CO Code § 10-3-805 (2021)
2021 Colorado Code|Title 10 - Insurance|Article 3 - Regulation of Insurance Companies|Part 8 - Insurance Holding Company Systems|§ 10-3-805. Standards and Management of an Insurer Within an Insurance Holding Company System

  Transactions within an insurance holding company system.   Transactions within an insurance holding company system to which an insurer subject to registration is a party are subject to the following standards:   The terms must be fair and reasonable;    Agreements for cost-sharing services and management must include such provisions as required by rules issued by the commissioner;    Charges or fees for services performed must be reasonable;    Expenses incurred and payment received shall be allocated to the insurer in conformity with customary insurance accounting practices consistently applied;    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 reasonableness of the charges or fees to the respective parties; and    The insurer's surplus as regards policyholders following any dividends or distributions to shareholder affiliates must be reasonable in relation to the insurer's outstanding liabilities and adequate to meet its financial needs.       The following transactions involving a domestic insurer and any person in its insurance holding company system, including amendments or modifications of affiliate agreements previously filed pursuant to this section, that are subject to any materiality standards contained in subparagraphs (I) to (VII) of this paragraph (b), shall not be entered into unless the insurer has notified the commissioner in writing of its intention to enter into the transaction at least thirty days before entering into the transaction, or such shorter period as the commissioner may permit, and the commissioner has not disapproved it within that period:   Sales, purchases, exchanges, loans, extensions of credit, or investments, if the transactions are equal to or exceed:   With respect to nonlife insurers, the lesser of three percent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders as of the thirty-first day of the preceding December; or    With respect to life insurers, three percent of the insurer's admitted assets as of the thirty-first day of the preceding December;       Loans or extensions of credit to any person who is not an affiliate, where the insurer makes loans or extensions of credit with the agreement or understanding that the proceeds of the transactions, in whole or in substantial part, are to be used to make loans or extensions of credit to, purchase assets of, or make investments in, any affiliate of the insurer making the loans or extensions of credit if the transactions are equal to or exceed:   With respect to nonlife insurers, the lesser of three percent of the insurer's admitted assets or twenty-five percent of surplus as regards policyholders as of the thirty-first day of the preceding December; or    With respect to life insurers, three percent of the insurer's admitted assets as of the thirty-first day of the preceding December;       Reinsurance agreements or modifications, including:   All reinsurance pooling agreements; and    Agreements in which the reinsurance premium or a change in the insurer's liabilities, or the projected reinsurance premium or a change in the insurer's liabilities in any of the next three years, equals or exceeds five percent of the insurer's surplus as regards policyholders, as of the thirty-first day of the preceding December, including those agreements that may require as consideration the transfer of assets from an insurer to a nonaffiliate, if an agreement or understanding exists between the insurer and nonaffiliate that any portion of the assets will be transferred to one or more affiliates of the insurer;       All management agreements, service contracts, tax allocation agreements, guarantees, and cost-sharing arrangements;    Guarantees when made by a domestic insurer; except that a guarantee that is quantifiable as to amount is not subject to the notice requirements of this subparagraph (V) unless it exceeds the lesser of one-half of one percent of the insurer's admitted assets or ten percent of surplus as regards policyholders as of the thirty-first day of the preceding December. Guarantees that are not quantifiable as to amount are subject to the notice requirements of this subparagraph (V).    Direct or indirect acquisitions or investments in a person that controls the insurer or in an affiliate of the insurer in an amount that, together with its present holdings in such investments, exceeds two and one-half percent of the insurer's surplus to policyholders; except that direct or indirect acquisitions or investments in subsidiaries acquired pursuant to section 10-3-802 or authorized under any other section of Colorado law, or in nonsubsidiary insurance affiliates that are subject to this part 8, are exempt from this requirement; and    Any material transactions, specified by rule, that the commissioner determines may adversely affect the interests of the insurer's policyholders.       The notice for amendments or modifications specified in paragraph (b) of this subsection (1) must include the reasons for the change and the financial impact on the domestic insurer. Informal notice shall be reported, within thirty days after a termination of a previously filed agreement, to the commissioner for determination of the type of filing required, if any.    Nothing in paragraph (b) of this subsection (1) authorizes or permits any transactions that, in the case of an insurer not a member of the same insurance holding company system, would be otherwise contrary to law.    A domestic insurer shall not enter into transactions that are part of a plan or series of like transactions with persons within the insurance holding company system if the purpose of those separate transactions is to avoid the statutory threshold amount and thus avoid the review that would occur otherwise. If the commissioner determines that separate transactions were entered into over any twelve-month period for that purpose, the commissioner may exercise his or her authority under section 10-3-811.    The commissioner, in reviewing transactions pursuant to paragraph (b) of this subsection (1), shall consider whether the transactions comply with the standards set forth in paragraph (a) of this subsection (1) and whether they may adversely affect the interests of policyholders.    A domestic insurer shall notify the commissioner within thirty days after any investment of the domestic insurer in any one corporation if the total investment in the corporation by the insurance holding company system exceeds ten percent of the corporation's voting securities.       Dividends and other distributions.   A domestic insurer shall not pay any extraordinary dividend or make any other extraordinary distribution to its shareholders until thirty days after the commissioner has received notice of the declaration of the dividend or distribution and has not within that period disapproved the payment, or until the commissioner has approved the payment within the thirty-day period.    For purposes of this section, an extraordinary dividend or distribution includes any dividend or distribution of cash or other property whose fair market value, together with that of other dividends or distributions made within the preceding twelve months, exceeds the lesser of:   Ten percent of the insurer's surplus as regards policyholders as of the thirty-first day of the preceding December; or    The net gain from operations of the insurer, if the insurer is a life insurer, or the net income, if the insurer is not a life insurer, not including realized capital gains, for the twelve-month period ending the thirty-first day of the preceding December, but not including pro rata distributions of any class of the insurer's own securities.       In determining whether a dividend or distribution is extraordinary, an insurer other than a life insurer may carry forward net income from the previous two calendar years that has not already been paid out as dividends. This carry-forward shall be computed by taking the net income from the second and third preceding calendar years, not including realized capital gains, less dividends paid in the second and immediately preceding calendar years.    Notwithstanding any other provision of law, an insurer may declare an extraordinary dividend or distribution that is conditional upon the commissioner's approval, and the declaration confers no rights upon shareholders until:   The commissioner has approved the payment of the dividend or distribution; or    The commissioner has not disapproved payment within the thirty-day period referred to in paragraph (a) of this subsection (2).          For purposes of this part 8, in determining whether an insurer's surplus as regards policyholders is reasonable in relation to the insurer's outstanding liabilities and adequate to meet its financial needs, the commissioner shall consider the following factors, among others:   The size of the insurer as measured by its assets, capital and surplus, reserves, premium writings, insurance in force, and other appropriate criteria;    The extent to which the insurer's business is diversified among several lines of insurance;    The number and size of risks insured in each line of business;    The extent of the geographical dispersion of the insurer's insured risks;    The nature and extent of the insurer's reinsurance program;    The quality, diversification, and liquidity of the insurer's investment portfolio;    The recent past and projected future trend in the size of the insurer's investment portfolio;    The surplus as regards policyholders maintained by other comparable insurers;    The adequacy of the insurer's reserves;    The quality and liquidity of investments in affiliates. The commissioner may treat any such investment as a disallowed asset for purposes of determining the adequacy of surplus as regards policyholders whenever in the judgment of the commissioner the investment so warrants.    The quality of the insurer's earnings and the extent to which the reported earnings include extraordinary items, such as surplus relief reinsurance transactions; and    Any other situation not described in this subsection (3) that may render the operations of the insurer hazardous to the public or its policyholders.        History. Source: L. 2014: Entire part R&RE,(SB 14-152), ch. 312, p. 1342, § 2, effective July 1.    Editor's note:   This section is similar to former § 10-3-805 as it existed prior to 2014.