3 CCR 702-3
AMENDED REGULATION 3-1-1 FIDELITY BOND REQUIREMENTS Section 1 Authority This regulation is promulgated under the authority of § § 10-1-109, 10-6-129, 10-14-505 and 10-16-109 C.R.S.
Section 2 Scope and Purpose The purpose of this regulation is to prescribe the minimum amount of fidelity coverage required to be maintained by insurers for money or other property, which may be lost because of theft or dishonest acts of its officers, directors and employees.
Section 3 Applicability This regulation shall apply to all Colorado domestic insurers as well as each risk retention group captive insurer, fraternal benefit society, health maintenance organization and non-profit hospital, medical-surgical and health service corporation.
Section 4 Requirement For Fidelity Coverage All insurers must obtain fidelity coverage for all officers, directors and employees who have access to, or authorize transactions concerning company funds and investments. The amount of coverage shall be determined in accordance with the following schedule.
A. Calculation of Exposure Index and Bond Amount
B. Minimum Amount of Bond Bracket # ____ $___________________ *Include gross premium written and assumed plus interest and dividend income. **Amount is calculated by adding the results of A and B above. Section 5 Severability If any provisions of this regulation or its application to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 6 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the specific line of business or the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocation of license as permitted by statute.
Section 7 Effective Date This amended regulation shall be effective on October 2, 2006. Section 8 History Originally effective 1974.
Amended effective April 1, 2000.
Amended effective October 2, 2006.
Amended Regulation 3-1-2STATUTORY DEPOSITS QUARTERLY REPORTS ON MARKET VALUE Section 1. Authority Section 2. Purpose Section 3. Filing of Market Value Reports Section 4. Effective Date Section 5. History Section 1. Authority This Regulation is promulgated pursuant to the authority of Section 10-3-235(4) C.R.S. Section 2. Purpose The purpose of this Regulation is to implement the market valuation requirement of the above statute by the establishment of an insurer reporting method on a regular basis. Section 3. Filing Of Market Value Reports Domestic insurance companies required to maintain a statutory deposit shall file quarterly with the Commissioner of Insurance an itemized statement of market value of securities on joint deposit. Insurance companies using a Denver area bank which makes such quarterly filings with the Division need not make a filing under this regulation. The time of filing is to be within thirty days of the end of each calendar quarter. Reports will be due no later than April 30, July 30, October 30 and January 30 of each year. The statement is to be certified by an officer of the company and is to include the following information for each security evaluated:
(a) Identify the source of quotation. If it is taken from a publication, give the name of the publication. If it is supplied by a broker or other source, identify the name and location of the broker or other source.
(b) Give both the market quote and its extension as: 10,000 XYZ bonds @ 99 . . $99,000.00.
(c) If the quotation is that of an actual sale indicate same by the letter “s” and the date of sale after the quote.
(d) Include bond ratings and the name of the rating service: e.g., Moody's, S & P, Fitch, etc. If a bond is not rated, indicate this fact by the letters “NR”.
Section 4. Effective Date This regulation will become effective October 1, 1999.
Section 5. History Originally issued as Regulation 76-3, effective immediately. Re-codified as Regulation 3-1-2.
Regulation amended, effective October 1, 1999.
Regulation 3-1-3 CONCERNING ACTUARIAL OPINIONS Section 1 Authority Section 2 Background And Purpose Section 3 Definitions Section 4 Statement Of Opinion Of Reserves And Other Actuarial Items Section 5 Requirements/Limitations On Domestic Company Opinions Section 6 Exemption Or Extension Section 7 Severability Section 8 Enforcement Section 9 Effective Date Section 10 History Section 1 Authority This regulation is promulgated under the authority of § § 10-1-109, 10-5-117, 10-6-129, 10-16-109, C.R.S.
Section 2 Background And Purpose The purpose of this regulation is to improve the Colorado Insurance Division's surveillance of the financial condition of companies, for the protection of all policyholders, contractholders and the general public, by requiring an annual opinion of a qualified actuary as to the adequacy of a company's reserves and other actuarial items which ought to be established in the required annual statement filings. This regulation shall apply to all companies defined in Section 3 below, excluding those filing pursuant to Colorado Insurance Regulation 3-1-8 (3CCR 702-3). Domestic mutual protective and pure assessment associations operating under Part 1 of Article 12 of Title 10, C.R.S. are exempted from this filing requirement unless an actuarial opinion is specifically requested by the Commissioner. Section 3 Definitions The following terms used in this regulation shall have the following meanings:
A. "Company" means a licensed insurance company, captive insurance company, non-profit hospital, medical-surgical and health service corporation, health maintenance organization, foreign authorized surplus lines insurance company, Pinnacol Assurance, foreign risk retention group operating in this state, title company, or foreign authorized non-admitted reinsurer.
B. "Qualified actuary" generally means an actuary meeting the qualifications set forth in Colorado Insurance Regulation 1-1-1 (3CCR 702-1). However, for opinions submitted with any financial statement filing required of Property and Casualty insurers, a qualified actuary is a person who is either a member in good standing of the Casualty Actuarial Society or a member in good standing of the American Academy of Actuaries who has been approved as qualified for signing casualty loss reserve opinions by the Casualty Practice Council of the American Academy of Actuaries. Section 4 Statement Of Opinion Of Reserves And Other Actuarial Items Each company shall submit with the annual financial statement filing an opinion of a qualified actuary, in a form acceptable to the Commissioner, which must at a minimum meet the recommended standards contained in the NAIC Annual Statement Instructions as to the adequacy of the company's reserves. A non-domestic company that files an opinion with the NAIC in conformity with the requirements of this section shall be exempted from filing a separate opinion with the Colorado Division of Insurance. The actuary shall consider provisions of Colorado statutes, regulations and generally accepted actuarial standards in forming such opinion. Companies that have not filed the actuarial opinion by the due date of the annual financial statement, or written extension date if granted, shall be assessed a late fee of up to $100.00 per day for each day the opinion is received beyond such date. Such late fee shall be assessed in addition to any other fines relating to the annual financial statement filing requirement. Section 5 Requirements/Limitations On Domestic Company Opinions Opinions submitted for Colorado domestic companies must comply with the following:
A. A company's loss and loss adjustment expense reserves reported in any required financial filing to the Commissioner shall reflect the company's best estimate of its insurance obligations, derived from reasonable assumptions, calculated in accordance with appropriate actuarial standards of practice and verified by the opining actuary. A company that establishes an amount less than the actuary's best estimate as indicated in the underlying actuarial report, if applicable, shall submit the underlying actuarial report supporting the actuary's opinion to the Commissioner no later than 30 days following the due date of the opinion. Failure to file the actuarial report within 30 days of a request by the Commissioner shall result in a penalty of up to $100.00 per day. The actuarial report shall be confidential and not available for public inspection. In addition, any summary which is required to be filed in accordance with the appropriate NAIC Property and Casualty Annual Statement instructions shall be confidential and not available for public inspection.
B. In addition to the items required by any applicable annual statement filing instructions, all company balance sheet amounts that are established through actuarial principles, including loss analysis, mortality, morbidity, discounting or estimation techniques, must be included within the actuarial opinion. These amounts include, but are not limited to: contingent reinsurance commissions, retrospective premium adjustments, premium deficiency reserves, claims-made free tail coverage, and unearned premium reserves which are determined in a manner other than pro- rata.
C. The actuary should be familiar with the material reinsurance arrangements of the insurer when determining the reasonableness of net reserves. The company shall not reflect any credit for reinsurance ceded in any financial statement filed, unless the reinsurance arrangements comply with the provisions of §10-3-118, C.R.S. and Colorado Insurance Regulation 3-3-2 (3CCR 702- 3). The actuary's opinion shall not reflect any credit taken for reinsurance ceded if the actuary is aware that reinsurance arrangements violate any provision of § 10-3-118, C.R.S. or Colorado Insurance Regulation 3-3-2 (3CCR 702-3).
D. Unless otherwise specified by statute, reserves for outstanding losses may not be discounted, with the exception of reserves established for losses with fixed and determinable future payments, such as those emanating from workers' compensation tabular indemnity reserves and long-term disability claims. The rate of interest, at each valuation date, used in the calculation of the discount shall not exceed the lesser of (i) the company's rate of return on statutory invested assets, and (ii) the 20 year duration valuation rate determined pursuant to §10-7-309.5, C.R.S., rate available upon request from the Actuarial Section of the Colorado Division of Insurance.
E. Reserves shall not be reduced for anticipated salvage and subrogation unless such reduction has been evaluated, analyzed and opined upon by the actuary as being reasonable based upon the company's past experience, current and reasonably anticipated activities, and has made due provision for the collection and other expenses associated with the receipt of the salvage and subrogation amounts. The actuary may analyze the reserve data net of salvage and subrogation so long as the actuary is satisfied that such treatment of the data will cause no material distortion.
F. Actuarial Opinions submitted by health insurers or HMOs who have entered into any kind of risk- sharing, usually contractual, arrangements with provider groups providing medical services to enrollees shall include comments as required by Actuarial Standard of Practice No 16 and §10- 16-705(5)(a) C.R.S.
Section 6 Exemption Or Extension A. The Commissioner may consider a written request for exemption or extension for the filing of the statement of actuarial opinion. Any such request must be made no later than 15 days before the due date of such opinion for which the exemption or extension is sought. Such request must contain a statement which sets forth the basis on which such exemption or extension is sought.
B. Requests for exemptions and extensions will be considered for the following reasons:
C. In all cases, however, an exception or extension will only be granted after the commissioner has determined that the non-submission or delay of the actuarial opinion would result in minimal potential harm to policyholders.
Section 7 Severability If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby. Section 8 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders and/or suspension or revocation of license. Among others, the penalties provided for in §10-3-1108, C.R.S. may be applied. Section 9 Effective Date This regulation is hereby amended and restated and shall be effective on December 1, 2005. Section 10 History New Regulation 90-1, effective December 31, 1994.
Amended Regulation, effective August 31, 1998.
Amended Regulation, effective December 1, 2005.
Amended Regulation 3-1-4Concerning Annual Audited Financial Reports Section 1 Authority Section 2 Background And Purpose Section 3 Definitions Section 4 Filing And Extensions For Filing For Annual Audited Financial Reports Section 5 Contents Of Annual Audited Financial Report Section 6 Designation Of Independent Certified Public Accountant By Colorado Domestic Companies Section 7 Qualifications Of Independent Certified Public Accountant Section 8 Consolidated Or Combined Audits Section 9 Scope Of Audit And Report Of Independent Certified Public Accountant Section 10 Notification Of Adverse Financial Condition Section 11 Report Of Significant Deficiencies In Internal Controls Section 12 Accountant's Letter Of Qualifications Section 13 Review And Retention Of Workpapers And Documents Section 14 Exemption Section 15 Severability Section 16 Effective Date Section 17 History Section 1 Authority This regulation is promulgated the authority of §§ 10-1-108(8), 10-1-109, 10-3-109, 10-3-118, 10-3-208, 10-5-117, 10-6-114, 10-6-129, 10-14-505, 10-14-602, 10-16-109, 10-16-111 and 8-45-121 C.R.S. Section 2 Background And Purpose A. The purpose of this regulation is to improve the oversight of the financial condition of companies by requiring an annual audit certified to by an independent certified public accountant of the financial statements reporting the financial position and results of operations of companies. In that a company's financial condition is of great importance to policyholders, contractholders and the general public, the ability to place reliance on the reported financial condition of companies is necessary.
B. Every company, as defined in Section 3 shall be subject to this regulation. Insurers, as defined in Section 3, having direct premiums written in Colorado of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of such calendar year shall be exempt from this regulation for such year. Insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more are not eligible for such exemption. Not withstanding the above, the Colorado Commissioner of Insurance (Commissioner) may make a specific finding that compliance is necessary to carry out statutory responsibilities.
C. Foreign or alien companies filing audited financial reports in another state, pursuant to such other state's or country's requirement of audited financial reports which has been found by the Commissioner to be substantially similar to the requirements herein, may meet the requirements of this regulation by filing such reports, provided that:
Section 3 Definitions The following terms used in this regulation shall have the following meanings:
A. “Accountant” and “Independent Certified Public Accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants (AICPA) and with all states where licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.
B. “Audited financial report” means all of the items specified in Section 5 of this regulation.
C. “Company” means an insurer, captive insurance company, health maintenance organization or the Colorado Compensation Insurance Authority.
D. “Insurer” means a licensed insurance company, authorized surplus lines insurance company, authorized nonadmitted reinsurer, nonprofit hospital, medical-surgical, and health service corporation or fraternal benefit society.
E. “NAIC” means the National Association of Insurance Commissioners.
F. “Workpapers” means the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the audit of the financial statements of a company. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of the audit of the financial statements of a company and which support the opinion thereof. Section 4 Filing And Extensions For Filing Of Annual Audited Financial Reports A. All companies shall have an annual audit by an independent certified public accountant and shall file the audited financial report with the Commissioner on or before June 1 for the year ended December 31 immediately preceding.
B. Extensions of the June 1 filing date may be granted by the Commissioner for thirty (30) day periods, upon a showing by the company and its independent certified public accountant of the reasons for requesting such extension and upon determination by the Commissioner of good cause for an extension. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.
Section 5 Contents Of Annual Audited Financial Report A. The annual audited financial report shall report the financial position of the company as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices.
B. The annual Audited Financial Report shall include the following:
Section 6 Designation Of Independent Certified Public Accountant By Colorado Domestic Companies A. Each Colorado domestic company required by this regulation to file an annual audited financial report must, within sixty (60) days after becoming subject to such requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accountant retained to conduct the annual audit set forth in this regulation.
B. The domestic company shall obtain a letter from the accountant, and file a copy with the Commissioner stating that the accountant is aware of the provisions of the Colorado Insurance Code and the regulations of the Division that relate to accounting and financial matters and affirming that the opinion expressed on the financial statements will be in terms conforming to the statutory accounting practices prescribed or otherwise permitted by the Division, specifying such exceptions as the accountant believes may be appropriate.
C. If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the company shall within five (5) working days notify the Division of this event. The company shall also furnish the Commissioner a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused the accountant to make reference to the subject matter of the disagreement in connection with the opinion. The disagreements required to be reported in response to this section include both those resolved to the former accountant's satisfaction and those not resolved to the former accountant's satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the company responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The company shall also request in writing that such former accountant furnish a letter addressed to the company stating whether the accountant agrees with the statements contained in the company's letter and, if not, stating the reasons why the accountant does not agree. The company shall furnish such response letter from the former accountant to the Commissioner together with its own letter.
Section 7 Qualifications Of Independent Certified Public Accountant A. No partner or other person responsible for rendering a report may act in that capacity for more than five (5) consecutive years for a Colorado domestic company and no more than seven (7) years for a foreign or alien company without approval of the Commissioner. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its affiliates for a period of two (2) years. A company may make application to the Commissioner for relief from the above rotation requirement by providing sufficient information for the Commissioner to review. The company must receive a written waiver of this requirement to continue with an existing partner or other person.
B. Notwithstanding the above or the provisions of Section 3.A., the Commissioner shall not recognize as a qualified independent certified public accountant, and not accept any annual Audited Financial Report, prepared in whole or in part by, any natural person who:
A. An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent (100%) reinsurance agreement that affects the solvency or integrity of the insurer's reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:
Section 9 Scope Of Audit And Report Of Independent Certified Public Accountant Financial statements furnished pursuant to Section 5 hereof shall be audited by an independent certified public accountant. The audit of the company's financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiners Handbook promulgated by the NAIC as the independent certified public accountant deems necessary. For information on the NAIC manuals please contact, Chief, Financial Examinations, Colorado Division of Insurance. Section 10 Notification Of Adverse Financial Condition A. The company required to furnish the annual Audited Financial Report shall require the independent certified public accountant to report, in writing within five (5) business days to the Board of Directors and its audit committee any determination by the independent certified public accountant that the company has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under audit or that the company does not meet the minimum capital and surplus requirements under Colorado law as of that date. The company which has received a report pursuant to this paragraph shall forward a copy of the report to the Commissioner within five (5) business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required five (5) business day period, the independent certified accountant shall furnish the Commissioner a copy of its report within the next five (5) business days.
B. If the certified public accountant, subsequent to the date of the audited financial report filed pursuant to this regulation, becomes aware of facts which might have affected the report, the Division notes the obligation of the certified public accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the AICPA. Section 11 Report On Significant Deficiencies In Internal Controls In addition to the annual audited financial statements, each company shall furnish the Commissioner with a written report prepared by the independent certified public accountant describing significant deficiencies in the company's internal control structure noted by the accountant during the audit. SAS NO. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the AICPA) requires an accountant to communicate significant deficiencies (known as “Reportable Conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report shall be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the company with the Division within sixty (60), days after filing the annual audited financial statements. The company is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant's report. Section 12 Accountant's Letter Of Qualifications The accountant shall furnish to the company in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating:
A. That the accountant is independent with respect to the company and conforms to the appropriate standards of the profession for example, the Code of Professional Ethics and Pronouncements of the AICPA and the Rules of Professional Conduct of the Colorado Board of Public Accountancy, or similar code.
B. The background and experience in general, and the experience in audits of companies of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this regulation shall be construed as prohibiting the accountant from utilizing such staff as deemed appropriate where use is consistent with standards prescribed by generally accepted auditing standards.
C. That the accountant understands the annual audited financial report and the opinion thereon will be filed in compliance with this regulation and that the Commissioner will be relying on this information in the monitoring and regulation of the financial positions of companies.
D. That the accountant consents to the requirements of Section 13 of this regulation and that the accountant consents and agrees to make available for review by the Commissioner, or the designee or appointee of the Commissioner, the workpapers as defined in Section 3.
E. A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the AICPA.
Section 13 Review And Retention Of Workpapers And Documents A. Every company required to file an Audited Financial Report pursuant to this regulation, shall require the accountant to make available for review by Division examiners, all workpapers prepared in the conduct of his examination and any communication related to the audit between the accountant and the company, at the offices of the company, at the Division or at any other reasonable place designated by the Commissioner. The company shall require that the accountant retain the audit workpapers and communication documents until the Division has filed a Report on Examination covering the period of the audit, but no longer than seven (7) years from the date of the audit report.
B. In the conduct of the aforementioned periodic review by the Division examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the Division. Such reviews by the Division examiners shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the Division.
C. Notwithstanding the above, audit reports and workpapers are additionally subject to, and protected by, the provisions of Article 2 of Title 12, C.R.S. Companies which are subject to oversight by both the Division and the State Auditor's Office are also governed by the provisions of Article 3 of Title 2, C.R.S.
Section 14 Exemption Upon written application of any company, the Commissioner may consider granting an exemption from compliance with this regulation. The Commissioner shall consider, in addition to any other pertinent facts and information about operations and financial condition, whether compliance with this regulation would constitute a financial hardship to the company. A request for exemption must be made for each calendar year for which such exemption is sought. Application for exemption must be received on or before December 31 of the year for which such exemption is sought. Section 15 Severability If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby. Section 16 Effective Date This regulation shall become effective April 1, 2001.
Section 17 History This regulation was originally effective December 31, 1990. Amended, January 31, 1994.
Amended, effective April 1, 2001.
REGULATION 3-1-5CONCERNING ENTERPRISE ZONES CREDIT AGAINST PREMIUM TAX I. AUTHORITY This regulation is promulgated under the authority of Sections 10-1-108(8), 10-1-109, 10-3-209, 10-5-111, 10-5-117, 10-6-128, 10-6-129 and 39-30-108(2), Colorado Revised Statutes.
II. PURPOSE The purpose of this regulation is to assure the orderly implementation of the premium tax credit provisions set forth in the Urban and Rural Enterprise Zone Act. This regulation sets forth the criteria for filing and documenting a claim for credit or refund of premium tax.
III. FILING REQUIREMENTS Each company seeking to claim a credit or refund of premium tax must file the tax form prescribed by the commissioner of insurance. Each such filing must be for the calendar year, and such filing must be received on or before March 1. In addition to the prescribed tax form, when an enterprise zone credit or refund is sought, a supplementary schedule must be attached to the tax form. This schedule shall itemize and describe each claim for credit or refund and include a statutory citation referencing the pertinent section of Article 30 of Title 39, Colorado Revised Statutes that permits each claim for credit or refund. This schedule shall be attested to by an officer of the company and contain, in a prominent location, the full company name, NAIC company number (if any), corporate seal, printed name and title of officer attesting to the correctness of the claim.
The value of the credit sought shall be further supported by an original certificate issued by the enterprise zone administrator. This certification shall set forth both the value and purpose of the related expenditure for which credit or refund is sought.
IV. SEVERABILITY If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby.
V. EFFECTIVE DATE This regulation shall be effective December 31, 1990.
REPEALED REGULATION 3-1-6 CONCERNING CUSTODIAL /SAFEKEEPING AGREEMENT AND THE USE OF CLEARING CORPORATIONS AND FEDERAL RESERVE BOOK-ENTRY SYSTEM I. Authority This regulation is promulgated and adopted by the Colorado Commissioner of Insurance (Commissioner) under the authority of § § 10-1-109(1), 10-3-1203(2), 10-6-129 and 10-16-109 Colorado Revised Statutes (C.R.S.).
II. Background and Purpose The purpose of this regulation is to provide current criteria, procedures and clarification concerning the holding of securities or book-entry securities as investments or in meeting the statutory deposits or guaranty fund deposits pursuant to § § 10-3-210, 10-6-116, 10-16-310, 10-16-412 and 10-16-505, C.R.S. Only custodial agreements complying with this regulation shall be acceptable to the Commissioner of Insurance.
III. Definitions When used in this regulation, the term "Agent" shall mean a national bank, state bank or trust company which maintains an account in its name in a clearing corporation or which is a member of the Federal Reserve System and through which a custodian participates in a clearing corporation or the Federal Reserve book-entry system, except that with respect to securities issued by institutions organized or existing under the laws of any foreign country or securities used to meet the deposit requirements pursuant to the laws of a foreign country as a condition of doing business therein, "agent" may include a corporation which is organized or existing under the laws of any foreign country and which is legally qualified under such laws to accept custody of securities.
"Clearing corporation" shall mean a corporation as defined in § § 4-8-102(3) and 10-3-1202(1), C.R.S. which is organized for the purpose of effecting transactions in securities by computerized book-entry, except that with respect to securities issued by institutions organized or existing under the laws of any foreign country or securities used to meet the deposit requirements pursuant to the laws of a foreign country as a condition of doing business therein, "clearing corporation" may include a corporation which is organized or existing under the laws of any foreign country and which is legally qualified under such laws to effect transaction in securities by computerized book-entry. "Company" means an insurer, captive insurance company, health maintenance organization, nonprofit hospital, medical-surgical and health service corporation, prepaid dental care plan or the Colorado Compensation Insurance Authority.
"Custodian" shall mean a national bank, state bank or trust company that shall at all times during which it acts as a custodian pursuant to this regulation be no less than adequately capitalized as determined by the standards adopted by United States banking regulators and is regulated by either state banking laws or is a member of the Federal Reserve System. The custodian must be legally qualified to accept custody of securities in accordance with the standards set forth below, except that with respect to securities issued by institutions organized or existing under the laws of a foreign country, or securities used to meet the deposit requirements pursuant to the laws of a foreign country as a condition of doing business therein, "custodian" may include a bank, or trust company incorporated or organized under the laws of a country other than the United States. Such bank or trust company must be regulated as such by that country’s government or an agency thereof that shall at all times during which it acts as custodian pursuant to this regulation be no less than adequately capitalized as determined by the standards adopted by international banking authorities and that is legally qualified to accept custody of securities. With respect to a custodian designated as the Commissioner's depository to receive and hold securities pursuant to § 10-3-210 C.R.S., the custodian and its administration of the pledged securities must be physically located in the City and County of Denver.
"Custodied securities" shall mean securities held by the custodian or its agent or in a clearing corporation or in the federal reserve book-entry system.
"Federal Reserve book-entry system" shall mean the computerized systems sponsored by the United States Department of the Treasury and certain agencies and instrumentalities of the United States for holding and transferring securities of the United States government and such agencies and instrumentalities, respectively, in Federal Reserve Banks through banks which are members of the Federal Reserve System or which otherwise have access to such computerized systems. "Securities" shall have the meaning as defined in § 4-8-102(15), C.R.S.
IV. Custody Agreement Requirements A. A company may, by written agreement with a custodian, provide for the custody of its securities with a custodian, which securities may be held by the custodian or its agent or in a clearing corporation or in the Federal Reserve book-entry system.
B. Any custodial agreement shall be in writing and shall be authorized by a resolution of the Board of Directors of the company or of an authorized committee thereof. The terms of the agreement shall comply with the following:
V. Enforcement Noncompliance with this regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines and/or suspension or revocation of license.
VI. Severability If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby.
VII. Effective Date This regulation is hereby amended and restated and shall be effective on January 1, 1997. This regulation is repealed October 2, 2006.
Amended Regulation 3-1-7Concerning Conditions For Review In Determining A Hazardous Financial Condition Section 1 Authority Section 2 Purpose Section 3 Conditions of Review Section 4 Commissioner's Options Section 5 Severability Section 6 Effective Date Section 7 History Section 1 Authority This regulation is adopted and promulgated under the authority of §§ 10-1-108(8), 10-1-109, and 10-1- 111, Colorado Revised Statutes (C.R.S.).
Section 2 Purpose The purpose of this regulation is to set forth certain items and conditions which are routinely considered by the Commissioner of Insurance (Commissioner) in reviewing insurers' financial filings. These filings are reviewed to determine continued compliance with Colorado laws and to determine if a delinquency, as defined by § 10-3-402(2), C.R.S., exists. This review focuses on the financial aspects of an insurer and is used to determine if it is operating in such a manner as to render the continuation of its business hazardous to the public or to holders of its policies or certificates of insurance. If a determination of delinquency is made, this regulation describes some of the options available to the insurer and the Commissioner to be considered in abating the condition. This 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 regulation be interpreted to supercede any laws or parts of laws of this state.
Section 3 Conditions Of Review The following conditions are routinely considered by the Commissioner during the review of financial filings and, either one or more, may cause a determination that the continued operation of the insurer in this state is considered to be hazardous to the policyholders or the general public. As used within this regulation, a hazardous financial condition means that the insurer is either currently impaired, insolvent or unable to honor its obligations when due; or a condition or pattern exists which may reasonably be expected to cause the insurer to be impaired, insolvent or unable to honor its obligations when due in the future. In conducting this review, the Commissioner may consider, but is not limited to, the following:
A. adverse findings reported in financial condition and market conduct examination reports;
B. information produced by the National Association of Insurance Commissioners Insurance Regulatory Information System;
C. a ratio 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;
D. an asset portfolio which, 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;
E. 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;
F. the insurer's operating loss in the last twelve month period or any shorter period of time (including but not limited to net capital gain or loss), or its change in non-admitted assets, or its cash dividends paid to shareholders, is greater than 50% of such insurer's remaining surplus as regards policyholders in excess of the company action level risk based capital;
G. whether a parent or any affiliate, subsidiary or reinsurer is insolvent, threatened with insolvency, or delinquent in payment of its monetary or other obligations;
H. contingent liabilities, pledges or guarantees 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 transmitting to, or payment of, net premiums or other amounts to such insurer;
J. the age and collectibility of receivables;
K. 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;
L. 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;
M. whether management of an insurer either has filed any false or misleading financial statement, or has released a 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;
N. 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;
O. whether the insurer has experienced or will experience in the foreseeable future cash flow and/or liquidity problems;
P. whether the insurer has sufficient surplus to continue to write the type of coverages currently offered or contemplated. In making this determination, the Commissioner may require an opinion by an actuary which addresses whether or not the current surplus is sufficient for the current and anticipated writings of the company. Any opinion must be accompanied by the underlying report supporting such opinion and shall consider exposure, timing on anticipated asset and liability streams and any other consideration deemed necessary by the actuary; or Q. whether the total adjusted capital is less than 200% of the authorized control level for the most recent RBC calculation.
Section 4 Commissioner's Options A. For the purposes of making a determination of an insurer's financial condition under this regulation, the Commissioner may, among other things:
B. If the Commissioner determines that a delinquency exists due to a specific practice or act of the insurer, or that the continued operation of the insurer may be hazardous to the policyholders or the general public, the Commissioner may furnish the insurance company with a written explanation of the delinquency, request additional information, if necessary, to conclude the investigation or determination and request the position of the insurer with regard to such findings. The Commissioner may provide a written list of requirements for the insurer to abate the situation. Alternatively, the insurer may offer a plan of abatement for review and approval by the Commissioner. Examples of corrective measures or monitoring which the Commissioner may require in a plan of abatement include, but are not limited to:
Amended, Effective April 1, 2001.
Repealed and Repromulgated Regulation 3-1-8 CONCERNING ACTUARIAL OPINIONS AND MEMORANDUMS FOR LIFE COMPANIES AND FRATERNAL BENEFIT SOCIETIES Section 1. Authority Section 2. Purpose Section 3. Scope Section 4. Definitions Section 5. General Requirements Section 6. Statement of Actuarial Opinion Based On Asset Adequacy Analysis Section 7. Description of Actuarial Memorandum Including an Asset Adequacy Analysis and Regulatory Asset Adequacy Issues Summary Section 8. Enforcement Section 9. Severability Section 10. Effective Date Section 11. History Section 1. Authority This regulation is promulgated under the authority of §§10-1-108(7), 10-1-109, 10-7-114, and 10-14-505, C.R.S.
Section 2. Purpose The purpose of this regulation is to amend existing regulation 3-1-8, effective September 1,1994, and to prescribe:
A. Guidelines and standards for statements of actuarial opinion, which are to be submitted in accordance with §§10-7-114 and 10-14-602, C.R.S. and for memorandums submitted in support thereof;
B. Rules applicable to the appointment of an appointed actuary; and C. Guidance as to the meaning of “adequacy of reserves.” Section 3. Scope This regulation shall apply to all life insurance companies and fraternal benefit societies doing business in this State and to all life insurance companies and fraternal benefit societies that are authorized to reinsure life insurance, annuities or accident and health insurance business in this State. This regulation shall be applied in a manner that allows the appointed actuary to utilize his or her professional judgment in performing the asset adequacy analysis and developing the actuarial opinion and supporting memoranda, consistent with relevant actuarial standards of practice. However, the Commissioner shall have the authority to specify specific methods of actuarial analysis and actuarial assumptions when, in the Commissioner's judgment, these specifications are necessary for an acceptable opinion to be rendered relative to the adequacy of reserves and related items; see Section 7D of this regulation for requirements specific to companies domiciled in the State of Colorado. This regulation shall be applicable to all annual statements filed with the office of the Commissioner after the effective date of this regulation. A statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with Section 6 of this regulation, and a memorandum in support thereof in accordance with Section 7 of this regulation, shall be required each year.
Section 4. Definitions A. “Actuarial Opinion” means the opinion of an appointed actuary regarding the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with Section 6 of this regulation and with applicable Actuarial Standards of Practice.
B. “Actuarial Standards Board” means the board established by the-American Academy of Actuaries to develop and promulgate actuarial standards of practice.
C. “Actuarial Standards of Practice” means the Actuarial Standards of Practice and Compliance Guidelines as promulgated by the Actuarial Standards Board.
D. “Annual statement” means that statement required by §§10-3-208 and 10-14-602, C.R.S. to be filed annually, by the company, with the Commissioner.
E. “Appointed actuary” means an individual who is appointed or retained in accordance with the requirements set forth in Section 5B of this regulation to provide the actuarial opinion and supporting memorandum as required by this regulation and §10-7-114, C.R.S.
F. “Asset adequacy analysis” means an analysis that meets the standards arid other requirements referred to in Section 5C of this regulation. It may take many forms, including, but not limited to, cash flow testing, sensitivity testing or applications of risk theory.
G. “Commissioner” means the Insurance Commissioner of the State of Colorado.
H. “Company” means a life insurance company, fraternal benefit society or reinsurer subject to the provisions of this regulation.
I. “Qualified actuary” means an individual who meets the requirements set forth in §10-7-114(l)(e),C.R.S. Section 5. General Requirements A. Submission of Statement of Actuarial Opinion
B. Appointed Actuary. An “appointed actuary” is a qualified actuary who is appointed or retained to prepare the Statement of Actuarial Opinion required by this regulation, either directly by or by the authority of the board of directors through an executive officer of the company other than the qualified actuary. The company shall give the Commissioner timely written notice of the name, title (and, in the case of a consulting actuary, the name of the firm) and manner of appointment or retention of each person appointed or retained by the company as an appointed actuary and shall state in the notice that the person meets the requirements set forth in § 10-7-114(l)(e), C.R.S. Once notice is furnished, no further notice is required with respect to this person, provided that the company shall give the Commissioner timely written notice in the event the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirements set forth in §10-7- 114(l)(e), C.R.S. If any person appointed or retained as an appointed actuary replaces a previously appointed actuary, the notice shall so state and give the reasons for replacement.
C. Standards for Asset Adequacy Analysis. The asset adequacy analysis required by this regulation:
D. Liabilities to be Covered.
Section 6. Statement of Actuarial Opinion Based On an Asset Adequacy Analysis A. General Description. The Statement of Actuarial Opinion submitted in accordance with this section shall consist of:
B. Recommended Language. The following paragraphs are to be included in the Statement of Actuarial Opinion in accordance with this section. Language is that which in typical circumstances should be included in a Statement of Actuarial Opinion. The language may be modified as needed to meet the circumstances of a particular case, but the appointed actuary should use language that clearly expresses his or her professional judgment. However, in any event the opinion shall retain all pertinent aspects of the language provided in this section.
A statement of reliance on other experts should be accompanied by a statement by each of the experts in the form prescribed by Section 6E.
“My examination included such review of the actuarial assumptions and actuarial methods and of the underlying basic asset and liability records and such tests of the actuarial calculations as I considered necessary. I also reconciled the underlying basic asset and liability records to [exhibits and schedules listed as applicable] of the company's current annual statement.”
The section shall be accompanied by a statement by each person relied upon in the form prescribed by Subsection 6E of this regulation.
The reserves and related items, when considered in light of the assets held by the company with respect to such reserves and related actuarial items including, but not limited to, the investment earnings on the assets, and the considerations anticipated to be received and retained under the policies and contracts, make 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 company. The actuarial methods, considerations and analyses used in forming my opinion conform to the appropriate Actuarial Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis of this statement of opinion. This opinion is updated annually as required by statute. To the best of my knowledge, there have been no material changes from the applicable date of the annual statement to the date of the rendering of this opinion which should be considered in reviewing this opinion.”
or “The following material change(s) which occurred between the date of the statement for which this opinion is applicable and the date of this opinion should be considered in reviewing this opinion: (Describe the change or changes)” Note: Choose one of the above two paragraphs, whichever is applicable. “The impact of unanticipated events subsequent to the date of this opinion is beyond the scope of this opinion. The analysis of asset adequacy portion of this opinion should be viewed recognizing that the company's future experience may not follow all the assumptions used in the analysis.”
_____________________________ Signature of Appointed Actuary _____________________________ Address of Appointed Actuary _____________________________ Telephone Number of Appointed Actuary _____________________________ Date Note: This table must be included in the actuarial opinion filed. Asset Adequacy Tested Amounts - Reserves and Liabilities Statement Item Formula Reserves(1) (a)Additional Actuarial (b)Analysis Method Reserves(2)
Exhibit 5A Life Insurance B Annuities C Supplementary ContractsInvolving Life Contingencies D Accidental Death Benefit E Disability - Active F Disability - Disabled G Miscellaneous Total (Exhibit 5, Item 1, Page 3)
Exhibit 6A Active Life Reserve B Claim Reserve Total (Exhibit 6, Item 2, Page 3)
Exhibit 7Premium and Other Deposit Funds (Column 5, Line 14)
Guaranteed Interest Contracts (Column 2, Line 14)
Other (Column 6, Line 14)
Supplemental Contracts and Annuities Certain (Column 3, Line 14)
Dividend Accumulations or Refunds (Column 4, Line 14)
Total (Exhibit 7, Column 1, Line 14)
Exhibit 8, Part 1Life (Page 3, Line 4.1)
Health (Page 3, Line 4.2)
Total (Exhibit 11, Part 1)
Separate Accounts (Page 3 of the Annual Statement, Line 27)
TOTAL RESERVES IMR (General Account, Page 3, Line 9.4)
Separate Accounts, (Page 3, Line 27)
AVR (Page 3, Line 24.1) (c)
Net Deferred and Uncollected Premium, (Page 2, Line 16)
C. Assumptions for New Issues The adoption for new issues or new claims or other new liabilities of an actuarial assumption that differs from a corresponding assumption used for prior new issues or new claims or other new liabilities is not a change in actuarial assumptions within the meaning of this Section 6.
D. Adverse Opinions If the appointed actuary is unable to form an opinion, then he or she shall refuse to issue a Statement of Actuarial Opinion. If the appointed actuary's opinion is adverse or qualified, then he or she shall issue an adverse or qualified actuarial opinion explicitly stating the reasons for the opinion. This statement should follow the scope paragraph and precede the opinion paragraph.
E. Reliance on Information Furnished by Other Persons If the appointed actuary relies on the certification of others on matters concerning the accuracy or completeness of any data underlying the actuarial opinion, or the appropriateness of any other information used by the appointed actuary in forming the actuarial opinion, the actuarial opinion should so indicate the persons the actuary is relying upon and a precise identification of the items subject to such reliance, In addition, the persons on whom the appointed actuary relies shall provide a certification that precisely identifies the items on which the person is providing information and a statement as to the accuracy, completeness or reasonableness, as applicable, of the items. This certification shall include the signature, title, company, address and telephone number of the person rendering the certification, as well as the date on which it is signed.
F. Alternate Option
Section 7. Description of Actuarial Memorandum Including an Asset Adequacy Analysis and Regulatory Asset Adequacy Issues Summary A. General
B. Details of the Memorandum Section Documenting Asset Adequacy Analysis When an actuarial opinion is provided, the memorandum shall demonstrate that the analysis has been done in accordance with the standards for asset adequacy referred to in Section 5C of this regulation and any additional standards under this regulation. It shall specify:
The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumptions.
C. Details of the Regulatory Asset Adequacy Issues Summary
D. Required Interest Scenarios For the purpose of performing the asset adequacy analysis required by this regulation, the qualified actuary is expected to follow all appropriate Actuarial Standards of Practice, In addition, the appointed actuary, for each Colorado domestic insurer, must consider, in any analysis incorporating cash flow testing as the basis for the asset adequacy analysis, the effect of at least the following interest rate scenarios:
E. Conformity to Standards of Practice.
The memorandum shall include this statement:
F. Use of Assets Supporting the Interest Maintenance Reserve and the Asset Valuation Reserve. An appropriate allocation of assets in the amount of the interest maintenance reserve (IMR), whether positive or negative, shall be used in any asset adequacy analysis. Analysis of risks regarding asset default may include an appropriate allocation of assets supporting the asset valuation reserve (AVR); these AYR assets may not be applied for any other risks with respect to reserve adequacy. Analysis of these and other risks may include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support. The amount of the assets used for the AVR shall be disclosed in the Table of Reserves and Liabilities of the opinion and in the memorandum. The method used for selecting particular assets or allocated portions of assets shall be disclosed in the memorandum.
G. Documentation.
The appointed actuary shall retain on file, for at least seven (7) years, sufficient documentation so that it will be possible to determine the procedures followed, the analyses performed, the bases for assumptions and the results obtained.
Section 8. Enforcement Noncompliance with this regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws, which include the imposition of fines and/or suspension or revocation of license. Section 9. Severability If any provision of this regulation or the application thereof to any person or circumstances are for any reason held to be invalid, the remainder of the regulation shall not be affected in any way. Section 10. Effective Date The regulation as amended shall become effective January 1,2004. Section 11. History This regulation was originally effective September 1,1992. The regulation was amended effective September 1,1994.
Repealed and repromulgated Amended Regulation 3-1-8 effective January 1, 2004. REGULATION 3-1-9 MINIMUM RESERVE STANDARDS FOR INDIVIDUAL AND GROUP HEALTH INSURANCE CONTRACTS I. AUTHORITY This regulation is promulgated under the authority of §§ 10-1-108(8), 10-1-109, 10-16-109 and 10-16-220, C.R.S.
II. PURPOSE The purpose of this regulation is to set forth minimum standards for reserves of insurers providing individual and group health insurance.
III. SCOPE These standards apply to all individual and group health sickness and accident insurance coverages except credit insurance regulated under Article 10 of Title 10 of the Colorado Revised Statutes. When an insurer determines that adequacy of its health insurance reserves requires reserves in excess of the minimum standards specified herein, such increased reserves shall be held and shall be considered the minimum reserves for that insurer.
With respect to any block of contracts, or with respect to an insurer's health business as a whole, a prospective gross premium valuation, as indicated by generally accepted actuarial standards, is the ultimate test of reserve adequacy as of a given valuation date. Such a gross premium valuation will take into account, for contracts in force, in a claims status, or in a continuation of benefits status on the valuation date, the present value as of the valuation date of: all expected benefits unpaid, all expected expenses unpaid, and all unearned or expected premiums, adjusted for future premium increases reasonably expected to be put into effect.
Such a gross premium valuation is to be performed whenever a significant doubt exists, by the company's qualified actuary, as to reserve adequacy with respect to any major block of contracts, or with respect to the insurer's health business as a whole. In the event inadequacy is found to exist, immediate loss recognition shall be made and the reserves restored to adequacy. Adequate reserves (inclusive of claim, premium and contract reserves, if any) shall be held with respect to all contracts, regardless of whether contract reserves are required for such contracts under these standards. Whenever minimum reserves, as defined in these standards, exceed reserve requirements as determined by a prospective gross premium valuation, such minimum reserves remain the minimum requirement under these standards.
A. Categories of Reserves The following sections set forth minimum standards for three categories of health insurance reserves: Section IV. Claim Reserves Section V. Premium Reserves Section VI. Contract Reserves Adequacy of an insurer's health insurance reserves is to be determined on the basis of all three categories combined. However, these standards emphasize the importance of determining appropriate reserves for each of the three categories separately.
B. Appendices These standards contain two appendices which are an integral part of the standards, and one additional “supplementary” appendix which is not part of the standards as such, but is included for explanatory and illustrative purposes only.
Appendix A. Specific minimum standards with respect to morbidity, mortality and interest, which apply to claim reserves according to year of incurral and to contract reserves according to year of issue. Appendix B. Glossary of Technical Terms used.
Appendix C. (Supplementary) Waiver of Premium Reserves.
IV. CLAIM RESERVES A. General 1. Claim reserves are required for all incurred but unpaid claims on all health insurance policies.
2. Appropriate claim expense reserves are required with respect to the estimated expense of settlement of all incurred but unpaid claims.
3. All such reserves for prior valuation years are to be tested for adequacy and reasonableness along the lines of claim runoff schedules in accordance with the statutory financial statement including consideration of any residual unpaid liability.
B. Minimum Standards for Claim Reserves 1. Disability Income a. Interest. The maximum interest rate for claim reserves is specified in Appendix A.
b. Morbidity. Minimum standards with respect to morbidity are those specified in Appendix A; except that, at the option of the insurer:
c. Duration of Disablement. For contracts with an elimination period, the duration of disablement should be measured as dating from the time that benefits would have begun to accrue had there been no elimination period.
2. All Other Benefits a. Interest. The maximum interest rate for claim reserves is specified in Appendix A.
b. Morbidity or other Contingency. The reserve should be based on the insurer's experience, if such experience is considered credible, or upon other assumptions designed to place a sound value on the liabilities.
C. Claim Reserve Methods Generally Any generally accepted or reasonable actuarial method or combination of methods may be used to estimate all claim liabilities. The methods used for estimating liabilities generally may be aggregate methods, or various reserve items may be separately valued. Approximations based on groupings and averages may also be employed. Adequacy of the claim reserves, however, shall be determined in the aggregate.
V. PREMIUM RESERVES A. General 1. Unearned premium reserves are required for all contracts with respect to the period of coverage for which premiums, other than premiums paid in advance, have been paid beyond the date of valuation.
2. If premiums due and unpaid are carried as an asset, such premiums must be treated as premiums in force, subject to unearned premium reserve determination. The value of unpaid commissions, premium taxes, and the cost of collection associated with due and unpaid premiums must be carried as an offsetting liability or as a reduction to the otherwise allowable asset.
3. The gross premiums paid in advance for a period of coverage commencing after the next premium due date which follows the date of valuation shall be held either as a separate liability or as an addition to the unearned premium reserve which would otherwise be required as a minimum.
B. Minimum Standards for Unearned Premium Reserves 1. The minimum unearned premium reserve with respect to any contract is the pro rata unearned modal premium that applies to the premium period beyond the valuation date, with such premium determined on the basis of:
2. However, in no event may the sum of the unearned premium and contract reserves for any contract of the insurer subject to contract reserve requirements be less than the gross modal unearned premium reserve on any such contract, as of the date of valuation. In addition such reserve shall never be less than the expected claims for the period beyond the valuation date represented by such unearned premium reserve, to the extent not provided for elsewhere.
C. Premium Reserve Methods Generally The insurer may employ suitable approximations and estimates; inclubing, but not limited to groupings, averages and aggregate estimation; in computing premium reserves. Such approximations or estimates should be tested periodically to determine their continuing adequacy and reliability.
VI. CONTRACT RESERVES A. General 1. Contract reserves are required, unless otherwise specified in paragraph 2 below, for:
2. Contracts not requiring a contract reserve are:
3. The contract reserve is in addition to claim reserves and premium reserves.
4. The methods and procedures for contract reserves should be consistent with those for claim reserves for any contract, or else appropriate adjustment must be made when necessary to assure provision for the aggregate liability. The definition of the date of incurral must be the same in both determinations.
B. Bases for Minimum Standards for Contract Reserves 1. Morbidity or other Contingency. Minimum standards with respect to morbidity are those set forth in Appendix A. Valuation net premiums used under each contract must have a structure consistent with the gross premium structure at issue of the contract as this relates to advancing age of insured, contract duration and period for which gross premiums have been calculated. Contracts for which tabular morbidity standards are not specified in Appendix A shall be valued using tables established for reserve purposes by a qualified actuary and acceptable to the Commissioner.
2. Interest. The maximum interest rate is specified in Appendix A.
3. Termination Rates. Termination rates used in the computation of reserves shall be on the basis of a mortality table as specified in Appendix A except as noted in the following paragraph. Under contracts for which premium rates are not guaranteed, and where the effects of insurer underwriting are specifically used by policy duration in the valuation morbidity standard or for return of premium or other deferred cash benefits, total termination rates may be used at ages and durations where these exceed specified mortality table rates, but not in excess of the lesser of:
4. Reserve Method.
on the two year preliminary term method if such benefits are only provided on or after the twentieth anniversary.
The preliminary term method may be applied only in relation to the date of issue of a contract. Reserve adjustments introduced later, as a result of rate increases, revisions in assumptions (e.g., projected inflation rates) or for other reasons, are to be applied immediately as of the effective date of adoption of the adjusted basis.
5. Negative Reserves. Negative reserves on any benefit may be offset against positive reserves for other benefits in the same contract, but the total contract reserve with respect to all benefits combined may not be less than zero.
C. Alternative Valuation Methods and Assumptions Generally Provided the contract reserve on all contracts to which an alternative method or basis is applied is not less in the aggregate than the amount determined according to the applicable standards specified above, an insurer may use any reasonable assumptions as to interest rates, termination and/or mortality rates, and rates of morbidity or other contingency. Also, subject to the preceding condition, the insurer may employ methods other than the methods stated above in determining a sound value of its liabilities under such contracts, including, but not limited to the following: the net level premium method; the one-year full preliminary term method; prospective valuation on the basis of actual gross premiums with reasonable allowance for future expenses; the use of approximations such as those involving age groupings, groupings of several years of issue, average amounts of indemnity, grouping of similar contract forms; the computation of the reserve for one contract benefit as a percentage of, or by other relation to, the aggregate contract reserves exclusive of the benefit or benefits so valued; and the use of a composite annual claim cost for all or any combination of the benefits included in the contracts valued.
D. Tests For Adequacy and Reasonableness of Contract Reserves Annually, an appropriate review shall be made of the insurer's prospective contract liabilities on contracts valued by tabular reserves, to determine the continuing adequacy and reasonableness of the tabular reserves giving consideration to future gross premiums. The insurer shall make appropriate increments to such tabular reserves if such tests indicate that the basis of such reserves is no longer adequate, subject to the minimum standards of Section VI(B).
In the event a company has a contract or a group of related similar contracts, for which future gross premiums will be restricted by contract, insurance department regulations, or for other reasons, such that the future gross premiums reduced by expenses for administration, commissions, and taxes will be insufficient to cover future claims, the company shall establish contract reserves for such shortfall in the aggregate.
VII. REINSURANCE Increases to, or credits against reserves carried, arising because of reinsurance assumed or reinsurance ceded, must be determined in a manner consistent with these minimum reserve standards and with all applicable provisions of the reinsurance contracts which affect the insurer's liabilities. VIII. SEVERABILITY If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby.
IX. EFFECTIVE DATE This regulation shall be effective on January 31, 1993. APPENDIX A SPECIFIC STANDARDS FOR MORBIDITY, INTEREST AND MORTALITY All mortality and morbidity tables referenced in this Appendix A are available for examination from the Chief of Corporate Affairs, Division of Insurance, 1560 Broadway, Suite 850, Denver Colorado 80202. The standards of this Appendix A do not include later amendments to or editions of the referenced tables.
I. MORBIDITY A. Minimum morbidity standards for valuation of specified individual contract health insurance benefits are as follows:
The 1985 Commissioners Individual Disability Tables A (85CIDA) (published in the Transactions of the Society of Actuaries, Volume XXXVII, PP.449-601); or The 1985 Commissioners Individual Disability Tables B (85CIDB) (published in the Proceedings of the National Association of Insurance Commissioners, Volume 1, 1985, PP. 494-540)
Contracts issued during the years 1987 through 1995:
Optional use of either the 1964 Table or the 1985 Tables. Each insurer shall elect, with respect to all individual contracts issued in any one statement year, whether it will use Tables A or Tables B as the minimum standard. The insurer may, however, elect to use the other tables with respect to any subsequent statement year.
The minimum morbidity standard in effect for contract reserves on currently issued contracts, as of the date the claim is incurred.
Contracts issued on or after January 1, 1955, and before January 1, 1982: The 1956 Intercompany Hospital-Surgical Tables (published in the Transactions of the Society of Actuaries, Volume IX, PP. 341-417). Contracts issued on or after January 1, 1982:
The 1974 Medical Expense Tables, Table A (published in the Transactions of the Society of Actuaries, Volume XXX, pg. 63. Refer to the paper (in the same volume, pg. 9) to which this table is appended, including its discussions, for methods of adjustment for benefits not directly valued in Table A: “Development of the 1974 Medical Expense Benefits,” Houghton and Wolf).
No specific standard. See 5, below.
Contracts issued on or after January 1, 1986:
The 1985 NAIC Cancer Claim Cost Tables (published in the Proceedings of the National Association of Insurance Commissioners, Volume 1, 1986, PP. 601-624).
Contracts issued on or after January 1, 1965:
The 1959 Accidental Death Benefits Table. (published by the Society of Actuaries, copyright 1962)
Actual amount incurred.
For all other individual contract benefits, morbidity assumptions are to be determined as provided in the reserve standards.
For all benefits other than disability, claim reserves are to be determined as provided in the standards.
B. Minimum morbidity standards for valuation of specified group contract health insurance benefits are as follows:
Contracts issued on or after January 1, 1993:
The 1987 Commissioners Group Disability Income Table (87CGDT) (published in the Transactions of the Society of Actuaries, Volume XXXIX, PP. 393-458).
For claims incurred on or after January 1, 1993:
The 1987 Commissioners Group Disability Income Table (87CGDT) (published in the Transactions of the Society of Actuaries, Volume XXXIX, PP. 393-458);
For claims incurred prior to January 1, 1993:
Use of the 87CGDT is optional.
For all other group contract benefits, morbidity assumptions are to be determined as provided in the reserve standards.
For all benefits other than disability, claim reserves are to be determined as provided in the standards.
II. INTEREST A. For contract reserves the maximum interest rate is the maximum rate permitted by law in the valuation of whole life insurance issued on the same date as the health insurance contract.
B. For claim reserves, for which interest discounting is expressly permitted:
III. MORTALITY A. Except as provided on subsection B, the mortality basis used shall be according to a table (but without use of selection factors) permitted by Article 7 of Title 10, C.R.S. for the valuation of whole life insurance issued on the same date as the health insurance contract.
B. Other mortality tables adopted by the NAIC and promulgated by the Commissioner may be requested to be used in the calculation of the minimum reserves if appropriate for the type of benefits and if approved by the Commissioner. The request for such approval must include the proposed mortality table and the reason that the standard specified in subsection A is inappropriate. APPENDIX B GLOSSARY OF TECHNICAL TERMS USED As used in this valuation standard, the following terms have the following meaning: ANNUAL CLAIM COST. The net annual cost per unit of benefit before the addition of expenses, including claim settlement expenses, and a margin for profit or contingencies. For example, the annual claim cost for a $100 monthly disability benefit, for a maximum disability benefit period of one year, with an elimination period of one week, with respect to a male at age 35, in a certain occupation might be $12, while the gross premium for this benefit might be $18. The additional $6 would cover expenses and profit or contingencies.
CLAIMS ACCRUED. That portion of claims incurred on or prior to the valuation date which result in liability of the insurer for the payment of benefits for medical services which have been rendered on or prior to the valuation date, and for the payment of benefits for days of hospitalization and days of disability which have occurred on or prior to the valuation date, which the insurer has not paid as of the valuation date, but for which it is liable, and will have to pay after the valuation date. This liability is sometimes referred to as a liability for “accrued” benefits. A claim reserve, which represents an estimate of this accrued claim liability, must be established.
CLAIMS REPORTED. When an insurer has been informed that a claim has been incurred, if the date reported is on or prior to the valuation date, the claim is considered as a reported claim for annual statement purposes.
CLAIMS UNACCRUED. That portion of claims incurred on or prior to the valuation date which result in liability of the insurer for the payment of benefits for medical services expected to be rendered after the valuation date, and for benefits expected to be payable for days of hospitalization and days of disability occurring after the valuation date. This liability is sometimes referred to as a liability for unaccrued benefits. A claim reserve, which represents an estimate of the unaccrued claim payments expected to be made, must be established.
CLAIMS UNREPORTED. When an insurer has not been informed, on or before the valuation date, concerning a claim that has been incurred on or prior to the valuation date, the claim is considered as an unreported claim for annual statement purposes.
DATE OF DISABLEMENT. The earliest date the insured is considered as being disabled under the definition of disability in the contract, based on a doctor's evaluation or other evidence. Normally this date will coincide with the start of any elimination period. ELIMINATION PERIOD. A specified number of days, weeks, or months starting at the beginning of each period of loss, during which no benefits are payable.
GROSS PREMIUM. The amount of premium charged by the insurer. It includes the net premium (based on claim cost) for the risk, together with any loading for expenses, profit or contingencies. GROUP INSURANCE. The term group insurance includes blanket insurance and franchise insurance and any other forms of group insurance.
LEVEL PREMIUM. A premium calculated to remain unchanged throughout either the lifetime of the policy, or for some shorter projected period of years. The premium need not be guaranteed; in which case, although it is calculated to remain level, it may be changed if any of the assumptions on which it was based are revised at a later time.
Generally, the annual claim costs are expected to increase each year and the insurer, instead of charging premiums that correspondingly increase each year, charges a premium calculated to remain level for a period of years or for the lifetime of the contract. In this case the benefit portion of the premium is more than needed to provide for the cost of benefits during the earlier years of the policy and less than the actual cost in the later years. The building of a prospective contract reserve is a natural result of level premiums.
LONG-TERM CARE INSURANCE. Any insurance policy or rider advertised, marketed, offered or designed to provide coverage for not less than twelve (12) consecutive months for each covered person on an expense incurred, indemnity, prepaid or other basis; for one or more necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance or personal care services, provided in a setting other than an acute care unit of a hospital. Such term also includes a policy or rider which provides for payment of benefits based upon cognitive impairment or the loss of functional capacity. Long-term care insurance may be issued by insurers; fraternal benefit societies; nonprofit health, hospital, and medical service corporations; prepaid health plans; health maintenance organizations or any similar organization to the extent they are otherwise authorized to issue life or health insurance. Long-term care insurance shall not include any insurance policy which is offered primarily to provide basic Medicare supplement coverage, basic hospital expense coverage, basic medical-surgical expense coverage, hospital confinement indemnity coverage, major medical expense coverage, disability income or related asset protection coverage, accident only coverage, specified disease or specified accident coverage, or limited benefit health coverage.
MODAL PREMIUM. This refers to the gross premium paid on a contract based on a premium term which could be annual, semiannual, quarterly, monthly, or weekly. Thus if the annual premium is $100 and if, instead, monthly premiums of $9 are paid then the modal premium is $9. NEGATIVE RESERVE. Normally the terminal reserve is a positive value. However, if the values of the benefits are decreasing with advancing age or duration it could be a negative value, called a negative reserve.
PRELIMINARY TERM RESERVE METHOD. Under this method of valuation the valuation net premium for each year falling within the preliminary term period is exactly sufficient to cover the expected incurred claims of that year, so that the terminal reserves will be zero at the end of the year. As of the end of the preliminary term period, a new constant valuation net premium (or stream of changing valuation premiums) becomes applicable such that the present value of all such premiums is equal to the present value of all claims expected to be incurred following the end of the preliminary term period. PRESENT VALUE OF AMOUNTS NOT YET DUE ON CLAIMS. The reserve for “claims unaccrued” (see definition), which may be discounted at interest.
RESERVE. The term “reserve” is used to include all items of benefit liability, whether in the nature of incurred claim liability or in the nature of contract liability relating to future periods of coverage, and whether the liability is accrued or unaccrued.
An insurer under its contracts promises benefits which result in:
a. Claims which have been incurred, that is, for which the insurer has become obligated to make payment, on or prior to the valuation date. On these claims, payments expected to be made after the valuation date for accrued and unaccrued benefits are liabilities of the insurer which should be provided for by establishing claim reserves; or b. Claims which are expected to be incurred after the valuation date. Any present liability of the insurer for these future claims should be provided for by the establishment of contract reserves and unearned premium reserves.
TERMINAL RESERVE. This is the reserve at the end of a contract year, and is defined as the present value of benefits expected to be incurred after that contract year minus the present value of future valuation net premiums.
UNEARNED PREMIUM RESERVE. This reserve values that portion of the premium paid or due to the insurer which is applicable to the period of coverage extending beyond the valuation date. Thus if an annual premium of $120 was paid on November 1, $20 would be earned as of December 31 and the remaining $100 would be unearned. The unearned premium reserve could be on a gross basis as in this example, or on a valuation net premium basis.
VALUATION NET MODAL PREMIUM. This is the modal fraction of the valuation net annual premium that corresponds to the gross modal premium in effect on any contract to which contract reserves apply. Thus if the mode of payment in effect is quarterly, the valuation net modal premium is the quarterly equivalent of the valuation net annual premium.
APPENDIX C RESERVES FOR WAIVER OF PREMIUM (Supplementary explanatory material) Waiver of premium reserves involve several special considerations. First, the disability valuation tables promulgated by the NAIC are based on exposures that include contracts on premium waiver as in-force contracts. Hence, contract reserves based on these tables are NOT reserves on “active lives” but rather reserves on contracts “in force.” This is true for the 1964 CDT and for both the 1985 CIDA and CIDB tables.
Accordingly, tabular reserves using any of these tables should value reserves on the following basis: Claim reserves should include reserves for premiums expected to be waived, valuing as a minimum the valuation net premium being waived.
The purpose of this regulation is twofold.
1. To enhance the consistency of the accounting treatment of assets, liabilities, reserves, income and expenses by setting forth the accounting standards, practices and procedures to be followed in completing all of the required annual statements.
2. To set forth the form of the financial statements to be filed for those entities which do not have the form prescribed in statute.
Section 3 Rule A. Standards, Practices and Procedures Statutory financial statements must be completed in accordance with statutory accounting principles and practices as prescribed by Colorado insurance laws, regulations, and rulings, including the instructions, footnotes, annual statement accounting practices and procedures developed by the NAIC. These NAIC documents include the appropriate Annual Statement Instructions Manual and the Accounting Practices and Procedures Manual. These manuals provide direction, procedures, and methods of completing the annual statements and include those categories for which a company is required to establish reserves or liabilities. Liabilities and reserves which are to be established shall include, but are not necessarily limited to, life reserves, active life reserves, unearned premium reserves, loss reserves for claims both known and unknown, loss adjustment expenses both allocated and unallocated, unpaid claims, claims unpaid adjustment expenses, and accounts payable.
B. Filing
C. Notwithstanding the foregoing, it should be noted that while the NAIC's Accounting Practices and Procedures Manual identifies and establishes generally accepted statutory accounting principles, such principles and procedures do not supercede any specific statutes, regulations, orders or rulings of the state of Colorado or this office.
Section 4 Severability If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 5 Effective Date This regulation shall be effective April 1, 2001.
Section 6 History Originally effective November 1, 1992.
Amended effective April 1, 2001.
Amended Regulation 3-1-11 RISK-BASED CAPITAL (RBC)
Section 1 Authority Section 2 Background And Purpose Section 3 Definitions Section 4 RBC Reports Section 5 Company Action Level Event Section 6 Regulatory Action Level Event Section 7 Authorized Control Level Event Section 8 Mandatory Control Level Event Section 9 Hearings Section 10 Confidentiality, Prohibition On Announcements And Ratemaking Section 11 Foreign Insurers Or Health Organizations Section 12 Severability Section 13 Notices Section 14 Effective Date Section 15 History Section 1 Authority This regulation is promulgated under the authority of §§ 10-1-109 and 10-3-201(1)(b), C.R.S. Section 2 Background And Purpose The purpose of this regulation is to establish standards for the minimum capital and surplus to be maintained by insurers, captive insurers, fraternal benefit societies and health organizations as provided by §§ 10-3-201 (1)(b), 10-6-116, 10-14-604, 10-16-310 and 10-16-411, C.R.S. These standards provide for the early detection of a potentially hazardous or otherwise dangerous condition of an insurer or health organization in order to protect its insureds, enrollees/members and the general public. This regulation additionally provides for reporting, corrective measures, and enforcement actions available to the Commissioner.
Section 3 Definitions As used in this Regulation, these terms shall have the following meanings:
A. “Adjusted RBC Report” means an RBC report which has been adjusted by the Commissioner in accordance with Section 4.F. of this regulation.
B. “Corrective Order” means an order issued by the Commissioner pursuant to § 10-3-404, C.R.S., specifying corrective actions which are determined by the Commissioner as being necessary to abate a delinquency as defined in § 10-3-402(2), C.R.S.
C. “Domestic health organization” means a health organization domiciled in this state.
D. “Domestic insurer” means any life, health or property and casualty insurance company domiciled in this state.
E. “Foreign health organization” means a health organization that is licensed to do business in this state but is not domiciled in this state”
F. “Foreign insurer” means any insurance company or fraternal benefit society which is licensed to do business in this state but is not domiciled in this state.
G. “Health insurer” means any licensed property and casualty insurance company writing only sickness and accident insurance.
H. “Health organization” means a health maintenance organization, non-profit hospital medical-surgical and health service corporation, limited health service organization or other managed care organization. This definition does not include an organization that is licensed as either a life and health insurer or a property and casualty insurer or is otherwise subject to either the life or property and casualty RBC requirements.
I. “Life insurer” means any insurance company licensed as a life insurer, health insurer or as a fraternal benefit society.
J. “NAIC” means the National Association of Insurance Commissioners.
K. “Negative trend” means, with respect to a life and/or health insurer, negative trend over a period of time, as determined in accordance with the “Trend Test Calculation” included in the RBC Instructions.
L. “Property and casualty insurer” means any licensed property and casualty insurance company, including a group captive insurance company organized pursuant to the provisions of Article 6 of Title 10, C.R.S., but shall not include monoline mortgage guaranty insurers, financial guaranty insurers, title insurers and county mutual protective associations organized on an assessment basis pursuant to the pursuant to § 10-12-101(2), C.R.S.
M. “RBC instructions” means the RBC Report, including risk-based capital instructions and procedures adopted by the NAIC, as part of the required annual filing on the NAIC convention blank.
N. “RBC Level” means an insurer's or health organization's Company Action Level RBC, Regulatory Action Level RBC, Authorized Control Level RBC, or Mandatory Control Level RBC where:
O. “RBC Plan” means a comprehensive financial plan containing the elements specified in Section 5.B. of this regulation. If the Commissioner rejects the RBC Plan, and it is revised by the insurer or health organization, with or without the Commissioner's recommendation, the plan shall be called the “Revised RBC Plan”
P. “RBC Report” means the report required in Section 4 of this regulation.
Q. “Total Adjusted Capital” means the sum of:
A. Every domestic insurer and domestic health organization shall, on or prior to each March 1 (the “filing date”), prepare and submit to the Commissioner a report of its RBC Levels as of the end of the calendar year just ended, in a form and containing such information as is required by the RBC Instructions. In addition, every domestic insurer and domestic health organization shall file its RBC Report:
B. A life and/or health insurer's RBC shall be determined in accordance with the formula set forth in the RBC Instructions. The formula shall take into account (and may adjust for the covariance between):
C. A property and casualty insurer's RBC shall be determined in accordance with the formula set forth in the RBC Instructions. The formula shall take into account (and may adjust for the covariance between):
D. A health organization's RBC shall be determined in accordance with the formula set forth in the RBC instructions. The formula shall take the following into account (and may adjust for the covariance between):
E. An excess of capital (i.e., net worth) over the amount produced by the risk based capital requirements contained in this regulation and the formulas, schedules and instructions referenced in this regulation is desirable in the business of insurance. Insurers and health organizations should seek to maintain capital above the RBC levels required by this regulation. Additional capital is used and useful in the insurance business and helps to secure an insurer or health organization against various risks inherent in, or affecting, the business of insurance and not accounted for or only partially measured by the risk based capital requirements contained herein.
F. If a domestic insurer or domestic health organization files an RBC Report which in the judgment of the Commissioner is inaccurate, then the Commissioner shall adjust the RBC Report to correct the inaccuracy and shall notify the insurer or health organization in writing of the determination of a delinquency and the adjustment. The notice shall contain a statement of the reason for the adjustment. An RBC Report as so adjusted is referred to as an “Adjusted RBC Report.” Section 5 Company Action Level Event A. “Company Action Level Event” means a delinquency caused by either of the following events:
B. In the event of a Company Action Level Event, the insurer or health organization shall prepare and submit to the Commissioner an RBC Plan which shall;
C. The RBC Plan shall be submitted within forty-five (45) days of the Company Action Level Event; or if the insurer or health organization challenges an adjusted RBC report pursuant to Section 9, within forty-five (45) days after notification to the health organization that the commissioner has, after a hearing, rejected the health organization's challenge.
D. Within sixty (60) days after the submission by an insurer or health organization of an RBC Plan to the Commissioner, the Commissioner shall provide written notification to the insurer or health organization whether the RBC Plan shall be implemented or is, in the judgment of the Commissioner, unsatisfactory. If the Commissioner determines the RBC Plan is unsatisfactory, the notification to the insurer or health organization shall set forth the reasons for the determination of delinquency, and may set forth proposed revisions which will render the RBC Plan satisfactory. Upon written notification from the Commissioner, the insurer or health organization shall prepare a Revised RBC Plan, which may incorporate any revisions proposed by the Commissioner, and shall submit the Revised RBC Plan to the Commissioner within forty- five (45) days after the notification.
E. In the event of a written notification by the Commissioner to an insurer or health organization of a delinquency that the insurer's or health organization's RBC Plan or Revised RBC Plan is unsatisfactory, the Commissioner may specify in the notification that the notification constitutes a Regulatory Action Level Event.
F. Every domestic insurer and domestic health organization that files an RBC Plan or Revised RBC Plan with the Commissioner shall file a copy of the RBC Plan or Revised RBC Plan with the insurance commissioner or other regulatory authority in any state in which the insurer or health organization is authorized to do business if:
Section 6 Regulatory Action Level Event A. “Regulatory Action Level Event” means, a delinquency with respect to any insurer or health organization, caused by any of the following events:
B. In the event of a Regulatory Action Level Event the Commissioner shall:
C. In determining corrective actions, the Commissioner may take into account such factors as are deemed relevant with respect to the insurer or health organization based upon the Commissioner's examination or analysis of the assets, liabilities and operations of the insurer or health organization, including, but not limited to, the results of any sensitivity tests undertaken pursuant to the RBC Instructions. The RBC Plan or Revised RBC Plan shall be submitted within forty-five (45) days after the occurrence of the Regulatory Action Level Event.
D. The Commissioner may require the insurer or health organization to retain actuaries and investment experts and other consultants as may be necessary in the judgment of the Commissioner to review the RBC Plan or Revised RBC Plan, examine or analyze the assets, liabilities and operations of the insurer or health organization and formulate the Corrective Order with respect to the insurer or health organization. The fees, costs and expenses relating to consultants shall be borne by the affected insurer or health organization or such other party as directed by the Commissioner.
Section 7 Authorized Control Level Event A. “Authorized Control Level Event” means a delinquency caused by any of the following events:
B. In the event of an Authorized Control Level Event with respect to an insurer or health organization, the Commissioner shall:
Section 8 Mandatory Control Level Event A. “Mandatory Control Level Event” means a delinquency caused by either of the following events:
B. In the event of a Mandatory Control Level Event:
Section 9 Hearings A. An insurer or health organization shall have the right to request a hearing pursuant to 24-4-105, C.R.S. upon:
B. The insurer or health organization shall notify the Commissioner in writing of its request for a hearing within fifteen days after the receipt of the notification by the Commissioner. Upon receipt of the request for a hearing, the Commissioner shall set a date for the hearing pursuant to 24-4-105, C.R.S.
Section 10 Confidentiality, Prohibition On Announcements And Ratemaking A. All RBC Reports (to the extent the information therein is not required to be set forth in a publicly available annual statement schedule) and RBC Plans (including the results or report of any examination or analysis of an insurer or health organization performed pursuant hereto and any Corrective Order issued by the Commissioner pursuant to examination or analysis) with respect to any domestic insurer, foreign insurer, domestic health organization or foreign health organization which are filed with the Commissioner shall be confidential by law and privileged, pursuant to § 24-72-204(3)(a)(IV) and shall not be subject to § 24-72-201, et. seq. C.R.S., shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. However, the Commissioner is authorized to use the documents, materials or information in the furtherance of any regulatory or legal action brought as a part of the Commissioner's official duties.
B. The Commissioner or any person who received documents, materials or other information while acting under the authority of the commissioner shall not testify in any private civil action concerning any confidential documents, materials or information subject to Subsection A.
C. In order to assist in the performance of the Commissioner's duties the Commissioner:
D. No waiver of an existing privilege or claim of confidentiality in the documents, materials or information shall occur as a result of disclosure to the Commissioner under this Section 10 or as a result of sharing as authorized in Section 10.C.
E. The comparison of an insurer's or health organization's Total Adjusted Capital to any of its RBC Levels is a regulatory tool which may indicate the need for possible corrective action with respect to the insurer or health organization, and is not intended as a means to rank insurers or health organizations generally. Therefore, except as otherwise required by statute or under this regulation, the making, publishing, disseminating, circulating or placing before the public, or causing, directly or indirectly to be made, published, disseminated, circulated or placed before the public, in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station, or in any other way, an advertisement, announcement or statement containing an assertion, representation or statement with regard to the RBC Levels of any insurer or health organization, or of any component derived in the calculation, by any insurer or health organization, agent, broker or other person engaged in any manner in the insurance business would be misleading and a violation of §§ 10-3-1104 & 10- 1-120, C.R.S. If any materially false statement with respect to the comparison regarding an insurer's or health organization's Total Adjusted Capital to its RBC Levels or an inappropriate comparison of any other amount to the insurer's or health organization's RBC Levels is published in any written publication and the insurer or health organization is able to demonstrate to the Commissioner with substantial proof the falsity of such statement, or the inappropriateness, as the case may be, then the insurer or health organization may publish an announcement in a written publication if the sole purpose of the announcement is to rebut the materially false statement.
F. The RBC Instructions, RBC Reports, Adjusted RBC Reports, RBC Plans and Revised RBC Plans are intended solely for use by the Commissioner in monitoring the solvency of insurers and health organizations and the need for possible corrective action with respect to insurers or health organizations and shall not be used by the Commissioner for ratemaking nor considered or introduced as evidence in any rate proceeding nor used by the Commissioner to calculate or derive any elements of any appropriate premium level or rate of return for any line of insurance which an insurer or health organization or any affiliate is authorized to write. Section 11 Foreign Insurers Or Foreign Health Organizations A. Any foreign insurer or foreign health organization shall, upon the written request of the Commissioner, submit to the Commissioner an RBC Report as of the end of the calendar year just ended by the later of:
B. Any foreign insurer or foreign health organization shall, at the written request of the Commissioner, promptly submit to the Commissioner a copy of any RBC Plan that is filed with the insurance Commissioner or other regulatory official of any other state.
C. In the event of a Company Action Level Event, Regulatory Action Level Event or Authorized Control Level Event with respect to any foreign insurer or foreign health organization as determined under the RBC statute applicable in the state of domicile of the insurer or health organization (or, if no RBC provision is in force in that state, under the provisions of this regulation), if the insurance commissioner or other regulatory official of the state of domicile of the foreign insurer or foreign health organization fails to require the foreign insurer or foreign health organization to file an RBC Plan in the manner specified under the RBC authority (or, if no RBC provision is in force in the state, under Section 5 hereof), the Commissioner may require the foreign insurer or foreign health organization to file an RBC Plan with the Commissioner. In such event, the failure of the foreign insurer or foreign health organization to file an RBC Plan with the Commissioner shall be grounds to order the insurer or health organization to cease and desist from writing new insurance business in this state.
D. In the event of a Mandatory Control Level Event with respect to any foreign insurer or foreign health organization, if no domiciliary receiver has been appointed with respect to the foreign insurer or foreign health organization under the rehabilitation and liquidation statute applicable in the state of domicile of the foreign insurer or foreign health organization, the Commissioner may make application to the Denver District Court permitted under § 10-3-501 et. seq., C.R.S. with respect to the liquidation of property of foreign insurers or foreign health organizations found in this state, and the occurrence of the Mandatory Control Level Event shall be considered adequate grounds for the application Section 12 Severability If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby. Section 13 Notices All notices by the Commissioner to an insurer or health organization which may result in regulatory action there under shall be effective upon dispatch if transmitted by registered or certified mail, or in the case of any other transmission shall be effective upon the insurer's or health organization's receipt of such notice. Section 14 Effective Date This Regulation shall become effective on April 1, 2002. Section 15 History Originally effective March 31, 1994.
Amended effective August 31, 1997.
Amended effective November 1, 1999.
Amended effective April 1, 2002.
AMENDED REGULATION 3-1-13 DISCLOSURE OF MATERIAL TRANSACTIONS Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Report Section 5 Acquisitions and Dispositions of Assets Section 6 Nonrenewals, Cancellations or Revisions of Ceded Reinsurance Agreements Section 7 Confidentiality Section 8 Severability Section 9 Enforcement Section 10 Effective Date Section 11 History Section 1 Authority This regulation is promulgated under the authority of § §10-1-109, 10-6-114, 10-6-129, 10-14-505, 10-16- 109 C.R.S.
Section 2 Scope and Purpose The purpose of this regulation is to establish filing requirements for certain domestic insurers for material transactions, which have the potential of creating a hazardous financial condition. It is necessary to monitor the financial condition and operation of an insurer so as to adequately protect its insureds and the public.
Section 3 Applicability This regulation shall apply to Colorado domestic insurers licensed under §10-3-102 C.R.S. as well as each risk retention group captive insurer, fraternal benefit society, health maintenance organization, non- profit hospital, medical-surgical and health service corporation, and prepaid dental care plan. Section 4 Report A. Every insurer domiciled in this state shall file a report with the Commissioner disclosing material acquisitions and dispositions of assets or material nonrenewals, cancellations or revisions of ceded reinsurance agreements or material new ceded reinsurance agreements affecting life insurance business unless the acquisitions and dispositions of assets or material nonrenewals, cancellations or revisions of ceded reinsurance agreements or material new ceded reinsurance agreements affecting in force life insurance business have been submitted to the Commissioner for review, approval or information purposes pursuant to other provisions of the insurance laws, regulations, or other requirements.
B. The report required in Subsection A is due within fifteen (15) days after the end of the calendar month in which any of the foregoing transactions occur.
C. One complete copy of the report, including any exhibits or other attachments, shall be filed with:
A. Materiality.
B. Scope.
C. Information to be reported.
Section 6 Nonrenewals, Cancellations or Revisions of Ceded Reinsurance Agreements Introduction: For purposes of this Section 6, health maintenance organizations, non-profit hospital, medical-surgical and health service corporations, prepaid dental care plans, title companies and group captives shall follow the requirements for property and casualty companies, and fraternal benefit societies shall follow the rules for life insurance companies.
A. Materiality and Scope.
B. Information to be reported.
Section 7 Confidentiality A. All reports obtained by or disclosed to the Commissioner pursuant to this Regulation in the possession or control of the Division of Insurance, shall be considered confidential and privileged pursuant to §24-72-204(3)(a)(IV), C.R.S., and where applicable §10-3-807, C.R.S. Said reports shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action without the prior written consent of the insurer to which it pertains. However, the Commissioner is authorized to use the documents, materials or other information in the furtherance of any regulatory or legal action brought as a part of the Commissioner’s official duties.
B. After giving the insurer who would be affected notice and an opportunity to be heard, the Commissioner may determine that the interest of policyholders, shareholders or the public will be served by publication of the information subject to Subsection A, in which event the Commissioner may publish all or any part in the manner the Commissioner may deem appropriate.
C. Neither the Commissioner nor any person who received documents, materials or other information while acting under the authority of the Commissioner shall be permitted or required to testify in any private civil action concerning any confidential documents, materials or information subject to Subsection A.
D. In order to assist in the performance of the Commissioner’s duties, the Commissioner:
E. No waiver of any applicable privilege or claim of confidentiality in the documents, materials or information shall occur as a result of disclosure to the Commissioner under this section or as a result of sharing as authorized in Subsection D.
Section 8 Severability If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby. Section 9 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocation of license. Among others, the penalties provided for in §10-3-109(3), C.R.S. may be applied. Section 10 Effective Date This amended regulation shall be effective for all transactions accomplished on or after October 2, 2006. Section 11 History Original effective April 1, 1996.
Amended effective October 2, 2006 New Regulation 3-1-14 Alternative Mechanism For Carriers Entering into Contracts With Risk Bearing Entities Section 1 Authority Section 2 Background and Purpose Section 3 Definitions Section 4 Determining and Monitoring the Financial Viability of the Risk Bearing Entity Section 5 Appropriate Management Expertise and Infrastructure Section 6 Reinsurance/Reserves or other Financial Assurance Section 7 Risk Bearing Entity/Provider Communication Section 8 Reports from Carrier to Risk Bearing Entity Section 9 Corrective Action Section 10 Resolution of Conflicts through Binding Arbitration Section 11 Applying for the Alternative Mechanism Section 12 Severability Section 13 Effective Date Section 14 History Section 1 Authority This regulation is promulgated under the authority of §§10-1-109, 10-16-109 and 10-16-708 C.R.S. Section 2 Background and Purpose Colorado law permits carriers to enter into contracts with risk bearing entities. Section 10-16-705(5)(a), C.R.S. states that in the event of nonpayment by or insolvency of the risk bearing entity the carrier is responsible for the payment of all participating providers that have provided covered health care services to covered persons of the Carrier. In lieu of this automatic requirement to pay, Section 10-16-705(5)(b) provides a Carrier with the option of applying for use of an alternative mechanism to ensure that all participating providers that have provided covered health care services to covered persons of the Carrier pursuant to one or more contracts with such contractors or subcontractors or their intermediaries receive payment due.
The alternative mechanism is approved and operating to exempt the Carrier from the automatic requirement to pay under Section 10-16-705(5)(a) as long as the carrier complies with the provisions of the alternative mechanism for which it is directly responsible and monitors the execution of the provisions of the alternative mechanism for which the Risk Bearing Entity is responsible. If a carrier knew or should have known the Risk Bearing Entity was unable to meet its contractual obligations and did not take reasonable action, then the carrier is deemed not to be in compliance with the alternative mechanism, and therefore is subject to § 10-16-705(5)(a), C.R.S.
The purpose for this regulation is to establish an acceptable alternative mechanism pursuant to §10-16- 705(5)(b), C.R.S. This regulation establishes the terms of an alternative mechanism, which, if complied with, is deemed approved for purposes of §10-16-705(5)(b), C.R.S. Carriers are not limited to this one alternative mechanism. Other alternative mechanism plans can be submitted for consideration to the commissioner.
Section 3 Definitions A. “Risk Bearing Entity” is any entity assuming risk from a licensed Carrier to provide covered benefits and services under a managed care plan, which risk the entity would not otherwise have the ability and legal authority to provide.
B. “Start Up Entity” is any Risk Bearing Entity which has less than 24 months operational experience in the Colorado market; or an entity which has experienced a major change in business, including significant market and product expansions; or an entity which has less than 24 months experience in managing its current scope of services.
C. “Established Entity” is a Risk Bearing Entity which has been operating in the Colorado market under its current operational plan for a minimum of 24 months.
D. “Carrier” as referenced herein, is an entity as defined in §10-16-102(8), C.R.S. which enters into a risk bearing arrangement with providers of services to members of the Carrier's managed care plan.
E. “IBNR report” is a report containing sufficient information to assess all of the Risk Bearing Entity's future liabilities under the contract, including all liabilities incurred and reported but not paid and incurred but not reported.
Section 4 Determining and Monitoring the Financial Viability of the Risk Bearing Entity.
A. For a Start Up Entity, a Carrier must receive, review and accept documentation from the Risk Bearing Entity which evidences sufficient ability to accept the risk transfer.
B. For an Established Entity a Carrier must receive, review and accept documentation evidencing sufficient ability to accept the risk transfer.
Section 5 Appropriate Management Expertise and Infrastructure A. A Carrier shall ascertain that a Risk Bearing Entity has the management expertise and infrastructure needed to successfully enter into and perform in accordance with the risk contract.
B. The Risk Bearing Entity shall notify the Carrier of 1) all material modifications to its plan of operations;
A. A Risk Bearing Entity must maintain cash and cash equivalents at least equal to 45 days of claims liability and capitation payments if claims are administered by the Carrier and 90 days of claims liability and capitation payments if claims are administered by the Risk Bearing Entity. The Commissioner may establish alternative requirements in cases where the contract contains the following terms: 1) The carrier pays the provider directly; 2) The providers are only at risk to provide services which they have the ability and the legal authority to provide; and 3) Neither the carrier nor the risk bearing entity may withhold or redirect funds from these providers to pay for other services.
B. A Risk Bearing Entity shall have appropriate aggregate and specific reinsurance contracts. At a minimum, aggregate and specific reinsurance in amounts required for Risk Bearing Entities participating in HCFA Medicare + Choice programs is required, even if the Risk Bearing Entity does not participate in a Medicare + Choice program.
C. Once the Start Up Entity and the Carrier have agreed to a contract, a Start Up Entity shall obtain an actuarial opinion from a mutually agreed upon qualified actuarial firm certifying that the financial arrangements, including initial capitation rates, are actuarially sound. Section 7 Risk Bearing Entity/Provider Communication A. The contract between a Carrier and a Risk Bearing Entity shall include a provision requiring the Risk Bearing Entity to obtain from each provider a statement of understanding at the time the provider enters into a contract with the Risk Bearing Entity and at least annually thereafter. The statement of understanding shall disclose:
B. The contract between a Carrier and a Risk Bearing Entity shall include a provision requiring the Risk Bearing Entity to provide, no less than quarterly, its participating providers with a financial summary including claims performance versus projections for the Risk Bearing Entity as a whole and by Carrier contract; a report of claims paid by the Carrier and by the Risk Bearing Entity; an IBNR report; the amount of actual cash and cash equivalents compared to the minimum amount required to be owned pursuant to section 6. A.; and material changes in major contracts.
C. Excluding privileged, member, client and provider specific proprietary information, all of the reports in their standard format described in this regulation will be made available to any provider contracted with the Risk Bearing Entity, upon request, on line, if possible, but in any event within ten (10) business days from receipt of a written request. Section 8 Reports from Carrier to Risk Bearing Entity A. The Carrier shall provide the Risk Bearing Entity reports at least monthly pertaining to the specific contract which includes:
B. The Carrier shall notify the Risk Bearing Entity of
Section 9 Corrective Action A. If at any time the Carrier identifies deficiencies and determines that the deficiencies would result in imminent nonpayment to participating providers or inability to provide services to a substantial number of members, the Carrier may immediately deem itself insecure and take back administration of the contract including paying providers directly. Such action can only be taken upon written confirmation by a mutually agreed upon third party named within three business days of notice from the Carrier to the Risk Bearing Entity of imminent nonpayment to participating providers or inability to provide services to a substantial number of members. If the parties are unable to make a determination on a third party within the allowed 3 days, they may seek selection by the Commissioner.
B. If the Carrier determines that the Risk Bearing Entity is not meeting significant requirements of the contract, the Carrier must notify the Risk Bearing Entity of the deficiency in writing. The Carrier and the Risk Bearing Entity have 30 days to mutually agree upon a reasonable action plan and begin implementation of the action plan.
C. If the deficiencies continue after the completion of the term of the action plan, and the deficiencies would have a material detrimental financial impact, the Carrier shall deem itself insecure and may take back administration of the contract including paying providers directly.
D. If the Risk Bearing Entity determines that the Carrier is not meeting significant requirements of the contract, the Risk Bearing Entity must notify the Carrier in writing of the deficiency. The Carrier and the Risk Bearing Entity have 30 days to mutually agree upon a reasonable action plan and begin implementation of the action plan.
E. If the deficiencies continue after the completion of the term of the action plan, and the deficiencies would have a material detrimental financial impact, the Risk Bearing Entity shall deem itself insecure and must initiate remedies available under the contract.
F. If 20% or more of providers contracted with the Risk Bearing Entity sign a letter addressed to the Carrier and to the Risk Bearing Entity attesting to the fact that the Risk Bearing Entity or Carrier is not providing payment as required by their contracts or state statute, the Carrier, the Risk Bearing Entity and a representative of these providers have 30 days to mutually agree upon a reasonable action plan to address the providers' issues.
G. If 50% or more of providers contracted with the Risk Bearing Entity sign a letter addressed to the Carrier and to the Risk Bearing Entity indicating that the deficiencies continue after the completion of the term of the action plan, and a third party, mutually agreed upon by the Carrier, the Risk Bearing Entity and the providers, determines that the deficiencies would have a material detrimental financial impact, the Carrier shall deem itself insecure and shall take back administration of, including paying providers directly, or terminate the contract.
H. If 50% or more of providers contracted with the Risk Bearing Entity sign a letter addressed to the Carrier and to the Risk Bearing Entity identifying deficiencies that would result in imminent nonpayment to participating providers or inability to provide services to a substantial number of members, the providers may ask that the Carrier deem itself insecure and take back administration of, including paying providers directly, or terminate the contract.
I. If the above provisions do not result in payment to the providers pursuant to their contracts, the Carrier, the Risk Bearing Entity or a representative of 50% of the providers may seek Alternative Dispute Resolution (ADR).
J. The Carrier shall provide notice of any deficiency identified under this Section 9, alleging a material detrimental financial impact, to the Financial Affairs Section of the Division of Insurance within five business days from the date the Carrier receives notification from or notifies the Risk Bearing Entity.
Section 10 Resolution of Conflicts through Binding Arbitration A. All contracts between or among a Carrier, a Risk Bearing Entity and one or more providers arising under circumstances covered in Section 9, shall contain a provision that conflicts will be resolved through binding arbitration or through any other form of ADR agreed to by all parties.
B. The purpose of ADR is to provide an allocation of responsibility between providers, Carriers and Risk Bearing Entities with respect to compliance with the alternative mechanism.
C. The arbitration panel shall be established as follows. One person may be selected if the parties can agree. Otherwise, a three person panel will be selected with one member selected by the Carrier, and one member selected by the provider representative and one member by the Risk Bearing Entity. If any of the three parties do not suggest a panel member, the third panelist will be selected by the other two panelists.
Section 11 Applying for the Alternative Mechanism A. When a Carrier and a Risk Bearing Entity enter into a contract, both parties will certify their intention to comply with the alternative mechanism described in this Regulation. The Carrier will maintain a copy of the contractual language or certification on file.
B. When a Carrier submits its risk based capital report on March 1 of each year, the report will include an attachment to the report identifying each contract for which this alternative mechanism was invoked, the amount of managed care credit taken by contract and the total managed care credit taken for risk based capital purposes.
C. The Carrier will be responsible to provide the Commissioner with information substantiating compliance with the provisions of the alternative mechanism upon request. Section 12 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 13 Effective Date This regulation shall become effective on May 1, 2001.
Section 14 History New regulation effective on May 1, 2001.
New Regulation 3-1-15 Premium Deficiency Reserve Standards for Individual and Group Health Benefit Plans Section 1. Authority Section 2. Basis and Purpose Section 3. Applicability and Scope Section 4. Definitions Section 5. Calculation Section 6. Restrictions and Other Guidelines Section 7. Documentation Section 8. Enforcement Section 9. Severability Section 10. Effective Date Section 11. History Section 1. Authority This regulation is promulgated pursuant to the authority of Sections 10-1-108, 10-1-109, 10-3-109, 10-3- 208, 10-16-109, and 10-16-220, Colorado Revised Statutes, (C.R.S.) Section 2. Basis and Purpose The purpose of this regulation is to establish minimum standards for determining when a Premium Deficiency Reserve is necessary, for companies providing individual and group health coverage, and to implement rules for calculating the reserve.
Section 3. Applicability and Scope This regulation applies to all licensed companies conducting business in the State of Colorado, as defined in Section 4, who issue any line of health coverage including, but not limited to, major medical, long-term care, and disability insurance. Each company is required to establish a Premium Deficiency Reserve, when necessary, on each financial statement submitted to the Colorado Division of Insurance. The Premium Deficiency Reserve is in addition to claim and contract reserves, rate stabilization reserves, retroactive premium liabilities, provider reserves, provider withhold or bonus pool reserves, and other reserves not held to specifically make future benefit payments. A reserve similar to the Premium Deficiency Reserve may also be necessary for other types of contractual arrangements, such as administrative services agreements, or any other health benefit contracts in which the administrative fees or compensation received are not sufficient to cover the expenses for the remainder of the deficiency period. This reserve should be calculated using the procedures outlined in this regulation. Section 4. Definitions A. “Claims” means, for purposes of this regulation, all amounts payable for losses incurred under the health benefit contract.
B. “Company” means, for purposes of this regulation, a carrier as defined in Section 10-16-102(8), C.R.S., and includes, but is not limited to, licensed property and casualty insurance companies; licensed life and health insurance companies; non-profit hospital. medical-surgical, and health service corporations; health maintenance organizations; prepaid dental companies; and limited service licensed provider networks.
C. “Contract Grouping” means, for purposes of this regulation, a collection of health benefit contracts with similar benefits, such as comprehensive major medical plans, Medicaid, or small group health benefit plans. Each grouping should be determined in a manner consistent with how policies are marketed, serviced and measured. Generally the groupings should reflect how the premium rates are developed and applied.
D. “Contract Period” means, for purposes of this regulation, the period of time for which the company is liable for the provision of benefits as provided in the health benefit contract. This period may include multi-year arrangements.
E. “Deficiency Period” means, for purposes of this regulation, the period of time for which future earned premiums and current reserves are not sufficient to cover future incurred claim payments and expenses. This period may be for the remainder of the contract period and may include future contract periods.
F. “Expenses” means, for the purpose of this regulation, a reasonable allocation, by contract grouping, of the company's expenses (including claims adjustment expenses) reasonably assumed to be incurred in the settlement of the claims to be paid in the deficiency period. Fixed expenses need not be allocated to each contract grouping. These expenses may be allocated as determined by the Company and the calculation of the premium deficiency reserve may be performed using the direct costs only. Expenses for functions performed under a management agreement may not be waived and must be considered as part of the company's fixed expenses.
G. “Investment Income” means, for purposes of this regulation, any income, dividends, or other earnings that can appropriately be attributable to the contract grouping and the time period for which the calculation is being performed. This income normally can be attributed to earnings from earned premium reserves, reserves for known losses, and reserves for incurred but not reported losses.
H. “Premium” means, for the purpose of this regulation, the amount of compensation received to pay future claims payments and expenses potentially payable during the deficiency period.
I. “Premium Deficiency Reserve” means, for the purpose of this regulation, a reserve established on the valuation date when, it is probable that, future premiums and current reserves are not sufficient to pay future claim payments and expenses for the remainder of the deficiency period. This reserve should be reviewed at least annually and adjusted as necessary. The procedure for calculating this reserve can be found in Section 5 below.
J. “Valuation Date” means, for the purpose of this regulation, the beginning of the time period over which the Premium Deficiency Reserve is calculated.
Section 5. Calculation The Premium Deficiency Reserve must be calculated, according to the following methodology and, if greater than zero, disclosed as a liability on each financial statement filed with the Colorado Division of Insurance, with a corresponding charge to operations. The reserve must be calculated, for each contract grouping, as the sum of the:
A. Accuracy Review - Determinations of the reserve may be done monthly, quarterly, annually, or any time the actuary determines is reasonable, or is necessary for statutory reporting purposes, but no less frequently than annually. As of the date of each successive statutory financial statement, the Premium Deficiency Reserve must be reevaluated and adjusted to reflect the losses that have been realized since the previous financial statement, and any deficiencies that have arisen.
B. Actuarial Opinions - The Premium Deficiency Reserve amount is expected to be included in each Statement of Actuarial Opinion submitted to the Colorado Division of Insurance.
C. Assumptions - All underlying assumptions should be specified and supported by as much company data as possible and other supporting data deemed necessary. These include, but are not limited to, the following assumptions; lapse, interest rate, claim and expense trend, premium increases and enrollment changes.
D. Contract Grouping - Each contract grouping should be large enough to be material relative to the size of the company as a whole. In some cases, considerations of similarity and materiality may result in all health contracts being treated as a single grouping. Each contract grouping should be reviewed to determine if earned premiums and reserves will be sufficient to cover incurred claims and related expenses for each contract period. Each contract grouping should remain relatively consistent from valuation to valuation. A Premium Deficiency Reserve must be recognized for each contract grouping where a premium deficiency is indicated.
E. Enrollment - The Premium Deficiency Reserve must be calculated using reasonable and supportable enrollment assumptions. Enrollment assumptions should be tied to any anticipated rate increases during the deficiency period. The effect of new business must be considered in the enrollment assumptions.
F. Interest Rate - The interest rate used in determining the present values should be reasonable and supportable based upon the type of business and the deficiency period. Guidance may be found in Colorado Insurance Regulation 3-1-9.
G. Investment Income - The calculation may reflect investment income that is appropriately attributable to the contract grouping and the time period for which the calculation is being performed. Investment income should be reflected as a cash inflow in the calculation.
H. Profit Recognition - Under no circumstances may anticipated future profits from contracts in one contract grouping from future renewal periods be used to reduce or mitigate the calculated Premium Deficiency Reserve for prior periods for contracts in a different contract grouping. Within a contract grouping, if rate increases are on file with the Division of Insurance that increase rates for the new contract period, and these increases will be adequate to cover claims and expenses in the new contract period, the anticipated profits may be used to reduce or mitigate the calculated Premium Deficiency Reserve for prior contract periods. Considerable actuarial judgment, including consideration of all pertinent factors, should be incorporated to determine if it is highly probable that these future profits will offset the calculated deficiencies in the valuation period.
Section 7. Documentation The company must maintain adequate documentation as to how the Premium Deficiency Reserve was determined or why a Premium Deficiency Reserve was not necessary. The documentation should be maintained in a report or workpaper containing, at a minimum, the following information:
A. The characteristics of the policies in each contract grouping.
B. A listing of all of the assumptions underlying the calculation of the Premium Deficiency Reserve. Support for the determination of the assumptions should also be maintained. The listing should include, but not be limited to:
C. Documentation as to how the Premium Deficiency Reserve was calculated. All documentation should be made available, upon request, from the Colorado Division of Insurance within 30 days of the date of the request, or within 30 days of the filing date of the financial statements to which the request is directed.
Section 8. Enforcement Noncompliance with this regulation may result, after notice and opportunity for hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines and/or suspension or revocation of license. Section 9. Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of the regulation shall not be affected. Section 10. Effective Date This regulation is effective on March 2, 2002.
Section 11. History New regulation, effective March 2, 2002.
REGULATION 3-1-16 CUSTODIAL AGREEMENTS AND THE USE OF CLEARING CORPORATIONS Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Definitions Section 5 Custody Agreement; Requirements Section 6 Severability Section 7 Enforcement Section 8 Effective Date Section 9 History Section 1 Authority This regulation is promulgated under the authority of § § 10-1-109, 10-3-1203(2), 10-6-129, 10-14-505 and 10-16-109 C.R.S.
Section 2 Scope and Purpose The purpose of this regulation is to provide current criteria, procedures and clarification concerning the holding of securities or book-entry securities as investments or in meeting the statutory deposits or guaranty fund deposits pursuant to § § 10-3-210, 10-6-116, 10-16-310, 10-16-412 and 10-16-505, C.R.S. Only custodial agreements complying with this regulation shall be acceptable to the Commissioner of Insurance.
Section 3 Applicability This regulation shall apply to all Colorado domestic insurers as well as each risk retention group captive insurer, fraternal benefit society, health maintenance organization and non-profit hospital, medical-surgical and health service corporation, prepaid dental care plan and Pinnacol Assurance. Section 4 Definitions When used in this regulation, the term A. "Agent" means a national bank, state bank, trust company or broker/dealer that maintains an account in its name in a clearing corporation or which is a member of the Federal Reserve System and through which a custodian participates in a clearing corporation, including the Treasury/Reserve Automated Debt Entry Securities System (TRADES) or Treasury Direct systems, except that with respect to securities issued by institutions organized or existing under the laws of a foreign country or securities used to meet the deposit requirements pursuant to the laws of a foreign country as a condition of doing business therein, "agent" may include a corporation which is organized or existing under the laws of a foreign country and that is legally qualified under those laws to accept custody of securities.
B. "Clearing corporation" means a corporation as defined in § § 4-8-102(a)(5) and 10-3-1202(1), C.R.S., that is organized for the purpose of effecting transactions in securities by computerized book- entry, except that with respect to securities issued by institutions organized or existing under the laws of a foreign country or securities used to meet the deposit requirements pursuant to the laws of a foreign country as a condition of doing business therein, "clearing corporation" may include a corporation that is organized or existing under the laws of a foreign country and which is legally qualified under such laws to effect transactions in securities by computerized book-entry. Clearing corporation also includes "Treasury/Reserve Automated Debt Entry Securities System" and "Treasury Direct" book-entry securities systems established pursuant to Title 4, Article 8, Prefatory Note, Section III(C)(2).
C. “Commissioner” means the commissioner of insurance.
D. “Company” means an insurer, captive insurance company, fraternal benefit society, health maintenance organization, non-profit hospital, medical-surgical and health service corporation, prepaid dental care plan and Pinnacol Assurance.
E. "Custodian" means:
A. A company may, by written agreement with a custodian, provide for the custody of its securities with that custodian. The securities that are the subject of the agreement may be held by the custodian or its agent or in a clearing corporation.
B. Any custodial agreement shall be in writing and shall be authorized by a resolution of the board of directors of the company or of an authorized committee of the board. The terms of the agreement shall comply with the following:
Section 6 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby. Section 7 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocation of license.
Section 8 Effective Date This regulation replaces regulation 3-1-6. This regulation shall become effective on October 2, 2006. Section 9 History New regulation effective October 2, 2006.
REGULATION 3-2-1 PROXIES, CONSENTS AND AUTHORIZATIONS OF DOMESTIC STOCK INSURERS I. AUTHORITY This regulation is promulgated pursuant to the authority of § 10-1-109, C.R.S.
II. APPLICATION OF REGULATION This regulation is applicable to each domestic stock insurer which has any class of equity security held of record by one hundred or more persons; provided, however, that this regulation shall not apply to any insurer if ninety-five percent or more of its equity securities are owned or controlled by a parent or an affiliated insurer and the remaining securities are held of record by less than five hundred persons. A domestic stock insurer which files with the Securities and Exchange Commission forms of proxies, consents and authorizations complying with the requirements of the Securities Exchange Act of 1934, as amended, and the applicable regulations promulgated thereunder, shall be exempt from the provisions of this regulation with respect to any class of securities subject to SEC jurisdiction.
III. PROXIES, CONSENTS AND AUTHORIZATIONS No domestic stock insurer, or any director, officer or employee of such insurer subject to article II hereof, or any other person, shall solicit, or permit the use of his name to solicit by mail or otherwise, any proxy, consent or authorization in respect of any class of equity security of such insurer held of record by one hundred or more persons in contravention of this regulation and Schedules A and B hereto annexed and hereby made a part of this regulation.
IV. DISCLOSURE OF EQUIVALENT INFORMATION Unless proxies, consents or authorizations in respect of any class of equity security of a domestic insurer are solicited by or on behalf of the management of such insurer from the holders of record of such security in accordance with this regulation and the Schedules hereunder prior to any annual or other meeting of such security holders, such insurer shall, in accordance with this regulation and such further regulations as the Commissioner may adopt, file with the Commissioner and transmit to all security holders of record information substantially equivalent to the information which would be required to be transmitted if a solicitation were made.
Such insurer shall transmit a written information statement containing the information specified in section 4 of Article VI to every security holder who is entitled to vote in regard to any matter to be acted upon at the meeting and from whom a proxy is not solicited on behalf of the management of the insurer; provided that in the case of a class of securities in unregistered or bearer form such statement need be transmitted only to those security holders whose name and addresses are known to the insurer.
V. DEFINITIONS 1. The definitions and instructions set out in Schedule SIS, as promulgated by the National Association of Insurance Commissioners, shall be applicable for purposes of this regulation.
2. The terms “solicit” and “solicitation” for purposes of this regulation shall include:
3. The terms “solicit” and “solicitation” shall include:
VI. INFORMATION TO BE FURNISHED TO SECURITY HOLDERS 1. No solicitation subject to this regulation shall be made unless each person solicited is concurrently furnished or has previously been furnished with a written proxy statement containing the information specified in Schedule A.
2. If the solicitation is made on behalf of the management of the insurer and relates to an annual meeting of security holders at which directors are to be elected, each proxy statement furnished pursuant to section 1 of Article VI shall be accompanied or preceded by an annual report (in preliminary or final form) to such security holders containing such financial statements for the last fiscal year as are referred to in Schedule SIS under the heading “Financial Reporting to Stockholders”. Subject to the foregoing requirements with respect to financial statements, the annual report to security holders may be in any form deemed suitable by the management.
3. Two copies of each report sent to the security holders pursuant to this section shall be mailed to the Commissioner not later than the date on which such report is first sent or given to security holders or the date on which preliminary copies of solicitation material are filed with the Commissioner pursuant to section 1 of Article VIII, whichever date is later.
4. If no solicitation is being made by management of the insurer with respect to any annual or other meeting, such insurer shall mail to every security holder of record at least twenty days prior to the meeting date, an information statement as required by section 3, containing the information called for by all the items of Schedule A, other than Items 1, 3 and 4 thereof, which would be applicable to any matter to be acted upon at the meeting if proxies were to be solicited in connection with the meeting. If such information statement relates to an annual meeting at which directors are to be elected. it shall be accompanied by an annual report to such security holders in the form provided in section 2 of Article VI.
VII. REQUIREMENTS AS TO PROXY AND INFORMATION STATEMENT 1. The form of proxy (a) shall indicate in bold-face type whether or not the proxy is solicited on behalf of the management, (b) shall provide a specifically designated blank space for dating the proxy and
3. A proxy may confer discretionary authority with respect to other matters which may come before the meeting, provided the persons on whose behalf the solicitation is made are not aware a reasonable time prior to the time the solicitation is made that any other matters are to be presented for action at the meeting and provided further that a specific statement to that effect is made in the proxy statement or in the form of proxy.
4. No proxy shall confer authority (a) to vote for the election of any person to any office which a bona fide nominee is not named in the proxy statement, or (b) to vote any annual meeting other than the next annual meeting (or any adjournment thereof) to be held after the date on which the proxy statement and form of proxy are first sent or given to security holders.
5. The proxy statement or form of proxy shall provide, subject to reasonable specified conditions, that the proxy will be voted and that where the person solicited specifies by means of ballot provided pursuant to subsection 2 thereof a choice with respect to any matter to be acted upon, the vote will be in accordance with the specifications so made.
6. The information included in the proxy statement or information statement shall be clearly presented and the statements made shall be divided into groups according to subject matter, with appropriate headings. All printed proxy statements or information statements shall be clearly and legibly presented.
VIII. MATERIAL REQUIRED TO BE FILED 1. Two preliminary copies of the information statement or the proxy statement and form of proxy and any other soliciting material to be furnished to security holders concurrently therewith shall be filed with the Commissioner at least ten days prior to the date definitive copies of such material are first sent or given to security holders, or such shorter period prior to the date as the Commissioner may authorize upon a showing of good cause therefor.
2. Two preliminary copies of any additional soliciting material relating to the same meeting or subject matter to be furnished to security holders subsequent to the proxy statements shall be filed with the Commissioner at least two days (exclusive of Saturdays, Sundays or holidays) prior to the date copies of this material are first sent or given to security holders or a shorter period prior to such date as the Commissioner may authorize upon a showing of good cause therefor.
3. Two definitive copies of the information statement of the proxy statement, form of proxy and all other soliciting material, in the form in which this material is furnished to security holders, shall be filed with, or mailed for filing to the Commissioner not later than the date such material is first sent or given to security holders.
4. When any information statement or proxy statement, form of proxy or other material filed pursuant to this regulation is amended or revised, one of the two copies submitted shall be marked to clearly show such changes.
5. Copies of replies to inquiries from security holders requesting further information and copies of communications which do no more than request that forms of proxy theretofore solicited be signed and returned need not be filed pursuant to this section.
6. Notwithstanding the provisions of section 1 and 2 of Article VIII and of section 5 of Article XI copies of soliciting material in the form of speeches, press released and radio or television scripts may, but need not, be filed with the Commissioner prior to use or publication. Definitive copies, however, shall be filed with or mailed for filing to the Commissioner as required by section 3 of Article VIII not later than the date such material is used or published. The provision of section 1 and 2 of Article VIII and section 5 of Article XI shall apply, however, to any reprints or reproductions of all or any of such material.
IX. FALSE OR MISLEADING STATEMENT No proxy statement, form of proxy, notice of meeting, information statement, or other communication, written or oral, subject to this regulation, shall contain any statement which at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the same meeting or subject matter which has become false or misleading.
X. PROHIBITION OF CERTAIN SOLICITATIONS No person making a solicitation which is subject to this regulation shall solicit any undated or postdated proxy or any proxy which provides that it shall be deemed to be dated as of any date subsequent to the date on which it is signed by the security holder.
XI. SPECIAL PROVISIONS APPLICABLE TO ELECTION CONTEST 1. Applicability. This Article shall apply to any solicitation subject to this regulation by any person or group for the purpose of opposing a solicitation subject to this regulation by any other person or group with respect to the election or removal of directors at any annual or special meeting of security holders.
2. Participant or Participant in a Solicitation.
3. Filing of Information Required by Schedule B.
4. Solicitations Prior to Furnishing Required Written Proxy Statement. Notwithstanding the provisions of section 1 of Article VI a solicitation subject to this Article may be made prior to furnishing security holders a written proxy statement containing the information specified in Schedule A with respect to such solicitation, provided that:
5. Solicitations Prior to Furnishing Required Written Proxy Statement-Filing Requirements. Two copies of any soliciting material proposed to be sent or given to security holders prior to the furnishing of the written proxy statement required by section 1 of Article VI shall be filed with the Commissioner in preliminary form at least five business days prior to the date definitive copies of such material are first sent or given to such persons, or such shorter period as the Commissioner may authorize upon a showing of good cause therefor.
6. Application of This Section to Annual Report. Notwithstanding the provisions of sections 2 and 3 of Article VI, two copies of any portion of the annual report referred to in section 2 of Article VI which comments upon or refers to any solicitation subject to this article or any participant in any such solicitation, other than the solicitation by the management, shall be filed with the Commissioner, as proxy material subject to this regulation. Such portion of the report shall be filed with the Commissioner, in preliminary form, at least five business days prior to the date copies of the report are first sent or given to security holders.
XII. REPEAL The directive dated January 26, 1966, entitled “Regulation Adopted Pursuant to 72-2-18 C.R.S. 1963, as Amended, Regarding Proxies, Consents and Authorizations of Domestic Stock Insurers” which in publication was designated “Bulletin No. 48 (Bulletin Numbering Not Official)” is herewith repealed. XIII. EFFECTIVE DATE This regulation, initially effective on February 1, 1972, is amended effective December 31, 1992. SCHEDULE A INFORMATION REQUIRED IN PROXY STATEMENT OR INFORMATIONS STATEMENT Item 1. Revocability of Proxy.
State whether or not the person giving the proxy has the power to revoke it. If the right of revocation before the proxy is exercised is limited or is subject to compliance with any formal procedure, briefly describe such limitations or procedure.
Item 2. Dissenter's Rights of Appraisal.
Outline briefly the rights of appraisal or similar rights of dissenting security holders with respect to any matter to be acted upon and indicate any statutory procedure required to be followed by such security holders in order to perfect their right. Where such rights may be exercised only within a limited time after the date of the adoption of a proposal, the filing of a charter amendment, or other similar act, state whether the person solicited will be notified of such date. Item 3. Persons Making Solicitations Not Subject to Article XI.
(1) If the solicitation is made by the management of the insurer, so state. Give the name of any director of the insurer who has informed the management in writing that he intends to oppose any action intended to be taken by the management and indicate the action which he intends to oppose.
(2) If the solicitation is made otherwise than by the management of the insurer, state the names and addresses of the persons by whom and on whose behalf it is made and the names and addresses of the persons by whom the cost of solicitation has been or will be borne, directly or indirectly.
(3) If the solicitation is to be made by specially engaged employees or paid solicitors, state (i) the material features of any contract or arrangement for such solicitation and identify the parties; and (ii) the cost or anticipated cost thereof.
Item 4. Interest of Certain Persons in Matters to be Acted Upon. Describe briefly any substantial interest, direct or indirect, by security holdings or otherwise, of any director, nominee for election as director, officer and, if the solicitation is made otherwise than on behalf of the management, each person on whose behalf the solicitation is made, in any matter to be acted upon, other than elections to office.
Item 5. Voting Securities.
(1) State, as to each class of voting securities of the insurer entitled to be voted at the meeting, the number of shares outstanding and the number of votes to which each class is entitled.
(2) Give the date as of which the record list of security holders entitles to vote at the meeting will be determined. If the right to vote is not limited to security holders of record on that date, indicate the conditions under which other security holders may be entitles.
(3) If action is to be taken with respect to the election of directors and if the persons solicited have cumulative voting rights, make a statement that they have such rights and state briefly the conditions precedent to the exercise thereof.
Item 6. Nominees and Directors.
If action is to be taken with respect to the election of directors furnish the following information, in tabular form to the extent practicable, with respect to each person nominated for election as director and each other person whose term of office as a director will continue after the meeting:
(a) Name each such person, state when his term of office or the term of office for which he is a nominee will expire, and all other positions and offices with the insurer presently held by him and indicate which persons are nominees for election as director at the meeting.
(b) State his present principal occupation or employment and give the name and principal business of any corporation or other organization in which such employment is carried on. Furnish similar information as to all of his principal occupations or employments during the last five years, unless he is now a director and was elected to his present term of office by a vote of security holders at a meeting for which proxies were solicited under this regulation.
(c) If he is or has previously been a director of the insurer, state the period or periods during which he has served as such.
(d) State, as of the most recent practicable date, the approximate amount of each class of equity securities of the insurer or any of its parents, subsidiaries or affiliates other than directors' qualifying shares, beneficially owned directly or indirectly by him. If he is not the beneficial owner of any such securities, make a statement to that effect. Item 7. Remuneration and Other Transactions with Management and Others. Furnish the information reported or required in Item One of Schedule SIS under the heading “Information Regarding Management and Directors” if action is to be taken with respect to (a) the election of directors, (b) any remuneration plan, contract or arrangement in which any director, nominee for election as a director, or officer of the insurer will participate, (c) any pension or retirement plan in which any such person will participate, or (d) the granting or extension to any such person of any options, warrants or tights to purchase any securities, other than warrants or rights issued to security holders, as such, on a pro rata basis. If the solicitation is made on behalf of persons other than the management, information shall be furnished only as to Item One A of the aforesaid heading of Schedule SIS. Item 8. Bonus, Profit Sharing and Other Remuneration Plans. If action is to be taken with respect to any bonus, profit sharing, or other remuneration plan, of the insurer, furnish the following information:
(a) A brief description of the material features of the plan, each class of persons who will participate therein, the approximate number of persons in each such class, and the basis of such participation.
(b) The amounts which would have been distributable under the plan during the last calendar year to (1) each person named in item seven of this schedule, (2) directors and officers as a group, and (3) all other employees as a group, if the plan has been in effect.
(c) If the plan to be acted upon may be amended (other than by a vote of security holders) in a manner which would materially increase the benefits as between the groups specified in paragraph (b) of this item, the nature of such amendments should be specified. Item 9. Pension and Retirement Plans.
If action is to be taken with respect to any pension or retirement plan of the insurer, furnish the following information:
(a) A brief description of the material features of the plan, each class of persons who will participate therein, the approximate number of persons in each such class, and the basis of such participation.
(b) State (1) the approximate total amount necessary to fund the plan with respect to past services, the period over which such amount is to be paid and the estimated annual payments necessary to pay the total amount over such periods;(2) the estimated annual payment to be made with respect to current services; and (3) the amount of such annual payments to be made for the benefit of (i) each person named in item seven of this schedule, (ii) directors and officers as a group and (iii) employees as a group.
(c) If the plan to be acted upon may be amended (other than by a vote of security holders) in a manner which would materially increase the cost thereof to the insurer or to materially alter the allocation of the benefits as between the groups specified in sub-paragraph (b)(3) of this item, the nature of such amendments should be specified.
Item 10. Options, Warrants or Rights.
If action is to be taken with respect to the granting or extension of any options, warrants or rights (all referred to herein as “warrants”) to purchase securities of the insurer or any subsidiary of affiliate, other than warrants issued to all security holders on a pro rata basis, furnish the following information:
(a) The title and amount of securities called for or to be called for, the prices, expiration dates and other material conditions upon which the warrants may be exercised, the consideration received or to be received by the insurer, subsidiary or affiliate for the granting or extension of the warrants and the market value of the securities called for or to be called for by the warrants, as of the latest practicable date.
(b) If known, state separately the total amount of securities called for or to be called for by warrants received or to be received by the following persons, naming each such person: (1) each person named in item seven of this schedule and (2) each other person who will be entitled to acquire five per cent or more of the securities called for or to be called for by such warrants.
(c) If known, state also the total amount of securities call for or to be called for by such warrants, received or to be received by all directors and officers of the company as a group and all employees, without naming them.
Item 11. Authorization or Issuance of Securities.
1. If action is to be taken with respect to the authorization or issuance of any securities of the insurer furnish the title, amount and description of the securities to be authorized or issued.
2. If the securities are other than additional shares of common stock of a class outstanding, furnish a brief summary of the following, if applicable: dividend, voting liquidation, preemptive, and conversion rights, redemption and sinking fund provisions, interest rate and date of maturity.
3. If the securities to be authorized or issued are other than additional shares of common stock of a class outstanding, the Commissioner may require financial statements comparable to those contained in the annual report.
Item 12. Mergers, Consolidations, Acquisitions and Similar Matters.
1. If action is to be taken with respect to a merger, consolidation, acquisition, or similar matter, furnish in brief outline the following information:
2. For each company involved in a merger, consolidation or acquisition, the following financial statements should be furnished:
If action is to be taken with respect to the restatement of an asset, capital or surplus account of the insurer, furnish the following informations:
(a) State the nature of the restatement and the date as of which it is to be effective.
(b) Outline briefly the reasons for the restatement and for the selection of the particular effective date.
(c) State the name and amount of each account affected by the restatement and the effect of the restatement thereon.
Item 14. Matters Not Required to be Submitted.
If action is to be taken with respect to any matter which is not required to be submitted to a vote of security holders, state the nature of such matter, the reason for submitting it to a vote of security holders and what action is intended to be taken by the management in the events of a negative vote on the matter by the security holders.
Item 15. Amendment of Charter, By-Laws, or Other Documents. If action is to be taken with respect to any amendment of the insurer's charter, by-laws or other documents as to which information is not required above, state briefly the reasons for the general effect of such amendment and the vote needed for its approval.
SCHEDULE BINFORMATION TO BE INCLUDED IN STATEMENTS FILED BY OR ON BEHALF OF A PARTICIPANT (OTHER THAN THE INSURER) IN A PROXY SOLICITATION IN AN ELECTION CONTEST Item 1. Insurer. State the name and address of insurer. Item 2. Identity and Background.
1. State the following:
2. State the following:
3. State whether or not you are or have been a participant in any other proxy contest involving this company or other companies within the past ten years. If so, identify the principals, the subject matter and your relationship to the parties and the outcome.
4. State whether or not, during the past ten years, you have been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) and, if so, give dates, nature of conviction, name and location of court, and penalty imposed or other disposition of the case. A negative answer to this sub-item need not be included in the proxy statement or other proxy soliciting material.
Item 3. Interest in Securities of the Insurer.
1. State the amount of each class of securities of the insurer which you own beneficially directly or indirectly.
2. State the amount of each class of securities of the insurer which you own of record but not beneficially.
3. State with respect to all securities of the insurer purchased or sold within the past two years, the dates on which they were purchased or sold and the amount purchased or sold on each such date.
4. If any part of the purchase price or market value of any of the securities specified in paragraph (3) is represented by funds borrowed or otherwise obtained for the purpose of acquiring or holding such securities, so state and indicate the amount of the indebtedness as of the latest practicable date. If such funds were borrowed or obtained otherwise than pursuant to a margin account or bank loan in the regular course of business of a bank, broker or dealer, briefly describe the transaction, and state the names of the parties.
5. State whether or not you are a party to any contracts, arrangements or understandings with any person with respect to any securities of the insurer, including but not limited to joint ventures, loan or option arrangements, puts or calls, guarantees against losses or guarantees of profits, division of losses or profits, or the given or withholding of proxies. If so, name the persons with whom such contracts, arrangements, or understandings exist and give the details thereof.
6. State the amount of securities of the insurer owned beneficially, directly or indirectly, by each of your associates and the name and address of each such associate.
7. State the amount of each class of securities of any parent, subsidiary or affiliate of the insurer which you own beneficially, directly or indirectly.
Item 4. Further Matters.
1. Describe the time and circumstances under which you became a participant in the solicitation and state the nature and extent of your activities or proposed activities as a participant.
2. Describe briefly, and where practicable state the approximate amount of, any material interest, direct or indirect, of yourself and of each of your associates in any material transactions since the beginning of the company's last fiscal year, or in any material proposed transactions, to which the company or any of its subsidiaries or affiliates was or is to be a party.
3. State whether or not you or any of your associates have any arrangement or understanding with any person -
If so, describe such arrangement or understanding and state the names of the parties thereto. Item 5. Signature.
The statement shall be dated and signed in the following manner: I certify that the statements made in this statement are true, complete, and correct, to the best of my knowledge and belief.
I. AUTHORITY This regulation is promulgated pursuant to the authority of Section 10-1-109, C.R.S.
II. DEFINITIONS 1. “Insurer” means any domestic stock insurance company with an equity security subject to the provisions of Section 10-3-120, C.R.S., and not exempt thereunder.
2. “Officer” means a president, vice president, treasurer, actuary, secretary, controller and any other person who performs for the insurer functions corresponding to those performed by the foregoing officers.
3. “Equity security” means any stock or similar security; or any voting trust certificate or certificate of deposit for such a security; or any security convertible, with or without consideration, into such a security, or carrying any warrant or right to subscribe to or purchase such a security; or any such warrant or right.
4. Securities “held of record”.
5. “Class” means all securities of an insurer which are of substantially similar character and the holders of which enjoy substantially similar rights and privileges.
III. TRANSACTIONS EXEMPTED FROM THE OPERATION OF SECTION 10-3-120, C.R.S. Any acquisition or disposition of any equity security by a director or officer of an insurer within six months prior to the date on which Section 10-3-120, C.R.S. first became applicable with respect to the equity securities of such insurer shall not be subject to the operation of Section 10-3-120(2), C.R.S.
IV. RULES UNDER 10-3-120(1)
1. Filing of Statements.
Initial statements of beneficial ownership of equity securities required by Section 10-3-120(1) shall be filed on Form 01-IT-1 attached hereto. Statements of changes in such beneficial ownership required by Section 10-3-120(1) shall be filed on Form 01-IT-2 attached hereto. All such statements shall be prepared and filed in accordance with the requirements of the applicable form. Reproduction of the attached forms is advised as the Insurance division will not maintain a supply thereof.
2. Ownership of More than Ten Per Cent of an Equity Security.
a. In determining, for the purpose of Section 10-3-120(1) whether a person is the beneficial owner, directly or indirectly, of more than ten per cent of any class of any equity security, such class shall be deemed to consist of the total amount of such class outstanding, exclusive of any securities of such class held by or for the account of the insurer or a subsidiary of the insurer; except that for the purpose of determining percentage ownership of voting trust certificates or certificates of deposit for equity securities, the class of voting trust certificates or certificates of deposit shall be deemed to consist of the amount of voting trust certificates or certificates of deposit issuable with respect to the total amount of outstanding equity securities of the class which may be deposited under the voting trust agreement or deposit agreement in question, whether or not all of such outstanding securities have been so deposited. for the purpose of this section a person acting in good faith may rely on the information contained in the latest Convention Form statement filed with the Commissioner with respect to the amount of securities of a class outstanding or in the case of voting trust certificates or certificates of deposit the amount thereof issuable.
b. In determining for the purpose of Section 10-3-120(1), C.R.S., whether a person is the beneficial owner, directly or indirectly, of more than ten percent of any class of equity securities, such person shall be deemed to be the beneficial owner of securities of such class which such person has the right to acquire through the exercise of presently exercisable options, warrants or rights or through the conversion of presently convertible securities. The securities subject to such options, warrants, right of conversion privileges held by a person shall be deemed to be outstanding for the purpose of computing, in accordance with paragraph (a), the percentage of the class owned by any other person. This paragraph shall not be construed to relieve any person of any duty to comply with Section 10-3-120(1), C.R.S., with respect to any equity securities consisting of options, warrants, rights or convertible securities which are otherwise subject as a class to Section 10-3-120(1), C.R.S.
3. Disclaimer of Beneficial Ownership.
Any person filing a statement may expressly declare therein that the filing of such statement shall not be construed as an admission that such person is, for the purpose of Section 10-3-120, C.R.S., the beneficial owner of any equity securities covered by the statement.
4. Exemptions from Section 10-3-120(1) and (2), C.R.S.
a. During the period of 12 months following their appointment and qualification, securities held by the following persons shall be exempt from Section 10-3-120 (1) and (2), C.R.S.
b. After the 12-month period following their appointment or qualification the foregoing persons shall be required to file reports with respect to the securities held by the estates which they administer under Section 10-3-120(1), C.R.S., and shall be liable for profits realized from trading in such securities pursuant to Section 10-3-120(2), C.R.S., only when the estate being administered is a beneficial owner of more than 10 per cent of any class of equity security of an insurer subject to Section 10-3-120, C.R.S.
c. Securities reacquired by or for the account of an insurer and held by it for its account shall be exempt from Section 10-3-120(1) and (2), C.R.S. during the time they are held by the insurer.
5. Exemption from the Act of Securities Purchased or Sold by Odd-Lot Dealers. Securities purchased or sold by an odd-lot dealer (1) in odd lots so far as reasonably necessary to carry on odd-lot transactions or (2) in round lots to offset odd-lot transactions previously or simultaneously executed or reasonably anticipated in he usual course of business, shall be exempt from the provisions of Section 10-3-120, C.R.S., with respect to participation by such odd-lot dealer in such transactions.
6. Certain transactions Subject to Section 10-3-120(1), C.R.S. The acquisition or disposition of any transferable option, put, call, spread or straddle shall be deemed such a change in the beneficial ownership of the security to which such privilege relates as to require the filing of a statement reflecting the acquisition or disposition of such privilege. Nothing in this section, however, shall exempt any person from filing the statements required upon the exercise of such option, put, call, spread or straddle.
7. Ownership of Securities Held in Trust.
a. Beneficial ownership of a security for the purpose of Section 10-3-120(1), C.R.S., shall include:
b. In the event that ten per cent of any class of any equity security of an insurer is held in a trust, that trust and the trustees thereof as such shall be deemed a person required to file the reports specified in Section 10-3-120(1), C.R.S.
c. Not more than one report need be filed to report any holdings or with respect to any transaction in securities held by a trust, regardless of the number of officers, directors or ten per cent stockholders who are either trustees, settlors, or beneficiaries of a trust, provided that the report filed shall disclose the names of all trustees, settlors and beneficiaries who are officers, directors or ten per cent stockholders. A person having an interest only as a beneficiary of a trust shall not be required to file any such report so long as he relies in good faith upon an understanding that the trustee of such trust will file whatever reports might otherwise be required of such beneficiary.
d. As used in this section the “immediate family” of a trustee means:
e. In determining, for the purposes of Section 10-3-120(1), C.R.S., whether a person is the beneficial owner, directly or indirectly, of more than ten per cent of any class of any equity security, the interest of such person in the remainder of a trust shall be excluded from the competition.
f. No report shall be required by any person, whether or not otherwise subject to the requirement of filing reports under Section 10-3-120(1), C.R.S., with respect to his indirect interest in portfolio securities held by:
g. Nothing in this section shall be deemed to impose any duties or liabilities with respect to reporting any transaction or holding prior to its effective date.
8. Exemption for Small Transactions.
a. Any acquisition of securities shall be exempt from Section 10-3-120, C.R.S., where
b. Any acquisition or disposition of securities by way of gift, where the total amount of such gifts does not exceed $3,000 in market value for any six months' period, shall be exempt from Section 10-3- 120(1), C.R.S., and may be excluded from the computations prescribed in paragraph 8. a. (2) of this regulation.
c. Any person exempted by paragraph 8. a. (2) of this regulation shall include in the first report filed by him after a transaction within the exemption a statement showing his acquisitions and dispositions for each six months' period or portion thereof which has elapsed since his last filing.
9. Exemption from Section 10-3-120(2), C.R.S., of Transactions Which Need Not Be Reported Under Section 10-3-120(1), C.R.S.
Any transaction which has been or shall be exempted from the requirements of Section 10-3-120(1), C.R.S., shall, insofar as it is otherwise subject to the provisions of Section 10-3-120(2), C.R.S., be likewise exempted from Section 10-3-120(2), C.R.S.
V. RULES UNDER SECTION 10-3-120(2), C.R.S.
1. Exemption of Section 10-3-120(2), C.R.S., of Certain Transactions Effective in Connection with A Distribution.
2. Exemption from Section 10-3-120(2), C.R.S., of Acquisitions of Shares of Stock and Stock Options under Certain Stock Bonus, Stock Option or Similar Plans. Any acquisition of shares of stock (other than stock acquired upon the exercise of an option, warrant or right) pursuant to a stock bonus, profit sharing, retirement, incentive, thrift, savings or similar plan, or any acquisition of a qualified or a restricted stock option pursuant to an employee stock purchase plan, by a director or officer of an insurer issuing such stock or stock option shall be exempt from the operation of Section 10-3-120(2), C.R.S., if the plan meets the following conditions:
For the purpose of this paragraph, a director or committee member shall be deemed to be a disinterested person only if such person is not at the time such discretion is exercised eligible and has not at any time within one year prior thereto been eligible for selection as a person to whom stock may be allocated or to whom qualified, restricted or employee stock purchase plan stock options may be granted pursuant to the plan or any other plan of the insurer or any of the its affiliates entitling the participants therein to acquire stock or qualified, restricted or employee stock purchase plan stock options of the insurer or any of its affiliates.
3. Exemption from Section 10-3-120 (2), C.R.S., of Certain Transactions in Which Securities Are Received by Redeeming Other Securities.
4. Exemption of the Long Term Profits Incident to Sales Within Six Months of the Exercise of an Option.
5. Exemption from Section 10-3-120(2), C.R.S., of Certain Acquisitions and Dispositions of Securities Pursuant to Merger or Consolidations.
6. Exemption from Section 10-3-120(2), C.R.S., of Transaction Involving the Deposit or Withdrawal of Equity Securities Under a Voting Trust or Deposit Agreement. Any acquisition or disposition of any equity security involved in the deposit of such security under, or the withdrawal of such security from, a voting trust or deposit agreement, and the acquisition or disposition in connection therewith of the certificate representing such security, shall be exempt from the operation of Section 10-3-120(2), C.R.S., if substantially all of the assets held under the voting trust or deposit agreement immediately after the deposit or immediately prior to the withdrawal, as the case may be, consisted of equity securities of the same class as the security deposited or withdrawn: provided, however, that this section shall not apply to the extent that there shall have been either
7. Exemption from Section 10-3-120(2), C.R.S., of Certain Transactions Involving the Conversion of Equity Securities.
8. Exemption from Section 10-3-120(2), C.R.S., of Certain Transactions Involving the Sale of Subscription Rights.
VI. RULES UNDER SECTION 10-3-120(3), C.R.S.
1. Exemption of Certain Securities from Section 10-3-120(3), C.R.S. Any security shall be exempt from the operation of Section 10-3-120(3), C.R.S., to the extent necessary to render lawful thereunder the execution by a broker of an order for an account in which he has no direct or indirect interest.
2. Exemption from Section 10-3-120(3), C.R.S., of Certain Transactions Effected in Connection with a Distribution. Any security shall be exempt from the operation of Section 10-3-120(3), C.R.S., to the extent necessary to render lawful thereunder any sale made by or on behalf of a dealer in connection with a distribution of a substantial block of securities, upon the following conditions:
3. Exemption from Section 10-3-120(3), C.R.S., of Sales of Securities to Be Acquired.
VII. ARBITRAGE TRANSACTIONS UNDER SECTION 10-3-120(5), C.R.S. It shall be unlawful for any director or officer of an insurer to effect any foreign or domestic arbitrage transaction in any equity security of such insurer, unless he shall include such transaction in the statements required by Section 10-3-120(1), C.R.S., and shall account to such insurer for the profits arising from such transaction, as provided in Section 10-3-120(2), C.R.S. The provisions of Section 10-3- 120(3), C.R.S., shall not apply to such arbitrage transactions. The provisions of Section 10-3-120 C.R.S., shall not apply to any bona fide foreign or domestic arbitrage transaction insofar as it is effected by any person other than such director or officer of the insurer. VIII .REPEAL The directive dated January 19, 1966 entitled “Regulation Adopted Pursuant to an Act Concerning the Insider Trading of Equity Securities of a Domestic Stock Insurance Company” which, in publication was designated “Bulletin No. 47 (Bulletin Numbering Not Official)” is herewith repealed.
IX. EFFECTIVE DATE The Regulation, initially effective on February 1, 1972, is amended effective December 31, 1992. STATE OF COLORADO Commissioner of Insurance FORM 01-IT-1 INITIAL STATEMENT of Beneficial Ownership of Securities Filed by domestic stock insurance companies pursuant to Section 10-3-120, C.R.S.
REMARKS: (See instruction 10)
1. Persons Required to File Statements.
A statement on this form is required to be filed by every person who is directly or indirectly the beneficial owner of more than 10 percent of any class of any equity security of a Colorado stock insurance company, or who is a director or an officer of such a company.
2. When Statements Are to Be Filed.
(a) Persons who hold any of the relationships specified in instruction 1 are required to file a statement within 10 days after assuming such relationship.
(b) Statements are not deemed to have been filed with the Commissioner until they have actually been received by him.
3. Where Statements Are to Be Filed.
One signed copy of each statement shall be filed with the Commissioner of Insurance, 1560 Broadway, Suite 850, Denver, Colorado 80202.
4. Separate Statement for Each Company.
A separate statement shall be filed with respect to the securities of each company.
5. Relationship of Reporting Person to Company.
Indicate clearly the relationship of the reporting person to the company; for example, “Director”, “Director and Vice President”, “Beneficial owner of more than 10 percent of the company's common stock”, etc.
6. Date as of Which Beneficial Ownership Is to Be Given. The information as to beneficial ownership of securities shall be given as of the date the relationship specified in Instruction 1 was assumed.
7. Title of Security.
The statement of the title of a security shall be such as clearly to identify the security even though there may be only one class; for example, “Class A Common Stock”, “$6 Convertible Preferred Stock”, “5% Debentures Due 1965”, etc.
8. Nature of Ownership.
Under “nature of ownership”, state whether ownership of the securities is “direct” or indirect”. If the ownership is indirect, i.e., through a partnership, corporation, trust or other entity, indicate, in a footnote or other appropriate manner, the name or identity of the medium through which the securities are indirectly owner. The fact that securities are held in the name of a broker or other nominee does not of itself, constitute indirect ownership. Securities owned indirectly shall be reported on separate lines from those owned directly and also from those owned through a different type of indirect ownership.
9. Statement of Amount Owned.
In stating the amount of securities beneficially owned, give the face amount of debt securities or the number of shares or other units of other securities. In the case of securities owned indirectly, the entire amount of securities owned by the partnership, corporation, trust or other entity shall be stated. The person whose ownership is reported may, if he so desires, also indicate in a footnote, or other appropriate manner, the extent of his interest in the partnership, corporation, trust or other entity.
10. Inclusion of Additional Information.
A statement may include any additional information or explanation deemed relevant by the person filing the statement.
11. Signature.
If the statement is filed for a corporation, partnership, trust, etc., the name of the organization shall appear over the signature of the officer or other person authorized to sign the statement. If the statement is filed for an individual, it shall be signed by him or specifically on his behalf by a person authorized to sign for him.
REMARKS: (See instruction 11)
1. Persons Required to File Statements.
Statements on this form are required to be filed by every person who at any time during any calendar months was directly or indirectly the beneficial owner of more than 10 percent of any class of equity security of a Colorado stock insurance company, or a director or officer of the company which is the issuer of such securities, and who during such month hade any change in his beneficial ownership of any class of equity security of such company.
2. When Statements Are to Be Filed.
Statements are required to be filed on or before the 10th day after the end of each month in which any change in beneficial ownership has occurred. Statements are not deemed to have been filed with the Commissioner until they have actually been received by him.
3. Where Statements Are to Be Filed.
One signed copy of each statement shall be filed with the Commissioner of Insurance, Colorado Division of Insurance, 1560 Broadway, Suite 850, Denver, Colorado 80202.
4. Separate Statement for Each Company.
A separate statement shall be filed with respect to the securities of each company.
5. Relationship of Reporting Person to Company.
Indicate clearly the relationship of the reporting person to the company; for example, “Director”, “Director and Vice President”, “Beneficial owner of more than 10 percent of the company's common stock”, etc.
6. Transactions and Holdings to Be Reported.
Every transaction shall be reported even though purchases and sales during a month are equal or the change involves only the nature of ownership; for example, from direct to indirect ownership. Beneficial ownership at the end of the month of all classes of securities required to be reported shall be shown even though there has been no change during the month in the ownership of securities of one or more classes.
7. Title of Security.
The statement of the title of the security shall be such as clearly to identify the security even though there may be only one class; for example, “Class A Common Stock”, “$6 convertible Preferred Stock”, “5% Debentures Due 1965”, etc.
8. Date of Transaction.
The exact date (month, day and year) of each transaction shall be stated opposite the amount involved in the transaction.
9. Statement of Amounts of Securities.
In stating the amount of the securities acquired, disposed of, or beneficially owned, give the face amount of debt securities or the number of shares or other units of other securities. In the case of securities owned indirectly, i.e., though a partnership, corporation, trust or other entity, the entire amount of securities involved in the transaction or owned by the partnership, corporation, trust or other entity shall be stated. The person whose ownership is reported may, if he so desire, also indicate in a footnote, or other appropriate manner, the extent of his interest in the transaction or holdings of the partnership, corporation, trust or other entity.
10. Nature of Ownership.
Under “Nature of ownership”, state whether ownership of the securities is “direct” or “indirect”. If the ownership is indirect, i.e., through a partnership, corporation, trust or other entity, indicate in a footnote, or other appropriate manner, the name or identity of the medium through which the securities are indirectly owned. The fact that securities are held in the name of a broker or other nominee does not, of itself, constitute indirect ownership. Securities owned indirectly shall be reported on separate lines from those owned directly and from owned through a different type of indirect ownership.
11. Character of Transaction.
If the transaction was with the issuer of the securities, so state. If it involved the purchase of securities through the exercise of options, so state and give the exercise price per share. If any other purchase or sale was effected otherwise than in the open market, that fact shall be indicated. If the transaction was not a purchase or sale, indicate its character; for example, gift, 5% stock dividend, etc., as the case may be. The foregoing information may be appropriately set forth in the table or under “Remarks” at the end of the table.
12. Inclusion of Additional Information.
A statement may include any additional information or explanation deemed relevant by the person filing the statement.
13. Signature.
If the statement is filed for a corporation, partnership, trust, etc., the name of the organization shall appear over the signature of the officer or other person authorized to sign the statement. If the statement is filed for an individual it shall be signed by him or specifically on his behalf by a person authorized to sign for him.
REGULATION 3-2-4 PARTICIPATION LOANS Section 1 Authority This regulation is promulgated under the authority of § § 10-1-109, 10-6-129, 10-14-505 and 10-16-109, C.R.S.
Section 2 Scope and Purpose The purpose of this regulation is to implement the provisions of § 10-3-216(1)(f), C.R.S., in regard to participation loans authorized pursuant to statute.
Section 3 Applicability This regulation shall apply to all Colorado domestic insurers as well as each risk retention group captive insurer, fraternal benefit society, health maintenance organization and non-profit hospital, medical-surgical and health service corporation.
Section 4 Participants A. Participation in loans secured by a first lien on real property under § 10-3-216(1)(f), C.R.S. is limited to loans with the following participants:
1. A bank whose depositors are federally insured.
Section 5 Documentation Every domestic insurance company participant in a participation loan on real property under § 10-3- 216(1)(f), C.R.S., must maintain adequate documentation to evidence its interest as a participant therein. This documentation should consist, as a minimum, of originals or certified copies of the documents listed below. If the document is one that the domestic insurance company would be expected to have in its possession, such as a participation certificate, the original will be required. If the document is one which the domestic insurance company would not be expected to have in its possession, such as the Note in a case where another entity is the lead participant, a certified copy will suffice. Copies may be certified by an officer of the participant having possession of the originals of the documents.
A. Note evidencing the obligation.
B. Mortgage or Deed of Trust, properly executed and recorded.
C. Participation Certificate.
D. Recorded partial assignment (if recognized under state law).
E. Any other security taken in connection with the loan.
F. Appraisal report prepared as a basis for underwriting in the course of committing to make the loan.
G. Survey of premises (or other satisfactory evidence) identifying the property by address and legal description.
H. Participation (loan sharing) Agreement.
I. Title insurance policy or attorney's title opinion.
J. Hazard insurance policies or certificates.
K. Statement showing unpaid principal balance on mortgage, amount of periodic installments, and date to which interest is paid.
Section 6 Severability If any provision of this regulation of the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 7 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocation of license.
Section 8 Effective Date This regulation is effective on October 2, 2006.
Section 9 History This regulation was originally effective in 1975.
Amended, effective December 31, 1992.
Amended, effective April 1, 2001.
Amended, effective October 1, 2001.
Amended, effective October 2, 2006 AMENDED REGULATION 3-2-6 SECURITIES DEPOSITED WITH THE COMMISSIONER I .AUTHORITY This regulation is promulgated under the authority of §§ 10-1-108(8), 10-1-109, 10-3-201(2) and 10-3-210 C.R.S.
II .PURPOSE The purpose of this regulation is to provide for reasonable conditions related to assets deposited with the Commissioner of Insurance. § 10-3-210, C.R.S. provides for considerable control of statutory deposits by the commissioner. Accordingly, joint possession of the instrument representing the underlying asset deposited is critical. This regulation will serve to qualify assets acceptable for deposit according to the conditions for surrender or redemption of principal. This regulation is necessary to assure compliance with the deposit requirement set forth at § 10-3-201 (2), C.R.S. III .SCOPE This regulation shall apply to licensed companies that are required to deposit securities with the Commissioner.
IV .CRITERIA FOR DEPOSIT OF SECURITIES A. All securities deposited shall set forth the par value and maturity date on the face of the security.
B. Any security for which payment of principal, or periodic reductions are made of principal and paid to the owner of the security, in whole or in part, for example, mortgage-backed securities, is deemed unacceptable in that compliance with § 10-3-201(2), C.R.S. could not be unequivocally ascertained.
V .SEVERABILITY If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby. VI .EFFECTIVE DATE This regulation shall be effective October 1, 1996.
REGULATION 3-2-7 CONCERNING THE DEFINITION OF INSTRUMENTALITY AND INVESTMENTS IN MORTGAGE-BACKED SECURITIES I. AUTHORITY This regulation is promulgated under the authority of sections 10-1-108(8), 10-1-109 and 10-16-109, Colorado Revised Statutes (C.R.S.).
II. PURPOSE The insurance laws will often refer to a governmental, state or United States instrumentality. Confusion has developed as to what form or type of entity constitutes an instrumentality. The purpose of this regulation is to provide clarity and to establish standards for the use of “instrumentality” and to define the extent of investments permitted in mortgage-backed securities.
III. SCOPE This regulation shall apply to all entities regulated by the Colorado Division of Insurance.
IV. DEFINITION An “Instrumentality” shall mean an entity which is created or authorized by a legislative branch of government to perform a significant function for a public rather than a private purpose. The entity shall clearly have the authority to issue securities and/or insure or guarantee financial obligations. Examples of instrumentalities include, but are not limited to, the Federal Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage Association (FNMA) and the Federal Agricultural Mortgage Corporation (FAMC).
V. INSTRUMENTALITIES A company investing in securities or obligations of an instrumentality shall be responsible for acquiring and maintaining in their possession evidence that the instrumentality issuing such security or obligation meets the definition contained herein. When principal and interest are fully guaranteed or insured by the instrumentality, evidence supporting such guarantee or insurance shall also be maintained by the company. Such evidence may include a copy of the enabling statute creating such instrumentality or other documentation demonstrating the authorization meeting the definition acceptable to the Commissioner.
VI. MORTGAGE-BACKED SECURITIES The maximum investment permitted in mortgage-backed securities is restricted by § 10-3-215(2), C.R.S. to a percentage of admitted assets. These percentage restrictions relate to the proportion of the aggregate value of any “one issue” of such obligations to the insurer's admitted assets. When multiple investments are made in a single pool of the same underlying mortgages, they shall be determined to be “one issue” for the purposes of determining investment limitations. This is necessary in order to maintain the integrity and conservativeness of statutory accounting principles and to prevent financial harm to the entity should an entire pool of mortgages default.
VII. SEVERABILITY If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby. VIII. EFFECTIVE DATE This regulation is hereby amended and restated and effective December 1, 1992. REGULATION 3-3-1 ASSUMPTION REINSURANCE AGREEMENTS I. AUTHORITY This regulation is promulgated under the authority of § 10-1-109, C.R.S.
II. PURPOSE The purpose of this regulation is to clarify the filing and other requirements regarding insurers gaining approval to reinsure risks pursuant to §§ 10-3-702 and 703, C.R.S. through the transfer and novation of contracts of insurance by way of assumption reinsurance. It defines assumption reinsurance and establishes notice and disclosure requirements which protect and define the rights and obligations of policyholders, regulators and the parties to assumption reinsurance agreements. This regulation additionally provides for filing of information to allow the Commissioner to determine whether or not the proposed transaction may cause a hazardous financial condition or otherwise not be in the best interest of the insurer's policyholders.
III. SCOPE A. This regulation applies to any insurer licensed in this state or authorized pursuant to § 10-5-108, C.R.S. which either assumes or transfers the obligations and/or risks on contracts of insurance pursuant to an assumption reinsurance agreement.
B. This regulation does not apply to:
IV. DEFINITIONS As used in this regulation, unless the context otherwise requires: “Assuming Insurer” means the insurer which acquires an insurance obligation and/or risk from the transferring insurer pursuant to an assumption reinsurance agreement. “Assumption Reinsurance Agreement” means any contract which both:
(1) transfers insurance obligations and/or risks of existing or in-force contracts of insurance from a transferring insurer to an assuming insurer; and (2) is intended to effect a novation of the transferred contract of insurance with the result that the assuming insurer becomes directly liable to the policyholders of the transferring insurer and the transferring insurer's insurance obligations and/or risks under the contracts are extinguished. “Contract of Insurance” means any written agreement between an insurer and policyholder pursuant to which the insurer, in exchange for premium or other consideration, agrees to assume an obligation and/or risk of the policyholder or to make payments on behalf of, or to, the policyholder or its beneficiaries; it shall include all property, casualty, life, health, accident, surety, title and annuity business authorized to be written pursuant to the insurance laws of this state. “Home Service Business” means insurance business on which premiums are collected on a weekly or monthly basis by an agent of the insurer.
V. NOTICE REQUIREMENTS TO POLICYHOLDERS, AGENTS AND BROKERS A. The transferring insurer shall provide or cause to be provided to each policyholder a Notice of Transfer by first-class mail, addressed to the policyholder's last known address or to the address to which premium notices or other policy documents are sent or, with respect to home service business, by personal delivery with acknowledged receipt. If the transferring insurer has knowledge that the last known address is invalid, the transferring insurer shall assure that a reasonable attempt is made to locate and notify the policyholder. A Notice of Transfer shall also be sent to the transferring insurer's agents or brokers of record on the affected policies.
B. The Notice of Transfer in a form substantially similar to that contained in Appendix A shall state or provide:
C. The Notice of Transfer shall include a pre-addressed, postage-paid Response Card which a policyholder may return as its written statement of acceptance or rejection of the transfer and novation.
VI. REGULATORY FILING AND APPROVAL REQUIREMENTS A. Prior written approval by the Commissioner is required for any transaction where an insurer domiciled in this state assumes or transfers obligations and/or risks on contracts of insurance under an assumption reinsurance agreement.
B. No insurer licensed in this state shall transfer obligations and/or risks on contracts of insurance written in this state or covering risks or property located in this state, or owned by residents of this state, to any insurer that is not licensed in this state. Any licensed foreign insurer that enters into an assumption reinsurance agreement with another foreign insurer shall file or cause to be filed the following with the Corporate Affairs Section of the Division of Insurance:
C. The following factors, along with such other factors as the Commissioner deems appropriate under the circumstances, shall be considered by the Commissioner in reviewing a request for approval:
D. The assuming and transferring insurers are required to maintain sufficient records to document that the provisions of this regulation have been met, including the detail of all policyholders who have consented to, rejected or have been deemed transferred.
VII. POLICYHOLDER RIGHTS A. Policyholders shall have the right to reject the transfer and novation of their contracts of insurance. Policyholders electing to reject the assumption transaction shall return to the transferring insurer the pre-addressed, postage-paid response card or other written notice and indicate thereon that the assumption is rejected (collectively referred to as the “Response Card”).
B. Payment of any premium to the assuming company during the twenty-four-month period after notice is received shall be deemed to indicate the policyholder's acceptance of the transfer to the assuming insurer and a novation shall be deemed to have been effected, provided that the premium notice clearly states that payment of the premium to the assuming insurer shall constitute acceptance of the transfer. However, the premium notice shall also provide a method for the policyholder to pay the premium while reserving the right to reject the transfer. With respect to any home service business or any other business not using premium notices, the disclosures and procedural requirements of this subsection are to be set forth in the Notice of Transfer and in the assumption certificate.
C. After no fewer than twenty-four (24) months from the mailing of the initial Notice of Transfer, if positive consent to, or rejection of, the transfer and assumption has not been received or consent has not been deemed to have occurred under Subsection B of this section, the transferring company shall send to the policyholder a second and final Notice of Transfer. If the policyholder does not accept or reject the transfer during the one month period immediately following the date on which the transferring insurer mails the second and final notice of transfer, the policyholder's consent will be deemed to have occurred and novation of the contract will be effected. With respect to the home service business, or any other business not using premium notices, the twenty-four and one month periods shall be measured from the date of delivery of the Notice of Transfer.
D. The transferring insurer will be deemed to have received the Response Card on the date it is postmarked. A policyholder may also send its Response Card by facsimile or other electronic transmission or by registered mail, express delivery or courier service, in which case the Response Card shall be deemed to have been received by the assuming insurer on the date of actual receipt by the transferring insurer.
VIII. EFFECT OF CONSENT If a policyholder consents to the transfer pursuant to Section VII or if the transfer is effected under Section IX, there shall be a novation of the contract of insurance subject to the assumption reinsurance agreement with the result that the transferring insurer shall thereby be relieved of all insurance obligations and/or risks transferred under the assumption reinsurance agreement and the assuming insurer shall become directly and solely liable to the policyholder for those insurance obligations and/or risks.
IX. COMMISSIONER'S DISCRETION If an insurer domiciled in this state or in a jurisdiction having a substantially similar law is deemed by the domiciliary Commissioner to be in hazardous financial condition or an administrative proceeding has been instituted against it for the purpose of reorganizing or conserving the insurer, and the transfer of the contracts of insurance is in the best interest of the policyholders, as determined by the domiciliary Commissioner, a transfer and novation may be effected notwithstanding the provisions of this regulation. This may include a form of implied consent and adequate notification to the policyholder of the circumstances requiring the transfer as approved by the Commissioner. Transfer pursuant to this section, by a foreign insurer, shall require notice to the Corporate Affairs Section of the Division of Insurance prior to notification to any Colorado policyholders.
X. SEVERABILITY If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby.
XI. EFFECTIVE DATE This amended regulation, originally effective August 1, 1990, shall be effective on August 31, 1994, for all assumption reinsurance transactions which have not previously received formal written approval from the Commissioner.
APPENDIX A NOTICE OF TRANSFER IMPORTANT: THIS NOTICE AFFECTS YOUR CONTRACT RIGHTS. PLEASE READ IT CAREFULLY. Transfer of Policy The [ABC Insurance Company] has agreed to replace us as your insurer under [insert policy/certificate name and number] effective [insert date]. The [ABC Insurance Company's] principal place of business is [insert address] and certain financial information concerning both companies is attached, including (1) ratings for the last five years, if available, or for such lesser period as is available from two nationally recognized insurance rating services; (2) balance sheets, for the previous three years if available, or for such lesser period as is available; and as of the date of the most recent quarterly statement; (3) a copy of the Management's Discussion and Analysis that was filed as a supplement to the previous year's annual statement; and (4) an explanation of the reason for the transfer. You may obtain additional information concerning [ABC Insurance Company] from reference materials in your local library or by contacting your Insurance Commissioner at [insert address and phone number]. The [ABC Insurance Company] is licensed to write this coverage in your state. The Commissioner of Insurance in your state has reviewed the potential effect of the proposed transaction, and has approved the transaction.
Your Rights You may choose to consent to or reject the transfer of your policy to [ABC Insurance Company]. If you want your policy transferred, you may notify us in writing by signing and returning the enclosed pre- addressed, postage-paid card or by writing to us at:
If you reject the transfer, you may keep your policy with us or exercise any option under your policy. If we do not receive a written rejection you will, as a matter of law, have consented to the transfer. However, before this consent is final you will be provided a second notice of the transfer twenty-four months from now. After the second notice is provided, you will have one month to reply. If you have paid your premium to the [ABC Insurance Company], without reserving your right to reject the transfer, you will not receive a second notice.
Effect of Transfer If you accept this transfer, [ABC Insurance Company] will be your insurer. It will have direct responsibility to you for the payment of all claims, benefits and for all other policy obligations. We will no longer have any obligations to you.
If you accept this transfer, you should make all premium payments and claims submissions to [ABC Insurance Company] and direct all questions to [ABC Insurance Company]. If you have any further questions about this agreement, you may contact [XYZ Insurance] or [ABC Insurance].
____________________ No, I reject the proposed _____ transfer of my policy from [name of transferring company] to [name of assuming company] and wish to retain my policy with [name of transferring company].
_________________________ _________________________ Date Signature Name:_________________________ Street Address:_________________________ City, State, Zip:_________________________ REGULATION 3-3-2 – DEDING REINSURANCE AGREEMENTS – REPEALED [Repealed eff. 1/1/2007. Replaced by Regs. 3-3-3, 3-3-4, and 3-3-5] REGULATION 3-3-3 CREDIT FOR REINSURANCE Section 1. Authority Section 2. Scope and Purpose Section 3. Applicability Section 4. Definitions Section 5. Credit for Reinsurance-Reinsurer Licensed in this State Section 6. Credit for Reinsurance-Accredited Reinsurers Sec tion 7. Credit for Reinsurance-Reinsurer Domiciled in Another State Section 8. Credit for Reinsurance-Reinsurers Maintaining Trust Funds Section 9. Credit for Reinsurance Required by Law Section 10. Asset or Reduction from Liability for Reinsurance Ceded to an Unauthorized Assuming Insurer not Meeting the Requirements of Sections 5 Through 9 Section 11. Trust Agreements Qualified under Section 10 Section 12. Letters of Credit Qualified under Section 10 Section 13. Other Security Section 14. Reinsurance Contract Section 15. Contracts Affected Section 16 Severability Section 17 Enforcement Section 18 Effective Date Section 19 History Appendix A References to the U.S.C.A.
Form AR-1. Certificate of Assuming Insurer Section 1 Authority This regulation is promulgated pursuant to the authority granted by Sections 10-1-109(1), 10-3-118(6), 10- 3-529(4), 10-6-129, 10-14-505 and 10-16-109, and provides standards regarding reinsurance agreements under Sections 10-3-118, 10-6-122, 10-11-119, 10-14-304, 8-44-204, 8-44-205, 8-45-121, 24-10-115.5, and 29-13-102, C.R.S.
Section 2 Scope and Purpose The purpose of this regulation is to set forth rules and procedural requirements that the commissioner deems necessary to carry out the provisions of the Section 10-3-118, C.R.S., regarding the conditions and circumstances under which a domestic insurer may reduce their liabilities, or establish an asset associated with risks reinsured. The actions and information required by this regulation are declared to be necessary and appropriate in the public interest and for the protection of the ceding insurers in this state. This regulation addresses credit for reinsurance associated with a valid reinsurance contract. The criteria as to what constitutes a valid reinsurance agreement, limitations on the amount of credit that can be claimed and other requirements as regards financial reporting are addressed in regulations 3-3-4 and 3-3-5.
Section 3 Applicability This regulation shall apply to all domestic insurers.
Section 4 Definitions A. “Insurer” includes any licensed insurance company, health maintenance organization, fraternal benefit society, captive insurer, licensed self-insurance pool, title insurer, Pinnacol Assurance, nonprofit hospital medical-surgical and health service corporation.
B. “Qualified Financial Institution” means a United States financial institution as defined in Section 10-1- 102(17), C.R.S.
Section 5 Credit for Reinsurance-Reinsurer Licensed in this State Pursuant to Section 10-3-118 (4)(b), C.R.S. the commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is licensed in this state as of any date on which statutory financial statement credit for reinsurance is claimed.
Section 6 Credit for Reinsurance-Accredited Reinsurers A. Pursuant to Section 10-3-118 (4)(c), C.R.S., the commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is accredited as a reinsurer in this state as of any date on which statutory financial statement credit for reinsurance is claimed. An accredited reinsurer:
B. If the commissioner determines that the assuming insurer has failed to meet or maintain any of these qualifications, the commissioner may upon written notice and hearing revoke the accreditation. Credit shall not be allowed a domestic ceding insurer if the assuming insurer's accreditation has been revoked by the commissioner.
Section 7 Credit for Reinsurance-Reinsurer Domiciled in Another State A. Pursuant to Section 10-3-118 (4)(d), C.R.S. the commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that, as of any date on which statutory financial statement credit for reinsurance is claimed:
B. The provisions of this section relating to surplus as regards policyholders shall not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system. As used in this section, "substantially similar" standards means credit for reinsurance standards that the commissioner determines equal or exceed the standards established in Section 10-3-118, C.R.S. and this regulation. Section 8 Credit for Reinsurance-Reinsurers Maintaining Trust Funds A. Pursuant to Section 10-3-118 (4)(f), C.R.S. the commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer which, as of any date on which statutory financial statement credit for reinsurance is claimed, and thereafter for so long as credit for reinsurance is claimed, maintains a trust fund in an amount prescribed below in a Qualified Financial Institution for the payment of the valid claims of its U.S. domiciled ceding insurers, their assigns and successors in interest. The assuming insurer shall report annually to the commissioner substantially the same information as that required to be reported on the National Association of Insurance Commissioners (NAIC) annual statement form by licensed insurers, to enable the commissioner to determine the sufficiency of the trust fund.
B. The following requirements apply to the following categories of assuming insurer:
C.
2.
D. For purposes of this regulation, the term "liabilities" shall mean the assuming insurer's gross liabilities attributable to reinsurance ceded by U. S. domiciled insurers that are not otherwise secured by acceptable means, and, shall include:
E. Assets deposited in trusts established pursuant to Section 10-3-118 (4)(f), C.R.S. and this section shall be valued according to their fair market value and shall consist only of cash in U.S. dollars, certificates of deposit issued by a Qualified Financial Institution, clean, irrevocable, unconditional and "evergreen" letters of credit issued or confirmed by a Qualified Financial Institution, and investments of the type specified in this subsection, but investments in or issued by an entity controlling, controlled by or under common control with either the grantor or beneficiary of the trust shall not exceed five percent (5%) of total investments. No more than twenty percent (20%) of the total of the investments in the trust may be foreign investments authorized under Paragraphs (1)(e), (3), (6)(b) or (7) of this subsection, and no more than ten percent (10%) of the total of the investments in the trust may be securities denominated in foreign currencies. For purposes of applying the preceding sentence, a depository receipt denominated in U.S. dollars and representing rights conferred by a foreign security shall be classified as a foreign investment denominated in a foreign currency. The assets of a trust established to satisfy the requirements of Section 10-3-118(4)(f), C.R.S. shall be invested only as follows:
F. A specific security provided to a ceding insurer by an assuming insurer pursuant to Section 10 of this regulation shall be applied, until exhausted, to the payment of liabilities of the assuming insurer to the ceding insurer holding the specific security prior to, and as a condition precedent for, presentation of a claim by the ceding insurer for payment by a trustee of a trust established by the assuming insurer pursuant to this section.
Section 9 Credit for Reinsurance Required by Law Pursuant to Section 10-3-118 (4)(g), C.R.S., the commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of Section 10-3-118 (4)(b), (c), (e) or (f), C.R.S., but only as to the insurance of risks located in jurisdictions where the reinsurance is required by the applicable law or regulation of that jurisdiction. As used in this section, "jurisdiction" means a state, district or territory of the United States and any lawful national government. Section 10 Asset or Reduction from Liability for Reinsurance Ceded to an Unauthorized Assuming Insurer not Meeting the Requirements of Sections 5 Through 9 A. Pursuant to Section 10-3-118 (5), C.R.S., the commissioner shall allow a reduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of Section 10-3-118(4), C.R.S. in an amount not exceeding the liabilities carried by the ceding insurer. The reduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the exclusive benefit of the ceding insurer, under a reinsurance contract with such assuming insurer as security for the payment of obligations under the reinsurance contract. The security shall be held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer or, in the case of a trust, held in a Qualified Financial Institution. This security may be in the form of any of the following:
B. An admitted asset or a reduction from liability for reinsurance ceded to an unauthorized assuming insurer pursuant to this section shall be allowed only when the requirements of Section 14 and the applicable portions of Sections 11, 12 and 13 of this regulation have been satisfied. Section 11 Trust Agreements Qualified under Section 10 A. As used in this section:
B. Required conditions.
C. Permitted conditions.
D. Additional conditions applicable to reinsurance agreements:
Section 12 Letters of Credit Qualified under Section 10 A. The letter of credit must be clean, irrevocable, unconditional and issued or confirmed by a Qualified Financial Institution. The letter of credit shall contain an issue date and expiration date and shall stipulate that the beneficiary need only draw a sight draft under the letter of credit and present it to obtain funds and that no other document need be presented. The letter of credit also shall indicate that it is not subject to any condition or qualifications outside of the letter of credit. In addition, the letter of credit itself shall not contain reference to any other agreements, documents or entities, except as provided in Subsection I(1) of this section. As used in this section, "beneficiary" means the domestic insurer for whose benefit the letter of credit has been established and any successor of the beneficiary by operation of law. If a court of law appoints a successor in interest to the named beneficiary, then the named beneficiary includes and is limited to the court appointed domiciliary receiver (including conservator, rehabilitator or liquidator).
B. The heading of the letter of credit may include a boxed section containing the name of the applicant and other appropriate notations to provide a reference for the letter of credit. The boxed section shall be clearly marked to indicate that such information is for internal identification purposes only.
C. The letter of credit shall contain a statement to the effect that the obligation of the Qualified Financial Institution under the letter of credit is in no way contingent upon reimbursement with respect thereto.
D. The term of the letter of credit shall be for at least one year and shall contain an "evergreen clause" that prevents the expiration of the letter of credit without due notice from the issuer. The "evergreen clause" shall provide for a period of no less than thirty (30) days notice prior to expiration date or nonrenewal.
E. The letter of credit shall state whether it is subject to and governed by the laws of this state or the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication 500), or any successor publication, and all drafts drawn thereunder shall be presentable at an office in the United States of a Qualified Financial Institution.
F. If the letter of credit is made subject to the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication 500), or any successor publication, then the letter of credit shall specifically address and provide for an extension of time to draw against the letter of credit in the event that one or more of the occurrences specified in Article 17 of Publication 500 or any other successor publication, occur.
G. The letter of credit shall be issued or confirmed by a Qualified Financial Institution authorized to issue letters of credit.
H. If the letter of credit is issued by a Qualified Financial Institution authorized to issue letters of credit, other than a Qualified Financial Institution as described in Subsection G of this section, then the following additional requirements shall be met:
I. Reinsurance agreement provisions.
Section 13 Other Security A ceding insurer may take credit for unencumbered funds withheld by the ceding insurer in the United States subject to withdrawal solely by the ceding insurer and under its exclusive control. Section 14 Reinsurance Contract Credit will not be granted, neither as an asset nor reduction from liability, to a domestic ceding insurer for reinsurance effected with assuming insurers meeting the requirements of Sections 5, 6, 7, 8 or 10 of this regulation or otherwise in compliance with Section 10-3-118, C.R.S. after the adoption of this regulation unless all premium tax payable by the ceding insurer on the reinsured policies has been paid as required by Section 10-3-209, C.R.S. and the reinsurance agreement:
A. Includes a proper insolvency clause pursuant to Section 10-3-531, C.R.S.; and B. Includes a provision pursuant to Section 10-3-118(4)(h), C.R.S. whereby the assuming insurer, if an unauthorized assuming insurer, has submitted to the jurisdiction of an alternative dispute resolution panel or court of competent jurisdiction within the United States, has agreed to comply with all requirements necessary to give the court or panel jurisdiction, has designated an agent upon whom service of process may be effected, and has agreed to abide by the final decision of the court or panel; and Section 15 Contracts Affected All new and renewal reinsurance transactions entered into after January 1, 2007 shall conform to the requirements of the Act and this regulation if credit is to be given to the ceding insurer for such reinsurance.
Section 16 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation and the application of the provisions to persons or circumstances other than those to which it is held invalid, shall not be affected. Section 17 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocations of license. Among others, the penalties provided for in Section 10-3-118, C.R.S. may be applied Section 18 Effective Date This regulation is effective January 1, 2007 Section 19 History This regulation replaces, in part, Regulation 3-3-2.
Appendix A: References to U.S.C.A (United States Code Annotated) The United States Annotated Codes (“Codes” ) referenced in this regulation are available for review at the State Library. The Code, as applicable to this regulation, is the applicable Code as of January 1, 2007. This regulation does not include later amendments to or editions of the Code. For questions regarding the Code, please contact:
Chief Actuary Colorado Division of Insurance 1560 Broadway, Suite 850 Denver, Colorado 80227 Form AR-1. Certificate of Assuming Insurer NEW REGULATIOn 3-3-4 LIFE AND HEALTH REINSURANCE AGREEMENTS Section 1. Authority Section 2. Scope and Purpose Section 3. Applicability Section 4. Definitions Section 5. Accounting Requirements Section 6. Written Agreements Section 7. Existing Agreements Section 8 Filings Section 9. Exemptions Section 10. Severability Section 11. Enforcement Section 12. Effective Date Section 13. History Section 1 Authority This regulation is promulgated under the authority of § § 10-1-109(1), 10-3-118(6), 10-3-529(4), 10-3- 1110, 10-6-129, 10-14-505 and 10-16-109, C.R.S.
Section 2 Scope and Purpose A. The Colorado Division of Insurance recognizes that licensed insurers routinely enter into reinsurance agreements for many legitimate purposes. These purposes can include relief to the ceding insurer from strain to surplus.
B. However, it is improper for a licensed insurer, in the capacity of ceding insurer, to enter into reinsurance agreements for the principal purpose of producing significant surplus aid for the ceding insurer, typically on a temporary basis, while not transferring all of the significant risks inherent in the business being reinsured. If, in substance or effect, the expected potential liability to the ceding insurer remains basically unchanged by the reinsurance transaction, notwithstanding certain risk elements in the reinsurance agreement, such as catastrophic mortality or extraordinary survival, the agreements violate:
C. The purpose of this regulation is to establish requirements for acceptable reinsurance agreements to ensure that ceding insurers operate in a sound financial manner, correctly report their financial condition on required financial statements, and properly reduce liabilities or establish assets for reinsurance ceded. These requirements are necessary to protect the ceding insurers’ policy and contract holders and the people of the State of Colorado. Section 3 Applicability This regulation shall apply to all domestic life, fraternal and health insurers and to all other licensed life, fraternal and health insurers that are not subject to a substantially similar regulation in their domiciliary state. This regulation shall also similarly apply to licensed property and casualty insurers with respect to their accident and health business. This regulation shall not apply to assumption reinsurance subject to Section 7 of Article 3 of Title 10, C.R.S.; yearly renewable term reinsurance; or certain nonproportional reinsurance such as stop loss or catastrophe reinsurance. Section 4 Definitions A. “Annual Statement” means the NAIC convention blank life, fraternal or health financial annual statement.
B. “Credit for Reinsurance” means any reduction of liability, establishment of asset or contra-liability, or any combination thereof.
C. “Credit Quality risk” means the risk that invested assets supporting the reinsured business will decrease in value. The main hazards are that assets will default or that there will be a decrease in earning power. It excludes market value declines due to changes in interest rates. It is commonly referred to as the “C1” risk.
D. “Division” means the Colorado Division of Insurance E. “Disintermediation Risk” means the risk that interest rates rise and policy loans and surrenders increase, or that maturing contracts do not renew at anticipated rates of renewal. If asset durations are greater than the liability durations the mismatch will increase. Policyholders will move their funds into new products offering higher rates. The company may have to sell assets at a loss to provide for these withdrawals. It is commonly included in the “C3” risk.
F. “Financial Statement” means any monthly, quarterly or Annual Statement that is submitted to the Division.
G. “Lapse Risk” means the risk that the policy will voluntarily terminate prior to the recoupment of a statutory surplus strain experienced at issue of the policy.
H. “LTC” means Long-Term Care Insurance.
I. “LTD” means Long-Term Disability Insurance.
J. “Reinvestment Risk” means the risk that interest rates will fall and funds reinvested (coupon payments or monies received upon asset maturity or call) will therefore earn less than expected. If asset durations are less than liability durations, the mismatch will increase. It is commonly included in the “C3” risk.
Section 5 Accounting Requirements All ceding insurers are responsible for establishing appropriate statutory gross reserves and reflecting appropriate credit for reinsurance, if any, for their reinsured business. A reinsurance agreement that does not comply with this regulation will be considered as a valid contract, unless terminated or voided by the parties to the agreement, where all terms and obligations are in effect, but no credit for reinsurance is permitted to be taken by the ceding insurer. The ceding insurer shall comply with the applicable provisions of law and this regulation before taking any credit for reinsurance in any financial statement for any reinsurance agreement.
A. No insurer subject to this regulation shall, for reinsurance ceded, reduce any liability or establish any asset in any financial statement filed with the Colorado Division of Insurance if, by the terms of the reinsurance agreement, in substance or effect, any of the following conditions exist:
+ Significant 0 Insignificant RISK CATEGORY a b c Health Insurance - other + 0 + than LTC /LTD Health Insurance – + 0 + LTC/LTD Immediate Annuities 0 + 0 Single Premium Deferred 0 0 + Annuities Flexible Premium 0 0 + Deferred Annuities Guaranteed Interest 0 0 0 Contracts Other Annuity Deposit 0 0 + Business Single Premium Whole 0 + + Life Traditional Non-Par 0 + + Permanent Traditional Non-Par Term 0 + + Traditional Par 0 + + Permanent Traditional Par Term 0 + + Adjustable Premium 0 + + Permanent Indeterminate Premium 0 + + Permanent Universal Life Flexible 0 + + Premium Universal Life Fixed 0 + + Premium Universal Life Fixed 0 + + Premium (dump-in premiums allowed)
7.
Rate = 2 * (I + CG) / (X + Y - I – CG)
Where: I is the net investment income as identified in the Annual Statement. CG is capital gains less capital losses as identified in the Annual Statement. X is the current year cash and invested assets plus investment income due and accrued less borrowed money, all as identified in the Annual Statement. Y is the same as X but for the prior year.
B. The following situations require the establishment of additional liabilities or limitations to credits taken by the ceding insurer.
C. Notwithstanding Subsection (5) (A), an insurer subject to this regulation may, with the prior approval of the commissioner, take such credit for reinsurance or establish such asset as the commissioner may deem consistent with Section 10-3-118, C.R.S, regulation 3-3-3 or other actuarial interpretations or standards adopted by the Division.
D.
A. No reinsurance agreement or amendment to any agreement may be used to take any credit for reinsurance in any financial statement filed with the Division, unless the agreement, amendment or a binding letter of intent has been duly executed by both parties no later than the "as of date" of the financial statement.
B. In the case of a letter of intent, a reinsurance agreement or an amendment to a reinsurance agreement must be executed within a reasonable period of time, not exceeding ninety (90) days from the execution date of the letter of intent, in order for credit to be granted for the reinsurance ceded.
C. The reinsurance agreement shall contain provisions that provide that:
Section 7 Existing Agreements Insurers subject to this regulation shall reduce to zero by December 31, 2007 any credit for reinsurance established with respect to reinsurance agreements entered into prior to the effective date of this regulation which, under the provisions of this regulation would not be entitled to recognition of the credit for reinsurance; provided, however, that the reinsurance agreements shall have been in compliance with laws or regulations in existence immediately preceding the effective date of this regulation. Section 8 Filings Per Section 10-3-118 (2), C.R.S., complete copies of all reinsurance contracts and agreements and other information desired shall be filed with the commissioner at the commissioner’s request. Any information requested by the commissioner must be submitted no later than 20 days after receipt of the request. Insurers who fail to submit the requested information may be assessed a penalty up to $100 per day for each day after the date the information is due.
Section 9 Exceptions A. A reinsurance agreement is not required to transfer all contract benefits contained in the underlying business reinsured. Transfer of less than all contract benefits is permitted if the reinsurance agreement is otherwise in compliance with this regulation and the benefits being reinsured: (i) are independent, distinct and severable from the contract benefits not transferred, and (ii) the reserves, and therefore the credit for reinsurance available to be taken by the ceding insurer, for the benefits transferred are independently calculated, distinct and severable from the reserves of the remaining contract benefits not transferred.
B. A ceding insurer, with the prior written approval of the commissioner, may have alternative terms or conditions in a reinsurance agreement, that are not otherwise in compliance with this regulation, if such alternatives are reasonably necessary for the protection of the public and the insured policyholders and substantially comply with the intent and provisions of this regulation. Section 10 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected Section 11 Enforcement Noncompliance with this regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocations of license. Among others, the penalties provided for in Section 10-3-1108, C.R.S. may be applied.
Section 12 Effective Date This regulation is effective January 1, 2007.
Section 13 History This regulation replaces, in part, Regulation 3-3-2.
NEW REGULATION 3-3-5 PROPERTY AND CASUALTY REINSURANCE Agreements Section 1. Authority Section 2. Scope and Purpose Section 3. Applicability Section 4. Definitions Section 5. Accounting Requirements Section 6. Written Agreements Section 7. Existing Agreements Section 8. Filings Section 9. Other Requirements Section 10. Exceptions Section 11. Severability Section 12. Enforcement Section 13. Effective Date Section 14. History Section 1. Authority This regulation is promulgated under the authority of § § 10-1-109(1), 10-3-118(6), 10-3-529(4), 10-6- 129, 8-44-205(a), 24-10-115.5, and 29-13-102, C.R.S.
Section 2. Scope and Purpose A. The Colorado Division of Insurance recognizes that licensed insurers routinely enter into reinsurance agreements for many legitimate purposes. These purposes can include relief to the ceding insurer from strain to surplus, and may legitimately limit the amount of risk transferred from the ceding company to the assuming company.
B. However, it is improper for a licensed insurer to consider any contract as a reinsurance agreement if the principal purpose is not true risk transfer. If, in substance or effect, the expected potential liability of the ceding insurer remains basically unchanged by the reinsurance transaction, notwithstanding certain risk elements in the reinsurance agreement, such as catastrophic loss, the contracts violate:
C. The purpose of this regulation is to establish requirements for acceptable reinsurance agreements to ensure that ceding insurers operate in a sound financial manner, correctly report their financial condition on required financial statements, and properly reduce liabilities or establish assets for reinsurance ceded. These requirements are necessary to protect the ceding insurers’ policy and contract holders and the people of the State of Colorado. Section 3 Applicability This regulation shall apply to all domestic property and casualty insurers; title insurers; captive insurers, Pinnacol Insurance, and pools. However, any accident and health business issued by these insurers is specifically excluded from this regulation, and is, instead, subject to the requirements of Colorado Insurance Regulation 3-3-4.
Section 4 Definitions A. “Annual Statement” means the NAIC convention blank property and casualty financial annual statement.
B. “Credit for reinsurance” means any reduction of liability, establishment or asset or contra-liability, or any combination thereof.
C. “Division” means the Colorado Division of Insurance D. “Financial Statement” means any monthly, quarterly or Annual Statement that is submitted to the Division.
Section 5 Accounting Requirements All ceding insurers are responsible for establishing appropriate statutory gross reserves and reflecting appropriate credit, if any, for reinsurance ceded. A reinsurance agreement that does not comply with this regulation will be considered as a valid contract, unless terminated or voided by the parties to the contract, where all terms and obligations are in effect, but no credit for reinsurance is permitted to be taken by the ceding insurer. The ceding insurer shall comply with the applicable provisions of law and this regulation before taking any credit for reinsurance in any statutory financial statement for any particular reinsurance agreement.
A. The essential element of a reinsurance agreement is the transfer of risk. Unless the agreement contains this essential element of risk transfer, no credit shall be recorded. Therefore, no insurer subject to this regulation shall, for reinsurance ceded, establish any credit for reinsurance in any financial statement filed with the Colorado Division of Insurance if, by the terms of the reinsurance agreement, in substance or effect, any of the following conditions exist:
B. The following situations require the establishment of additional liabilities or limitations to the credit for reinsurance taken by the ceding insurer.
C. Notwithstanding Subsection (5) (A), an insurer subject to this regulation may, with the prior written approval of the commissioner, take such credit for reinsurance as the commissioner may deem consistent with Section 10-3-118, C.R.S, Regulation 3-3-3 or other actuarial interpretations or standards adopted by the Division.
Section 6 Written Agreements The reinsurance agreement shall contain provisions that provide that:
A. The agreement shall constitute the entire contract and agreement between the parties with respect to the business being reinsured thereunder and that there are no understandings between the parties other than as expressed in the agreement; and B. Any change or modification to the agreement shall be null and void unless made by amendment to the agreement and signed by both parties.
C. The dual signature requirement of this section does not apply to facultative reinsurance agreements signed by the reinsurer.
Section 7 Existing Agreements Insurers subject to this regulation shall reduce to zero by December 31, 2007 any credit for reinsurance established with respect to reinsurance agreements entered into prior to the effective date of this regulation which, under the provisions of this regulation would not be entitled to recognition of the credit for reinsurance; provided, however, that the reinsurance agreements shall have been in compliance with laws or regulations in existence immediately preceding the effective date of this regulation. Section 8 Filings Per Section 10-3-118 (2), C.R.S., complete copies of all reinsurance contracts and agreements and other information desired shall be filed with the commissioner at the commissioner’s request. Any information requested by the commissioner must be submitted no later than 20 days after receipt of the request. Insurers who fail to submit the requested information may be assessed a penalty up to $100 per day for each day after the date the information is due.
Section 9 Other requirements All companies subject to this regulation shall provide immediate notification to the commissioner upon the exhausting or impending exhaustion of any reinsurance coverage which is necessary for the ceding insurer to comply with the provisions of Section 10-3-102 (3), C.R.S. or Section 10-11-112, C.R.S. Section 10 Exceptions A. A reinsurance agreement is not required to transfer all contract benefits contained in the underlying business reinsured. Transfer of less than all contract benefits is permitted if the reinsurance contract is otherwise in compliance with this regulation and the benefits being reinsured: (i) are independent, distinct and severable from the contract benefits not transferred, and (ii) the reserves, and therefore the credit for reinsurance available to be taken by the ceding insurer, for the benefits transferred are independently calculated, distinct and severable from the reserves of the remaining contract benefits not transferred.
B. A ceding insurer, with the prior written approval of the Commissioner, may have alternative terms or conditions in a reinsurance agreement, that are not otherwise in compliance with this regulation, if such alternatives are reasonably necessary for the protection of the public and the insured policyholders and substantially comply with the intent and provisions of this regulation. Section 11 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected Section 12 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocations of license. Among others, the penalties provided for in Section 10-3-1108, C.R.S. may be applied.
Section 13. Effective Date This regulation is effective January 1, 2007.
Section 14. History This regulation replaces, in part, Regulation 3-3-2.
Amended Regulation 3-4-1Holding Company System Section 1 Authority Section 2 Background and Purpose Section 3 Definitions Section 4 Forms - General Requirements Section 5 Forms - Incorporation by Reference, Summaries and Omissions Section 6 Forms - Information Unknown or Unavailable and Extension of Time to Furnish Section 7 Forms - Additional Information and Exhibits Section 8 Subsidiaries of Domestic Insurers Section 9 Acquisition of Control - Statement Filing Section 10 Amendments to Form A Section 11 Acquisition of Section 10-3-803(1), C.R.S. Insurers Section 12 Pre-Acquisition Notification Section (Form E) Section 13 Annual Registration of Insurers - Statement Filing Section 14 Summary of Registration - Statement Filing Section 15 Alternative and Consolidated Registrations Section 16 Disclaimers and Termination of Registration Section 17 Transactions Subject to Prior Notice - Notice Filing Section 18 Dividends and Other Distributions Section 19 Adequacy of Surplus Section 20 Severability Section 21 Effective Date Section 22 History Section 1 Authority This regulation is promulgated pursuant to the authority of §§10-1-109(1) & 10-3-808, C.R.S. Section 2 Background And Purpose The purpose of this regulation is to set forth rules and procedural requirements which the Commissioner deems necessary to carry out the provisions of the Insurance Holding Company Systems Act, Part 8 of Article 3 of Title 10 of the Colorado Revised Statutes. The information called for by this regulation is hereby declared to be necessary and appropriate in the public interest and for the protection of the policyholders in this State.
Section 3 Definitions “Executive officer” means chief executive officer, chief operating officer, chief financial officer, treasurer, secretary, controller, and any other individual performing functions corresponding to those performed by the foregoing officers under whatever title.
“Foreign insurer” shall include an alien insurer except where clearly noted otherwise. “Ultimate controlling person” means that person which is not controlled by any other person. Unless the context otherwise requires, other terms found in these regulations and in §10-3-801, C.R.S. are used as defined in the said section. Other nomenclature or terminology is according to the Insurance Code, or industry usage if not defined by the Code.
Section 4 Forms - General Requirements A. Forms A, B, C, D, and E are intended to be guides in the preparation of the statements required by §§10-3-803, 10-3-804, and 10-3-805, C.R.S. They are not intended to be blank forms which are to be filled in. Statements filed shall contain the numbers and captions of all items, but the text of the items may be omitted provided the answers thereto are prepared in such a manner as to indicate clearly the scope and coverage of the items. All instructions, whether appearing under the items of the form or elsewhere therein, are to be omitted. Unless expressly provided otherwise, if any item is inapplicable or the answer thereto is in the negative, an appropriate statement to that effect shall be made.
B. Three complete copies of each Form A statement and one complete copy of Form B, C, D, and E statements including exhibits and all other papers and documents filed as a part thereof, shall be filed with the Commissioner. A copy of Form C shall be filed in each state in which an insurer is authorized to do business, if the Commissioner of that state has notified the insurer of its request in writing, in which case the insurer has ten days from receipt of the notice to file such form. At least one of the copies shall bear an original signature in the manner prescribed on the form. If the signature of any person is affixed pursuant to a power of attorney or other similar authority, a copy of such power of attorney or other authority shall also be filed with the statement.
C. Statements should be prepared on paper 8 1/2“x11” (or 8 1/2“ x 14”) in size and bound. Exhibits and financial statements, unless specifically prepared for the filing, may be submitted in their original size. All copies of any statement, financial statements, or exhibits shall be clear, easily readable and suitable for photocopying. Debits in credit categories and credits in debit categories shall be designated so as to be clearly distinguishable as such on photocopies. Statements shall be in the English language and monetary values shall be stated in United States currency. If any exhibit or other paper or document filed with the statement is in a foreign language, it shall be accompanied by a translation into the English language and any monetary value shown in a foreign currency shall be converted into United States currency.
Section 5 Forms - Incorporation By Reference, Summaries And Omissions A. Information required by any item of Form A, Form B, Form D, or Form E may be incorporated by reference in answer to or partial answer to any other item. Information contained in any financial statement, annual report, proxy statement, statement filed with a governmental authority, or any other document may be incorporated by reference in answer or partial answer to any item of Form A, Form B, Form D, or Form E provided such document or paper is filed as an exhibit to the statement. Excerpts of documents may be filed as exhibits if the documents are extensive. Documents currently on file with the Commissioner which were filed within one years need not be attached as exhibits. References to information contained in exhibits or in documents already on file shall clearly identify the material and shall specifically indicate that such material is to be incorporated by reference in answer to the item. Matter shall not be incorporated by reference in any case where such incorporation would render the statement incomplete, unclear or confusing.
B. Where an item requires a summary or outline of the provisions of any document, only a brief statement shall be made as to the pertinent provisions of the document. In addition to such statement, the summary or outline may incorporate by reference particular parts of any exhibit or document currently on file with the Commissioner which was filed within one year and may be qualified in its entirety by such reference. In any case where two or more documents required to be filed as exhibits are substantially identical in all material respects except as to the parties thereto, the dates of execution, or other details, a copy of only one of such documents need be filed with a schedule identifying the omitted documents and setting forth the material details in which such documents differ from the documents a copy of which is filed. Section 6 Forms-Information Unknown Or Unavailable And Extension Of Time To Furnish A. Information required need be given only insofar as it is known or reasonably available to the person filing the statement. If any required information is unknown and not reasonably available to the person filing, either because the obtaining thereof would involve unreasonable effort or expense, or because it rests peculiarly within the knowledge of another person not affiliated with the person filing, the information may be omitted, subject to the following conditions:
B. If it is impractical to furnish any required information, document or report at the time it is required to be filed, there may be filed with the Commissioner a separate document:
Section 8 Subsidiaries Of Domestic Insurers The authority to invest in subsidiaries under §10-3-802(2), C.R.S. is in addition to any authority to invest in subsidiaries which may be contained in any other provision of the Insurance Code. Section 9 Acquisition Of Control - Statement Filing A person required to file a statement pursuant to §10-3-803, C.R.S. shall furnish the required information on Form A, hereby made a part of this regulation (appendix A). Such person shall also furnish the required information on Form E, hereby made a part of this Regulation (appendix E) and described in Section 12, at least 30 calendar days prior to the Form A filing. A person acquiring control of a foreign insurer licensed in Colorado, where such foreign insurer is subject to substantially the same requirements in its state of domicile as is contained herein, shall file a copy of the approval order issued by the state of domicile.
Notwithstanding the above, the Commissioner may request the complete Form A filing be submitted. Section 10 Amendments To Form A The applicant shall promptly advise the Commissioner of any changes in the information so furnished on Form A arising subsequent to the date upon which such information was furnished but prior to the Commissioner's disposition of the application.
Section 11 Acquisition Of Section 10-3-803(1), C.R.S. Insurers A. If the person being acquired is deemed to be a “domestic insurer” solely because of the provisions of §10-3-803(1), C.R.S., the name of the domestic insurer on the cover page should be indicated as follows:
B. Where a §10-3-803(1), C.R.S. insurer is being acquired, references to “the insurer” contained in Form A shall refer to both the domestic subsidiary insurer and the person being acquired. Section 12 Pre-Acquisition Notification Section (Form E) If a domestic insurer, including any person controlling a domestic insurer, is proposing a merger or acquisition pursuant to §10-3-803, C.R.S., that person shall file a pre-acquisition notification form, Form E, with information regarding market share (appendix E). In addition to the information required by Form E, the Commissioner may require an expert opinion as to the competitive impact of the proposed acquisition.
Section 13 Annual Registration Of Insurers - Statement Filing An insurer required to file a complete annual registration statement pursuant to §10-3-804, C.R.S. shall furnish the required information on Form B, hereby made a part of this regulation (appendix B). This statement shall be filed within one hundred twenty days of the ultimate controlling person's fiscal year end.
An amendment to Form B shall be filed within 15 calendar days after the end of any month in which there is a material change to the information provided in the annual registration statement. Amendments shall be filed in the Form B format with only those items which are being amended reported. Each amendment shall include at the top of the cover page “Amendment No. [insert number] to Form B for [insert year]” and shall indicate the date of the change and not the date of the original filings. Annual registration statements for Colorado domestic companies not received by the required filing date shall be subject to a penalty of up to $100.00 per day. Section 14 Summary Of Registration - Statement Filing An insurer required to file an annual registration statement pursuant to §10-3-804, C.R.S. is also required to furnish information required on Form C, hereby made a part of this regulation (appendix C). An insurer shall file a copy of Form C in each state in which the insurer is authorized to do business, if requested by the Commissioner of that state.
Section 15 Alternative And Consolidated Registrations A. Any authorized insurer may file a registration statement on behalf of any affiliated insurer or insurers which are required to register under §10-3-804, C.R.S. A registration statement may include information not required by the provisions of Part 8 of Article 3 of Title 10, C.R.S. regarding any insurer in the insurance holding company system even if such insurer is not authorized to do business in this State. In lieu of filing a registration statement on Form B, the authorized insurer may file a copy of the registration statement or similar report which it is required to file in its State of domicile, provided:
B. The question of whether the filing insurer is the principal insurance company in the insurance holding company system is a question of fact and an insurer filing a registration statement or report in lieu of Form B on behalf of an affiliated insurer, shall set forth a brief statement of facts which will substantiate the filing insurer's claim that it, in fact, is the principal insurer in the insurance holding company system.
C. With the prior approval of the Commissioner, an unauthorized insurer may follow any of the procedures which could be done by an authorized insurer under paragraph A above.
D. Any insurer may take advantage of the provisions of §10-3-804(6) & (7), C.R.S. without obtaining the prior approval of the Commissioner. The Commissioner, however, reserves the right to require individual filings if he deems such filings necessary in the interest of clarity, ease of administration or the public good.
Section 16 Disclaimers And Termination Of Registration A disclaimer of affiliation or a request for termination of registration claiming that a person does not, or will not upon the taking of some proposed action, control another person (hereinafter referred to as the “subject”) shall contain the following information:
A. Extraordinary Dividends Requests for approval of extraordinary dividends or any other extraordinary distribution to shareholders pursuant to §10-3-805(3), C.R.S., shall be received by the Commissioner at least thirty (30) days prior to the anticipated date of payment and shall include the following:
B. Dividend Distributions by Colorado Domestic Companies Shareholder dividends shall be reported to the Division of Insurance by a domestic insurer as required by §10-3-805(4.5), C.R.S., on a form prescribed by the Commissioner. The form may require such information as to allow the Division to make the determinations required under §10-3-805(4.5), C.R.S. Section 19 Adequacy Of Surplus The factors set forth in §10-3-805(2), C.R.S. are not intended to be an exhaustive list. In determining the adequacy and reasonableness of an insurer's surplus no single factor is necessarily controlling. The Commissioner, instead, will consider the net effect of all of these factors plus other factors bearing on the financial condition of the insurer. In comparing the surplus maintained by other insurers, the Commissioner will consider the extent to which each of these factors varies from company to company and in determining the quality and liquidity of investments in subsidiaries, the Commissioner will consider the individual subsidiary and may discount or disallow its valuation to the extent that the individual investments so warrant.
Dividend distributions will generally not be approved if the remaining surplus would result in a level which is less than 150% of the Company Action Level risk-based capital calculation. Section 20 Severability If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby. Section 21 Effective Date This amended regulation shall be effective on April 1, 2001. Section 22 History Amended, effective April 30, 1995.
Amended, effective April 1, 2001.
APPENDIX A FORM ASTATEMENT REGARDING THE ACQUISITION OF CONTROL OF OR MERGER WITH A DOMESTIC INSURER Name of Domestic Insurer BY Name of Acquiring Person (Applicant)
Dated: _________________________, _________________________ Name, Title, address and telephone number of Individual to Whom Notices and Correspondence Concerning this Statement Should be Addressed:
ITEM 2. IDENTITY AND BACKGROUND OF THE APPLICANT (a) State the name and address of the applicant seeking to acquire control over the insurer.
(b) If the applicant is not an individual, state the nature of its business operations for the past five years or for such lesser period as such person and any predecessors thereof shall have been in existence. Briefly describe the business intended to be done by the applicant and the applicant's subsidiaries.
(c) Furnish a chart or listing clearly presenting the identities of the inter-relationships among the applicant and all affiliates of the applicant. No affiliate need be identified if its total assets are equal to less than 1/2 of 1% of the total assets of the ultimate controlling person affiliated with the applicant. Indicate in such chart or listing the percentage of voting securities of each such person which is owned or controlled by the applicant or by any other such person. If control of any person is maintained other than by the ownership or control of voting securities, indicate the basis of such control. As to each person specified in such chart or listing indicate the type of organization (e.g. corporation, trust, partnership) and the state or other jurisdiction of domicile. If court proceedings involving a reorganization or liquidation are pending with respect to any such person, indicate which person, and set forth the title of the court, nature of proceedings and the date when commenced.
ITEM 3. IDENTITY AND BACKGROUND OF INDIVIDUALS ASSOCIATED WITH THE APPLICANT State the following with respect to (1) the applicant if (s)he is an individual or (2) all persons who are directors, executive officers or owners of 10% or more of the voting securities of the applicant if the applicant is not an individual.
(a) Name and business address;
(b) Present principal business activity, occupation or employment including position and office held and the name, principal business and address of any corporation or other organization in which such employment is carried on;
(c) Material occupations, positions, offices or employment during the last five years, giving the starting and ending dates of each and the name, principal business and address of any business corporation or other organization in which each such occupation, position, office or employment was carried on; if any such occupation, position, office or employment required licensing by or registration with any federal, state or municipal governmental agency, indicate such fact, the current status of such licensing or registration, and an explanation of any surrender, revocation, suspension or disciplinary proceedings in connection therewith.
(d) Whether or not such person has ever been convicted in a criminal proceeding (excluding minor traffic violations) during the last ten years and, if so, give the date, nature of conviction, name and location of court, and penalty imposed or other disposition of the case. Such biographical information shall be furnished on the NAIC biographical affidavit form (available upon request). A full fingerprint set for each person shall accompany each such form. ITEM 4. NATURE, SOURCE AND AMOUNT OF CONSIDERATION (a) Describe the nature, source and amount of funds or other considerations used or to be used in effecting the merger or other acquisition of control. If any part of the same is represented or is to be represented by funds or other consideration borrowed or otherwise obtained for the purpose of acquiring, holding or trading securities, furnish a description of the transaction, the names of the parties thereto, the relationship, if any, between the borrower and the lender, the amounts borrowed or to be borrowed, and copies of all agreements, promissory notes and security arrangements relating thereto.
(b) Explain the criteria used in determining the nature and amount of such consideration.
(c) If the source of the consideration is a loan made in the lender's ordinary course of business and if the applicant wishes the identity of the lender to remain confidential, he must specifically request that the identity be kept confidential.
ITEM 5. FUTURE PLANS OF INSURER Describe any plans or proposals which the applicant may have to declare an extraordinary dividend, to liquidate such insurer, to sell its assets to or merge it with any person or persons or to make any other material change in its business operations or corporate structure or management. ITEM 6. VOTING SECURITIES TO BE ACQUIRED State the number of shares of the insurer's voting securities which the applicant, its affiliates and any person listed in Item 3 plan to acquire, and the terms of the offer, request, invitation, agreement or acquisition, and a statement as to the method by which the fairness of the proposal was arrived at. ITEM 7. OWNERSHIP OF VOTING SECURITIES State the amount of each class of any voting security of the insurer which is beneficially owned or concerning which there is a right to acquire beneficial ownership by the applicant, its affiliates or any person listed in Item 3.
ITEM 8. CONTRACTS, ARRANGEMENTS, OR UNDERSTANDINGS WITH RESPECT TO VOTING SECURITIES OF THE INSURER Give a full description of any contracts, arrangements or understandings with respect to any voting security of the insurer in which the applicant, its affiliates or any person listed in Item 3 is involved, including but not limited to transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or guarantees of profits, division of losses or profits, or the giving or withholding of proxies. Such description shall identify the persons with whom such contracts, arrangements or understandings have been entered into. ITEM 9. RECENT PURCHASES OF VOTING SECURITIES Describe any purchases of any voting securities of the insurer by the applicant, its affiliates or any person listed in Item 3 during the 12 calendar months preceding the filing of this Statement. Include in such description the dates of purchase, the names of the purchasers, and the consideration paid or agreed to be paid therefore. State whether any such shares so purchased are hypothecated. ITEM 10. RECENT RECOMMENDATIONS TO PURCHASE Describe any recommendations to purchase any voting security of the insurer made by the applicant, its affiliates or any person listed in Item 3, or by anyone based upon interviews or at the suggestion of the applicant, its affiliates or any person listed in Item 3 during the 12 calendar months preceding the filing of this statement.
ITEM 11. AGREEMENTS WITH BROKER-DEALERS Describe the terms of any agreement, contract or understanding made with any broker-dealer as to solicitation of voting securities of the insurer for tender and the amount of any fees, commissions or other compensation to be paid to broker-dealers with regard thereto. ITEM 12. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements and exhibits shall be attached to this statement as an appendix, but list under this item the financial statements and exhibits so attached.
(b) The financial statements shall include the annual financial statements of the persons identified in Item 2(c) for the preceding five fiscal years (or for such lesser period as such applicant and its affiliates and any predecessors thereof shall have been in existence), and similar information covering the period from the end of such person's last fiscal year, if such information is available. Such statements may be prepared on either an individual basis, or, unless the Commissioner otherwise requires, on a consolidated basis if such consolidated statements are prepared in the usual course of business. The annual financial statements of the applicant shall be accompanied by the certificate of an independent certified public accountant to the effect that such statements present fairly the financial position of the applicant and the results of its operations for the year then ended, in conformity with generally accepted accounting principles or with requirements of insurance or other accounting principles prescribed or permitted under law. If the applicant is an insurer which is actively engaged in the business of insurance, the financial statements need not be certified, provided they are based on the Annual Statement of such person filed with the insurance department of the person's domiciliary state and are in accordance with the requirements of insurance or other accounting principles prescribed or permitted under the law and regulations of such state.
(c) File as exhibits copies of all tender offers for, requests or invitations for, tenders of, exchange offers for, and agreements to acquire or exchange any voting securities of the insurer and (if distributed) of additional soliciting material relating thereto, any proposed employment, consultation, advisory or management contracts concerning the insurer, annual reports to the stockholders of the insurer and the applicant for the last two fiscal years, and any additional documents or papers required by Form A or by this sections Regulation 4 and 6.
ITEM 13. SIGNATURE AND CERTIFICATION Signature and certification required as follows:
SIGNATURE Pursuant to the requirements of Section 10-3-803, C.R.S. has caused this application to be duly signed on its behalf in the City of and State of on the _________________________ day of _________________________, 20 _________________________. (SEAL)
Name of Applicant BY (Name) (Title)
Attest:
(Signature of Officer)
(Title)
CERTIFICATION The undersigned deposes and says that (s)he has duly executed the attached application dated _________________________, 20_________________________, for and on behalf of _________________________; that (s)he is the_(Name of Applicant) (Title of Officer) of such company and that (s)he is authorized to execute and file such instrument. Deponent further says that (s)he is familiar with such instrument and the contents thereof, and that the facts therein set forth are true to the best of his/her knowledge, information and belief.
(Signature)
(Type or print name beneath)
APPENDIX B FORM B INSURANCE HOLDING COMPANY SYSTEM ANNUAL REGISTRATION STATEMENT Filed with the Insurance Department of the State of By Name of Registrant On Behalf of Following Insurance Companies Name Address Date: _________________________, 20_________________________ Name, Title, Address and telephone number of Individual to Whom Notices and Correspondence Concerning This Statement Should Be Addressed:
ITEM 1. IDENTITY AND CONTROL OF REGISTRANT Furnish the exact name of each insurer registering or being registered (hereinafter called “the Registrant”), the home office address and principal executive offices of each: the date on which each Registrant became part of the insurance holding company system; and the method(s) by which control of each Registrant was acquired and is maintained.
ITEM 2. ORGANIZATIONAL CHART Furnish a chart or listing clearly presenting the identities of and interrelationships among all affiliated persons within the insurance holding company system. No affiliate need be shown if its total assets are equal to less than 1/2 of 1% of the total assets of the ultimate controlling person within the insurance holding company system unless it has assets valued at or exceeding S1,000,000. The chart or listing should show the percentage of each class of voting securities of each affiliate which is owned, directly or indirectly, by another affiliate. If control of any person within the system is maintained other than by the ownership or control of voting securities, indicate the basis of such control. As to each person specified in such chart or listing indicate the type of organization (e.g., corporation, trust, partnership) and the state or other jurisdiction of domicile.
ITEM 3. THE ULTIMATE CONTROLLING PERSON As to the ultimate controlling person in the insurance holding company system furnish the following information:
(a) Name.
(b) Home office address.
(c) Principal executive office address.
(d) The organizational structure of the person, i.e., corporation, partnership, individual, trust, etc.
(e) The principal business of the person.
(f) The name and address of any person who holds or owns 10% or more of any class of voting security, the class of such security, the number of shares held of record or known to be beneficially owned, and the percentage of class so held or owned.
(g) If court proceedings involving a reorganization or liquidation are pending, indicate the title and location of the court, the nature of proceedings and the date when commenced. ITEM 4. BIOGRAPHICAL INFORMATION Furnish the following information, on the NAIC biographical affidavit form (form available upon request), for the directors and executive officers of the ultimate controlling person: the individual's name and address, his or her principal occupation and all offices and positions held during the past five years, and any conviction of crimes other than minor traffic violations during the past ten years. ITEM 5. TRANSACTIONS AND AGREEMENTS Briefly describe the following agreements in force, and transactions currently outstanding or which have occurred during the last calendar year between the Registrant and its affiliates:
(1) loans, other investments, or purchases, sales or exchanges of securities of the affiliates by the Registrant or of the Registrant by its affiliates;
(2) purchases, sales or exchanges of assets;
(3) transactions not in the ordinary course of business;
(4) guarantees or undertakings for the benefit of an affiliate which result in an actual contingent exposure of the Registrant's assets to liability, other than insurance contracts entered into in the ordinary course of the Registrant's business;
(5) all management agreements, service contracts and all cost-sharing arrangements;
(6) reinsurance agreements;
(7) dividends and other distributions to shareholders;
(8) consolidated tax allocation agreements; and (9) any pledge of the Registrant's stock and/or of the stock of any subsidiary or controlling affiliate, for a loan made to any member of the insurance holding company system. No information need be disclosed if such information is not material for purposes of §10-3-804, C.R.S. Sales, purchases, exchanges, loans or extensions of credit, investments or guarantees involving one-half of 1% or less of the Registrant's admitted assets as of the 31st day of December next preceding shall not be deemed material. (Note: Commissioner may by rule, regulation or order provide otherwise).
(a) Criminal prosecutions or administrative proceedings by any government agency or authority which may be relevant to the trustworthiness of any party thereto; and (b) Proceedings which may have a material effect upon the solvency or capital structure of the ultimate holding company including, but not necessarily limited to, bankruptcy, receivership or other corporate reorganizations.
ITEM 7. STATEMENT REGARDING PLAN OR SERIES OF TRANSACTIONS The insurer shall furnish a statement that transactions entered into since the filing of the prior year's annual registration statement are not part of a plan or series of like transactions, the purpose of which is to avoid statutory threshold amounts and the review that might otherwise occur. ITEM 8. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements and exhibits should be attached to this statement as an appendix, but list under this item the financial statements and exhibits so attached.
(b) The financial statements shall include the annual financial statements of the ultimate controlling person in the insurance holding company system as of the end of the person's latest fiscal year. If at the time of the initial registration, the annual financial statements for the latest fiscal year are not available, annual statements for the previous fiscal year may be filed, along with similar financial information for the subsequent period. Such financial statements may be prepared on either an individual basis, or unless the Commissioner otherwise requires, on a consolidated basis if such consolidated statements are prepared in the usual course of business. Unless the Commissioner otherwise permits, the annual financial statements shall be accompanied by the certificate of an independent certified public accountant to the effect that such statements present fairly the financial position of the ultimate controlling person and the results of its operations for the year then ended, in conformity with generally accepted accounting principles or with requirements of insurance or other accounting principles prescribed or permitted under law. If the ultimate controlling person is an insurer which is actively engaged in the business of insurance, the annual financial statements need not be certified, provided they are based on the Annual Statement of such insurer filed with the insurance department of the insurer's domiciliary State and are in accordance with requirements of insurance or other accounting principles prescribed or permitted under the law and regulations of such state.
(c) Exhibits shall include copies of the latest annual reports to shareholders of the ultimate controlling person and proxy material used by the ultimate controlling person; and any additional documents or papers required by Form B or this Regulation.
ITEM 9. FORM C REQUIRED A Form C, Summary of Registration Statement, must be prepared and filed with this Form B. ITEM 10. SIGNATURE AND CERTIFICATION Signature and certification required as follows:
SIGNATURE Pursuant to the requirements of Section 10-3-804, C.R.S., the Registrant has caused this annual registration statement to be duly signed on its behalf in the City of and State of on the _________________________ day of _________________________, 20_________________________ (SEAL)
Name of Registrant BY (Name) (Title)
Attest:
(Signature of Officer)
(Title)
CERTIFICATION The undersigned deposes and says that (s)he has duly executed the attached application dated _________________________, 20_________________________, for and on behalf of _________________________; that (s)he is the (Name of Company) (Title of Officer) of such company and that (s)he is authorized to execute and file such instrument. Deponent further says that (s)he is familiar with such instrument and the contents thereof, and that the facts therein set forth are true to the best of his/her knowledge, information and belief.
(Signature)
(Type or print name beneath)
APPENDIX C FORM C SUMMARY OF REGISTRATION STATEMENT Filed with the Insurance Department of the State of By Name of Registrant On Behalf of Following Insurance Companies Name Address Date: _________________________, 20_________________________ Name, Title, Address and telephone number of Individual to Whom Notices and Correspondence Concerning This Statement Should Be Addressed:
Furnish a brief description of all items in the current annual registration statement which represent changes from the prior year's annual registration statement. The description shall be in a manner as to permit the proper evaluation thereof by the Commissioner, and shall include specific references to Item numbers in the annual registration statement and to the terms contained therein. Changes occurring under Item 2 of Form B insofar as changes in the percentage of each class of voting securities held by each affiliate is concerned, need only be included where such changes are ones which result in ownership or holdings of 10 percent or more of voting securities, loss or transfer of control, or acquisition or loss of partnership interest.
Changes occurring under Item 4 of Form B need only be included where: an individual is, for the first time, made a director or executive officer of the ultimate controlling person; a director or executive officer terminates his or her responsibilities with the ultimate controlling person; or in the event an individual is named president of the ultimate controlling person.
If a transaction disclosed on the prior year's annual registration statement has been changed, the nature of such change shall be included. If a transaction disclosed on the prior year's annual registration statement has been effectuated, furnish the mode of completion and any flow of funds between affiliates resulting from the transaction.
The insurer shall furnish a statement that transactions entered into since the filing of the prior year's annual registration statement are not part of a plan or series of like transactions whose purpose it is to avoid statutory threshold amounts and the review that might otherwise occur. SIGNATURE AND CERTIFICATION Signature and certification required as follows:
SIGNATURE Pursuant to the requirements of Section 10-3-804, C.R.S., the Registrant has caused this summary of registration statement to be duly signed on its behalf in the City of and State of on the _________________________ day of _________________________, 20_________________________.
(SEAL)
Name of Registrant BY (Name) (Title)
Attest:
(Signature of Officer)
(Title)
CERTIFICATION The undersigned deposes and says that (s)he has duly executed the attached application dated _________________________, 20_________________________, for and on behalf of _________________________; that (s)he is the (Name of Company) (Title of Officer) of such company and that (s)he is authorized to execute and file such instrument. Deponent further says that (s)he is familiar with such instrument and the contents thereof, and that the facts therein set forth are true to the best of his/her knowledge, information and belief.
(Signature)
(Type or print name beneath)
APPENDIX D FORM D PRIOR NOTICE OF A TRANSACTION Filed with the Insurance Department of the State of By Name of Registrant On Behalf of Following Insurance Companies Name Address Date: _________________________, 20_________________________ Name, Title, Address and telephone number of Individual to Whom Notices and Correspondence Concerning This Statement Should Be Addressed:
ITEM 1. IDENTITY OF PARTIES TO TRANSACTION Furnish the following information for each of the parties to the transaction:
(a) Name.
(b) Home office address.
(c) Principal executive office address.
(d) The organizational structure, i.e. corporation, partnership, individual, trust, etc.
(e) A description of the nature of the parties' business operations.
(f) Relationship, if any, of other parties to the transaction to the insurer filing the notice, including any ownership or debtor/creditor interest by any other parties to the transaction in the insurer seeking approval, or by the insurer filing the notice in the affiliated parties.
(g) Where the transaction is with a non-affiliate, the name(s) of the affiliate(s) which will receive, in whole or in substantial part, the proceeds of the transaction. ITEM 2. DESCRIPTION OF THE TRANSACTION Furnish the following information for each transaction for which notice is being given:
(a) A statement as to whether notice is being given under §10-3-805(4)(a), C.R.S.
(b) A statement of the nature of the transaction.
(c) The proposed effective date of the transaction.
ITEM 3. SALES, PURCHASES, EXCHANGES, LOANS, EXTENSIONS OF CREDIT, GUARANTEES OR INVESTMENTS Furnish a brief description of the amount and source of funds, securities, property or other consideration for the sale, purchase, exchange, loan, extension of credit, guarantee, or investment, whether any provision exists for purchase by the insurer filing notice, by any party to the transaction, or by any affiliate of the insurer filing notice, a description of the terms of any securities being received, if any and a description of any other agreements relating to the transaction such as contracts or agreements for services, consulting agreements and the like. If the transaction involves other than cash, furnish a description of the consideration, its cost and its fair market value, together with an explanation of the basis for evaluation.
If the transaction involves a loan, extension of credit or a guarantee, furnish a description of the maximum amount which the insurer will be obligated to make available under such loan, extension of credit or guarantee, the date on which the credit or guarantee will terminate, and any provisions for the accrual of or deferral of interest.
If the transaction involves an investment, guarantee or other arrangement, state the time period during which the investment, guarantee or other arrangement will remain in effect, together with any provisions for extensions or renewals of such investments, guarantees or arrangements. Furnish a brief statement as to the effect of the transaction upon the insurer's surplus. No notice need be given if the maximum amount which can at any time be outstanding or for which the insurer can be legally obligated under the loan, extension of credit or guarantee is less than, (a) in the case of non-life insurers, the lesser of 3% of the insurer's admitted assets or 25% of surplus as regards policyholders or, (b) in the case of life insurers, 3% of the insurer's admitted assets, each as of the 31st day of December next preceding.
ITEM 4. LOANS OR EXTENSIONS OF CREDIT TO A NON-AFFILIATE If the transaction involves a loan or extension of credit to any person who is not an affiliate, furnish a brief description of the agreement or understanding whereby the proceeds of the proposed transaction, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase the assets of, or to make investments in, any affiliate of the insurer making such loans or extensions of credit, and specify in what manner the proceeds are to be used to loan to, extend credit to, purchase assets of or make investments in any affiliate. Describe the amount and source of duns, securities, property or other consideration for the loan or extension of credit and, if the transaction is one involving consideration other than cash, a description of its cost and its fair market value together with an explanation of the basis for evaluation. Furnish a brief statement as to the effect of the transaction upon the insurer's surplus. No notice need be given if the loan or extension of credit is one which equals less than, in the case of non-life insurers, the lesser of 3% of the insurer's admitted assets or 25% of surplus as regards policyholders or, with respect to life insurers, 3% of the insurer's admitted assets, each as of the 31st day of December next preceding.
ITEM 5. REINSURANCE If the transaction is a reinsurance agreement or modification thereto, as described by §10-3-805(4)(a)(III), C.R.S., furnish a description of the known and/or estimated amount of liability to be ceded and/or assumed in each calendar year, the period of time during which the agreement will be in effect, and a statement whether an agreement or understanding exists between the insurer and non-affiliate to the effect that any portion of the assets constituting the consideration for the agreement will be transferred to one or more of the insurer's affiliates. Furnish a brief description of the consideration involved in the transaction, and a brief statement as to the effect of the transaction upon the insurer's surplus. No notice need be given for reinsurance agreements or modifications thereto if the reinsurance premium or a change in the insurer's liabilities in connection with the reinsurance agreement or modification thereto is less than 5% of the insurer's surplus as regards policyholders, as of the 31st day of December next preceding.
ITEM 6. MANAGEMENT AGREEMENTS, SERVICE AGREEMENTS AND COST-SHARING ARRANGEMENTS For management and service agreements, furnish:
(a) a brief description of the managerial responsibilities, or services to be performed.
(b) a brief description of the agreement, including a statement of its duration, together with brief descriptions of the basis for compensation and the terms under which payment or compensation is to be made.
For cost-sharing arrangements, furnish:
(a) a brief description of the purpose of the agreement.
(b) a description of the period of time during which the agreement is to be in effect.
(c) a brief description of each party's expenses or costs covered by the agreement.
(d) a brief description of the accounting basis to be used in calculating each party's costs under the agreement.
ITEM 7. SIGNATURE AND CERTIFICATION Signature and certification required as follows:
SIGNATURE Pursuant to the requirements of Section 10-3-805, C.R.S., has caused this notice to be duly signed on its behalf in the City of and State of on the _________________________ day of _________________________, 20_________________________. (SEAL)
Name of Applicant BY (Name) (Title)
Attest:
(Signature of Officer)
(Title)
CERTIFICATION The undersigned deposes and says that (s)he has duly executed the attached application dated _________________________, 20_________________________, for and on behalf of _________________________; that (s)he is the (Name of Applicant) (Title of Officer) of such company and that (s)he is authorized to execute and file such instrument. Deponent further says that (s)he is familiar with such instrument and the contents thereof, and that the facts therein set forth are true to the best of his/her knowledge, information and belief.
(Signature)
(Type or print name beneath)
APPENDIX E FORM E PRE-NOTIFICATION FORM REGARDING THE POTENTIAL COMPETITIVE IMPACT OF A PROPOSED MERGER OR ACQUISITION BY A DOMESTIC INSURER Name of Applicant Name of Other Person Involved in Merger or Acquisition Filed with the Insurance Department of _________________________ Dated: _________________________, 20_________________________ Name, title, address and telephone number person completing this statement: _________________________ _________________________ _________________________ _________________________ ITEM 1. NAME AND ADDRESS State the names and addresses of the persons who hereby provide notice of their involvement in a pending acquisition or change in corporate control.
ITEM 2. NAMES AND ADDRESSES OF AFFILIATED COMPANIES State the names and addresses of the persons affiliated with those listed in Item 1. Describe their affiliations.
ITEM 3. NATURE AND PURPOSE OF THE PROPOSED MERGER OR ACQUISITION State the nature and purpose of the proposed merger or acquisition. ITEM 4. NATURE OF BUSINESS State the nature of the business performed by each of the persons identified in response to Item 1 and Item 2.
ITEM 5. MARKET AND MARKET SHARE State specifically what market and market share in each relevant insurance market the persons identified in Item 1 and Item 2 currently enjoy in this state. Provide historical market and market share data for each person identified in Item 1 and Item 2 for the past five years and identify the source of such data. For purposes of this question, market means direct written insurance premium in this state for a line of business as contained in the annual statement required to be filed by insurers licensed to do business in this state.
ITEM 6. SIGNATURE AND CERTIFICATION Signature and certification required as follows:
SIGNATURE Pursuant to the requirements of Section 10-3-803, C.R.S. has caused this application to be duly signed on its behalf in the City of and State of on the _________________________ day of _________________________, 20 _________________________. (SEAL)
Name of Applicant BY (Name) (Title)
Attest:
(Signature of Officer)
(Title)
CERTIFICATION The undersigned deposes and says that (s)he has duly executed the attached application dated _________________________, 20_________________________, for and on behalf of _________________________; that (s)he is the (Name of Applicant) (Title of Officer) of such company and that (s)he is authorized to execute and file such instrument. Deponent further says that (s)he is familiar with such instrument and the contents thereof, and that the facts therein set forth are true to the best of his/her knowledge, information and belief.
(Signature)
(Type or print name beneath)
REPEALED AND REPROMULGATED in full REGULATION 3-5-1 TITLE INSURANCE Section 1. Authority Section 2. Scope and Purpose Section 3. Applicability Section 4. Definitions Section 5. Rules Regarding Rates and Fees Section 6. Rules Regarding Standards of Conduct for Title Insurance Entities Section 7. Rules Regarding Consumer Protections Section 8. Rules Regarding Agent Licensing Section 9. Rules Regarding Fiduciary Duties Section 10. Enforcement Section 11. Severability Section 12. Incorporated Materials Section 13. Effective Date Section 14. History Appendix A Good Funds Agreement Section 1 Authority This regulation is promulgated pursuant to the authority of § § 10-1-109, 10-3-1110, 10-11-124 (2) and 10C.R.S.
Section 2 Scope and Purpose The purposes of this regulation are: (1) to interpret and implement the title insurance code found in article 11 of title 10 of the Colorado Revised Statutes; (2) to promote the public welfare by proscribing practices which, if not proscribed, could result in excessive rates for title insurance, and which practices, if not proscribed, could allow unlawful inducements, deceptive trade practices, and discriminatory acts, all of which are detrimental to the consumer and, in the aggregate, may threaten the solvency of title insurance companies and title insurance agents; and (3) to ensure to the consumers the benefits of competition in the area of title insurance.
A policy of title insurance is issued in the majority of real estate transactions in Colorado. In most instances the selection of a title entity (as defined in this regulation) is generally not made on the basis of consumer comparison shopping for title insurance. Instead, the title entity is recommended by a real estate broker or agent, escrow agent, lawyer, builder, developer, or lender. Thus, the competition for title insurance business may not be at the level of the ultimate consumer of the product or service, but may instead be at the level of the settlement producer, as defined in this regulation. Further, unlike casualty insurance, which offers protection against a future risk of loss, title insurance protects against losses resulting from encumbrances or defects ascertainable at the time a title policy issues. Increasing the consumer's understanding of the nature of the title insurance product is difficult. The consumer lacks the time and economic incentive to become informed in this area. The factors above may cause the consumer to be vulnerable to excessive rates. This regulation addresses the issues above. Its purpose is protecting the consumer, and to ensure that the title industry is freely and fairly competitive and provides valuable products and services to consumers at reasonable rates.
Section 3 Applicability This regulation governs title entities and is not intended to extend the regulatory authority of the Division to any person other than title entities or persons transacting the business of title insurance. Section 4 Definitions A. "Affiliate” means a person who directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with a title entity.
B. “Affiliated business arrangements” shall have the same meaning as set forth in § 10-11-102 (1), C.R.S. Affiliated business arrangements are distinct from controlled business arrangements, which are defined by § 10-2-401(4), C.R.S.
C. "Associate" shall have the same meaning as set forth in § 10-11-102 (2.5), C.R.S.
D. “Available for immediate withdrawal as a matter of right” has the same meaning as in § 38C.R.S.
E. “Closing agent” means any and all persons contracted to perform closing and settlement services on behalf of a title entity.
F. “Core title services” shall have the same meaning as set forth in the United States Department of Housing and Urban Development (HUD) RESPA Statement of Policy 1996-4.
G. “Farm package” means a compilation of information pertaining to ownership and characteristics of property within a specific geographic area provided in any format, e.g., labels, envelopes, postcards and/or electronic media. Farm package materials generally include, but are not limited to, names and addresses, profiles, property characteristics, demographic information, and/or census information. Ownership and encumbrance reports as defined in this regulation shall not be construed as farm packages.
H. “Fee” means, for purposes of complying with § 10-11-118, C.R.S. and this regulation only, the price other than the Rates (see subparagraph L below) assessed to a consumer by a title entity in rendering services pursuant to the business of title insurance as defined in § 10-11-102, C.R.S.
I. "Financial institution" has the same meaning as set forth in § 38-35-125, C.R.S.
J. “Ownership and encumbrance report” (“O&E” ) means information identifying the last recorded owner, legal description and recorded deed of trust or mortgage of a particular real property address available from public records. An ownership and encumbrance report does not include additional information, including but not limited to, judgments, tax liens or encumbrances other than a deed of trust or mortgage.
K. “Person” has the same meaning as that in § 10-2-103(8), C.R.S.
L. “Rate” , for purposes of complying with § 10-11-118, C.R.S. and this regulation, means expenses as defined in § 10-4-402(1.5), C.R.S., together with the pure premium rate as defined in § 10C.R.S. and includes production expenses and commissions, and in accordance with § 10-4- 403, C.R.S.
M. “Settlement producer” shall have the same meaning as set forth in § 10-11-102 (6.5), C.R.S., and does not include insurance producers as defined in § 10-2-103 (6), C.R.S.
N. “Title insurance agent” shall have the same meaning as in § 10-11-102(9), C.R.S.
O. "Title insurance company” shall have the same meaning as in § 10-11-102(10), C.R.S.
P. "Title entity" means title insurance agents, title insurance agencies and title insurance companies. Section 5. Rules Regarding Rates And Fees A. Every title entity shall make readily available for inspection by the public a schedule of effective rates and fees and applicable rules for regularly issued title insurance policies and regularly imposed closing and settlement charges, including endorsements, guarantees and other forms of insurance coverages. Either the schedule or a notice explaining the schedules’ availability shall be displayed in a public place in the title entity’s offices. Copies of such schedules shall be furnished to the public upon request. The title entity may impose a reasonable charge for the copies and shall provide the copies within a reasonable time.
B. The title entity may charge additional fees when unusual conditions are encountered, special or unusual risks are insured against and for special services rendered in connection with the issuance of a title policy and/or closing and settlement services. If additional fees are charged the title entity shall, in its rate schedule, disclose the terms and conditions for imposing said additional fees.
C. Title entities may adopt different rates, fees, or rules for title policies and/or closing and settlement services covering property in different counties, and shall include the effective date of the rates, fees or rules in the schedule.
D. No rate or fee can be charged unless it is on the currently effective schedule at the time that the commitment and/or policy or closing and settlement service is contracted. Title insurance companies may not use different rates for different title insurance agents for the same risk in the same county.
E. Schedules shall not apply to title commitments and/or policies or closing and settlement services contracted for prior to the effective date of such schedule.
F. No title entity shall quote any rate or fee or closing and settlement service charge to any person which is more or less than that currently available to others for the same type of title policy or service in a like amount, covering property in the same county and involving the same factors as set forth in its then current schedule of rates and fees.
G. Requirements and prohibitions contained in this Section 5 shall not apply to title insurance companies to the extent that closing and settlement services provided by a title insurance agent fall outside the scope of a title insurance company’s agency agreement with said title insurance agent. Section 6. Rules Regarding Standards Of Conduct For Title Insurance Entities In addition to any and all acts which may be proscribed elsewhere in Title 10, no title entity shall pay, furnish, or agree to pay or furnish, either directly or indirectly, or through affiliates or associates, any commission or any part of the fees or charges or remuneration in any form, in connection with any past, present, or future title insurance business, any closing and settlement services or any other title insurance business except for services actually rendered, as defined in § 10-11-108(1)(d) and (2), C.R.S., to or on behalf of any of the following:
- Any settlement producer;
- Any owner or prospective owner, lessee or prospective lessee of real property or any interest in the real property;
- Any obligee or prospective obligee of any obligation secured or to be secured either in whole or in part by real property or any interest in the real property; or, - Any person who is acting as or who is in the business of acting as agent, representative, attorney or employee of any of the persons described in 1, 2 or 3 above, or any other party to the instant transaction.
The factors the Division will consider when determining whether remuneration for the referral of title insurance business exists or will exist, include, but are not limited to: - whether the costs of any settlement producer is being or will be defrayed by the title entity’s actions; - whether the remuneration is being or will be given to a discrete settlement producer as opposed to a bona fide association of settlement producers;
- whether a pattern or practice of referrals to the title entity exists or will exist; and - consideration of the advertising value of the remuneration to the title entity. While it is expressly recognized that advertising, marketing, or maintenance and development of client relationships are bona fide business practices, Colorado law prohibits such expenditures when they are remuneration for the referral of title insurance business.
A. The following is a partial, but not all-inclusive, list of acts and practices which the Division considers per se unlawful inducements proscribed by § 10-11-108, C.R.S.:
B. Affiliated Business Arrangements:
e . Arrangements in which no formal business plan is developed and/or the formation of such arrangement is designed to obscure kickbacks in the form of dividends or other considerations and not for a bona fide business reason.
In determining whether or not an individual is an employee of the title entity, the Division may consider the following factors:
C. The following is a partial, but not all-inclusive, list of acts and practices rendered by title entities which the Division does not consider to be per se unlawful inducements proscribed by § 10C.R.S., to the extent the activities and information are provided on a non-discriminatory basis, that such acts and practices have not been provided in a manner to circumvent the intent of this regulation, and are in no way conditioned, directly or indirectly, upon referrals:
Section 7. Rules Regarding Consumer Protections A. In addition to meeting the standards set forth in Section 6 Paragraph B, an affiliated business arrangement shall comply with the disclosure requirements of § 10-11-124 (1) (b), C.R.S. Such disclosure shall be in accordance with the “Real Estate Settlement Procedures Act” , 12 U.S.C.
B. Every title entity shall ensure that the title commitment, as may be amended or modified, fully discloses to all recipients of any title insurance commitment the impairments of record concerning the property to be insured, the extent of coverage proposed, all proposed title exceptions, and in a clear and conspicuous manner, shall show whether the title insurance commitment does or does not commit to insure over or delete those exceptions to title specified therein, consistent with § 10-11-106, C.R.S.
C. Whenever a title entity provides the closing and settlement service that is in conjunction with its issuance of an owners policy of title insurance, it shall update the title insurance commitment from the date of its issuance to as reasonably close to the time of closing as permitted by the applicable county real estate records, which update shall include all impairments of record at the time of closing or as close thereto as permitted by the applicable county real estate records, and the title insurance company shall be responsible to the proposed insured(s) subject to the terms and conditions of the title insurance commitment, other than the effective date of the title insurance commitment, for all undisclosed matters which appear of record prior to the time of closing.
D As soon as reasonably practical prior to closing, every title entity shall notify in writing every prospective insured under an owner’s title insurance commitment the circumstances under which the title insurance company is responsible for all matters which appear of record prior to the time of recording (commonly referred to as “Gap Coverage” ). This notice shall be clear and conspicuous, reasonably understandable, and designed to call attention to its nature and significance.
E. Every title insurance company shall be responsible to the proposed insured(s) subject to the terms and conditions of the title insurance commitment, other than the effective date of the title insurance commitment, for all matters which appear of record prior to the time of recording whenever the title insurance company, or its agent, conducts the closing and settlement service that is in conjunction with its issuance of an owners policy of title insurance and is responsible for the recording and filing of legal documents resulting from the transaction which was closed.
F. If a title entity undertakes to insure any person or entity against the possible adverse effect of any recorded lien, recorded encumbrance or other recorded interest, in accordance with § 10-11-106, C.R.S. and any other applicable law, it shall:
G. All title insurance entities shall comply with the “good funds law” contained in § 38-35-125, C.R.S. In particular, no title entity that provides closing and settlement services for any real estate transaction shall disburse funds as a part of such services until the funds to be disbursed have been received and are either: Available for immediate withdrawal as a matter of right from the financial institution in which the funds have been deposited; or available for immediate withdrawal as a consequence of the agreement of the financial institution in which the funds are to be deposited or the financial institution upon which the funds are drawn. Any such agreement shall be made with or for the benefit of the person or entity providing closing and settlement services for a real estate transaction.
H. No title entity shall provide closing and settlement services without receiving written instructions from all necessary parties. In the event all parties to the real estate transaction execute written closing instructions, including those closing instructions approved by the Colorado Real Estate Commission, and such closing instructions have been delivered to the title entity in advance of the closing and settlement, the title entity shall also execute such closing instructions and furnish copies to all parties to the closing instructions, to the extent allowed by law. Nothing in this provision shall prohibit amendments to existing closing instructions.
I. Every title entity shall be responsible for properly conducting each closing or settlement service and recording such documents as it is directed in writing to record in conjunction therewith, for each transaction in which such title entity charges and collects a fee.
J. Each title entity shall notify in writing, at the time of delivery of the title insurance commitment, every prospective insured in an owner's title insurance commitment for a single family residence (including a condominium or townhouse unit) of that title entity's general requirements for the deletion of an exception or exclusion to coverage relating to unfiled mechanics or materialmans liens, except when said coverage or insurance is extended to the insured under the terms of the policy. This notice shall be clear and conspicuous, reasonably understandable, and designed to call attention to its nature and significance. Notwithstanding the foregoing, nothing contained in this Section 7(I) shall be deemed to impose any requirement upon any title insurance company to provide mechanics or materialmans lien coverage.
K. Each title entity shall exercise reasonable efforts to ensure that the acts of its authorized agents performed within the scope of the person’s employment by the title entity, including closing agents and title insurance agencies, comply with all laws and regulations concerning the business of title insurance.
L. Each title entity shall maintain adequate documentation and records sufficient to show compliance with this regulation and Title 10, parts 4 and 11, for a period of not less than seven (7) years, except as otherwise permitted by law.
Section 8. Rules Regarding Agent Licensing A. To demonstrate compliance with § 10-11-116(2), C.R.S., the title entity seeking licensure shall submit a notarized letter from an accountant verifying that upon a limited review of the title entity’s books and records performed for this purpose, the accountant reasonably believes the title entity has a net worth at least equal to the minimum amount set forth in § 10-11-116 (2), or the title entity possesses actual paid-in cash capital of at least the amount set forth in § 10-11-116 (2).
B. Every title entity shall disclose each and every affiliated business arrangement in a form acceptable to the commissioner. Such disclosure shall be completed with every new or renewal license application and within thirty (30) days of any changes of the disclosed information. Section 9. Rules Regarding Fiduciary Duties A. All title entities and their authorized agents in possession of funds received and belonging to others shall maintain the funds in a fiduciary capacity in a separate fiduciary fund account or accounts supported by books and records sufficient to identify such funds. The fiduciary fund account(s) shall be identified as “fiduciary fund” , “trust account” or “escrow account” , or identified similarly. These funds include but are not limited to, title insurance premiums, earnest money deposits, loan proceeds, seller’s proceeds, and homeowners association dues.
B. All fiduciary funds shall be maintained in an account separate from other monies and assets of the title entity. Commingling of other monies and assets of the title entity with fiduciary funds is prohibited. Notwithstanding the foregoing, nothing herein shall prohibit the advancement of funds authorized pursuant to § 38-35-125 (2), C.R.S.
C. All fiduciary funds shall be deposited within three business days with a state or federal bank, or a savings and loan association whose depositors are insured by an instrumentality of the United States Government, unless otherwise directed in writing by all parties to the transaction that established the need for the fiduciary funds to be deposited with the title entity.
D. Except as otherwise consented to in writing by the parties to a transaction establishing the need for fiduciary funds, a title entity or its authorized agent shall not use such fiduciary funds for any purpose other than the purpose or purposes set forth in the written agreement for which the fiduciary funds were deposited with the title entity.
Section 10. Enforcement Noncompliance with this Regulation, whether defined or reasonably implied under this regulation 3-5-1, may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocation of license. Among others, the penalties provided for in § 10-3-1108, C.R.S. may be applied. Section 11. Severability If any of the provisions of this regulation shall be held invalid or unenforceable, this regulation shall be construed as if not containing such provisions and the validity, legality and enforceability of the remaining provisions of this regulation shall not be affected or impaired in any way. Section 12. Incorporated Material The following are hereby incorporated by reference as written on or before the effective date of this regulation. This rule does not include later amendments to or editions of the incorporated material. A copy of these references may be examined at any state publications depository library. For additional information regarding how to obtain a copy please contact Caryn Berumen, Compliance Analyst, Colorado Division of Insurance, 1560 Broadway Ste 850, Denver, CO 80202.
A. The HUD policy statement 1996-2, which is the Policy Statement on Sham Controlled Business Arrangements.
B. The HUD policy statement 1996-4, which is the Statement of Enforcement Standards: Title Insurance Practices in Florida; Final Rule.
C. The federal Real Estate Settlement Procedures Act, 12 U.S.C. sec. 2601 et seq.
D. The American Land Title Association (ALTA) Closing Protection Letter & Explanation (revised 3/27/87); the ALTA Closing Protection Letter – Regulatory (revised 10-17-98); the ALTA Closing Protection Letter – Non-Residential Limitations (revised 10-17-98); and the ALTA Closing Protection Letter – Single Transaction Limited Liability (revised 10-17-98). Section 13. Effective Date This regulation is effective January 1, 2007.
Section 14. History Originally promulgated in 1972 as 72-3.
Amended regulation in 1988 as 88-5.
Amended regulation in 1989 as 89-2.
Amended regulation in 1992 as 3-5-1.
Amended regulation in 1996.
Amended regulation, effective January 1, 2002.
Amended regulation effective August 31, 2005.
Regulation 3-5-1 repealed and repromulgated in full effective January 1, 2007. GOOD FUNDS AGREEMENT THIS GOOD FUNDS AGREEMENT ("Agreement") is entered into as of this ____ day of ___________________________ , by and among ___________________________ ("Mortgage Lender"), ____________________________ ("Closing Agent"), _________________________ ("Bank") and ________________________________________ ("Warehouse Lender"). RECITALS A. Colorado Revised Statutes Section 38-35-125 (the "Statute") establishes certain requirements for the collection and availability of funds which must be satisfied to enable a provider of closing and settlement services for real estate transactions to disburse such funds;
B. The Mortgage Lender is presently engaged in the making of one or more loans ("Loan or Loans") to individuals or entities ("Borrowers") or purchasing Loans made by other lenders. The Loans to which this Agreement pertains shall in every case be evidenced by a promissory note ("Note") executed by the pertinent Borrower and secured by a ___________________________ priority mortgage or deed of trust ("Mortgage") on real property improved by a 1-4 family residence.
C. The Bank is a "financial institution", as defined in the Statute.
D. The Bank/Warehouse Lender has extended a credit facility to the Mortgage Lender, pursuant to which the Bank/Warehouse Lender has agreed, upon certain terms and conditions, to advance funds (an "Advance") to the Mortgage Lender for the purpose of enabling the Mortgage Lender to make Loans. Each Advance by the Bank/Warehouse Lender shall be secured by the Note and Mortgage executed in connection with the Loan for which the Advance is made. The term "Bank/Warehouse Lender" shall mean (i) the Bank if no separate warehouse lender is a party or
E. In order to comply with the Statute, the parties wish to agree upon an arrangement whereby the Closing Agent may, immediately upon the closing of Loans, disburse funds delivered to it in connection with such closings.
F. The Bank may issue Reservation Numbers (as defined below) for Loans to be funded by the Mortgage Lender’s check drawn upon the Bank or its affiliated bank, __________________________________ account # ____________________________ ("Good Funds Account") and the Bank is willing to agree with the Lender and the Closing Agent that it will fund checks drawn upon the Good Funds Account (“Good Funds Check” ) for the funding of Loans and the Closing Agent may disburse the funds immediately upon the closing of Loans, upon the terms set forth in this Agreement.
Mortgage Lender agrees to pay, and indemnify Closing Agent for, all losses sustained as a result of a dishonor of a Good Funds Check that the Bank is obligated to honor as set out in this paragraph 4. Notwithstanding any other provision of this Agreement, nothing in this Agreement is intended to alter the normal check collection and clearance time periods for a Good Funds Check.
IN WITNESS WHEREOF, the parties have entered into this Good Funds Agreement as of the date first above written.
Bank : Closing Agent :
By By Name: Name:
Title: Title:
Address: Address:
Telephone No.: Telephone No.:
FAX No.: FAX No.:
E-mail E-mail Attention: Attention:
WAREHOUSE MORTGAGE LENDER LENDER :
:____________________ _ By: By:
Name: Name:
Title: Title:
Address: Address:
Telephone No.: Telephone No.:
FAX No.: FAX No.:
E-mail E-mail Attention: Attention:
FOR RESERVATION NUMBERS pursuant to paragraph 3(a) contact: Name: _______________________________________________________________________ Address: ______________________________________________________________________ Address: ______________________________________________________________________ Telephone No.: _________________________________________________________________ E-mail: _____________________________________________________________________ __ Bank Authorization:___________________________________________________________ __ Name & Title FOR LOAN DOCUMENT DELIVERY pursuant to paragraph 3(c) deliver to: Name: _________________________________________________________________________ Address: _______________________________________________________________________ Address: _______________________________________________________________________ Telephone No.: __________________________________________________________________ E-mail: ______________________________________________________________________ __ Bank/ Warehouse Lender Authorization: ____________________________________________ __ Name & Title