2023 Laws of Puerto Rico › TITLE TWENTY-SIX - Insurance (§§ 101 — 10377) › Subtitle 1 - Insurance Generally (§§ 101 — 4513) › Chapter 44 - Insurance Holding Company System Regulatory Act (§§ 4401 — 4414) › § 4403 - Acquisition of control of or merger with domestic insurer or health service organization

(a) Filing requirements.—
(1) No person other than the issuer shall make a tender offer for or a request or invitation for tenders of, or enter into any agreement to exchange securities for, seek to acquire, or acquire, in the open market or otherwise, any voting security of a domestic insurer or health service organization if, after the consummation thereof, such person would, directly or indirectly, or by conversion or by exercise of any right to acquire, be in control of the insurer or organization. No person shall enter into an agreement to merge with or otherwise to acquire control of a domestic insurer or health service organization unless, at the time the offer, request, or invitation is made or the agreement is entered into, or prior to the acquisition of the securities if no offer or agreement is involved, such person has filed a statement with the Commissioner confirming the information required by this section was sent to the insurer or health service organization, and the offer, request, invitation, agreement or acquisition has been approved by the Commissioner pursuant to the provisions of this chapter.
(2) For purposes of this section a “domestic insurer or health service organization” shall include any person controlling a domestic insurer or health service organization unless the person, as determined by the Commissioner, is either directly or through its affiliates primarily engaged in business other than the business of insurance. Nevertheless, before the acquisition, the acquiring person must also file a pre-acquisition notification with the Commissioner, sixty (60) days prior to the proposed acquisition, which shall contain the information set forth in § 4404(c) of this title. A failure to file the notification may be subject to penalties specified in § 4404(e)(3) of this title. For the purposes of this clause, “person” shall not include any securities broker holding, in the usual and customary broker’s function, less than twenty percent (20%) of the voting securities of an insurer, health service organization, or of any person which controls an insurance company.
(3) Any controlling person of a domestic insurer seeking to divest its controlling interest in the domestic insurer or health service organization, in any manner, shall file with the Commissioner a confidential notice of its proposed divestiture at least thirty (30) days prior to the cessation of control, unless said information has been included in the statement mentioned in clauses (1) and (2) of this subsection.
(b) Content of statement.— The statement to be filed with the Commissioner shall be made under oath or affirmation and shall contain the following:
(1) The name and address of each person by whom or on whose behalf the merger or other acquisition of control referred to in subsection (a) of this section is to be effected (hereinafter called the “acquiring party”) and;
(A) If the person is an individual, his or her principal occupation and all offices and positions held during the past five (5) years, and any conviction of crimes other than minor traffic violations during the past ten (10) years;
(B) If the person is not an individual, a report of the nature of its business operations during the past five (5) years or for the lesser period as the person and any predecessors shall have been in existence; an informative description of the business intended to be done by the person and the person’s subsidiaries; and a list of all individuals who are or who have been selected to become directors or executive officers of the person, or who perform or will perform functions appropriate to such positions. The list shall include for each individual the information required by paragraph (A).
(2) The source, nature, and amount of the consideration used or to be used in effecting the merger or other acquisition of control; a description of any transaction where funds were or are to be obtained for any such purpose including any pledge of the insurer’s stock, or the stock of any of its subsidiaries or controlling affiliates, and the identity of persons furnishing consideration.
(3) Fully audited financial information as to the earnings and financial condition of each acquiring party for the preceding five (5) fiscal years of each acquiring party, or for such lesser period as the acquiring party and any predecessors shall have been in existence, and similar unaudited information as of a date not earlier than ninety (90) days prior to the filing of the merger or acquisition statement.
(4) Any plans or proposals which each acquiring party may have to liquidate the insurer, to sell its assets or merge or consolidate it with any person, or to make any other material change in its business or corporate structure or management.
(5) The number of shares of any security referred to in subsection (a) of this section which each acquiring party proposes to acquire, and the terms of the offer, request, invitation, agreement, or acquisition referred to in subsection (a) of this section, and a statement as to the method by which the fairness of the proposal was arrived at.
(6) The amount of each class of any security referred to in subsection (a) of this section, which is beneficially owned or concerning which there is a right to acquire beneficial ownership by each acquiring party.
(7) A full description of any contracts, arrangements, or understandings with respect to any security referred to in subsection (a) of this section in which any acquiring party is involved, including, but not limited to, the transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or guarantees of profits, division of losses or profits, or the giving or withholding of proxies. The description shall identify the persons with whom the contracts, arrangements or understandings have been entered into.
(8) A description of the purchase of any security referred to in subsection (a) of this section during the twelve (12) calendar months preceding the filing of the statement by any acquiring party, including the dates of purchase, names of the purchasers and consideration paid or agreed to be paid.
(9) A description of any recommendations to purchase any security referred to in subsection (a) of this section made during the twelve (12) calendar months preceding the filing of the statement by any acquiring party, or by anyone based upon interviews or at the suggestion of the acquiring party.
(10) Copies of all tender offers for, requests, or invitations for tenders of, exchange offers for, and agreements to acquire or exchange any securities referred to in subsection (a) of this section, and if distributed, of additional soliciting material relating to them.
(11) The term of any agreement, contract, or understanding made with or proposed to be made with any broker-dealer as to solicitation of securities referred to in subsection (a) of this section for tender, and the amount of any fees, commissions, or other compensation to be paid to broker-dealers with regard thereto.
(12) An acknowledgement by the person that filed the statement of acquisition, that the person and all subsidiaries within its control in the insurance holding company system will provide information to the Commissioner upon request as necessary to evaluate enterprise risk to the insurer.
(13) Such additional information as the Commissioner may by rule or regulation prescribe as necessary or appropriate for the protection of policyholders of the insurer or in the public interest.
If the person required to file the statement referred to in subsection (a) of this section is a partnership, limited partnership, syndicate, or other group, the Commissioner may require that the information called for by clauses (1) through (13) shall be given with respect to each partner of the partnership or limited partnership, each member of the syndicate or group, and each person who controls the partner or member. If any partner, member, or person is a corporation or the person required to file the statement referred to in subsection (a) of this section is a corporation, the Commissioner may require that the information called for by clauses (1) through (13) shall be given with respect to the corporation, each officer and director of the corporation, and each person who is directly or indirectly the beneficial owner of more than ten percent (10%) of the outstanding voting securities of the corporation.
If any material change occurs in the facts set forth in the statement filed with the Commissioner and sent to the insurer pursuant to this section, an amendment setting forth the change, together with copies of all documents and other material relevant to the change, shall be filed with the Commissioner and sent to the insurer within two (2) business days after the person learns of the change.
(c) Alternative filing materials.— If any offer, request, invitation, agreement or acquisition referred to in subsection (a) of this section is proposed to be made, and it requires a similar registration or disclosure in accordance the laws of Puerto Rico, the person required to file the statement referred to in subsection (a) of this section may utilize the documents in furnishing the information called for by that statement.
(d) Approval by Commissioner: administrative hearings.—
(1) The Commissioner shall approve any merger or other acquisition of control referred to in subsection (a) of this section unless, after a public hearing, the Commissioner finds that:
(A) After the change of control, the domestic insurer or health service organization referred to in subsection (a) of this section would not be able to satisfy the requirements for the issuance of a license to write the line or lines of insurance for which it is presently licensed.
(B) The effect of the merger or other acquisition of control would be substantially to lessen competition in the Puerto Rico insurance industry or tend to create a monopoly. In applying the competitive standard in this paragraph.
(i) The informational requirements of § 4404(c) of this title and the standards of § 4404(d)(2) of this title shall apply;
(ii) The merger or other acquisition shall not be disapproved if the Commissioner finds that any of the situations meeting the criteria provided by § 4404(d)(3) of this title exist; and
(iii) The Commissioner may condition the approval of the merger or other acquisition on the removal of the basis of disapproval within a specified period of time.
(C) The financial condition of any acquiring party is such as might jeopardize the financial stability of the insurer, or prejudice the interest of its policyholders.
(D) The plans or proposals which the acquiring party has to liquidate the insurer, sell its assets or consolidate or merge it with any person, or to make any other material change in its business or corporate structure or management, are unfair and unreasonable to policyholders of the insurer and not in the public interest.
(E) The competence, experience, and integrity of those persons who would control the operation of the insurer are such that it would not be in the interest of policyholders of the insurer and of the public to permit the merger or other acquisition of control.
(F) The acquisition is likely to be hazardous or prejudicial to the insurance-buying public.
(2) The public hearing referred to in clause (1) of this subsection shall be held within thirty (30) days after the statement required by subsection (a) of this section is filed, and at least twenty (20) days” notice on the date, time, and place of the hearing shall be given by the Commissioner to the person filing the statement and to any other party with an interest. Not less than fifteen (15) days” notice of the administrative hearing shall be given by the person filing the statement to the insurer or health service organization, and to such other persons as may be designated by the Commissioner.
Any person with a legitimate interest in participating in the administrative hearing proceedings may file a duly justified written request to be allowed to intervene or participate in said proceedings.
The notice and administrative hearing proceedings shall be conducted publicly and in accordance with the proceedings established in the provisions of the Commonwealth of Puerto Rico Uniform Administrative Procedures Act, §§ 2101 et seq. of Title 3. The notices regarding the administrative hearings shall be published in the webpage of the Office of the Insurance Commissioner.
At the administrative hearing, the person filing the statement, the insurer or health service organization, any person to whom notice of hearing was sent, and any other person whose interest may be affected shall have the right to present evidence, examine and cross-examine witnesses, and offer oral and written arguments in accordance with §§ 251-254 of this title.
The Commissioner shall make a determination within the sixty (60)-day period preceding the effective date of the proposed transaction.
(3) In connection with a change of control of a domestic insurer or health service organization, any determination by the Commissioner that the person acquiring control of the insurer or health service organization shall be required to maintain or restore the capital of the insurer or organization to the level required by the laws and regulations of Puerto Rico shall be made not later than sixty (60) days after the date of notification of the change in control submitted pursuant to subsection (a)(2) of this section.
(4) The Commissioner may retain at the acquiring person’s expense any attorneys, actuaries, accountants and other experts not otherwise a part of the Commissioner’s office staff as may be reasonably necessary to assist the Commissioner in reviewing the proposed acquisition of control.
(5) If the proposed acquisition of control or merger requires the approval of Commissioners from two or more jurisdictions, the administrative hearing may be held on a consolidated basis upon request of the person filing the statement of acquisition or merger. Such request shall be filed with the NAIC at their headquarters, and a copy given to the Commissioner, within five (5) days of filing the statement of acquisition or merger. The Commissioner shall provide notice of his/her determination within ten (10) days of the receipt of the statement.
(e) Exemptions.— The provisions of this section shall not apply to:
(1) Any offer, request, invitation, agreement, or acquisition which the Commissioner by order shall exempt as not having been made or entered into for the purpose and not having the effect of changing or influencing the control of a domestic insurer or health service organization, or as otherwise not comprehended within the purposes of this section.
(f) Violations.— The following shall be violations of this section:
(1) The failure to file any statement, amendment or other material required to be filed pursuant to subsection (a) or (b) of this section; or
(2) The effectuation or any attempt to effectuate an acquisition of control of, or merger with, a domestic insurer or health service organization unless the Commissioner has given approval.
(g) Jurisdiction, consent to service of process.— The courts of Puerto Rico are hereby vested with jurisdiction over every person not resident, domiciled, or authorized to do business in this jurisdiction who files a statement with the Commissioner under this section, and overall actions involving such person arising out of violations of this section. It shall be understood that the person who files the statement is authorized to be served all lawful process in any action, suit, or proceeding arising out of violations of this section, in accordance with the Puerto Rico Rules of Civil Procedure.
History —Ins. Code, added as § 44.030 on Mar. 7, 2012, No. 51, § 1, eff. 30 days after Mar. 7, 2012.