103
to such insurer or reinsurer shall be subject to the follow-
ing standards:
(1) The terms shall be fair and reasonable.
(2) Charges or fees for services performed shall
be reasonable.
(3) Expenses incurred and payment received
shall be allocated to the insurer or reinsurer in con-
formity with customary insurance accounting prac-
tices consistently applied.
(4) The books, accounts, and records of each
party to all such transactions shall be so maintained
as to clearly and accurately disclose the nature and
details of the transactions including such accounting
information as is necessary to support the reason-
ableness of the charges or fees to the respective par-
ties.
(5) The insurer’s or reinsurer’s net worth fol-
lowing any dividends or distributions to shareholder
affiliates shall be reasonable in relation to its out-
standing liabilities and adequate to its financial
needs.
(b) PRIOR APPROVAL.—The Commission’s or the
State insurance regulator’s prior approval shall be re-
quired for the following transactions between an insurer
or reinsurer and any affiliate within a holding company
105
(3) Rendering services on a regular or system-
atic basis.
(4) Any material transaction specified by regu-
lation of the Commission that may adversely affect
the interests of the insurer’s policyholders or share-
holders.
This subsection shall not be construed to authorize any
transaction which would otherwise be contrary to law.
SEC. 409. ENFORCEMENT AND PENALTIES.
(a) AUTHORITY OF THE COMMISSION AND STATE IN-
SURANCE REGULATORS.—
(1) ENFORCEMENT AND PENALTY AUTHORITY
OF THE COMMISSION.—The Commission shall have
enforcement and penalty authority as to federally
certified insurers and reinsurers for violations of this
Act.
(2) ENFORCEMENT AND PENALTY AUTHORITY
OF THE STATE INSURANCE REGULATOR.— The ap-
propriate State insurance regulator shall have en-
forcement and penalty authority as to violations of
this Act and as to the insurers licensed in the State
that do not hold a Federal certificate of solvency.
The State insurance regulator shall continue to have
any other enforcement and penalty powers author-
ized under State law as to such insurers.
106
(3) JUDICIAL ACTIONS.—Judicial actions to en-
force this Act shall be before the appropriate Fed-
eral court unless the action involves the enforcement
by a State insurance regulator, in which case the ac-
tion shall be brought in the appropriate State court.
(b) CIVIL FINE.—The Commission may suspend or
revoke, after an opportunity for a hearing on the record,
the certificate of any federally certified insurer or rein-
surer which knowingly fails to comply with this Act. In
addition to, or in lieu of suspension or revocation, any cer-
tified insurer or reinsurer which knowingly violated this
Act or any foreign insurer that transacts the business of
insurance in violation of section 203(e) may be fined by
the Commission in an amount not to exceed $10,000 for
each violation. The State insurance regulator shall follow
the procedure of applicable State law in suspending or re-
voking an insurance license or seeking to impose a fine
on an insurer subject to State regulation for financial con-
dition for failure to comply with this Act.
(c) EARLY ADMINISTRATIVE INTERVENTION BY THE
COMMISSION OR STATE INSURANCE REGULATOR.—When-
ever it appears that any insurer or reinsurer may become
insolvent or financially impaired, or does not meet applica-
ble standards governing net worth or reserves or is other-
wise not in compliance with the requirements of this Act,
107
the Commission or State insurance regulator may issue
an order requiring the insurer or reinsurer to take prompt
corrective action or imposing restrictions on the insurer’s
or reinsurer’s operations or management. Such orders
may require the insurer or reinsurer to increase its net
worth or reserves, stop writing new business, limit growth
in premiums, limit dividend payments, require the election
of new directors, or require the filing of a plan dem-
onstrating how the insurer or reinsurer will come into
compliance with the requirements of this Act.
(d) CEASE AND DESIST ORDERS.—Whenever it ap-
pears that any insurer or reinsurer or any director, officer,
employee, or other person has committed or is about to
commit a violation of the requirements of this Act as to
a federally certified insurer or reinsurer, the Commission
may, after providing the opportunity for a hearing on the
record, issue an order that such insurer or reinsurer not
take such action. The State insurance regulator may take
such action as to an insurer subject to State regulation
of financial condition under the procedures of applicable
State law.
(e) PROHIBITIONS AGAINST VOTING
OF SECURI-
TIES.—A security which is the subject of any agreement
or arrangement regarding acquisition, or which is acquired
or to be acquired, in contravention of this Act may not
108
be voted at any shareholder’s meeting, and may not be
counted for quorum purposes. Any action of shareholders
requiring the affirmative vote of a percentage of shares
may be taken as though such a security was not issued
and outstanding. Any action taken at any such meeting
shall not be invalidated by the voting of such security un-
less the action would materially affect control of the in-
surer or reinsurer or unless a court has so ordered.
(f) SEQUESTRATION
OF VOTING SECURITIES.—In
any case where a person has acquired or is proposing to
acquire any voting securities in violation of the national
standards established under section 201, a court may, on
such notice as the court determines to be appropriate, and,
upon the application of the insurer or reinsurer or the
Commission or the State insurance regulator, seize or se-
quester any voting securities of the insurer or reinsurer
owned directly or indirectly by such person, and issue such
order with respect thereto as may be appropriate.
(g) PENALTIES FOR VIOLATIONS OF REGISTRATION
REQUIREMENTS.—After providing the opportunity for a
hearing on the record, the Commission may impose on any
federally certified insurer or reinsurer that fails, without
just cause, to file any registration statement as required
in this Act a civil fine of up to $10,000 for each day’s
delay. In determining the amount of the fine, the Commis-
109
sion shall take into account the appropriateness of the civil
fine with respect to the gravity of the violation, the history
of previous violations, and such other matters as justice
may require. The State insurance regulator shall follow
the applicable State procedure to impose any such fine on
an insurer subject to State regulation for financial condi-
tion.
(h) PENALTIES FOR PROHIBITED TRANSACTIONS.—
After providing the opportunity for a hearing on the
record, the Commission may impose on a director or offi-
cer of a holding company system that involves a federally
certified insurer or reinsurer which knowingly violates this
Act, participates in, or assents to, such violation or who
knowingly permits any officer or other person—
(1) to engage in transactions having an adverse
material effect on the financial condition of a feder-
ally certified insurer or reinsurer; or
(2) to make investments which have not been
properly reported to the Commission; not been ap-
proved by the Commission, if such approval is re-
quired; or are otherwise not in compliance with this
title,
a civil fine of not more than $5,000 per violation. In deter-
mining the amount of the civil fine, the Commission shall
take into account the appropriateness of the forfeiture
110
with respect to the gravity of the violation, the history of
previous violations, and such other matters as justice may
require. The State insurance regulator shall follow the ap-
plicable State procedure to impose any such fine on an
insurer subject to State regulation for financial condition.
SEC. 410. FEDERAL INSURER AND REINSURER EMPLOYEE
PROTECTION REMEDY.
(a) 
PROHIBITION
AGAINST
DISCRIMINATION
AGAINST EMPLOYEES.—No insurer or reinsurer may dis-
charge or otherwise discriminate against any employee
with respect to compensation, terms, conditions, or privi-
leges of employment because the employee (or any person
acting pursuant to the request of the employee) provided
information to the Commission, to the Attorney General,
or to a State insurance regulator regarding a possible vio-
lation of any law or regulation by the insurer or reinsurer
or any of its officers, directors, or employees.
(b) ENFORCEMENT.—Any employee or former em-
ployee who believes that the employee has been discharged
or discriminated against in violation of subsection (a) may
file a civil action in the appropriate United States district
court before the close of the 2-year period beginning on
the date of such discharge or discrimination. The com-
plainant shall also file a copy of the complaint initiating
111
such action with the Commission or the State insurance
regulator.
(c) REMEDIES.—If the district court determines that
a violation of subsection (a) has occurred, it may order
the insurer which committed the violation—
(1) to reinstate the employee to the employee’s
former position, including any promotion withheld,
(2) to provide back pay,
(3) to pay compensation for any costs or losses
incurred because of a violation of subsection (a), in-
cluding attorneys’ fees, or
(4) take other appropriate actions, other than
general and punitive damages, to remedy any past
discrimination.
(d) LIMITATION.—The protections of this section
shall not apply to any employee who—
(1) deliberately causes or participates in the al-
leged violation of law or regulation, or
(2) knowingly or recklessly provides substan-
tially false information.
(e) FALSE ACCUSATION.—Any insurer or reinsurer
as to which a false accusation is made under this section
may bring an action against any employee who knowingly
or recklessly made such accusation. In such action, the
insurer or reinsurer may recover the costs incurred in de-
112
fending against such accusation. The insurer or reinsurer
may also take appropriate action against the employee in-
volved with respect to the compensation, terms, conditions,
and privileges of employment, including termination, if its
action is successful.
TITLE V—NATIONAL INSURANCE
PROTECTION CORPORATION
SEC. 501. NATIONAL INSURANCE PROTECTION CORPORA-
TION.
There is established a body corporate to be known
as the National Insurance Protection Corporation. NIPC
shall be a nonprofit corporation and shall have succession
until dissolved by an Act of Congress. NIPC shall—
(1) not be an agency or establishment of the
United States Government; and
(2) except as otherwise provided in this Act, be
subject to, and have all the powers conferred upon
a nonprofit corporation by, the District of Columbia
Nonprofit Corporation Act (D.C. Code, sec. 29–1001
et seq.).
SEC. 502. PURPOSE.
The purpose of NIPC is to provide timely payment
and protection against losses due to, and, in appropriate
circumstances as set forth in this Act, provide continu-
ation of coverage in the event of, the financial impairment
113
or insolvency of insurers which hold Federal certificates
of solvency by providing prompt fulfillment of insurance
benefits to the extent of NIPC’s obligation under this Act.
SEC. 503. RELATIONSHIP TO THE FEDERAL GOVERNMENT.
(a) ROLE OF THE FEDERAL INSURANCE SOLVENCY
COMMISSION.—NIPC shall be subject to the supervision
and oversight of the Commission.
(b) NIPC NOT COVERED
BY FULL FAITH
AND
CREDIT OF U.S. OR IN UNITED STATES BUDGET.—
(1) The obligations of NIPC shall not be
backed, directly or indirectly, by the full faith and
credit of the United States. NIPC shall receive no
financial assistance from or have any authority to
borrow from the United States.
(2) Funds held by or due to NIPC shall not be
included in the budget of the United States, nor may
the United States borrow or pledge such funds.
SEC. 504. MEMBERSHIP.
(a) IN GENERAL.—Each insurer holding a certificate
of solvency issued by the Commission under title II that
provides insurance subject to coverage under this title
shall be a member of NIPC so long as such certificate
has not been revoked or suspended by the Commission.
(b) EFFECT
OF SUSPENSION
OR REVOCATION.—
NIPC’s obligation to pay the covered claims of a federally
114
certified insurer shall apply to claims under policies or
contracts effective prior to the revocation or suspension
of the insurer’s certificate of solvency. A member insurer
shall be subject to assessments based on financial impair-
ments or insolvencies on which the Commission takes ac-
tion when it is a member of NIPC.
(c) EXCEPTIONS.—
(1) Risk retention groups and captive insurers
that have certificates of solvency shall not be mem-
bers of NIPC.
(2) A federally certified insurer that obtains ap-
proval to provide surplus lines insurance under sec-
tion 203 shall not participate in NIPC for the pur-
pose of business written under that approval.
SEC. 505. CORPORATE POWERS.
NIPC shall have the power—
(1) to sue and be sued, in its corporate name
and through its own counsel;
(2) to adopt, alter, and use a corporate seal,
which shall be judicially noticed;
(3) to adopt, amend, and repeal, by its Board
of Directors, such bylaws and rules as may be nec-
essary or appropriate to carry out the purposes of
this Act, including bylaws relating to—
(A) the conduct of its business; and
115
(B) the indemnity of its directors, officers,
and employees for liabilities and expenses actu-
ally and reasonably incurred by any such person
in connection with the defense or settlement of
an action or suit if such person acted in good
faith and in a manner reasonably believed to be
consistent with the purposes of this title;
(4) to adopt, amend, and repeal, by its Board
of Directors such rules as may be necessary or ap-
propriate to carry out the purposes of this title, in-
cluding rules relating to—
(A) the definition of terms used in this
title, other than those terms for which a defini-
tion is provided herein;
(B) the procedures for payment of losses,
loss adjustment expenses, and other obligations
of NIPC; and
(C) the exercise of all other rights and
powers granted to it by this Act;
(5) to conduct its business (including the carry-
ing on of operations and the maintenance of offices)
and to exercise all other rights and powers granted
to it by this Act in any State or other jurisdiction
without regard to any qualification, licensing, or
116
other statutory requirement in such State or other
jurisdiction;
(6) to lease, purchase, accept gifts or donations
of or otherwise acquire, to own, hold, improve, use,
or otherwise deal in or with, and to sell, convey,
mortgage, pledge, lease, exchange or otherwise dis-
pose of any property, real, personal or mixed, or any
interest therein, wherever situated;
(7) to elect or appoint such officers, attorneys,
employees, and agents as may be required, to deter-
mine their qualifications, to define their duties, to
fix their salaries, require bonds for them, and fix the
penalty thereof;
(8) to enter into contracts, to execute instru-
ments, to incur liabilities, and to do any and all
other acts and things as may be necessary or inci-
dental to the conduct of its business and the exercise
of all other rights and powers granted to NIPC by
this Act;
(9) to provide continued coverage for other than
property and casualty insurance and to pay benefits
and claims owed by member insurers declared by the
Commission to be impaired or insolvent to the extent
and in the manner provided in this Act;
117
(10) to investigate, adjust, and settle claims
covered by this title, and to challenge judicial deci-
sions and settlements affecting such claims;
(11) to levy and collect assessments upon its
members, in the manner and to the extent provided
elsewhere in this Act, to cover the administrative ex-
penses of NIPC, and to provide the funds necessary
to discharge the obligations of NIPC imposed by this
Act;
(12) to sue members for unpaid assessments
plus interest at a rate to be set forth in the bylaws;
(13) to manage and maintain the financial in-
tegrity of the funds established by this Act, includ-
ing the investment of assessments paid by members
and borrowing as necessary to fulfill NIPC’s guar-
anty obligations; and
(14) to provide advice and recommendations to
Congress, the courts and the Commission on matters
pertaining to insurer financial conditions, insolvency,
or otherwise addressed by this Act.
SEC. 506. BOARD OF DIRECTORS.
(a) POWERS.—The Board of Directors shall be the
governing body of NIPC and shall be vested with all pow-
ers necessary for the management and administration of
the affairs of the Corporation and the promotion of its
118
purposes as authorized by this Act. The Board’s authority
shall be specified in the bylaws of NIPC.
(b) COMPOSITION.—The Board shall be composed of
7 members or such higher number as determined by the
Board and as approved by the Commission. All directors
shall be elected by the membership of NIPC and approved
by the Commission. The bylaws of NIPC shall require that
directors be selected in a manner fairly representing the
various types of insurers and lines of insurance as to
which NIPC has guaranty obligations.
(c) TERMS.—The term of each director shall, after
the first election, be for three years, with one-third of the
directors to stand for election each year. Directors may
be elected to serve for any number of terms.
(d) VACANCIES.—A vacancy in the Board shall be
filled in the same manner as the original appointment.
(e) COMPENSATION.—All matters relating to com-
pensation of directors shall be as provided in the bylaws
of NIPC.
(f) INITIAL APPOINTMENTS.—The Commission shall
appoint an initial Board to carry out the establishment
of the bylaws and the first elections of NIPC.
119
SEC. 507. CHAIRPERSON AND VICE CHAIRPERSON.
(a) ELECTION.—The member insurers of NIPC shall
select the chairperson and vice chairperson from among
those candidates for the Board.
(b) INITIAL APPOINTMENTS.—The Commission shall
select the initial chairperson and vice chairperson from
among the initial appointments to the Board under section
506. The persons so selected shall carry out the authori-
ties of office until the first election by the member insur-
ers. They shall act to ensure that such election is sched-
uled at the earliest appropriate time.
SEC. 508. OFFICERS.
The officers of NIPC shall consist of a chairman, a
vice chairman, a president, a secretary, and a treasurer,
and may include one or more vice presidents and such
other officers and assistant officers as may be deemed nec-
essary, each of whom shall be elected or appointed at such
time and in such manner and for such terms not exceeding
three years as may be prescribed by bylaw. In the absence
of any such provision, all officers shall be elected or ap-
pointed annually by the Board of Directors.
SEC. 509. MEETINGS OF BOARD.
The Board of Directors shall meet at the call of its
Chairman, or as otherwise provided by the bylaws of
NIPC.
120
SEC. 510. BYLAWS AND RULES.
(a) ADOPTION AND AMENDMENT OF BYLAWS.—The
Board of Directors of NIPC shall file with the Commission
a copy of the proposed bylaws or any proposed amendment
to the bylaws, accompanied by a concise general statement
of the basis and purpose of such proposal. The proposed
bylaws and each proposed amendment shall take effect 30
days after the date of the filing of a copy thereof with
the Commission, or upon such later date as NIPC may
designate or such earlier date as the Commission may de-
termine, unless—
(1) the Commission, by notice to NIPC setting
forth the reasons therefore, disapproves such pro-
posal as being contrary to the public interest or con-
trary to the purposes of this title; or
(2) the Commission finds that such proposal in-
volves a matter of such significant public interest
that public comment should be obtained, in which
case it may, after notifying NIPC in writing of such
finding, require that the procedures set forth in sub-
section (b) be followed with respect to such proposal,
in the same manner as if such proposed bylaw
change were a proposed rule change within the
meaning of such paragraph.
(b) ADOPTION AND AMENDMENT OF RULES.—
121
(1) The Board of Directors of NIPC shall file
with the Commission, in accordance with its regula-
tions, a copy of any proposed rule or any proposed
amendment to a rule of NIPC accompanied by a
concise general statement of the basis and purpose
of such proposal. The Commission shall, upon the
filing of any proposal, publish notice thereof, to-
gether with the terms of substance of such proposal
or a description of the subjects and issues involved.
The Commission shall give interested persons an op-
portunity to submit written views, and arguments
with respect to such proposal. No proposed rule or
amendment shall take effect unless approved by the
Commission or otherwise permitted in accordance
with this paragraph.
(2) Within 35 days after the date of publication
of notice of the filing of a proposal, or within such
longer period as the Commission may designate of
not more than 90 days after such date if it finds
such longer period to be appropriate and publishes
its reasons for so finding, or as to which NIPC con-
sents, the Commission shall—
(A) by order approve such proposed rule or
amendment; or
122
(B) institute proceedings to determine
whether such proposed rule or amendment
should be modified or disapproved.
(3) Proceedings instituted with respect to a pro-
posed rule or amendment pursuant to paragraph
(2)(B) shall include notice of the grounds for dis-
approval under consideration and opportunity for
hearing, and shall be concluded within 180 days
after the date of publication of notice of the filing
of such proposed rule or amendment. At the conclu-
sion of such proceedings, the Commission shall, by
order, approve or disapprove such proposed rule or
amendment. The Commission may extend the time
for conclusion of such proceedings for not more than
60 days if it finds good cause for such extension and
publishes its reasons for so finding, or for such
longer period as to which NIPC consents.
(4) The Commission shall approve a proposed
rule or amendment if it finds that it is in the public
interest and is consistent with the purposes of this
title, and any proposed rule or amendment so ap-
proved shall be given force and effect as if promul-
gated by the Commission. The Commission shall dis-
approve a proposed rule or amendment if it does not
make the finding referred to in the preceding sen-
124
it be refiled and reviewed in accordance with this
paragraph, if the Commission finds that such action
is necessary or appropriate in the public interest, for
the protection of insurers or policyholders, or other-
wise in furtherance of the purposes of this title. Any
action of the Commission pursuant to the preceding
sentence shall not affect the validity or force of a
rule change during the period it was in effect and
shall not be subject to judicial review or be consid-
ered to be final agency action.
(c) ACTION REQUIRED BY THE COMMISSION.—The
Commission may, by such rules as it determines to be nec-
essary or appropriate to the public interest or to carry out
the purposes of this title, require NIPC to adopt, amend,
or repeal any NIPC bylaw or rule, whenever adopted.
(d) LEGAL EFFECT OF BYLAWS AND RULES.—The
bylaws and rules adopted pursuant to this section shall
be subject to judicial review in the same manner as the
regulations of the Commission.
SEC. 511. CONSULTATION WITH THE FEDERAL INSURANCE
SOLVENCY COMMISSION.
The Commission may, as appropriate, consult with
NIPC concerning the development of standards for regu-
lating the financial soundness and solvency of federally
certified insurers, the implementation of those standards,
125
the detection and prevention of insurer insolvencies, the
commencement of rehabilitation and liquidation proceed-
ings, and resolution of those proceedings. The purpose of
this consultation shall be to provide the Commission the
benefit of the expert views of NIPC on matters pertaining
to financial regulation of its member insurers and to as-
sure that the Commission implements this Act in a man-
ner that does not impair the financial integrity of NIPC
guaranty funds.
SEC. 512. NIPC FUND.
(a) ESTABLISHMENT.—There is established a fund to
be known as the NIPC Fund (hereinafter referred to as
the ‘‘Fund’’). The Fund shall consist of all payments made
by members pursuant to assessments (other than amounts
paid directly to any lender pursuant to any pledge secur-
ing a borrowing by NIPC), interest received on bank ac-
counts or investments, amounts borrowed by NIPC pursu-
ant to section 515 and amounts recovered in litigation.
Moneys in the Fund shall be invested only in obligations
of the United States, in obligations guaranteed as to prin-
cipal and interest by the United States, and such other
items as are provided in the bylaws.
(b) USES.—The Fund shall be used to pay the ad-
ministrative expenses of NIPC and to pay covered claims.
The Fund may not be used or loaned for other purposes.
126
SEC. 513. SCOPE OF GUARANTY.
(a) PROPERTY AND CASUALTY INSURANCE CLAIMS
COVERAGE.—Commercial and personal lines of property
and casualty insurance contracts written by member in-
surers shall be guaranteed under this title and paid
through the property and casualty claims division estab-
lished in section 514, except the following:
(1) Mortgage guaranty, financial guaranty, or
other forms of insurance offering protection against
investment risks.
(2) Fidelity or surety bonds, or any other bond-
ing obligations.
(3) Insurance of warranties or service contracts.
(4) Title insurance.
(5) Ocean marine insurance.
(6) Any insurance written or transacted on a
surplus lines basis.
(7) Insurance provided by captive insurers.
(8) Insurance provided by risk retention groups
established pursuant to the Liability Risk Retention
Act of 1986 (15 U.S.C. 3901 et seq.).
(9) Reinsurance, whether provided by a profes-
sional reinsurer having a Federal certificate under
section 302, a provider of reinsurance having a cer-
tificate under section 303, or any other provider.
127
(10) Any policies that were written or issued on
any risks that are located outside of the United
States and its territories.
(11) Credit insurance, vendor’s single interest
insurance, collateral protection insurance, or any
similar insurance protecting the interests of a credi-
tor arising out of a creditor-debtor transaction.
(12) Any policy of commercial insurance issued
by a highly capitalized insurer to a large insurance
buyer as provided by this Act, except for third party
claims against such large business buyer which is in
reorganization or liquidation proceedings pursuant
to title 11, United States Code.
(13) Any policy issued by an insurer during a
period in which the insurer’s certificate of solvency
was revoked or suspended.
(b) LIFE AND HEALTH INSURANCE AND ANNUITY
CLAIMS COVERAGE.—Life and health insurance contracts
and annuity contracts written by member insurers shall
be covered by NIPC and paid through the life and health
claims division established in section 514, except the fol-
lowing:
(1) Any portion of a policy or contract not
guaranteed by the insurer, or under which the risk
is borne by the policy or contract holder.
128
(2) Any portion of a policy or contract to the
extent that the rate of interest on which it is
based—
(A) averaged over the period of 4 years
prior to the date on which NIPC becomes obli-
gated with respect to such policy or contract,
exceeds a rate of interest determined by sub-
tracting two percentage points from Moody’s
Corporate Bond Yield Average for that same
four year period or for such lesser period if the
policy or contract was issued less than 4 years
before NIPC became obligated; and
(B) on and after the date on which NIPC
becomes obligated with respect to such policy or
contract, exceeds the rate of interest deter-
mined by subtracting three percentage points
from Moody’s Corporate Bond Yield Averages
most recently available.
(3) Any plan or program of an employer, asso-
ciation, or similar entity to provide life, health, or
annuity benefits to its employees or members to the
extent that such plan or programs is self-funded or
uninsured, including but not limited to benefits pay-
able by an employer, association, or similar entity
under—
129
(A) a Multiple Employer Welfare Arrange-
ment as defined in section 514 of the Employ-
ment Retirement Income Security Act of 1974,
as amended;
(B) a minimum premium group insurance
plan;
(C) a stop-loss insurance plan; or
(D) an administrative services only con-
tract.
(4) Any portion of a policy or contract to the
extent that it provides dividends or experience rating
credits, or provides that any fees or allowances be
paid to any person, including the policy or contract
holder, in connection with the service to or adminis-
tration of such policy or contract.
(5) Any unallocated annuity contract issued to
an ongoing employee benefit plan protected under
the Pension Benefit Guaranty Corporation.
(6) Any portion of any unallocated annuity con-
tract which is not issued to or in connection with a
specific employee, union, or association of natural
persons benefit plan or a government lottery.
(7) Any policy issued by an insurer during a pe-
riod in which the insurer’s certificate of solvency was
revoked or suspended.
130
SEC. 514. ASSESSMENTS.
(a) IN GENERAL.—All member insurers of NIPC
shall be subject to assessments as provided in this section.
(b) ASSESSMENTS TO CREATE THE FUND.—
(1) Initial assessments to create the fund shall
be made on an insurer at the time of certification,
on a pro rata basis both for the portion of the year
covered by the certificate and annually each year
thereafter until the funds meet the level established
by NIPC in its bylaws.
(2) NIPC shall assess an insurer, during the
first 4 years after it becomes a member of NIPC, an
annual assessment sufficient to assure that all NIPC
members proportionately share the burden of accu-
mulating sufficient funds during the first 10 years
for NIPC’s administrative expenses under subsection
(c) during such 10 years.
(c) 
ASSESSMENTS
FOR
ADMINISTRATIVE
EX-
PENSES.—
(1) After the organization of NIPC, the Board
of Directors shall estimate the amount reasonably
necessary to establish the operations of NIPC to
provide for its ongoing staff and other administra-
tive expenses for the current year. The amount to be
assessed may vary for each division under subsection
(d) but shall be on the same basis for each member
131
of the division on which the assessment is made. As-
sessments shall be levied in the same proportion that
the net direct written premiums written by each
member insurer in the preceding calendar year on
insurance covered by a NIPC guaranty bears to the
total such premiums of all division members. Fur-
ther, the Board of Directors may amend its bylaws
to modify this assessment procedure to reflect the
risk of insolvency of the members.
(2) The amounts assessed in accordance with
this subsection shall be due no later than 30 days
after the notice of the assessment is distributed to
members.
(d) ASSESSMENTS FOR COVERED CLAIMS.—
(1) NIPC shall establish separate claims divi-
sions for obligations related to covered claims of—
(A) property and casualty insurers, except
for those included in subparagraph (C);
(B) life and health insurers, except for
those included in subparagraph (C); and
(C) commercial insurance purchased from
highly capitalized insurers by large insurance
buyers.
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(2) NIPC shall establish separate claims ac-
counts within the claims divisions designated in
paragraphs (1)(A) and (1)(B) as follows:
(A) The claims division designated in para-
graph (1)(A) shall be separated into a personal
insurance account and a commercial insurance
account.
(B) The claims division designated in para-
graph (1)(B) shall be separated into a life in-
surance account, a health insurance account,
and an annuity account.
(3) Each claims division or account may borrow
funds from other claims divisions or accounts, with
any such borrowing first between accounts, and then
between divisions if the account in the same division
has insufficient funds to loan. If any funds are bor-
rowed between divisions or accounts, such funds, in-
cluding interest at a rate to be determined by the
Board of Directors, must be repaid from assess-
ments before funds can begin to accumulate in the
claims accounts that benefited from the borrowing.
This paragraph shall not be interpreted to prohibit
the borrowing claims account from paying covered
benefits or claims while such loans are outstanding.
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(4) Except as provided in subsection (d) with
respect to assessments related to commercial insur-
ance purchased from highly capitalized insurers,
each member insurer shall pay to NIPC on or before
the one hundred and twentieth day following Decem-
ber 31 a regular annual assessment calculated to
cover the predicted future obligations of the fund.
Such assessments shall be calculated as a percentage
of the net direct written premiums from the covered
lines of business of such member for the applicable
accounts during the preceding calendar year.
(5) The bylaws shall impose upon member in-
surers such additional special assessments as may be
necessary to make up any shortfall in an account
caused by the inadequacy of regular annual assess-
ments. Any assessments so made shall be in con-
formity with contractual obligations made by NIPC
in connection with any borrowing incurred by NIPC.
Any such assessment upon the members or any one
or more classes thereof shall be based upon the net
direct written premiums for the covered lines of
business in the claims divisions and claims accounts
specified in this section.
(e) STANDARDS FOR ASSESSMENTS.—
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(1) no assessment shall be made upon a mem-
ber otherwise than pursuant to this section,
(2) the total of all assessments made under
subsections (c) and (d) shall not exceed 1 percent of
net direct written premiums during any 12-month
period.
(f) DATE ASSESSMENTS DUE.—All assessments shall
be paid not more than 30 days after notice thereof is sent
by NIPC to the member unless the notice specifies that
the assessment or a portion thereof is not payable until
a later date.
(g) EFFECT OF ASSESSMENTS.—Assessments made
upon a member insurer under this title shall constitute
ordinary and necessary expenses in carrying on the busi-
ness of such member.
(h) INFORMATION TO SET ASSESSMENTS.—Each
member insurer shall file such information as NIPC shall
determine to be necessary or appropriate for the purpose
of making the assessments authorized by this section.
(i) UNDERPAYMENTS AND LATE PAYMENTS.—If a
member insurer fails to pay when due all or any part of
an assessment made upon such member, the unpaid por-
tion thereof shall bear interest at such rate as may be pro-
vided by the bylaws, and, in addition to such interest,
NIPC may impose such penalty charge as may be provided