Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
304.3-150,
304.26-090
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
304.2-110 provides that the Commissioner of
Insurance may make reasonable rules and administrative regulations necessary
for or as an aid to the effectuation of any provision of the Kentucky Insurance
Code. This administrative regulation requires submission of certain materials
during the incorporation of a domestic insurer. Additionally, this
administrative regulation sets forth procedures to be followed by a domestic
insurer when it makes a subsequent issue of equity securities.
Section 1. Incorporation and Promotion of New
Insurance Companies. In addition to the requirements and conditions expressly
prescribed in KRS Chapter 304 relative to the organization and promotion of new
insurance companies, the commissioner will require that the incorporators of
the new company submit to him, in duplicate, authenticated copies of the
following items, to the extent that they are involved or used in the
corporation or promotion procedures, namely:
(1) Any and all contracts, letters,
memoranda, plans, resolutions, or other documents pertaining in any way to the
organization or promotion of the subject company or to the rights and duties of
the organizers inter se or in relation to the company, or pertaining to the
gain or profits the organizers contemplate receiving from the corporate
venture.
(2) An affidavit in the
form prescribed by and obtainable from the Department of Insurance, herein
filed by reference, is to be submitted by each organizer, promoter,
incorporator, director, trustee, officer, proposed management personnel or
other person similarly situated, if a company being formed. The affidavit shall
be typewritten.
(3) Copies of
equity security subscription agreements, equity security certificates to be
used, per value of same, sale price to general public, sale price to
organizers, promoters, incorporators and proposed officers or managers, the
number of shares to be offered in the first issue, prospects, and any other
promotional literature or exhibits for use in selling equity
securities.
(4) An estimate of the
maximum expense of issuing and selling equity securities of the first issue and
in accomplishing all other organization procedures.
(5) Monies received from organizers,
Prospective policyholders, and prospective subscribers, not subject to
impounding by requirements of the Office of Banking and Securities shall be
impounded and held in escrow upon such terms and conditions as the commissioner
may prescribe.
(6) An agreement
executed by all the incorporators obligating the incorporators to submit
promptly to the Department of Insurance any items of information specifically
or generally described in the foregoing enumeration which come into existence
during the period of organization.
(7) A questionnaire and check list, on a form
prescribed by the commissioner, showing compliance with this section and the
sections of the Kentucky Revised Statutes to which this administrative
regulation relates.
(8) After the
requirements of subsection (1) of this section have been complied with to the
satisfaction of the commissioner, he will examine such persons referred to in
this section concerning the data and documents above referred to and other
pertinent and necessary matters; and on the basis of the items enumerated
above, together with other information available to him from his examination,
he will, prior to approving the Articles of Incorporation for filing with the
Secretary of State and completion of the company's incorporation, advise the
incorporators whether or not such filed material can meet the requirements
necessary for a certificate of authority.
Section 2. Second or Subsequent Issues of
Equity Securities by an Insurance Company Heretofore or Hereafter Organized.
(1) A second or subsequent issue of equity
securities by a stock insurance company heretofore or hereafter organized
(equity securities issued as a dividend excepted) shall be cleared with the
commissioner through the identical process described above in relation to a
company in the process of incorporation, except that the commissioner will not
require the submission of information already in his files.
(2) With respect to a second or subsequent
issue of equity securities by a company which has been in existence for a
period less than six (6) hears, the information and agreements described in
paragraphs (a) and (b) of this subsection shall be submitted to the
commissioner in addition to the data required in subsection (1) of this
section, namely:
(a) A statement showing in
parallel columns the names and addresses of the directors, officers, and the
ten (10) largest security holders of the company, of any related or subsidiary
company, and the number of shares of the company or companies, respectively,
owned by each of such persons.
(b)
An agreement on the part of each director, officer or security holder owning,
in the case of the latter, ten (10) percent or more of the respective equity
securities described above, to the effect that such director, officer, or
security holder will not, during the period the equity securities are being
offered and for the period of six (6) months following the termination of the
offering period, sell or offer for sale any equity securities he may own or
which he controls in such company or companies at a price higher than the price
at which same was acquired by him or by any other person for his use and
benefit. In applying this paragraph to any director, officer or security
holder, he shall be regarded as owning equity securities in which he has a
beneficial interest or which, regardless of discernible beneficial interest,
are registered in the name of his wife, child, father, or mother, or any or all
of same.
(3) The
commissioner's approval of a second or subsequent issue of equity securities
will not be granted if it appears from all the facts and circumstances
presented to the commissioner that the notification of such issue is the
personal advantage of directors, officer, or security holders as distinguished
from a need of the company for additional capital.
Section 3. Collaboration with Commissioner of
Department of Financial Institutions. The commissioner, in administering the
administrative regulations propounded above, will be mindful of the
requirements and administrative procedures under the Kentucky Securities Law;
and he may consult with the Commissioner of Financial Institutions relative to
decisions which both officers are respectively required to make pursuant to law
or this administrative regulation.
Section
4. Rules and Principles. The Commissioner of Insurance, in
considering questions relating to the organization of a new stock insurance
company, or relating to the enlargement of the capital of an established stock
company, will be guided by the following concepts, rules and principles, among
others:
(1) The organization and promotion of
new insurance companies on a sound basis is to be commended and
encouraged.
(2) The business of
insurance, because of its direct and vital effect upon security holders,
policy-holders, and the economy generally, is vital to the public interest and
welfare.
(3) The organization and
capitalization of insurance companies should be carefully scrutinized in
keeping with the concepts, rules, and principles therein enunciated.
(4) Organization and promotion expenses,
inclusive of commissions paid for the sale of equity securities, legal
expenses, and statutory organization fees and charges, should not under any
circumstances exceed fifteen (15) percent of the sale price of equity
securities actually sold.
(5) In
the event a new equity securities issue is approved by the office within a
period of five (5) years immediately subsequent to the date of the company's
original license to do an insurance business, the sale price for the new issue
shall be subject to the commissioner's approval and may not exceed 200 percent
of the lowest price at which any shares were previously issued, except that a
higher price may be fixed for a new issue, if in the opinion of the
commissioner the condition of the company justifies it, taking into considerate
the company's financial condition, business in force, and facts relating to the
equity security's history, such as splits, dividends, changes in par value, and
the like.
(6) The sale price of
equity securities shall be paid in cash or approved assets.
(7) With respect to stock companies hereafter
organized, any arrangement, devise, plan or scheme, however contrived or
formulated, having as its end or purpose a diversion, either directly or
indirectly of the company's funds, other than in payment of legitimate
dividends or costs of doing business to any officer(s), director(s),
organizer(s), promoter(s) or equity holder(s) of ten (10) percent or more of
the company, or to any association, corporation, partnership, or trust owned or
controlled by any officer(s), director(s), organizer(s), promoter(s), or equity
security holder(s) of ten (10) percent or more of the company, as in violation
of this administrative regulation and the insurance laws of this
state.
(8) No domestic stock
insurer will be granted a certificate of authority if the funds used for its
formation have come, in any part, from an organization in which there was a
difference in the net price per share paid by the organizers as compared to
other equity security holders during the first two (2) years of its business
operation.
Section 5.
This administrative regulation, representing as it does implementation of the
workings of the insurance law in a specific area, shall not be regarded either
as a contraction or enlargement of insurance law, but rather, as an
administrative application or interpretation of such law.
Section 6. This administrative regulation
does not apply to changes in corporate structure, amendments to articles of
incorporation, mergers, consolidations, or other corporate changes which do not
involve the public offering of equity securities.
STATUTORY AUTHORITY:
KRS
304.2-110