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) › § 4404 - Acquisitions involving other insurers and health service organizations

(a) Definitions.— The following definitions shall apply for the purposes of this section only:
(1) “Acquisition” means any agreement, arrangement, or activity the consummation of which results in a person acquiring directly or indirectly the control of another person, and includes but is not limited to the acquisition of voting securities, the acquisition of assets, bulk reinsurance, and mergers.
(2) An “involved insurer or health service organization” includes an insurer or organization which either acquires or is acquired, is affiliated with an acquirer or acquired, or is the result of a merger.
(b) Scope.—
(1) Except for what is established in clause (2), the provisions of this section apply to any acquisition in which there is a change in control of an insurer or health service organization licensed to do business in Puerto Rico.
(2) This section shall not apply to the following:
(A) The acquisitions subject to approval by the Commissioner pursuant to § 4403 of this title.
(B) A purchase of securities solely for investment purposes so long as the securities are not used by voting or otherwise to cause or attempt to cause the substantial lessening of competition in the insurance market of Puerto Rico. If a purchase of securities results in a presumption of control under § 4401(c) of this title, it shall not be considered solely for investment purposes unless the Commissioner of the insurer or health service organization’s state of domicile accepts a disclaimer of control or affirmatively finds that control does not exist and informs the Commissioner of Insurance of Puerto Rico.
(C) The acquisition of a person by another person when both persons are neither directly nor through affiliates primarily engaged in the business of insurance, if pre-acquisition notification is filed with the Commissioner in accordance with subsection (c)(1) of this section, thirty (30) days prior to the proposed effective date of the acquisition. However, such pre-acquisition notification is not an exemption from complying with what is established in the remaining paragraphs of this clause.
(D) The acquisition of already affiliated persons.
(E) An acquisition if, as an immediate result of the acquisition:
(i) In no market would the combined market share of the involved insurers exceed five percent (5%) of the total market;
(ii) There would be no increase in any market share, or
(iii) In no market would
(I) The combined market share of the involved insurers exceeds twelve percent (12%) of the total market, and
(II) The market share increase by more than two percent (2%) of the total market.
For the purpose of this paragraph, a market means insurance premiums underwritten in this jurisdiction for a line of business as contained in the annual statement required to be filed by insurers and health service organizations licensed to do business in Puerto Rico.
(F) An acquisition for which a pre-acquisition notification is required pursuant to this section due solely to the resulting effect on the marine insurance.
(G) An acquisition of an insurer whose domiciliary Commissioner affirmatively finds that the insurer is in failing condition; there is a lack of feasible alternative to improving such condition; the public benefits of improving the insurer’s condition through the acquisition exceed the public benefits that would arise from not lessening competition; and the findings are communicated by the domiciliary Commissioner of the acquiring insurer to the Commissioner of Insurance of Puerto Rico.
(c) Pre-acquisition notification; waiting period.— An acquisition covered by subsection (b) of this section may be subject to an order pursuant to subsection (e) of this section unless the acquiring person files a pre-acquisition notification and the waiting period has expired. The acquired person may file a pre-acquisition notification. The Commissioner shall give confidential treatment to information submitted under this subsection in the same manner as provided in § 4408 of this title.
(1) The pre-acquisition notification shall be in such form and contain such information as prescribed by the National Association of Insurance Commissioners (NAIC) relating to those markets which, under subsection (b)(2)(E) of this section cause the acquisition not to be exempted. The Commissioner may require such additional material and information as deemed necessary to determine whether the proposed acquisition, if consummated, would violate the competitive standard of subsection (d) of this section. The required information may include an opinion of an economist as to the competitive impact of the acquisition in this jurisdiction accompanied by a summary of the education and experience of such expert indicating his or her ability to render an informed opinion.
(2) The waiting period required shall begin on the date of receipt of the Commissioner of a pre-acquisition notification and shall end thirty (30) days after the date of receipt, or termination of the waiting period by the Commissioner. Prior to the end of the waiting period, the Commissioner on a one-time basis may require the submission of additional needed information relevant to the proposed acquisition, in which event the waiting period shall end thirty (30) days after the receipt of the additional information by the Commissioner or termination of the waiting period by the Commissioner.
(d) Competitive standard.—
(1) The Commissioner may enter an order under subsection (e)(1) of this section with respect to an acquisition if there is substantial evidence that the effect of the acquisition may be substantially to lessen competition in any line of insurance in Puerto Rico or tend to create a monopoly or if the insurer fails to file adequate information in compliance with subsection (c) of this section.
(2) In determining whether a proposed acquisition would violate the competitive standard provided in clause (1), the Commissioner shall consider the following:
(A) Any acquisition covered under subsection (b) of this section involving two (2) or more insurers competing in the same market is prima facie evidence of violation of the competitive standards.
(i) If the market is highly concentrated and the involved insurers possess the following shares of the market:
Insurer A Insurer B
(I) 4% 4% or more
(II) 10% 2% or more
(III) 15% 1% or more
(ii) Or, if the market is not highly concentrated and the involved insurers possess the following shares of the market:
Insurer A Insurer B
(I) 5% 5% or more
(II) 10% 4% or more
(III) 15% 3% or more
(IV) 19% 1% or more
A highly concentrated market is one in which the share of the four (4) largest insurers is seventy-five percent (75%) or more of the market. Percentages not shown in the tables are interpolated proportionately to the percentages that are shown. If more than two (2) insurers or health service organizations are involved, exceeding the total of the two columns in the table is prima facie evidence of violation of the competitive standard in clause (1). For the purpose of this paragraph, the insurer with the largest share of the market shall be deemed to be Insurer A.
(B) There is a significant trend toward increased concentration when the aggregate market share of any grouping of the largest insurers in the market, from the two (2) largest to the eight (8) largest, has increased by seven percent (7%) or more of the market over a period of time extending from any base year five (5) to ten (10) years prior to the acquisition up to the time of the acquisition. Any acquisition or merger covered under subsection (b) of this section involving two (2) or more insurers competing in the same market is prima facie evidence of violation of the competitive standard in clause (1) if:
(i) There is a significant trend toward increased concentration in the market;
(ii) One of the insurers involved is one of the insurers in a grouping of large insurers showing the requisite increase in the market share; and
(iii) Another involved insurer’s market is two percent (2%) or more.
(C) For the purposes of this clause:
(i) The term “insurer or health service organization” includes any company or group of companies under common management, ownership or control.
(ii) The term “market” means the relevant product and geographical markets. In determining the relevant product and geographical markets, the Commissioner shall give due consideration to, among other things, the definitions or guidelines, if any, promulgated by the NAIC and to information, if any, submitted by parties of the acquisition. In the absence of sufficient information to the contrary, the relevant product market is assumed to be the direct written insurance premium for a line of business, such line being that used in the annual statement required to be filed by insurers and health service organizations doing business in Puerto Rico, and the relevant geographical market is assumed to be Puerto Rico.
(iii) The burden of showing prima facie evidence of violation of the competitive standard rests upon the Commissioner.
(D) Even though an acquisition is not prima facie violative of the competitive standard under paragraphs (A) and (B), the Commissioner may establish the requisite anticompetitive effect based upon other substantial evidence. Even though an acquisition is prima facie violative of the competitive standard under paragraphs (A) and (B), a party may establish the absence of the requisite anticompetitive effect based upon other substantial evidence. Relevant factors in making a determination under this paragraph include, but are not limited to, the following: market shares, volatility of ranking of market leaders, number of competitors, concentration, trend of concentration in the industry, and ease of entry and exit into the market.
(3) An order may not be entered under subsection (e)(1) of this section if:
(A) The acquisition will yield substantial economies of scale or economies in resource utilization that cannot be feasibly achieved in any other way, and the public benefits which would arise from such economies exceed the public benefits which would arise from not lessening competition.
(B) The acquisition will substantially increase the availability of insurance, and the public benefits of the increase exceed the public benefits which would arise from not lessening competition.
(e) Orders and penalties.—
(1) If an acquisition violates the standards of this section, the Commissioner may enter an order:
(A) Requiring an involved insurer or health service organization to cease and desist from doing business in his/her jurisdiction with respect to the line or lines of insurance involved in the violation; or
(B) Denying the application of an acquired or acquiring insurer or health service organization for a license to do business.
(2) Any orders shall be subject to the provisions in Chapter 2 of this Code. Any order pursuant to this subsection shall not apply if the acquisition is not consummated.
(3) Any person who violates a cease and desist order of the Commissioner under clause (1) and while the order is in effect shall, after notice and hearing and upon order of the Commissioner, be subject at the discretion of the Commissioner to one or more of the following:
(A) A monetary penalty of not more than $10,000 for every day of violation; or
(B) Suspension or revocation of the person’s license.
(4) Any insurer, health service organization, or other person who fails to make any filing required by this section, and who also fails to demonstrate a good faith effort to comply with any filing requirement, shall be subject to a fine of not more than $50,000.
(f) Inapplicable provisions.— Sections 4410(b), 4410(c) and 4412 of this title do not apply to acquisitions covered under subsection (b) Of this section.
History —Ins. Code, added as § 44.040 on Mar. 7, 2012, No. 51, § 1, eff. 30 days after Mar. 7, 2012.