Code of Maine Rules
02 - DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION
031 - BUREAU OF INSURANCE
Chapter 710 - STANDARDS FOR DETERMINING HAZARDOUS FINANCIAL CONDITIONS FOR INSURANCE COMPANIES
Section 031-710-4 - Factors to Assess Financial Condition

A. Adverse findings reported in financial condition and market conduct examination reports, audit reports, and actuarial opinions, reports, or summaries;

B. The National Association of Insurance Commissioners Insurance Regulatory Information System and its other financial analysis solvency tools and reports;

C. Whether the carrier may have made insufficient provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the carrier, when considered in light of the assets held by the carrier with respect to its reserves and related actuarial items including, but not limited to, the investment earnings on such assets, and the considerations anticipated to be received and retained under the carrier's policies and contracts;

D. The risk that assuming reinsurer(s) may be unable to fulfill contractual obligations, or that the carrier's reinsurance program may provide inadequate security after taking into account cash flow, the classes of business written, and the financial condition of the assuming reinsurer(s);

E. The carrier's operating loss in the last twelve-month period or any shorter intervening period, relative to the carrier's surplus in excess of minimum requirements, giving appropriate consideration to the carrier's net capital gains or losses, change in non-admitted assets, cash dividends paid to shareholders, and other relevant factors;

Drafting Note: The NAIC model hazardous condition regulation, at Subsections 3(E) and 3(F), specifically identifies operating losses exceeding 50% of the carrier's remaining surplus cushion (excess over minimum required surplus), or exceeding 20% of the carrier's remaining surplus cushion after excluding net capital gains, as indicators of hazardous financial condition. These benchmarks are significant considerations in the Superintendent's review of a carrier's financial condition, but are not codified in Subsection E because the purpose of Section 4 is to provide a qualitative list of factors for the Superintendent to consider, recognizing that there is no quantitative test that can mechanically determine whether a carrier is or is not in hazardous condition.

F. Whether any affiliate, subsidiary, reinsurer, or obligor is insolvent, threatened with insolvency, or delinquent in payment of its monetary or other obligations;

G. Contingent liabilities, pledges, or guaranties which either individually or collectively obligate the carrier to the extent that the solvency of the carrier may be affected;

H. Whether any controlling person of the carrier is delinquent in the payment or transmission of net premiums to the carrier;

I. The age and collectability of receivables;

J. Whether the management, board of directors, or any other person who directly or indirectly controls the operation of the carrier, fails to possess and demonstrate the experience, fitness and business repute necessary to serve the carrier in such position;

K. Whether the carrier has failed to submit required financial filings, including holding company filings, has furnished false or misleading information in required attested financial filings, or failed to provide information sufficient for an adequate understanding of the carrier's material risks, including the enterprise risk to the carrier posed by its affiliates or insurance holding company system;

L. Whether the carrier has released false or misleading financial statements 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 carrier;

M. Whether the management of the carrier has failed to respond to regulatory inquiries regarding the condition of the carrier or has furnished false and misleading information in response to such an inquiry;

N. Whether the carrier's historical growth has strained its financial and/or administrative capacity to meet its obligations in a timely manner;

O. Whether the carrier's projected or actual cash flow will adversely impact the carrier's need for liquidity;

P. Whether management has established reserves that do not comply with minimum standards established by state insurance laws and other applicable actuarial or financial standards;

Q. Whether management persistently engages in material under-reserving that results in adverse development;

R. Whether transactions involving affiliates, subsidiaries, or controlling persons fail to provide sufficient value, liquidity, or diversity to assure the carrier's ability to meet its outstanding obligations as they mature; or

S. Such other conditions or circumstances which have resulted or will likely result in a material adverse financial impact upon the carrier's financial condition or its ability to provide adequate service to its policyholders.