BEFORE THE STATE AUDITOR AND COMMISSIONER OF INSURANCE

OF THE STATE OF MONTANA

 

In the matter of  the amendment of ARM 6.6.3401, 6.6.3402, 6.6.3403, and 6.6.3404, and adoption of New Rule I pertaining to Standards for Companies Considered to be in Hazardous Financial Condition

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NOTICE OF PUBLIC HEARING ON PROPOSED AMENDMENT AND ADOPTION

 

TO:  All Concerned Persons

 

1.  On May 24, 2011, at 10:00 a.m., the Commissioner of Insurance, Office of the State Auditor, Monica Lindeen, will hold a public hearing in the 2nd floor conference room, at the State Auditor's Office, 840 Helena Ave., Helena, Montana, to consider the proposed amendment and adoption of the above-stated rules.

 

2.  The Commissioner of Insurance, Office of the State Auditor, Monica Lindeen, will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing, or need an alternative accessible format of this notice.  If you require an accommodation, contact the department no later than 5:00 p.m., May 17, 2011, to advise us of the nature of the accommodation that you need.  Please contact Darla Sautter, State Auditor's Office, 840 Helena Avenue, Helena, Montana, 59601; telephone (406) 444-2726; TDD (406) 444-3246; fax (406) 444-3497; or e-mail dsautter@mt.gov.

 

3.  The rules as proposed to be amended provide as follows, stricken matter interlined, new matter underlined:

 

            6.6.3401  STANDARDS FOR EVALUATING FINANCIAL CONDITION OF REGULATED COMPANIES  (1)  The following standards or criteria, either singly or a combination of two or more, may be considered by the commissioner in to determineing whether the continued operation of any insurer transacting an insurance business in this state might be deemed to be hazardous to the its policyholders, creditors, or the general public:

            (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 (NAIC) Insurance Regulatory Information System and its related reports other financial analysis solvency tools and reports;

(c)  The ratios of commission expense, general insurance expense, policy benefits, and reserve increases to annual premium and net investment income which could lead to an impairment of capital and surplus; whether the insurer has made adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the insurer, when considered in light of the assets held by the insurer with respect to such 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 such policies and contracts;

(d)  Whether insurer's asset portfolio, when viewed in light of current economic conditions, is of sufficient value, liquidity, or diversity to assure the company's ability to meet its outstanding obligations as they mature;

(e) and (f) remain the same, but are renumbered (d) and (e).

(f)  whether the insurer's operating loss in the last 12-month period, or any shorter period of time, excluding net capital gains, is greater than 20% of the insurer's remaining surplus as regards policyholders in excess of the minimum required;

(g)  whether any affiliate, subsidiary or a reinsurer, obligor, or any entity within the insurer's insurance holding company system is insolvent, threatened with insolvency, or delinquent in payment of its monetary or other obligations, and which in the opinion of the commissioner may affect the solvency of the insurer;

(h)  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;

(i)  whether any "controlling person" of an insurer is delinquent in the transmitting to, or payment of, net premiums to such the insurer;

(j) through (l) remain the same.

(m)  whether the insurer has failed to meet financial and holding company filing requirements in the absence of a reason satisfactory to the commissioner;

(m) and (n) remain the same, but are renumbered (n) and (o).

(o) (p)  whether the company insurer has experienced or will experience in the foreseeable future cash flow and/or liquidity problems. ;

(q)  whether management has established reserves that do not comply with minimum standards established by state insurance laws, regulations, statutory accounting standards, sound actuarial principles, and standards of practice;  

(r)  whether management persistently engages in material under-reserving that results in adverse development;

(s)  whether transactions among affiliates, subsidiaries, or controlling persons for which the insurer receives assets or capital gains, or both, do not provide sufficient value, liquidity, or diversity to assure the insurer's ability to meet its outstanding obligations as they mature;

(t)  any other finding determined by the commissioner to be hazardous to the insurer's policyholders, creditors, or general public.

 

AUTH:  33-1-313, and 33-2-1517, 33-28-206, MCA

IMP:  33-1-401, 33-2-1321, 33-2-1517, 33-28-108, 33-28-109, 33-28-207, 33-30-102, 33-30-105, MCA

 

6.6.3402  SCOPE OF COMMISSIONER'S DISCRETION  (1)  For the purposes of making a determination of an insurer's financial condition under this rule subchapter, the commissioner may:

(a) remains the same.

(b)  make appropriate adjustments, including disallowance, to asset values attributable to investments in, or transactions with, parents, subsidiaries, or affiliates consistent with the NAIC Accounting Practices and Procedures Manual, state laws and regulations;

(c) remains the same.

(d)  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.

 

AUTH:  33-1-313, and 33-2-1517, 33-28-206, MCA

IMP:  33-1-401, 33-2-1321, 33-2-1517, 33-28-108, 33-28-109, 33-28-207, 33-30-102, 33-30-105, MCA

 

6.6.3403  POSSIBLE ADMINISTRATIVE SANCTIONS AGAINST COMPANIES IN HAZARDOUS CONDITION  (1)  If the commissioner determines that the continued operation of the insurer licensed to transact business in this state may be hazardous to the its  policyholders, creditors, or the general public, then the commissioner may, upon such a determination, issue an order requiring the insurer to:

(a) through (h) remain the same.

(i)  file, in addition to regular annual statements, interim financial reports on the form adopted by the NAIC or in such format as promulgated by the commissioner. ;

(j)  correct corporate governance practice deficiencies, and adopt and utilize governance practices acceptable to the commissioner;

(k)  provide a business plan to the commissioner in order to continue to transact business in the state; and

(l)  notwithstanding any other provision of law limiting the frequency or amount of premium rate adjustments, adjust rates for any non-life insurance product written by the insurer that the commissioner considers necessary to improve the financial condition of the insurer.

(2)  If the insurer is a foreign insurer the commissioner's order may be limited to the extent provided by statute.

 

AUTH:  33-1-313, 33-2-1321, and 33-2-1517, 33-28-206,  MCA

IMP:  33-1-401, 33-2-1321, 33-2-1323, and 33-2-1517, 33-28-108, 33-28-109, 33-28-207, 33-30-102, 33-30-105, MCA

 

6.6.3404  ADMINISTRATIVE REMEDIES AVAILABLE TO INSURERS

(1)  Any health service corporation subject to an order under ARM 6.6.3403 may request a hearing pursuant to 33-30-112 33-1-701, MCA.

(2)  Any other insurer, including a captive insurance company and a captive risk retention group, subject to an order under ARM 6.6.3403 may request a hearing or appeal from the order pursuant to 33-2-1321, MCA.

(3)  The notice of hearing shall be served upon the respondent pursuant to the Montana Administrative Procedure Act.  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 respondent, the hearing shall occur not less that 10 days nor more than 30 days after notice is served, and shall be either in Lewis & Clark County, or in some other place convenient to the parties to be designated by the commissioner.  The commissioner shall hold all hearings under this rule privately, unless the respondent requests a public hearing, in which case the hearing shall be public.

 

AUTH:  33-1-313, 33-2-1321, and 33-2-1517, 33-28-206, MCA

IMP:  33-1-401, 33-2-1321, 33-2-1323, 33-2-1517, and 33-30-112, 33-28-108, 33-28-109, 33-28-207, 33-30-102, 33-30-105, MCA

 

4.  The new rule proposed to be adopted provides as follows:

 

NEW RULE I  JUDICIAL REVIEW  (1)  Any order or decision of the commissioner shall be subject to judicial review in accordance with 33-1-711, 33-2-1323, MCA, and Montana Administrative Procedure Act by any party to the proceedings whose interests are substantially affected.

 

AUTH:  33-1-313, 33-2-1517, 33-28-206, MCA

IMP:  33-1-401, 33-2-1321, 33-2-1517, 33-28-108, 33-28-109, 33-28-207, 33-30-102, 33-30-105, MCA

 

            5.  REASONABLE NECESSITY STATEMENT:  The Commissioner of Securities and Insurance - Office of the State Auditor, Monica J. Lindeen, (Commissioner) is the statewide elected official responsible for administering the Montana Insurance Department and regulating insurers.  The commissioner is a member of the National Association of Insurance Commissioners (NAIC).  The NAIC is an organization of insurance regulators from the 50 states, the District of Columbia, and the U.S. territories.  The NAIC provides a forum for the development of uniform policy and regulation when uniformity is appropriate.

 

Insurer solvency is a principal area in which uniformity is efficient and effective for insurers and regulators.  The NAIC has promulgated model regulations regarding standards for determining when an insurer is in hazardous financial condition and the commissioner's authority to order corrective action to attempt to avert insurer insolvency.

 

The commissioner is proposing to amend existing administrative rules regarding standards used for determining whether an insurer is in hazardous financial condition, the commissioner's authority to order corrective action, and the remedies available to affected insurers.  The existing rules are based on the NAIC Model Regulation to Define Standards and Commissioner's Authority for Companies Deemed to be in Hazardous Financial Condition as adopted by the NAIC in 1985.  The proposed amendments to the existing rules are based on the revisions in 2008 to the NAIC model regulation.

 

These amendments are reasonably necessary to promote consistency among insurance regulators in all jurisdictions in determining whether an insurer is in hazardous financial condition such that continued operation of the insurer could be hazardous to the policyholders, creditors, and general public.  The amendments also promote consistency among insurance regulators in regard to the corrective actions that may be taken to avoid insolvency of the insurer.  Additionally, these rule changes are necessary for the Insurance Department to maintain its accreditation through the NAIC Financial Regulation Standards and Accreditation Program.  The Accreditation Program provides a process to monitor and regulate solvency of multi-state insurers.  To be accredited, each jurisdiction must demonstrate adequate solvency laws and regulation to protect consumers and guarantee funds, and also effective and efficient financial analysis and examination processes.

 

Amendments to ARM 6.6.3401 are reasonably necessary to update and include new standards for evaluating the financial condition of insurers and determining whether an insurer is in hazardous financial condition to be consistent with the standards in the current NAIC model regulation.

 

Amendments to ARM 6.6.3402 are reasonably necessary to include the reference to the NAIC Accounting Practices and Procedures Manual in regard to the commissioner's consideration of an insurer's financial condition to be consistent with the current NAIC model regulation.

 

Amendments to ARM 6.6.3403 are reasonably necessary to include additional corrective actions available to the commissioner when an insurer is determined to be in hazardous financial condition.  These changes are consistent with the current NAIC model regulation. 

 

Amendments to ARM 6.6.3404 are reasonably necessary to provide that an insurer, after found to be in hazardous financial condition by the commissioner, may request a hearing.  The amendments also address the timeliness and venue of the hearing and provide that the hearing shall be held privately unless the insurer requests a public hearing.  These changes are consistent with the current NAIC model regulation.

 

New Rule I is reasonably necessary to provide that judicial review is available to any party substantially affected by the order or decision of the commissioner and that the judicial review proceedings will be governed by certain provisions of the Montana Insurance Code and the Montana Administrative Procedure Act.  These changes are consistent with the NAIC Model Regulation.

 

            6.  Concerned persons may submit their data, views, or arguments concerning the proposed actions either orally or in writing at the hearing.  Written data, views, or arguments may also be submitted to Jennifer L. Massman, Staff Attorney, Office of the Commissioner of Securities and Insurance, State Auditor, Monica Lindeen, 840 Helena Ave., Helena, Montana, 59601; telephone (406) 444-2040; fax (406) 444-3499; or e-mail jmassman@mt.gov, and must be received no later than 5:00 p.m., May 31, 2011.

 

            7.  Jennifer L. Massman, Staff Attorney, has been designated to preside over and conduct this hearing.

 

            8.  The department maintains a list of concerned persons who wish to receive notices of rulemaking actions proposed by this agency.  Persons who wish to have their name added to the list shall make a written request that includes the name and mailing address of the person to receive notices and specifies for which program the person wishes to receive notices.  Such written request may be mailed or delivered to Darla Sautter, Office of the Commissioner of Securities and Insurance, 840 Helena Ave., Helena, Montana, 59601; telephone (406) 444-2726; fax (406) 444-3499; or e-mail dsautter@mt.gov or may be made by completing a request form at any rules hearing held by the department.

 

            9.  An electronic copy of this proposal notice is available through the Secretary of State's web site at http://sos.mt.gov/ARM/Register.  The Secretary of State strives to make the electronic copy of the notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered.  In addition, although the Secretary of State works to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.

 

            10.  The bill sponsor contact requirements 2-4-302, MCA, do not apply.

 

            /s/  Christina L. Goe                          /s/  Robert W. Moon                         

            Christina L. Goe                                Robert W. Moon

            Rules Reviewer                                 Deputy Insurance Commissioner

 

            Certified to the Secretary of State April 18, 2011.