RI Gen L § 27-35-4 (2021)
2021 Rhode Island General Laws|Title 27 - Insurance|Chapter 27-35 - Insurance Holding Company Systems|Section 27-35-4 - Standards and management of an insurer within a holding company system.

§ 27-35-4. Standards and management of an insurer within a holding company system.(a) Transactions within an insurance holding company system. (1) Transactions within an insurance holding company system to which an insurer subject to registration is a party shall be subject to the following standards:(i) The terms shall be fair and reasonable;(ii) Agreements for cost sharing and management services shall include such provisions as required by rule and regulation issued by the commissioner;(iii) Charges or fees for services performed shall be reasonable;(iv) Expenses incurred and payment received shall be allocated to the insurer in conformity with customary insurance accounting practices consistently applied;(v) 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(vi) The insurer's surplus as regards policyholders following any dividends or distributions to shareholder affiliates shall be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs;(vii) The charges or fees for services performed shall be reasonable; and(2) 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, which are subject to any materiality standards contained in subparagraphs (A) through (G) of this subsection, may not be entered into unless the insurer has notified the commissioner in writing of its intention to enter into the transaction at least thirty (30) days prior, or such shorter period as the commissioner may permit, and the commissioner has not disapproved it within that period. The notice for amendments or modifications shall include the reasons for the change and the financial impact on the domestic insurer. Informal notice shall be reported, within thirty (30) days after a termination of a previously filed agreement, to the commissioner for determination of the type of filing required, if any.(A) Sales, purchases, exchanges, loans, extensions of credit, or investments, provided the transactions are equal to or exceed:(i) With respect to nonlife insurers, the lesser of three percent (3%) of the insurer's admitted assets or twenty-five percent (25%) of surplus as regards policyholders as of the 31st day of December next preceding; or(ii) With respect to life insurers, three percent (3%) of the insurer's admitted assets; as of the 31st day of December next preceding;(B) Loans or extensions of credit to any person who is not an affiliate, where the insurer makes the loans or extensions of credit with the agreement or understanding that the proceeds of the transactions, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase assets of, or to make investments in, any affiliate of the insurer making the loans of extensions of credit, provided the transactions are equal to or exceed:(i) With respect to nonlife insurers, the lesser of three percent (3%) of the insurer's admitted assets or twenty-five percent (25%) of surplus as regards policyholders as of the 31st day of December next preceding;(ii) With respect to life insurers, three percent (3%) of the insurer's admitted assets; as of the 31st day of December next preceding;(C) Reinsurance agreements or modifications thereto, including:(I) All reinsurance pooling agreements;(II) Agreements in which the reinsurance premium or a change in the insurer's liabilities, or the projected reinsurance premiums or a change in the insurer's liabilities in any of the next three (3) years, equals or exceeds five percent (5%) of the insurer's surplus as regards policyholders as of the 31st day of December next preceding, including those agreements which may require as consideration the transfer of assets from an insurer to a nonaffiliate, if an agreement or understanding exists between the insurer and nonaffiliate that any portion of those assets will be transferred to one or more affiliates of the insurer;(D) All management agreements, service contracts, tax allocation agreements, guarantees and all cost sharing arrangements;(E) Guarantees when made by a domestic insurer; provided, however, that a guarantee which is quantifiable as to amount is not subject to the notice requirements of this subsection unless it exceeds the lesser of one-half of one percent (.5%) of the insurer's admitted assets or ten percent (10%) of surplus as regards policyholders as of the 31st day of December next preceding. Further, all guarantees which are not quantifiable as to amount are subject to the notice requirements of this subsection;(F) Direct or indirect acquisitions or investments in a person that controls the insurer or in an affiliate of the insurer in an amount which, together with its present holdings in such investments, exceeds two and one-half percent (2.5%) of the insurer's surplus to policyholders. Direct or indirect acquisitions or investments in subsidiaries acquired pursuant to § 27-35-1.5 (or authorized under any other section of this chapter), or in non-subsidiary insurance affiliates that are subject to the provisions of this act, are exempt from this requirements; and(G) Any material transactions, specified by regulation, which the commissioner determines may adversely affect the interests of the insurer's policyholders;Nothing contained in this paragraph shall be deemed to authorize or permit any transactions which, in the case of an insurer not a member of the same insurance holding company system, would be otherwise contrary to law.(3) A domestic insurer may not enter into transactions which are part of a plan or series of like transactions with persons within the 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 the separate transactions were entered into over any twelve (12) month period for that purpose, he or she may exercise his or her authority under § 27-35-9.(4) The commissioner, in reviewing transactions pursuant to subdivision (a)(2) of this section shall consider whether the transactions comply with the standards set forth in subdivision (a)(1) of this section and whether they may adversely affect the interests of policyholders.(5) The commissioner shall be notified within thirty (30) days of any investment of the domestic insurer in any one corporation if the total investment in the corporation by the insurance holding company system exceeds ten percent (10%) of the corporation's voting securities.(b) Adequacy of surplus. For the purposes of this chapter, in determining whether an insurer's surplus as regards policyholders is reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs, the following factors, among others, shall be considered:(1) The size of the insurer as measured by its assets, capital and surplus, reserves, premium writings, insurance in force, and other appropriate criteria;(2) The extent to which the insurer's business is diversified among the several lines of insurance;(3) The number and size of risks insured in each line of business;(4) The extent of the geographical dispersion of the insurer's insured risks;(5) The nature and extent of the insurer's reinsurance program;(6) The quality, diversification, and liquidity of the insurer's investment portfolio;(7) The recent past and projected future trend in the size of the insurer's investment portfolio;(8) The surplus as regards policyholders maintained by other comparable insurers;(9) The adequacy of the insurer's reserves; and(10) The quality and liquidity of investment in affiliates. The commissioner may treat this investment as a disallowed asset for the purposes of determining the adequacy of surplus as regards policyholders whenever in his or her judgment the investment warrants.(c) (1) Dividends and other distributions. No domestic insurer shall pay any extraordinary dividend or make any other extraordinary distribution to its shareholders until thirty (30) days after the commissioner has received notice of the declaration thereof and has not within that period disapproved the payment, or until the commissioner has approved the payment within the thirty (30) day period;(2) 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 (12) months exceeds the lesser of:(i) ten percent (10%) of the insurer's surplus as regards policyholders as of the 31st day of December next preceding; or(ii) 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 (12) month period ending the 31st day of December next preceding, but shall not include pro rata distributions of any class of the insurer's own securities.In determining whether a dividend or distribution is extraordinary, an insurer other than a life insurer may carry forward net income from the previous two (2) 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 immediate preceding calendar years;(3) Notwithstanding any other provision of law, an insurer may declare an extraordinary dividend or distribution which is conditional upon the commissioner's approval, and the declaration shall confer no rights upon shareholders until: (i) the commissioner has approved the payment of the dividend or distribution or (ii) the commissioner has not disapproved the payment within the thirty (30) day period referred to in subdivision (1) of this subsection.(d) Management of domestic insurers subject to registration. All domestic insurers shall become in compliance and maintain compliance with the provisions of this title addressing good corporate governance standards § 27-1-2.1, unless otherwise exempted in § 27-1-2.1.History of Section.P.L. 1971, ch. 273, § 1; P.L. 1991, ch. 257, § 4; P.L. 1991, ch. 348, § 10; P.L. 1992, ch. 325, § 1; P.L. 1999, ch. 141, § 2; P.L. 2010, ch. 55, § 1; P.L. 2010, ch. 70, § 1; P.L. 2011, ch. 15, § 2; P.L. 2011, ch. 26, § 2.