(1)
TRANSACTIONS WITHIN AN INSURANCE HOLDING COMPANY SYSTEM. An insurer, or
affiliate of an insurer, which is required to register under s.
Ins 40.03 may not
enter directly or indirectly into a transaction between the insurer and the
affiliate unless the insurer and affiliate:
(a) Comply with s.
617.21(1),
Stats., and sub. (6);
(b) Expenses
incurred and payment received for the transaction are allocated to the insurer
in conformity with customary insurance accounting practices consistently
applied; and
(c) The books,
accounts and records of each party to the transaction clearly and accurately
disclose the nature and details of the transaction including the accounting
information which is necessary to support the reasonableness of the charges or
fees to the respective parties.
(2) TRANSACTIONS REQUIRED TO BE REPORTED AND
SUBJECT TO DISAPPROVAL. A domestic insurer, and a person attempting to acquire
control of a domestic insurer, or an affiliate of a domestic insurer, which
directly or indirectly is involved in or benefits from, a transaction, shall
report, under s.
617.21(2),
Stats., each of the following transactions, including amendments or
modifications of transactions previously filed pursuant to this section, which
are subject to any materiality standards contained in pars. (a) to (f), to the
commissioner in writing at least 30 days before the domestic insurer enters
into the transaction, unless the commissioner in writing approves a shorter
period. The notice for amendments or modifications shall include the reasons
for the change and the financial impact on the domestic insurer. Informal
notice shall be reported to the commissioner within 30 days after termination
of a previously filed agreement, if termination is other than according to the
terms of the agreement as filed, and the commissioner shall determine the type
of filing required, if any. Transactions required to be reported and subject to
disapproval include each of the following:
(a) Sales, purchases, exchanges, loans,
extensions of credit, guarantees, or investments involving the domestic insurer
and an affiliate or a person attempting to acquire control of the domestic
insurer if the transactions are equal to or exceed the lesser of 2% of the
domestic insurer's admitted assets or 10% of policyholder surplus as of the
31st day of December of the immediately preceding calendar year. All guarantees
which are unlimited or not quantifiable as to amount are subject to the
reporting requirements of this subsection;
(b) Loans or extensions of credit or
guarantees to any person who is not an affiliate, where the domestic insurer
makes loans, extensions of credit or guarantees with the agreement or
understanding that the proceeds of the transactions or benefit of the
guarantees, in whole or in significant part, directly or indirectly, are to be
used to make loans or extensions of credit to, to purchase assets of, or to
make investments in, any affiliate of the domestic insurer making the loans,
extensions of credit, or guarantee, or any person attempting to acquire control
of the insurer, if the transactions are equal to or exceed the lesser of 2% of
the domestic insurer's admitted assets or 10% of policyholder surplus as of the
31st day of December of the immediately preceding calendar year. All guarantees
which are unlimited or not quantifiable as to amount are subject to the
reporting requirements of this subsection;
(c) Reinsurance agreements, including
reinsurance pooling arrangements, or modifications to reinsurance agreements,
which involve a domestic insurer and either an affiliate or a person attempting
to acquire control of the domestic insurer in which the reinsurance premium,
the projected reinsurance premium or a change in the insurer's liabilities in
any of the next three years equals or exceeds 5% of the insurer's policyholder
surplus, as of the 31st day of December of the immediately preceding calendar
year, including, but not limited to, those agreements which may require as
consideration the transfer of assets from an insurer to a nonaffiliate, if an
agreement or understanding exists between the insurer and nonaffiliate that any
portion of the assets will be transferred to one or more affiliates of the
insurer;
(d) All management
agreements, exclusive agency agreements, service contracts, tax allocation
agreements, or cost-sharing arrangements which involve a domestic insurer and
either an affiliate or a person attempting to acquire control of the domestic
insurer. All agreements under this paragraph entered into after the effective
date of this rule shall, at a minimum and as applicable, contain all of the
following:
1. Identify the person providing
services and the nature of such services.
2. Set forth the methods to allocate
costs.
3. Require timely
settlement, not less frequently than on a quarterly basis, and compliance with
the requirements in the Accounting Practices and Procedures Manual.
4. Prohibit advancement of funds by the
insurer to the affiliate except to pay for services defined in the agreement.
This subdivision does not prohibit loans or capital transactions that involve a
domestic insurer and an affiliate that are otherwise permitted by statute or
rule.
5. State that the insurer
will maintain oversight for functions provided to the insurer by the affiliate
and that the insurer will monitor services annually for quality
assurance.
6. Define books and
records of the insurer to include all books and records developed or maintained
under or related to the agreement.
7. Specify that all books and records of the
insurer are and remain the property of the insurer and are subject to control
of the insurer.
8. State that all
funds and invested assets of the insurer are the exclusive property of the
insurer, held for the benefit of the insurer and are subject to the control of
the insurer.
9. Include standards
for termination of the agreement with and without cause.
10. Include provisions for indemnification of
the insurer in the event of gross negligence or willful misconduct on the part
of the affiliate providing the services.
11. Specify that, if the insurer is placed in
delinquency proceedings or seized by the commissioner under ch. 645., Stats.:
a. All of the rights of the insurer under the
agreement extend to the receiver or commissioner.
b. All books and records will immediately be
made available to the receiver or the commissioner, and shall be turned over to
the receiver or commissioner immediately upon the receiver or the
commissioner's request.
12. Specify that the affiliate has no
automatic right to terminate the agreement if the insurer is placed in
receivership pursuant to ch. 645, Stats.
13. Specify that the affiliate will continue
to maintain any systems, programs, or other infrastructure notwithstanding a
delinquency proceeding or seizure by the commissioner under chapter 645,
Stats., and will make them available to the receiver, for so long as the
affiliate continues to receive timely payment for services.
(e) A transaction not in the
ordinary course of business which involves a domestic insurer and either an
affiliate of, or a person attempting to acquire control of, a domestic insurer
and which involves or exposes to risk an amount equal to or exceeding the
lesser of 2% of the domestic insurer's admitted assets or 10% of policyholder
surplus as of the 31st day of December of the immediately preceding calendar
year; and
(f) Any material
transactions which the commissioner requires to be reported by order.
(3) ILLEGAL TRANSACTIONS NOT
AUTHORIZED. This section does not authorize or permit any transaction which
would be otherwise contrary to law.
(4) GROUP OR SERIES OF RELATED TRANSACTIONS.
For the purpose of applying sub. (2), a group or series of related transactions
shall be treated as if they are a single transaction.
(5) SUBTERFUGE PROHIBITED. A domestic
insurer, person attempting to acquire control of a domestic insurer, person
having control of a domestic insurer or affiliate of a domestic insurer may not
enter into transactions which are part of a group or series of transactions if
the purpose of those separate transactions is to attempt to avoid a threshold
amount under this chapter.
(6)
DISAPPROVAL. Transactions subject to reporting under sub. (2) may be
disapproved by the commissioner under s.
617.21(3),
Stats. No person may enter into or assent to a transaction that is disapproved
by the commissioner or which is subject to reporting under sub. (2) but not
reported.
(7) INSURER MAY REPORT ON
BEHALF OF AFFILIATE OR PERSON ATTEMPTING TO ACQUIRE CONTROL. A domestic insurer
may file a report under sub. (2) on behalf of its affiliate or of the person
attempting to acquire control of the insurer. Lack of knowledge that an insurer
has not reported on behalf of the affiliate or person or that the report is
incomplete or inaccurate is not a defense for the affiliate or person
attempting to acquire control of the insurer.
