Arkansas Administrative Code
Agency 003 - DEPARTMENT OF COMMERCE
Division 22 - Insurance Department
Rule 003.22.21-005 - Insurance Business Transfers
Universal Citation: AR Admin Rules 003.22.21-005
Current through Register Vol. 49, No. 9, September, 2024
Section 1. Authority
This rule is issued pursuant to Act 1018 of 2021, "An Act to Establish the Arkansas Business Transfer Act," codified at Ark. Code Ann. § 23-69-501 et seq.
Section 2. Purpose
The purpose of this rule is to implement the Arkansas Insurance Business Transfer Act ("the Act") to provide standards and procedures for the transfer and novation of insurance policies from a transferring insurer to an assuming insurer through a transaction known as an "insurance business transfer." The Act permits an insurer to take a book of insurance policies and completely transfer all risks, obligations and liabilities to another company. This mechanism can provide legal and economic finality to legacy insurance risks and improve the use of capital and management resources by permitting another company with expertise in run-off business to assume the discontinued lines of business that are the subject of the transfer.
Such a transaction does not require the affirmative consent of policyholders or reinsured if the transfer and novation is conducted in accordance with the Act. However, even with the absence of affirmative consent, the interests of policyholders, claimants, and reinsureds is always a primary consideration when this type of transaction is pursued. Procedural safeguards found in the Act and this Rule exist to avoid any adverse material impact on those interests.
Section 3. Applicability and Scope
This rule applies to all proposed transactions pursued under the Arkansas Insurance Business Transfer Act in which a transfer is sought of some or all insurance obligations, risks, or both, of existing or in-force contracts for insurance or reinsurance by a transferring insurer to one or more assuming insurers. Application of this rule does not limit or restrict other valid means of effecting a transfer or novation.
Section 4. Definitions
As used in this rule:
(1) "Affiliate" has the meaning ascribed to
such term in Ark. Code Ann. §
23-63-503.
(2) "Applicant" means a transferring insurer
or reinsurer applying under Ark. Code Ann. §
23-69-506.
(3) "Assuming insurer" means an insurer
domiciled in Arkansas that assumes or seeks to assume policies from a
transferring insurer pursuant to this act. An assuming insurer may be a company
established pursuant to Ark. Code Ann. §§
23-63-1601, et seq.,
regarding captive insurers.
(4)
"Court" means the Pulaski County Circuit Court. All proceedings brought under
the Insurance Business Transfer Act have proper and exclusive venue in the
Pulaski County Circuit Court.
(5)
"Department" means the Arkansas Insurance Department.
(6) "Commissioner" means the Arkansas
Insurance Commissioner.
(7)
"Implementation order" means an order issued by the Pulaski County Circuit
Court under Ark. Code Ann. §
23-69-506.
(8) "Insurance business transfer" means a
transfer and novation in accordance with the Act or this rule. Insurance
business transfers will transfer insurance obligations or risks, or both, of
existing or in-force contracts of insurance or reinsurance from a transferring
insurer to an assuming insurer. Once approved pursuant to this act, the
insurance business transfer will effect a novation of the transferred contracts
of insurance or reinsurance with the result that the assuming insurer becomes
directly liable to the policyholders of the transferring insurer and the
transferring insurer's insurance obligations or risks, or both, under the
contracts are extinguished.
(9)
"Insurance business transfer plan" or "Plan" means the plan submitted to the
Department to accomplish the transfer and novation pursuant to an insurance
business transfer, including any associated transfer of assets and rights from
or on behalf of the transferring insurer to the assuming insurer.
(10) "Independent expert" means an impartial
person who has no financial interest in either the assuming insurer or
transferring insurer, has not been employed by or acted as an officer,
director, consultant or other independent contractor for either the assuming
insurer or transferring insurer within the past twelve (12) months, is not
appointed by the Commissioner to assist in any capacity in any proceeding and
is receiving no compensation in connection with the transaction governed by
this Act other than a fee based on a fixed or hourly basis that is not
contingent on the approval or consummation of an insurance business transfer
and provides proof of insurance coverage that is satisfactory to the
Commissioner.
(11) "Insurer" means
an insurance or surety company, including a reinsurance company, and shall be
deemed to include a corporation, company, partnership, association, society,
order, individual or aggregation of individuals engaging in or proposing or
attempting to engage in any kind of insurance or surety business, including the
exchanging of reciprocal or inter-insurance contracts between individuals,
partnerships and corporations.
(12)
"Notice" means provision of notification pursuant to Ark. Code Ann. §
23-69-505 within fifteen (15) days of an event triggering a notice requirement
under the Act.
(13) "Policy" means
a policy, contract or certificate of insurance or a contract of reinsurance
pursuant to which the insurer agrees to assume an obligation or risk, or both,
of the policyholder or to make payments on behalf of, or to, the policyholder
or its beneficiaries, and shall include property, casualty, life, health and
any other line of insurance the Commissioner finds is suitable for an insurance
business transfer.
(14)
"Policyholder" means an insured or a reinsured under a policy that is part of
the subject business.
(15) "Subject
business" means the policy or policies that are the subject of the
Plan.
(16) "Transfer and novation"
means the transfer of insurance obligations or risks, or both, of existing or
in-force policies from a transferring insurer to an assuming insurer, and is
intended to effect a novation of the transferred policies with the result that
the assuming insurer becomes directly liable to the policyholders of the
transferring insurer on the transferred policies and the transferring insurer's
insurance obligations or risks, or both, under the transferred policies are
extinguished.
(17) "Transferring
insurer" means an insurer or reinsurer that transfers and novates or seeks to
transfer and novate obligations or risks, or both, under one or more policies
to an assuming insurer pursuant to a Plan.
Section 5. Application Procedure
(a)
Insurance Business Transfer
Plan-Fee and Contents
An Insurance Business Transfer Plan must be filed by the applicant with the Commissioner for his or her review and approval. At the time of filing its application with the Commissioner for review and approval of a Plan, the applicant shall pay a nonrefundable fee to the Department in the amount of ten thousand dollars ($10,000.00).
The Plan must contain the information set forth below or an explanation as to why the information is not included. The Plan may be supplemented by other information deemed necessary by the Commissioner:
(1) the name, address and telephone number of
the transferring insurer and the assuming insurer and their respective direct
and indirect controlling persons, if any;
(2) summary of the Plan;
(3) identification and description of the
subject business;
(4) most recent
audited financial statements and statutory annual and quarterly reports of the
transferring insurer and assuming insurer filed with their domiciliary
regulator;
(5) the most recent
actuarial report and opinion that quantify the liabilities associated with the
subject business, including the assuming company's report or opinion;
(6) pro-forma financial statements showing
the projected statutory balance sheet, results of operations and cash flows of
the assuming insurer for the three (3) years following the proposed transfer
and novation;
(7) officers'
certificates of the transferring insurer and the assuming insurer attesting
that each has obtained all required internal approvals and authorizations
regarding the Plan and completed all necessary and appropriate actions relating
thereto;
(8) proposal for
implementation and administration of the Plan, including the form of notice to
be provided under the Plan to any policyholder whose policy is part of the
subject business;
(9) full
description as to how such notice shall be provided;
(10) description of any reinsurance
arrangements that would pass to the assuming insurer under the Insurance
Business Transfer Plan;
(11)
description of any guarantees or additional reinsurance that will cover the
subject business following the transfer and novation;
(12) a statement describing the assuming
insurer's proposed investment policies and any contemplated third-party claims
management and administration arrangements;
(13) evidence of approval or nonobjection of
the transfer from the chief insurance regulator of the state of the
transferring insurer's domicile; and
(14) an opinion report from an independent
expert, selected by the Commissioner from a list of at least two nominees
submitted jointly by the transferring insurer and the assuming insurer, to
assist the Commissioner and the court in connection with their review of the
proposed transaction. Should the Commissioner, in his or her sole discretion
reject the nominees, he or she may appoint the independent expert.
(b)
Independent Expert
Opinion Report - Contents
The Independent Expert Opinion Report shall provide the following:
(1) a statement of the
independent expert's professional qualifications and descriptions of the
experience that qualifies him or her as an expert suitable for the
engagement,
(2) whether the
independent expert has, or has had, direct or indirect interest in the
transferring or assuming insurer or any of their respective
affiliates,
(3) the scope of the
report,
(4) a summary of the terms
of the Plan to the extent relevant to the report,
(5) documents, reports and other material
information the independent expert has considered in preparing the report and
whether any information requested was not provided,
(6) the extent to which the independent
expert has relied on information provided by and the judgment of
others,
(7) the people on whom the
independent expert has relied and why, in his or her opinion, such reliance is
reasonable,
(8) the independent
expert's opinion of the likely effects of the Insurance Business Transfer Plan
on policyholders and claimants, distinguishing between:
(A) transferring policyholders and
claimants,
(B) policyholders and
claimants of the transferring insurer whose policies will not be transferred,
and
(C) policyholders and claimants
of the assuming insurer,
(9) for each opinion that the independent
expert expresses in the report the facts and circumstances supporting the
opinion, and
(10) consideration as
to whether the security position of policyholders that are affected by the
insurance business transfer are adversely materially affected by the
transfer.
(11) The independent
expert's opinion report shall include, but not be limited to, a review of the
following:
(A) analysis of the transferring
insurer's actuarial review of reserves for the subject business to determine
the reserve adequacy,
(B) analysis
of the financial condition of the transferring and assuming insurers and the
effect the transfer will have on the financial condition of each
company,
(C) review of the plans or
proposals the assuming insurer has with respect to the administration of the
policies subject to the proposed transfer,
(D) whether the proposed transfer has an
adverse material impact on the policyholders and claimants of the transferring
and the assuming insurers,
(E)
analysis of the assuming insurer's corporate governance structure to ensure
that there is proper board and management oversight and expertise to manage the
subject business, and:
(F) The
Business purposes of the proposed transfer.
(G) Capital adequacy and risk-based capital,
including consideration of the effects of asset quality, non-admitted assets
and actuarial stresses to reserve assumptions;
(H) Cash flow and reserve adequacy testing,
including consideration of the effects of diversification on policy
liabilities;
(I) Business
plans
(J) The impact, if any, of
concentration of lines of business following the proposed transfer;
and
(K.) Management's competence,
experience, and integrity
(L) any
other information that the Commissioner requests in order to review the
insurance business transfer.
(12) Within five (5) days of receiving a
completed application for an Insurance Business Transfer, the Commissioner
shall provide general notice by posting an acknowledgment of the application on
the AID website and by transmitting it the Department's routine email
distribution system to interested parties in the industry.
Section 6. Review of Insurance Business Transfer Plan
(a)
Matters to be Considered During Commissioner's Review
(1) When reviewing an applicant's insurance
business transfer plan for authorization to submit to the court, the
Commissioner shall consider, among other things:
(A) all assets, liabilities, and cash flow,
the nature and composition of the assets proposed to be transferred in support
of the plan, and
(B) all proposed
assets of the transferring and assuming insurers, which consideration must
include an assessment of the risks and quality, including the liquidity and
marketability, of the proposed portfolio of the assuming insurer; consideration
of assets and liability matching; and the treatment of the material elements of
the portfolio based on the statutory accounting practices.
(2) After making the considerations described
in subsection (a)(1) of this section, the Commissioner shall approve an
insurance business transfer plan for submission to the court if the
Commissioner finds that the following requirements are met:
(A) The financial condition of the
transferring insurer and the assuming insurer, will not jeopardize the
financial stability of the transferring insurer or prejudice the interest of
its policyholders, contract holders, or reinsurers, in each case, in a manner
that is unfair to its policyholders, contract holders, or reinsurers;
(B) The terms of the plan of transfer are
fair and reasonable to the transferring insurer's and any assuming insurer's
policyholders, contract holders, or reinsurers;
(C) Neither a transferring insurer nor an
assuming insurer has plans or proposals to liquidate the transferring insurer
or of any assuming insurer, consolidate or merge the transferring insurer or
any assuming insurer with a person, or make any other material change in the
transferring insurer's or any assuming insurer's business or corporation
structure or management that is unfair or unreasonable to the transferring
insurer's or assuming insurers' policyholders, contract holders, or reinsurers
and not in the public interest;
(D)
The competence, experience, and integrity of the persons who would control the
operation of a transferring insurer, if it survives the transfer, and any
assuming insurer are such that it would be consistent with the interest of the
transferring insurers and any assuming insurers' policyholders, contract
holders, or reinsurers and the general public to permit the transfer;
(E) The business transfer is not likely to be
hazardous or prejudicial to the insurancebuying public;
(F) The interest of the policyholders of the
transferring insurer that may become policyholders of an assuming insurer will
be adequately protected by the assuming insurer;
(G) The transferring insurer, if it survives
the business transfer, and the assuming insurers will be solvent upon the
consummation of the transfer;
(H)
The assets allocated to the transferring insurer, if it survives the business
transfer, and the assuming insurer will not, upon the consummation of the
business transfer, be unreasonably small in relation to the business and
transactions in which the insurers were engaged or are about to
engage;
(I) The proposed business
transfer is not being made for the purpose of hindering, delaying, or
defrauding any policyholders, contract holders, or reinsurers.
(J) If the business transfer plan includes
policies of long-term care insurance, as defined in the Long Term Care
Insurance Act of 2005, Ark. Code Ann §
23-97-301
et seq., the liabilities associated with those policies do not constitute more
than a de minimus amount of the insurance liabilities of the transferring
insurer, if it survives the business transfer, or to any assuming
insurer;
(3) A
transferring insurer that files an insurance business transfer plan shall pay
all expense incurred by the Commissioner in connection with proceedings under
the section, including expenses for Attorneys, Actuaries, Accountants, and
other experts not otherwise a part of the Commissioner's staff as may be
reasonably necessary to assist the Commissioner in reviewing the proposed plan
of business transfer. A transferring insurer may treat the expense in the plan
in the same manner as any other liability.
(4) If the Commissioner approves an insurance
business transfer plan, the Commissioner shall issue:
(A) An order that is accompanied by finding
of fact and conclusion of law; and
(B) A Certificate of Authority authorizing
the Assuming insurer to transact the business of insurance in this state;
except that the Commissioner may waive this requirement if an assuming insurer
will not survive a merger simultaneous with the business transfer in accordance
with the insurance business transfer plan.
(5) the conditions in this section for
freeing one or more of the transferring insurers from the liabilities of the
transferring insurer and for eliminating some or all the liabilities of the
transferring insurer are deemed to have been satisfied if the Commissioner
approves the plan of transfer and a circuit court issues a final
order.
(b)
Procedure for Review and Approval
The Commissioner shall have sixty (60) business days from the date of receipt of a complete Plan to review the Plan to determine if the applicant will be authorized to submit it to the court. The Commissioner may extend the sixty-day review period for an additional thirty (30) business days.
(1) The Commissioner shall
authorize the submission of the Plan to the court unless he or she finds that
the insurance business transfer would have an adverse material impact on the
interests of policyholders or claimants that are part of the subject
business.
(2) The commissioner
shall not authorize the submission of the insurance business transfer plan to
the court unless:
(A) the assuming insurer is
licensed in each line of business in each state where the transferring insurer
is licensed and policies subject to the proposed transfer were written, or the
assuming insurer demonstrates an extraordinary circumstance preventing it from
obtaining such license or licenses; and
(B) the commissioner determines that the lack
of such license or licenses would not result in an adverse material impact on
the interests of policyholders, contract holders, or reinsurers.
(3) If the Commissioner determines
that the insurance business transfer would have an adverse material impact on
the interests of policyholders or claimants that are part of the subject
business, he or she shall notify the applicant and specify any modifications,
supplements or amendments and any additional information or documentation with
respect to the Plan that must be provided to the Commissioner before he or she
will allow the applicant to proceed with the court filing.
(4) The applicant shall have thirty (30) days
from the date the Commissioner notifies him or her in writing, to file an
amended Plan providing the modifications, supplements or amendments and
additional information or documentation as requested by the Commissioner. If
necessary, the applicant may request in writing an extension of time of thirty
(30) days. If the applicant does not make an amended filing within the time
period provided for in this paragraph, including any extension of time granted
by the Commissioner, the Plan filing will terminate and a subsequent filing by
the applicant will be considered a new filing which shall require compliance
with all provisions of this act as if the prior filing had never been
made.
(5) The Commissioner's review
period shall recommence when the modification, supplement, amendment, or
additional information is received.
Section 7. Petition for Court Approval and Implementation Order
(a) If the
Commissioner determines that the Plan may proceed with the court filing, the
Commissioner shall confirm that fact in writing to the applicant.
(b) Within thirty (30) days after the
Commissioner confirms that the applicant may proceed with the court filing, the
applicant shall apply to the court for approval of the Plan pursuant to Ark.
Code Ann. §
23-69-509. Upon written request by the applicant, the
Commissioner may extend the period for filing an application with the court for
an additional thirty (30) days.
(c)
The applicant shall inform the court of the reasons why he or she petitions the
court to find no adverse material impact to policyholders or claimants affected
by the proposed transfer.
(d) The
application shall be in the form of a verified petition for implementation of
the Plan in the court. The petition shall include the Plan and shall identify
any documents and witnesses which the applicant intends to present at a hearing
regarding the petition.
(e) The
Commissioner shall be a party to the proceedings before the court concerning
the petition and shall be served with copies of all filings pursuant to the
Arkansas Rules of Civil Procedure. The Commissioner's position in the
proceeding shall not be limited by his or her initial review of the
Plan.
Section 8. Confidentiality
The confidentiality provisions in the Arkansas Insurance Code and Rules, including but not limited to Ark. Code Ann. § 23-61-103(d)(5), related to actuarial reports, Ark. Code Ann. § 23-61-103(d), related to active investigations or examinations, Ark. Code Ann. § 23-61-107, related to financial records, and Ark. Code Ann. § 23-61-207, related to ancillary information and workpapers, shall apply to transactions governed by this rule.
Section 9. Effective Date
The effective date of this Rule is January 1,2022.
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