Current through Register Vol. 49, No. 2, February 2024
SECTION 1.
AUTHORITY
This Rule and Regulation is adopted and promulgated by the
Insurance Commissioner for the State of Arkansas ("Commissioner") pursuant to
Arkansas Code Annotated §§
23-61-103,
23-61-108,
23-63-205,
23-63-213,
23-68-105,
23-68-106,
23-68-107,
23-68-108,
23-69-138,
23-71-103,
23-72-103,
23-73-104,
23-74-705,
23-75-102,
23-76-103
and
25-15-201, et
seq.
SECTION 2. PURPOSE
The purpose of this Rule and Regulation is to set forth the
standards which the Commissioner may use for identifying insurers found to he
in such condition as to render the continuance of their business hazardous to
the public or to holders of their policies or certificates of insurance.
For purposes of this Rule and Regulation "insurer" means an
authorized insurer as defined in Arkansas Code Annotated §
23-60-102(11).
This Rule and Regulation shall not be interpreted to limit the
powers granted the Commissioner by any laws or parts of laws of this state, nor
shall this Rule and Regulation be interpreted to supercede any laws or parts of
laws of this state.
SECTION
3. STANDARDS
The following standards, either singly or a combination of two or
more, may be considered by the Commissioner to determine whether the continued
operation of any insurer transacting an insurance business in this state might
be deemed to be hazardous to the policyholders, creditors or the general
public. The Commissioner may consider:
1. Adverse findings reported in financial
condition and market conduct examination reports;
2. The National Association of Insurance
Commissioners Insurance Regulatory Information System and its related
reports;
3. The ratios of
commission expense, general insurance expense, policy benefits and reserve
increases as to annual premium and net investment income which could lead to an
impairment of capital and surplus;
4. The insurer's asset portfolio, when viewed
in light of current economic conditions, is not of sufficient value, liquidity,
or diversity to assure the company's ability to meet its outstanding
obligations as they mature;
5. The
ability of an assuming reinsurer to perform, and whether the insurer's
reinsurance program provides sufficient protection for the company's remaining
surplus after taking into account the insurer's cash flow and the classes of
business written as well as the financial condition of the assuming
reinsurer;
6. The insurer's
operating loss in the last twelve (12) month period or any shorter period of
time, including but not limited to, net capital gain or loss, change in
non-admitted assets, and cash dividends paid to shareholders, is greater than
fifty percent (50.?) of such insurer's remaining surplus as regards
policyholders in excess of the minimum required;
7. Whether any affiliate, subsidiary or
reinsurer is insolvent, threatened with insolvency, or delinquent in payment of
its monetary or other obligation;
8. Contingent liabilities, pledges or
guaranties which either individually or collectively involve a total amount
which in the opinion of the Commissioner may affect the solvency of the
insurer;
9. Whether any
"controlling person" of an insurer is delinquent in the transmitting to, or
payment of, net premiums to such insurer;
10. The age and collectibility of
receivables;
11. Whether the
management of an insurer, including officers, directors, or any other person
who directly or indirectly controls the operation of such insurer, fails to
possess and demonstrate the competence, fitness and reputation deemed necessary
to serve the insurer in such position;
12. Whether management of an insurer has
failed to respond to inquiries relative to the condition of the insurer or has
furnished false and misleading information concerning an inquiry;
13. Whether management of an insurer either
has filed any false or misleading sworn financial statement, or has released
false or misleading financial statement to lending institutions or to the
general public, or has made a false or misleading entry, or has omitted an
entry of material amount in the books of the insurer;
14. Whether the insurer has grown so rapidly
and to such an extent that it lacks adequate financial and administrative
capacity to meet its obligations in a timely manner;
15. Whether the company has experienced or
will experience in the foreseeable future cash flow and/or liquidity
problems.
SECTION 4.
COMMISSIONER'S AUTHORITY
A. For the purposes
of making a determination of an insurer's financial condition under this Rule
and Regulation, the Commissioner may:
1.
Disregard any credit or amount receivable resulting from transactions with a
reinsurer which is insolvent, impaired or otherwise subject to a delinquency
proceeding;
2. Make appropriate
adjustments to asset values attributable to investments in or transactions with
parents, subsidiaries, or affiliates;
3. Refuse to recognize the stated value of
accounts receivable, if the ability to collect receivables is highly
speculative in view of the age of the account or the financial condition of the
debtor;
4. Increase the insurer's
liability in an amount equal to any contingent liability, pledge, or guarantee
not otherwise included, if there is a substantial risk that the insurer will be
called upon to meet the obligation undertaken within the next twelve (12) month
period.
B. If the
Commissioner determines that the continued operation of the insurer licensed to
transact business in this state may be hazardous to the policyholders or the
general public, then the Commissioner may, upon his determination, issue an
order requiring the insurer to:
1. Reduce the
total amount of present and potential liability for policy benefits by
reinsurance;
2. Reduce, suspend or
limit the volume of business being accepted or renewed;
3. Reduce general insurance and commission
expenses by specified methods;
4.
Increase the insurer's capital and surplus;
5. Suspend or limit the declaration and
payment of dividend by an insurer to its stockholders or to its
policyholders;
6. File reports in a
form acceptable to the Commissioner concerning the market value of an insurer's
assets;
7. Limit or withdraw from
certain investments or discontinue certain investment practices to the extent
the Commissioner deems necessary;
8. Document the adequacy of premium rates in
relation to the risks insured;
9.
File, in addition to regular annual statements, interim financial reports on
the form adopted by the National Association of Insurance Commissioners, or on
such format as promulgated by the Commissioner.
If the insurer is a foreign insurer, the Commissioner's order may
be limited to the extent provided by the Arkansas Insurance Code.
C. Any insurer subject
to an order under Subsection B may request a hearing to review that order. The
notice of hearing shall be served upon the insurer pursuant to Arkansas Code
Annotated §§
23-61-301,
et seq. The notice of hearing shall state the time and place of hearing, and
the conduct, condition or ground upon which the Commissioner based the order.
Unless mutually agreed between the Commissioner and the insurer, the hearing
shall occur not less than ten (10) days nor more than thirty (30) days after
notice is served and shall be either in Pulaski County, Arkansas, or in some
other place of convenience to the parties to be designated by the Commissioner.
The Commissioner shall hold all hearings under this Subsection privately,
unless the insurer requests a public hearing, in which case the hearing shall
be public.
SECTION 5.
JUDICIAL REVIEW
Any order or decision of the Commissioner shall be subject to
review in accordance with Arkansas Code Annotated §
23-61-307 at the
instance of any party to the proceedings whose interests are substantially
affected.
SECTION 6.
SEVERABILITY
If any Section or portion of a Section of this Rule and
Regulation is held invalid by a court, the remainder of this Rule and
Regulation shall not be affected thereby.
SECTION 7. EFFECTIVE DATE
This Rule and Regulation shall become effective September 2,
1991.
