacancy in the Of16 fice of the Comptroller of the Currency or the Office of

17 Secretary of the Treasury and pending the appointment

18 of a successor, or during the absence or disability of the

19 Comptroller of the Currency or the Secretary of the Treas20 ury, the Acting Comptroller of the Currency or the Acting

21 Secretary of the Treasury, as the case may be, shall be

22 a member of the Board of Directors.
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1 SEC. 404. DUTIES AND RESPONSIBILITIES OF THE BOARD.

2 (a) IN GENERAL.—The Board of Directors shall have

3 the following duties and responsibilities with respect to the

4 Corporation—

5 (1) to establish the overall policies, strategies,

6 and goals for the Corporation;

7 (2) to establish all rules, regulations, bylaws,

8 principles, procedures, and guidelines that may be

9 adopted or announced by the Corporation; and

10 (3) to establish such national advisory and re11 gional boards as the Board of Directors determines

12 to be appropriate.

13 (b) ESTABLISHMENT OF FUND ACCOUNTS AND

14 CLAIMS ACCOUNT.—The Board of Directors shall estab15 lish ‘‘guarantee fund accounts’’ (hereinafter referred to as

16 ‘‘fund accounts’’) for the principal lines of insurance of

17 life, health, property and casualty, and may establish with18 in those fund accounts, separate ‘‘claims accounts’’ for

19 each line of insurance to which this title applies. ‘‘Line

20 of insurance’’ for purposes of this section shall mean a

21 category of insurance to which premiums are allocated for

22 purposes of reporting on the form of annual financial

23 statement prescribed by the Insurance Regulatory Com24 mission. The Board of Directors may establish claim ac25 counts for such other lines of insurance as appropriate.
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1 (c) DIRECTORATES FOR FUND ACCOUNTS.—The

2 Board of Directors shall appoint separate directorates for

3 each fund account. Each directorate shall be responsible

4 for the administration of the fund account under its au5 thority. Each directorate shall consist of 5 members each

6 and shall serve for a term of 4 years. Each directorate

7 shall be compensated consistent with this Act.

8 (d) REVIEW OF THE DIRECTORATES.—The Board of

9 Directors shall—

10 (1) review the performance of each directorate

11 on a periodic basis including its work, management

12 activities and internal controls, and the performance

13 of the directorates relative to their approved budg14 ets; and

15 (2) require from each directorate any reports,

16 documents, and records it deems necessary to carry

17 out its oversight responsibilities.

18 (e) COVERED POLICIES AND CONTRACTS.—The

19 Board of Directors shall establish the type of insurance

20 policies and contracts that are covered under this title and

21 the limits on the amount of benefits available pursuant

22 to such coverage. Under no circumstances shall this title

23 apply to any portion of a claim which is not based on an

24 insurance policy or contract.
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1 (f) REINSURANCE.—The Board of Directors shall de2 termine to what extent, if any, reinsurance shall be cov3 ered under this title.

4 (g) ASSESSMENTS.—The Board of Directors shall es5 tablish the assessments that member insurers are required

6 to pay pursuant to section 408 of this title.

7 SEC. 405. NATIONAL INSURANCE GUARANTY FUND.

8 (a) ESTABLISHMENT OF FUND.—There is hereby es9 tablished a fund to be known as the National Insurance

10 Guaranty Fund (hereinafter referred as ‘‘the Fund’’)

11 which shall be used by the Corporation to carry out the

12 purposes of this title. The Fund shall consist of all pay13 ments made by member insurers pursuant to assessments

14 established by the Board of Directors under section

15 404(g), interest received on bank accounts or investments,

16 amounts recovered under title V of this Act, and any other

17 amounts consistent with this title.

18 (b) TREASURY DEPOSITS.—All amounts described in

19 paragraph (a) shall be deposited with the Treasurer of the

20 United States for the account of the Corporation and may

21 be expended by the Corporation to defray the expenses in22 curred in carrying out the provisions of this title and

23 title V.

24 (c) AVAILABILITY OF FUND.—Money in the Fund

25 shall be available upon requisition by the Corporation
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1 without fiscal year limitation, for making payments on

2 covered claims, for providing assistance and making ex3 penditures in connection with the Corporation’s liquida4 tion responsibilities in title V, and for such administrative

5 and other expenses incurred in carrying out the purposes

6 of this title as it may determine to be proper. Such moneys

7 shall be available for insolvencies which occur later than

8 2 years after the date of enactment of this Act.

9 (d) INVESTMENTS OF THE FUND.—The Board of Di10 rectors may authorize the Secretary of the Treasury to

11 invest and reinvest such portions of the Fund as the

12 Board may determine are not needed for current oper13 ations, in any interest-bearing securities of the United

14 States or in any securities guaranteed as to both principal

15 and interest by the United States or in bonds or other

16 obligations which are lawful investments for fiduciary,

17 trust and public funds of the United States, and the in18 come therefrom shall constitute a part of the Fund.

19 (e) COVERED CLAIMS.—Covered claims, including

20 the direct expenses of handling such covered claims, which

21 the Corporation pays or becomes obligated to pay by rea22 son of its guaranty obligations, shall be allocated to the

23 appropriate fund account, or where applicable, the appro24 priate claims account based upon rules and regulations

25 promulgated by the Board of Directors. Claims covered
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1 by this title shall not include any amount awarded as puni2 tive or exemplary damages, any amount sought as a return

3 of premium under any retrospective rating plan, or any

4 amount due any reinsurer, insurer, insurance pool, or un5 derwriting association as subrogation recoveries or other6 wise.

7 (f) AMOUNTS RECOVERED ON BEHALF OF FUND.—

8 Amounts recovered from any source as reimbursement,

9 subrogation, deferred assessments, or other recovery of

10 amounts previously paid out or incurred pursuant to the

11 Corporations’ guaranty obligations shall be credited to the

12 appropriate fund account, or where applicable, the appro13 priate claims account which has been charged with the

14 guaranteed claim.

15 SEC. 406. CORPORATE POWERS.

16 (a) CORPORATE BODY.—Upon the date of enactment

17 of this Act, the Corporation shall become a corporate body

18 and shall be an instrumentality of the United States, and

19 as such shall have power—

20 (1) to adopt, alter, and use a corporate seal;

21 (2) to have succession until dissolved by an Act

22 of Congress;

23 (3) to pay, as guarantor, claims against insol24 vent members to the extent and in the manner pro-
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1 vided by the rules and regulations promulgated by

2 the Corporation;

3 (4) to make contracts, to execute all instru4 ments necessary and appropriate in the exercise of

5 its power, to incur liabilities, and to do any and all

6 other acts and things as may be necessary or inci7 dental to the conduct of its business and the exercise

8 of all other rights and powers granted to the Cor9 poration by this Act;

10 (5) to make advances or other payments;

11 (6) to sue and be sued in its corporate capacity

12 in any court of competent jurisdiction;

13 (7) to appoint such officers, employees, attor14 neys, agents, adjusters, examiners, and other per15 sons as may be necessary for the performance of its

16 duties, to define their duties, fix their compensation,

17 require bonds of them and fix the penalty thereof,

18 and to dismiss such officers or employees;

19 (8) to conduct its business (including the carry20 ing on of operations and the maintenance of offices)

21 and to exercise all other rights and powers granted

22 to it by this Act in any State or other jurisdiction

23 without regard to any qualification, licensing or

24 other statute in such State or other jurisdiction;
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1 (9) to acquire, hold, lease, purchase, improve,

2 mortgage, maintain or dispose of at public or private

3 sale, real and personal property, and otherwise exer4 cise all the usual incidents of ownership of property

5 necessary and convenient to the operations of the

6 Corporation;

7 (10) to levy assessments upon member insurers

8 in the manner and to the extent provided by the

9 rules and regulations of the Corporation, to collect,

10 or enforce by legal proceedings, if necessary, the

11 payment of all assessment for which any insurer

12 may be liable under this title; to collect any other

13 obligation due to the Corporation or the Fund;

14 (11) to pay the administrative expenses of the

15 Corporation, and to provide the funds necessary to

16 discharge the Corporation’s liquidation obligations

17 under title V of this Act; and

18 (12) to use the United States mails in the same

19 manner and under the same conditions as other de20 partments and agencies of the United States.

21 (b) NATIONAL INSURANCE GUARANTY CORPORA22 TION.—No individual, association, partnership, or cor23 poration, other than the Corporation, shall hereafter use

24 the words ‘‘National Insurance Guaranty Corporation’’ or

25 any combination of such words, as the name or part there-
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1 of under which he or it shall do business. Any violation

2 of this subsection shall be punishable by a fine of not more

3 than $100,000 for each day during which such violation

4 is committed.

5 SEC. 407. MEMBERSHIP.

6 Member insurers of the Corporation shall be all insur7 ers with an interstate insurance license. The Board of Di8 rectors shall prescribe such additional qualifications for

9 membership as are appropriate for the protection of pol10 icyholders. Such additional qualifications shall be applica11 ble to members 2 years after the adoption of any such

12 additional qualification. Such additional qualification shall

13 be reasonably related to the enhancement of the financial

14 solidity of insurers and shall have uniform application.

15 SEC. 408. ASSESSMENTS.

16 (a) IN GENERAL.—All members of the Corporation

17 shall be subject to assessments to cover administrative

18 costs, guaranteed claims charged against the Fund, and

19 any other expense deemed appropriate under this title and

20 title V, as prescribed in the rules and regulations promul21 gated by the Corporation.

22 (b) RESERVE ACCOUNTS.—All member insurers shall

23 pay the assessments determined under section 404(g) of

24 this title and the moneys collected pursuant to such as-
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1 sessments shall be deposited in reserve accounts to be used

2 for the purposes outlined in subsection (a).

3 (c) DIRECT PREMIUMS, RISK-BASED ASSESS4 MENTS.—Such assessments shall be based on an insurer’s

5 direct premiums, risk-based premiums, or any other

6 standard determined by the Board of Directors.

7 (d) MEMBER LIABILITY.—A member insurer shall

8 have no liability, under any State law or State guaranty

9 fund, for any assessments for an insurance insolvency

10 which was not commenced on or before the date of enact11 ment of this Act. A member insurer shall remain liable,

12 notwithstanding its membership in the Corporation, for

13 any assessments for which it would have been liable under

14 any State law or State guaranty fund, for an insurance

15 insolvency which was commenced on or before the date

16 it became a member insurer of the Corporation.

17 SEC. 409. EXCHANGE OF INFORMATION.

18 At the request of the Corporation, State insurance

19 regulators and other State authorities shall furnish it with

20 any records, reports, results of examinations and inspec21 tions, orders, recommendations, or other information in

22 their possession relevant to the financial condition of a

23 member.
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1 SEC. 410. LIABILITY OF DIRECTORS AND OFFICERS OF THE

2 CORPORATION.

3 No director, officer, agent, or other representative of

4 the Corporation shall be individually liable to any person,

5 firm or corporation, including the Corporation for any act

6 or omission to act, or for any liability incurred or assumed,

7 on behalf of the Corporation. Any such liability so incurred

8 or assumed shall be collectible only out of the Fund.

9 SEC. 411. TAX EXEMPTION.

10 (a) CORPORATION EXEMPTED FROM TAXES.—The

11 Corporation, including its franchise, capital, reserves, sur12 plus, and its income, shall be exempt from all taxation

13 now or hereafter imposed by the United States, by any

14 Territory, dependency, or possession thereof, or by any

15 State, county, municipality, or local taxing authority, ex16 cept that any real property of the Corporation shall be

17 subject to State, Territorial, county, municipal or local

18 taxation to the same extent according to its value as other

19 real property is taxed.

20 (b) ACTING AS LIQUIDATOR.—When acting as a liq21 uidator, the following provisions shall apply:

22 (1) The Corporation including its franchise its

23 capital, reserves, surplus, and its income, shall be

24 exempt from all taxation imposed by any State,

25 county, municipally, or local taxing authority, except

26 that any real property of the Corporation shall be
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1 subject to State, territorial, county, municipal, or

2 local taxation to the same extent according to its

3 value as other real property is taxed.

4 (2) No property of the Corporation shall be

5 subject to levy, attachment, garnishment, fore6 closure, or sale without the consent of the Corpora7 tion, nor shall any involuntary lien attach to the

8 property of the Corporation.

9 SEC. 412. REPORTS BY THE CORPORATION.

10 (a) ANNUAL REPORTS.—The Corporation shall annu11 ally submit a full report of its operations, activities, budg12 et, receipts, and expenditures for the preceding 12-month

13 period. The report shall include, with respect to the Fund,

14 an analysis by the Corporation of—

15 (1) the current financial condition of each fund

16 account;

17 (2) the purpose, effect, and estimated cost of

18 each resolution action taken for a member insurer

19 during the preceding year;

20 (3) the exposure of each fund account to

21 changes in those economic factors most likely to af22 fect the condition of the Fund;

23 (4) the current estimate of the resources needed

24 for the Fund to achieve the purpose of this Act; and
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1 (5) any findings, conclusions, and recommenda2 tions for legislative and administrative action consid3 ered appropriate in order for the Corporation to

4 handle future insurance insolvencies.

5 Such report shall be submitted to the Congress and the

6 President as soon as practicable after the first day of Jan7 uary each day.

8 (b) AUDITS BY THE COMPTROLLER GENERAL.—The

9 Comptroller General shall audit annually the financial

10 transactions of the Corporation and the Fund in accord11 ance with generally accepted government auditing stand12 ards. All books, records, accounts, reports, files and prop13 erty belonging to or used by the Corporation, the Fund,

14 or by an independent certified public accountant retained

15 to audit the Fund’s financial statements, shall be made

16 available to the Comptroller General.

17 (c) GAO AUDIT.—The financial transaction of the

18 Corporation shall be audited by the General Accounting

19 Office, at least once in every 3 years, in accordance with

20 the principles and procedures applicable to commercial

21 corporate transactions and under such rules and regula22 tions as may be prescribed by the Comptroller General of

23 the United States. The audit shall be conducted at the

24 place or places where accounts of the Corporation are nor25 mally kept. The representatives of the General Accounting
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1 Office shall have access to all books, account, records, re2 ports, files, and all other papers, things, or property be3 longing to or in use by the Corporation pertaining to its

4 financial transactions and necessary to facilitate the audit,

5 and they shall be afforded full facilities for verifying trans6 actions with the balances or securities held by depositories,

7 fiscal agents and custodians. All such books, accounts,

8 records, reports, files, papers, and property of the Cor9 poration shall remain in possession and custody of the

10 Corporation.

11 (d) REPORT OF AUDITS.—A report of each audit con12 ducted under this section shall be made by the Comptroller

13 General to the Congress not later than 6 months following

14 the close of the last year covered by such audit. The report

15 to the Congress shall set forth the scope of the audit and

16 shall include a statement of assets and liabilities and sur17 plus or deficit; a statement of sources and application of

18 funds and such comments and information as may be

19 deemed necessary to inform Congress of the financial op20 erations and conditions of the Corporation, together with

21 such recommendations with respect thereto as the Comp22 troller General may deem advisable. The report shall also

23 show specifically any program, expenditure, or other fi24 nancial transaction or undertaking observed in the course

25 of the audit, which in the opinion of the Comptroller Gen-
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1 eral has been carried on or made without authority of law.

2 A copy of each report shall be furnished to the President,

3 to the Secretary of the Treasury, Comptroller of the Cur4 rency and to the Corporation at the time submitted to

5 Congress.

6 (e) ASSISTANCE IN AUDITS.—For the purpose of con7 ducting such audit, the Comptroller General is authorized

8 to employ by contract, without regard to section 3709 of

9 the Revised Statutes (41 U.S.C. 5), professional services

10 of firms and organizations of certified public accounts,

11 with the concurrence of the Corporation, for temporary

12 periods or for special purposes. The Corporation shall re13 imburse the General Accounting Office for the cost of any

14 such audit as billed thereof by the Comptroller General,

15 and the General Accounting Office shall deposit the sums

16 so reimbursed into the Treasury as miscellaneous receipts.

17 The financial statements shall be examined by an inde18 pendent public accountant or firm of independent public

19 accountants, selected by the Corporation, and shall be ac20 companied by the report thereon of such accountant or

21 firm. The report shall be submitted to the Congress, and

22 to the State insurance regulators in each of the States,

23 and shall be made available for dissemination to the

24 public.
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1 SEC. 413. PREEMPTION.

2 No State shall assess an insurer with an interstate

3 insurance license for any insurer insolvency occurring 2

4 years after the date of enactment of this Act.

5 TITLE V—LIQUIDATION OF

6 MEMBER INSURERS

7 SEC. 501. CORPORATION AS LIQUIDATOR.

8 Notwithstanding any other provision of Federal law,

9 the law of any State, or the constitution of any State, the

10 Corporation shall act as receiver of a member insurer for

11 purposes of liquidation. The United States district courts

12 shall have exclusive jurisdiction over a proceeding to ap13 point the Corporation as liquidator of a member insurer

14 and, following such appointment, to supervise the liquida15 tion of such member in conformity with the provisions of

16 this title.

17 SEC. 502. DEFINITIONS.

18 For the purposes of this title:

19 (1) ‘‘Corporation’’ means the National Insur20 ance Guaranty Fund Corporation.

21 (2) ‘‘Claimant’’ means any insured making a

22 first party claim or any person instituting a liability

23 claim, provided that no person who is an affiliate of

24 the insolvent insurer may be a claimant.

25 (3) ‘‘The District Court’’ and ‘‘the Court’’

26 means the United States District Court which by
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1 order approves the transfer of the receivership of an

2 insurer to the Corporation for liquidation purposes

3 and which thereafter has general jurisdiction and

4 control over the receivership proceeding.

5 (4) ‘‘Creditor’’ is a person having any claim,

6 whether matured or unmatured, liquidated or unliq7 uidated, secured or unsecured, absolute, fixed or

8 contingent.

9 (5) ‘‘Insolvency’’ or ‘‘insolvent’’ means that an

10 insurer is unable to pay its obligations when they

11 are due, or that its admitted assets (as determined

12 under the laws and regulations of the State of domi13 cile) do not exceed its liabilities plus the greater of—

14 (A) any capital and surplus required by

15 law for its organization; or

16 (B) the total par or stated value of its au17 thorized capital stock.

18 For purposes of this title, liabilities shall include but

19 not be limited to reserves required by statute im20 posed by the State insurance regulator upon a sub21 ject company at the time of licensing or subsequent

22 thereto.

23 (6) ‘‘Liquidator’’ means the Corporation when

24 acting as receiver of an insurer in carrying out an
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1 order that the insurer’s assets, business and affairs

2 be liquidated.

3 (7) ‘‘Member Insurer’’ or ‘‘insurer’’ means an

4 insurer which has an interstate insurance license.

5 (8) ‘‘Receiver’’ means a person which has pos6 session and control, or the right to possession and

7 control, of the assets, business and affairs of an in8 surer pursuant to appointment by a court of com9 petent jurisdiction for the purpose of liquidating the

10 affairs of the insurer.

11 SEC. 503. PETITION FOR APPOINTMENT.

12 (a) FILING AND SERVICE OF PETITION.—A proceed13 ing to appoint the Corporation as liquidator of a member

14 insurer shall be commenced by the filing of a petition seek15 ing such appointment in a United States district court and

16 the service of a copy of the petition upon the Corporation.

17 (b) WHO MAY FILE.—A petition may be filed by a

18 State insurance regulator or a receiver acting under its

19 authority, either of which has the unconditional right to

20 possession and control of the business, assets and affairs

21 of the member insurer for purposes of conservation or re22 habilitation pursuant to an order of a court of competent

23 jurisdiction which has not been stayed or superseded.

24 (c) WHERE FILED.—The petition, if filed by a State

25 insurance regulator or a receiver acting under the author-
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1 ity of a State insurance regulator, shall be filed in the

2 United States District Court for the district in which the

3 member insurer has its principal office of domicile or in

4 which is located the court that issued the order referred

5 to in subsection (b).

6 (d) RESPONSE TO PETITION.—Within 10 days after

7 the service upon it of a petition under subsection (a) the

8 Corporation shall file and serve a response thereto, accept9 ing or rejecting the proposed appointment, stating the

10 ground or grounds of such rejection. The Corporation may

11 reject the proposed appointment only if the insurer was

12 not a member of the Corporation on the date the petition

13 was filed.

14 SEC. 504. ORDER APPOINTING CORPORATION LIQUIDATOR.

15 (a) IN GENERAL.—The Corporation shall accept the

16 appointment as receiver for purposes of liquidation of an

17 insolvent member insurer.

18 (b) REGULAR ACCOUNTING TO COURT.—The order

19 appointing the Corporation as receiver shall require regu20 lar accounting of the Corporation’s administration of the

21 insurer’s assets to the court. Accounting shall be at such

22 intervals as the court specifies in its order or by rule, but

23 no less frequently than semiannually. Copies of the ac24 counting shall be served upon the State insurance regu25 lators of the State of the insurer’s domicile and of each
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1 State in which it is or was licensed or transacted an insur2 ance business.

3 (c) CORPORATION NOT SUBJECT TO ANY OTHER AU4 THORITY.—When acting as a receiver pursuant to an ap5 pointment described in this title, the Corporation shall not

6 be subject to the direction or supervision of any other

7 agency or department of the United States or any State

8 in the exercise of the Corporations’ rights, powers, and

9 privileges.

10 SEC. 505. EFFECT OF ORDER.

11 (a) TITLE.—The Corporation shall hold and have

12 title to all of the assets, property, contracts and rights

13 of action, books, and records of the insurer, wherever lo14 cated. The State insurance regulator, the State receiver,

15 and any ancillary State receivers shall, upon demand by

16 the Corporation, promptly transfer all assets and records

17 to the insurer, or of their respective receiverships to the

18 Corporation.

19 (b) ENTRY OF ORDER.—The entry of an order ap20 pointing the Corporation as liquidator shall not constitute

21 an anticipatory breach of any contract of the insurer, nor

22 provide ground for revocation or cancellation of any such

23 contract other than by the Corporation as liquidator.

24 (c) RIGHTS AND LIABILITIES.—Upon issuance of the

25 order, the rights and liabilities of the insurer and of its
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1 creditors, and all other persons interested in its estate,

2 shall be fixed as of the date of entry of the order of liq3 uidation.

4 SEC. 506. JURISDICTION OVER PROPERTY OF INSURER.

5 The filing of a petition under section 503 shall imme6 diately vest the district court with exclusive jurisdiction

7 over the insurer and its property wherever located, and

8 over all parties to the proceedings by which the State in9 surance regulator or the receiver acting under its author10 ity, acquired the right to possession and control of the

11 business, assets and affairs of the insurer and shall sus12 pend the further jurisdiction of other courts and adminis13 trative bodies with respect to any such proceedings.

14 SEC. 507. STAY OF ACTIONS.

15 (a) IN GENERAL.—The entry of an order appointing

16 the Corporation as liquidator shall operate as a stay of

17 the commencement or continuation of any action or pro18 ceeding in any State or Federal court, or any administra19 tive or other proceeding, against the insolvent insurer or

20 against an insured of the insurer on a claim for which

21 the insurer may be liable, or against the Corporation as

22 liquidator, except as provided in subsection (b).

23 (b) JUDICIAL RELIEF FROM STAY.—The district

24 court shall have power to grant relief from the stay pro25 vided in subsection (a) in such cases, and upon such
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1 terms, as the court determines to be consistent with the

2 preservation of assets and the efficient administration of

3 the estate of the insurer. Such relief may be granted upon

4 the application of any party in interest, and may be grant5 ed as to particular cases or as to classes of cases as may

6 be prescribed by the court’s order.

7 (c) ACTIONS BY THE LIQUIDATORS.—Upon issuance

8 of an order appointing the Corporation as liquidator, the

9 Corporation may within 2 years from such order, or such

10 other longer time as applicable law may permit, institute

11 an action or proceeding on behalf of the estate of the in12 surer upon any cause of action against which the period

13 of limitation fixed by applicable law has not expired at

14 the time of the filing of the petition upon which such order

15 is entered.

16 (d) STATUTE OF LIMITATIONS.—No statute of limi17 tations or defense of laches shall run with respect to any

18 cause of action against an insurer between the filing of

19 a petition for liquidation and the denial of the petition.

20 Any action against the insurer that might have been com21 menced when the petition was filed may be commenced

22 within 60 days after the petition is denied.
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1 SEC. 508. COOPERATION OF OFFICERS, OWNERS AND

2 EMPLOYEES.

3 Any officer, manager, director, trustee, owner, em4 ployee or agent of any insurer, or any other person with

5 authority over or in charge of any segment of the insurer’s

6 affairs including any person who exercises control directly

7 or indirectly over activities of the insurer through any

8 holding company or other affiliate of the insurer, shall co9 operate with the Corporation. ‘‘Cooperate’’ shall include,

10 but shall not be limited to the following:

11 (1) To reply promptly in writing to any inquiry

12 from the Corporation requesting such a reply.

13 (2) To make available to the Corporation any

14 books, accounts, documents, or other records or in15 formation or property of or pertaining to the insurer

16 and in the possession, custody or control of such

17 persons.

18 SEC. 509. EVIDENCE OF WRONGDOING.

19 If there is reason to believe that there has been crimi20 nal or tortious conduct, or breach of any contractual or

21 fiduciary obligation detrimental to the insurer by any offi22 cer, manager, agent, broker, employee or other person, the

23 Corporation shall refer such matter to the Insurance Reg24 ulatory Commission and the appropriate State regulator

25 for handling.
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1 SEC. 510. CONTINUANCE OF COVERAGE.

2 The Corporation shall issue rules and regulations re3 garding the continuance of insurance coverage once an in4 surer has been ordered liquidated.

5 SEC. 511. POWERS OF THE CORPORATION AS LIQUIDATOR.

6 (a) POWERS.—The Corporation as liquidator shall

7 have the power—

8 (1) to employ employees, agent, attorney, actu9 aries, accountant, appraisers, consultants and such

10 other personnel as it may deem necessary to conduct

11 the liquidation;

12 (2) to appoint, with the approval of the court,

13 an advisory committee of representatives of policy

14 holders, claimants, creditors, and other persons or

15 groups with substantial interest in the liquidation

16 proceeding, if such committee be deemed necessary;

17 (3) to audit the books and records of all agents

18 of the insurer insofar as those records relate to the

19 business activities of the insurer;

20 (4) to collect all debts and moneys due and

21 claims belonging to the insurer, wherever located;

22 (5) to conduct public and private sales of the

23 property of the insurer;

24 (6) to continue to prosecute and to institute in

25 the name of the insurer or in its own name any and

26 all suits and other legal proceedings, and to abandon
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1 the prosecution of claims it deems unprofitable to

2 pursue further;

3 (7) to assert all defenses available to the in4 surer as against third persons, including statutes of

5 limitation and statutes of fraud; and

6 (8) to promulgate rules and regulations regard7 ing the allowance or disallowance of claims and pro8 viding for administrative determination of claims

9 and review of such determination.

10 (b) ADDITIONAL POWERS.—In addition to and not

11 in derogation of the powers conferred and duties imposed

12 by this title on the Corporation as receiver for purposes

13 of liquidation, the Corporation, to the extent not inconsist14 ent with such powers and duties shall have any other

15 power conferred on or any duty (which is related to the

16 exercise of such power) imposed on a receiver for any in17 solvent insurer under any other provision of law.

18 SEC. 512. NOTICE TO CREDITORS AND OTHERS.

19 (a) NOTICE OF LIQUIDATION.—The Corporation

20 shall give or cause to be given notice of the liquidation

21 order as soon as possible—

22 (1) by first class mail and either by telegram or

23 telephone to the Department of Insurance of each

24 jurisdiction in which the insurer is doing business;
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1 (2) by first class mail to all insurance agents of

2 the insurer;

3 (3) by first class mail to all persons known or

4 reasonably expected to have claims against the in5 surer including all policyholders, at their last known

6 address as indicated by the records of the insurer;

7 and

8 (4) by publication in a newspaper of general

9 circulation in the county in which the insurer has its

10 principal place of business and in such other loca11 tions as the Corporation deems appropriate.

12 (b) FILING CLAIMS.—Except as otherwise established

13 by the liquidator with approval of the Court, notice to po14 tential claimants under this title shall require claimants

15 to file with the liquidator their claims together with proper

16 proof, by a date specified in the notice which shall be not

17 less than 90 days after the publication of such notice. All

18 claimants shall have a duty to keep the liquidator in19 formed of any changes of address.

20 SEC. 513. PROOF OF CLAIMS.

21 (a) RULES AND REGULATIONS.—The Corporation

22 shall promulgate rules and regulations regarding—

23 (1) the filing of claims;

24 (2) information that must be contained in a

25 proof of claim;
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1 (3) third-party claims;

2 (4) secured Creditor’s claims;

3 (5) claims of surety; and

4 (6) disputed claims.

5 (b) ADDITIONAL RULES AND REGULATIONS.—The

6 Corporation shall promulgate any other such rules and

7 regulations it deems necessary regarding claims.

8 SEC. 514. PAYMENT OF CLAIMS.

9 (a) PAYMENT OF CLAIMS BY CORPORATION.—In the

10 case of a liquidation of any insolvent member insurer, pay11 ment of claims against the insolvent insurer shall be made

12 by the Corporation as soon as possible, either by cash or

13 by transferring the policy to a new insurer, or any other

14 means determined by the rules and regulations promul15 gated by the Corporation.

16 (b) DISPUTED CLAIMS.—In the case of any disputed

17 claim relating to an insolvent insurer, the Corporation

18 may resolve such disputed claims in accordance with regu19 lations promulgated by the Corporation. If the Corpora20 tion has not promulgated procedures for resolving dis21 puted claims, the Corporation may require the final deter22 mination of a court of competent jurisdiction before pay23 ing any such claims.

24 (c) JUDICIAL REVIEW OF FINAL DETERMINATION.—

25 Final determination made by the Corporation shall be
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1 reviewable in accordance with chapter 7 of title 5, United

2 States Code (5 U.S.C. 701 et seq.), the United States

3 Court of Appeals for the District of Columbia or the Court

4 of Appeals for the Federal Judicial Circuit where the dis5 trict court that ordered the liquidation is located. Any re6 quest for review of a final determination by the Corpora7 tion shall be filed with the appropriate Circuit Court of

8 Appeals not later than 60 days after such determination

9 is ordered.

10 SEC. 515. DUTIES OF AGENTS.

11 (a) IN GENERAL.—Every person who receives notice

12 that an insurer which the person represents as an agent

13 is the subject of a liquidation order shall within 30 days

14 of such notice provide to the Corporation the information

15 in the agency’s records related to any policy issued by the

16 insurer through the agent, and, if the agent is a general

17 agent, the information in the general agent’s records relat18 ed to any policy issued by the insurer through an agent

19 under contract to the general agent, including the name

20 and address of such subagent.

21 (b) REGULATIONS BY CORPORATION.—The Corpora22 tion shall promulgate rules and regulations defining an

23 agent and any other rule or regulation regarding the du24 ties of an agent as deemed necessary by the Board of Di25 rectors.
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1 SEC. 516. FRAUDULENT TRANSFERS.

2 (a) IN GENERAL.—Every transfer made and every

3 obligation incurred by an insurer within 3 years prior to

4 the filing of a successful petition for liquidation under this

5 title is fraudulent as to then existing and future creditors

6 if made or incurred without fair consideration, or with ac7 tual intent to hinder, delay, or defraud either existing or

8 future creditors. A transfer made or an obligation incurred

9 by an insurer ordered to be liquidated under this title,

10 which is fraudulent under this section, may be avoided by

11 the liquidator, except as to a person who in good faith

12 is a purchaser, lienor, or obligee for a present fair equiva13 lent value, and except that any purchaser, lienor or obli14 gee, who in good faith has given a consideration less than

15 fair for such transfer, lien or obligation, may retain the

16 property, lien or obligation as security for repayment. The

17 Court may, on due notice, order any such transfer or obli18 gation to be preserved for the benefit of the estate, and

19 in that event, the receiver shall succeed to and may enforce

20 the rights of the purchaser, lienor, or obligee.

21 (b) PERSONAL LIABILITY.—Every person receiving

22 any property from the insurer or any benefit thereof which

23 is a fraudulent transfer under this title shall be personally

24 liable and shall be bound to account to the liquidator.
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1 (c) REGULATIONS BY CORPORATION.—The Corpora2 tion shall promulgate such rules and regulations that are

3 necessary to implement this section.

4 SEC. 517. VOIDABLE PREFERENCES AND LIENS.

5 (a) IN GENERAL.—A preference is a transfer of any

6 of the property of an insurer to or for the benefit of a

7 creditor, for or on account of an antecedent debt, made

8 by the insurer within 1 year before the filing of a success9 ful petition for liquidation under this Act, the effect of

10 which transfer may be to enable the creditor to obtain a

11 greater percentage of his debt than another creditor of the

12 same class would receive. If a liquidation order is entered

13 while the insurer is already subject to a rehabilitation

14 order, then such transfers shall be deemed preferences if

15 made within 1 year before the filing of the successful peti16 tion for rehabilitation, or within 2 years before the filing

17 of the successful petition for liquidation, whichever time

18 is shorter.

19 (b) RECOVERY OF PROPERTY.—Where the preference

20 is voidable, the liquidator may recover the property or, if

21 it has been converted, its value, from any person who has

22 received or converted the property; except where a bona

23 fide purchaser or lienor has given less than fair value, he

24 shall have a lien upon the property to the extent of the

25 consideration actually given by him. Where a preference
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1 by way of lien or security title is voidable, the court may

2 on due notice order the lien or title to be preserved for

3 the benefit of the estate, in which even the lien or title

4 shall pass to the liquidator.

5 (c) REGULATIONS BY THE CORPORATION.—The Cor6 poration shall promulgate rules and regulations specifying

7 the circumstances under which a preference may be

8 avoided.

9 SEC. 518. SETOFFS AND COUNTERCLAIMS.

10 Mutual debts or mutual credits, whether arising out

11 of one or more contracts between the insurer and another

12 person in connection with any action or proceeding under

13 this title shall be set off and the balance only shall be al14 lowed or paid, except as otherwise provided by the rules

15 and regulations promulgated by the Corporation.

16 SEC. 519. RECOVERY OF PREMIUMS OWED.

17 The Corporation shall promulgate the rules and regu18 lations regarding the recovery of premiums owed to an in19 solvent member insurer that is being liquidated by the

20 Corporation.

21 SEC. 520. PRIORITY OF DISTRIBUTION.

22 The priority of distribution of claims from the insur23 er’s estate shall be in accordance with the order in which

24 each class of claims is herein set forth. Every claim in

25 each class shall be paid in full or adequate funds retained
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1 for such payment before the members of the next class

2 receive any payment. No subclasses shall be established

3 within any class. The order of distribution of claims shall

4 be:

5 (1) CLASS 1.—The costs and expenses of ad6 ministration during liquidation, including but not

7 limited to—

8 (A) the actual and necessary costs of pre9 serving or recovering the assets of the insurer;

10 (B) compensation for all authorized serv11 ices rendered in the liquidation, including rea12 sonable compensation to the Corporation as ap13 proved by the court to cover the portion of the

14 total expenses of the Corporation which are rea15 sonably related to the conduct by it of the reha16 bilitation or liquidation of the insurer, without

17 provision for any profit to the Corporation;

18 (C) any necessary filing fees;

19 (D) the fees and mileage payable to wit20 nesses; and

21 (E) authorized reasonable attorney’s fees

22 and other professional services rendered in the

23 rehabilitation and liquidation.

24 (2) CLASS 2.—Reasonable compensation to em25 ployees for services performed to the extent that
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1 they do not exceed 2 months of monetary compensa2 tion and represent payment for services performed

3 within 1 year before the filing of the petition for liq4 uidation. Principal officers and directors shall not be

5 entitled to the benefit of this priority except as oth6 erwise approved by the Liquidator and the court.

7 Such priority shall be in lieu of any similar priority

8 which may be authorized by law as to wages or com9 pensation of employees.

10 (3) CLASS 3.—All claims under policies, includ11 ing such claims of the Federal or any State or local

12 government, for losses incurred (‘‘loss claims’’) and

13 including third party claims and such claims of the

14 Corporation for claims paid by it except the first

15 $300 of any claim, other than claims for workers’

16 compensation, where the obligation of the insurer is

17 direct to the insured (or ‘‘first party’’). That portion

18 of any loss, indemnification for which is provided by

19 other benefits or advantages recovered or recoverable

20 in discharge of familial obligation of support or by

21 way of succession at death or as proceeds of life in22 surance, or as gratuities. No payment by an em23 ployer to its employee shall be treated as a gratuity.

24 (4) CLASS 4.—Claims under nonassessable poli25 cies for unearned premium or other premium re-
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1 funds, claims of general creditors including claims of

2 ceding and assuming insurers and reinsurers in their

3 capacity as such, claims for the first $300 of any

4 claim excepted from payment by the deduction in

5 subsection (c) above, and claims of the Federal or

6 any State or local government except those under

7 class 3 above. Claims, including those of any govern8 mental body for a penalty or forfeiture, shall be al9 lowed in this class only to the extent of the pecu10 niary loss sustained from the act, transaction, or

11 proceeding out of which the penalty or forfeiture

12 arose, with reasonable and actual costs occasioned

13 thereby. The remainder of such claims shall be post14 poned to class of claims under subsection (g).

15 (5) CLASS 5.—Claims filed late and all other

16 claims other than claims under classes 6 and 7.

17 (6) CLASS 6.—Surplus or contribution notes, or

18 similar obligations, and premium refunds on assess19 able policies. Payments to members of domestic mu20 tual insurance companies shall be limited in accord21 ance with applicable State law.

22 (7) CLASS 7.—The claims of stockholders or

23 other owners in their capacity as shareholders.
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1 SEC. 521. UNCLAIMED AND WITHHELD FUNDS.

2 The Corporation shall promulgate rules and regula3 tions for the handling of unclaimed and withheld funds.

4 SEC. 522. TERMINATION OF PROCEEDINGS.

5 (a) BUSINESS CONCLUDED.—When all business re6 garding the liquidation of a member insurer has been con7 cluded, the Corporation as liquidator shall apply to the

8 court for discharge.

9 (b) PETITION TO REOPEN.—After the liquidation

10 proceeding has been terminated and the Liquidator dis11 charged, the Corporation or other interested party may

12 at any time petition the district court to reopen the pro13 ceedings for good cause, including the discovery of addi14 tional assets. If the court is satisfied that there is justifica15 tion for reopening, it shall so order.

16 SEC. 523. STUDY BY THE BOARD.

17 The Board of Directors for the Corporation shall

18 make recommendations, including proposing legislation to

19 the Congress, not later than 12 months after the date of

20 enactment of this Act, on how to better achieve a uniform

21 system of liquidation of insolvent insurers to be handled

22 exclusively by the Corporation.

23 SEC. 524. PREEMPTION.

24 Effective 2 years after enactment of this Act, the

25 Corporation shall be the exclusive liquidator of insolvent

26 member insurers.
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1 TITLE VI—CRIMINAL AND CIVIL

2 PENALTIES

3 SEC. 601. SHORT TITLE.

4 This title may be cited as the ‘‘Insurance Fraud Pre5 vention Act of 1993’’.

6 SEC. 602. CRIMES BY OR AFFECTING PERSONS ENGAGED IN

7 THE BUSINESS OF INSURANCE WHOSE AC8 TIVITIES AFFECT INTERSTATE COMMERCE.

9 (a) IN GENERAL.—Chapter 47 of title 18, United

10 States Code, is amended by adding at the end thereof the

11 following new sections:

12 ‘‘§ 1033. Crimes by or affecting persons engaged in

13 the business of insurance whose activi14 ties affect interstate commerce

15 ‘‘(a)(1) Whoever is engaged in the business of insur16 ance whose activities affect interstate commerce and

17 knowingly, with the intent to deceive, makes any false ma18 terial statement or report or willfully and materially

19 overvalues any land, property or security—

20 ‘‘(A) in connection with any reports or docu21 ments presented to any insurance regulatory official

22 or agency or an agent or examiner appointed by

23 such official or agency to examine the affairs of such

24 person, and
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1 ‘‘(B) for the purpose of influencing the actions

2 of such official or agency or such an appointed agent

3 or examiner,

4 shall be punished as provided in paragraph (2).

5 ‘‘(2) The punishment for an offense under paragraph

6 (1) is a fine of not more than $1,000,000 or imprisonment

7 for not more than 10 years, or both, except that the term

8 of imprisonment shall be not more than 15 years if the

9 statement or report or overvaluing of land, property, or

10 security jeopardized the safety and soundness of an in11 surer.

12 ‘‘(b)(1) Whoever—

13 ‘‘(A) acting as, or being an officer, director,

14 agent, or employee of, any person engaged in the

15 business of insurance whose activities affect inter16 state commerce, or

17 ‘‘(B) is engaged in the business of insurance

18 whose activities affect interstate commerce or is in19 volved (other than as an insured or beneficiary

20 under a policy of insurance) in a transaction relating

21 to the conduct of affairs of such a business,

22 willfully embezzles, abstracts, purloins, or misappropriates

23 any of the moneys, funds, premiums, credits, or other

24 property of such person so engaged shall be punished as

25 provided in paragraph (2).
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1 ‘‘(2) The punishment for an offense under paragraph

2 (1) is a fine of not more than $1,000,000 or imprisonment

3 for not more than 10 years, or both, except that if such

4 embezzlement, abstraction, purloining, or misappropria5 tion described in paragraph (1) jeopardized the safety and

6 soundness of an insurer, such imprisonment shall be not

7 more than 15 years. If the amount or value so embezzled,

8 abstracted, purloined, or misappropriated does not exceed

9 $5,000, whoever violates paragraph (1) shall be fined as

10 provided in this title or imprisoned not more than 1 year,

11 or both.

12 ‘‘(c)(1) Whoever is engaged in the business of insur13 ance and whose activities affect interstate commerce or is

14 involved (other than as an insured or beneficiary under

15 a policy of insurance) in a transaction relating to the con16 duct of affairs of such a business, knowingly makes any

17 false entry of material fact in any book, report, or state18 ment of such person engaged in the business of insurance

19 with intent to deceive any person, including any officer,

20 employee, or agent of such person engaged in the business

21 of insurance, any insurance regulatory official or agency,

22 or any agent or examiner appointed by such official or

23 agency to examine the affairs of such person, about the

24 financial condition or solvency of such business shall be

25 punished as provided in paragraph (2).
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1 ‘‘(2) The punishment for an offense under paragraph

2 (1) is a fine of not more than $1,000,000 or imprisonment

3 for not more than 10 years, or both, except that if the

4 false entry in any book, report, or statement of such per5 son jeopardized the safety and soundness of an insurer,

6 such imprisonment shall be not more than 15 years.

7 ‘‘(d) Whoever, by threats or force or by any threaten8 ing letter or communication, corruptly influences, ob9 structs, or impedes or endeavors corruptly to influence, ob10 struct, or impede the due and proper administration of

11 the law under which any proceeding involving the business

12 of insurance whose activities affect interstate commerce

13 is pending before any insurance regulatory official or

14 agency or any agent or examiner appointed by such official

15 or agency to examine the affairs of a person engaged in

16 the business of insurance whose activities affect interstate

17 commerce, shall be fined as provided in this title or impris18 oned not more than 10 years, or both.

19 ‘‘(e)(1)(A) Any individual who has been convicted of

20 any criminal felony involving dishonesty or a breach of

21 trust, or who has been convicted of an offense under this

22 section, and who willfully engages in the business of insur23 ance whose activities affect interstate commerce or partici24 pates in such business, shall be fined as provided in this

25 title or imprisoned not more than 5 years, or both.
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1 ‘‘(B) Any individual who is engaged in the business

2 of insurance whose activities affect interstate commerce

3 and who willfully permits the participation described in

4 subparagraph (A) shall be fined as provided in this title

5 or imprisoned not more than 5 years, or both.

6 ‘‘(2) A person described in paragraph (1)(A) may en7 gage in the business of insurance or participate in such

8 business if such person has the written consent of any in9 surance regulatory official authorized to regulate the in10 surer, which consent specifically refers to this subsection.

11 ‘‘(f) As used in this section—

12 ‘‘(1) the term ‘business of insurance’ means—

13 ‘‘(A) the writing of insurance, or

14 ‘‘(B) the reinsuring of risks,

15 by an insurer, including all acts necessary or inci16 dental to such writing or reinsuring and the activi17 ties of persons who act as, or are, officers, directors,

18 agents, or employees of insurers or who are other

19 persons authorized to act on behalf of such persons;

20 ‘‘(2) the term ‘insurer’ means any entity the

21 business activity of which is the writing of insurance

22 or the reinsuring of risks, and includes any person

23 who acts as, or is, an officer, director, agent, or em24 ployee of that business;

25 ‘‘(3) the term ‘interstate commerce’ means—
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1 ‘‘(A) commerce within the District of Co2 lumbia, or any territory or possession of the

3 United States;

4 ‘‘(B) all commerce between any point in

5 the State, territory, possession, or the District

6 of Columbia and any point outside thereof;

7 ‘‘(C) all commerce between points within

8 the same State through any place outside such

9 State; or

10 ‘‘(D) all other commerce over which the

11 United States has jurisdiction; and

12 ‘‘(4) the term ‘State’ includes 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 ‘‘§ 1034. Civil penalties and injunctions for violations

18 of section 1033

19 ‘‘(a) The Attorney General may bring a civil action

20 in the appropriate United States district court against any

21 person who engages in conduct constituting an offense

22 under section 1033 and, upon proof of such conduct by

23 a preponderance of the evidence, such person shall be sub24 ject to a civil penalty of not more than $50,000 for each

25 violation or the amount of compensation which the person
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1 received or offered for the prohibited conduct, whichever

2 amount is greater. If the offense has contributed to the

3 decision of a court of appropriate jurisdiction to issue an

4 order directing the conservation, rehabilitation, or liquida5 tion of an insurer, such penalty shall be remitted to the

6 appropriate regulatory official for the benefit of the policy7 holders, claimants, and creditors of such insurer. The im8 position of a civil penalty under this subsection does not

9 preclude any other criminal or civil statutory, common

10 law, or administrative remedy, which is available by law

11 to the United States or any other person.

12 ‘‘(b) If the Attorney General has reason to believe

13 that a person is engaged in conduct constituting an of14 fense under section 1033, the Attorney General may peti15 tion an appropriate United States district court for an

16 order prohibiting that person from engaging in such con17 duct. The court may issue an order prohibiting that person

18 from engaging in such conduct if the court finds that the

19 conduct constitutes such an offense. The filing of a peti20 tion under this section does not preclude any other remedy

21 which is available by law to the United States or any other

22 person.’’.

23 (b) CLERICAL AMENDMENT.—The table of sections

24 for chapter 47 of such title is amended by adding at the

25 end the following new items:
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‘‘1033. Crimes by or affecting persons engaged in the business of insurance

whose activities affect interstate commerce.

‘‘1034. Civil penalties and injunctions for violations of section 1033.’’.

1 SEC. 603. MISCELLANEOUS AMENDMENTS TO TITLE 18,

2 UNITED STATES CODE.

3 (a) TAMPERING WITH INSURANCE REGULATORY

4 PROCEEDINGS.—Section 1515(a)(1) of title 18, United

5 States Code, is amended—

6 (1) by striking ‘‘or’’ at the end of subparagraph

7 (B);

8 (2) by inserting ‘‘or’’ at the end of subpara9 graph (C); and

10 (3) by adding at the end thereof the following

11 new subparagraph:

12 ‘‘(D) a proceeding involving the business of

13 insurance whose activities affect interstate com14 merce before any insurance regulatory official

15 or agency or any agent or examiner appointed

16 by such official or agency to examine the affairs

17 of any person engaged in the business of insur18 ance whose activities affect interstate com19 merce; or’’.

20 (b) LIMITATIONS.—Section 3293 of such title is

21 amended by inserting ‘‘1033,’’ after ‘‘1014,’’.

22 (c) OBSTRUCTION OF CRIMINAL INVESTIGATIONS.—

23 Section 1510 of title 18, United States Code, is amended

24 by adding at the end the following new subsection:
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1 ‘‘(d)(1) Whoever—

2 ‘‘(A) acting as, or being, an officer, director,

3 agent or employee of a person engaged in the busi4 ness of insurance whose activities affect interstate

5 commerce, or

6 ‘‘(B) is engaged in the business of insurance

7 whose activities affect interstate commerce or is in8 volved (other than as an insured or beneficiary

9 under a policy of insurance) in a transaction relating

10 to the conduct of affairs of such a business,

11 with intent to obstruct a judicial proceeding, directly or

12 indirectly notifies any other person about the existence or

13 contents of a subpoena for records of that person engaged

14 in such business or information that has been furnished

15 to a Federal grand jury in response to that subpoena, shall

16 be fined as provided by this title or imprisoned not more

17 than 5 years, or both.

18 ‘‘(2) As used in paragraph (1), the term ‘subpoena

19 for records’ means a Federal grand jury subpoena for

20 records that has been served relating to a violation of, or

21 a conspiracy to violate, section 1033 of this title.’’.

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