PURPOSE: This rule enumerates conditions which may indicate that an insurer is in a financial condition which would require further scrutiny in order to protect its policyholders, claimants, creditors, shareholders and the public.

1. (1) Definitions.

   1. (A) Financial ratios shall include, but not be limited to, premium-to-surplus ratios, change in writings ratios, change in surplus ratios and any other financial ratios employed by the National Association of Insurance Commissioners (NAIC) in the Insurance Regulatory Information System and other financial ratios employed by the director of the Department of Insurance.
   2. (B) Insurer shall mean any company or business entity authorized to transact or applying for authority to transact the business of insurance in Missouri under Chapter 376, 377, 378, 379, 381 or 384, RSMo.
   3. (C) Premium shall mean—i) for a property and casualty insurer, net written premium which is direct premium plus premium written on reinsurance assumed less premium written on ceded reinsurance and ii) for a life and health insurer, premiums and annuity consideration which is total direct premiums and annuity consideration plus reinsurance assumed premiums and annuity consideration less reinsurance ceded premiums and annuity consideration.
   4. (D) Surplus shall mean an insurer’s admitted assets less its liabilities.

2. (2) An insurer may require additional scrutiny when one (1) or more of the following conditions are found to exist by the director of the Department of Insurance:

   1. (A) An insurer does not file a financial statement within ten (10) days of the receipt of notice from the department of its failure to file as required by the applicable statute;
   2. (B) An insurer files financial information which is false or misleading;
   3. (C) An insurer overstates its surplus by a material amount;
   4. (D) A material number of an insurer’s financial ratios are outside the acceptable ranges as established by the NAIC and the director of the Department of Insurance;
   5. (E) Without consideration of net income and the changes in paid-in capital, paid-in surplus or contributed surplus and policyholder dividends, the net reduction to the insurer’s surplus is a material amount of beginning surplus on the insurer’s financial statements;
   6. (F) An insurer’s reserves for losses and loss adjustment expenses are discounted a material amount of surplus, except reserves for long-term lines with fixed and determinable payments, such as long-term disability and Workers’ Compensation, may be discounted on the basis of tabular reserves as permitted by the director of the Department of Insurance;
   7. (G) An insurer has reinsurance reserve recoverables or receivables which are disputed by the reinsurer or are due and payable and remain unpaid for a period of ninety (90) days and the reinsurance reserve credits, recoverables and receivables are a material amount of an insurer’s surplus;
   8. (H) An insurer has reinsurance reserve credits, recoverables or receivables due from insurance companies in receivership and the reinsurance reserve credits, recoverables or receivables are a material amount of an insurer’s surplus;
   9. (I) An insurer’s affiliate or subsidiary is unable to pay its obligations to the insurer as they become due and the obligations constitute a material portion of the insurer’s surplus;
   10. (J) An insurer’s premium writings are excessive in relation to the insurer’s surplus;
   11. (K) An insurer fails to maintain books and records sufficient to permit examiners to determine the financial condition of the insurer;
   12. (L) An insurer has reinsurance agreements affecting a material portion of its gross written premium and the assuming insurers are unauthorized under section 375.246, RSMo;
   13. (M) An insurer has taken reinsurance credits or claimed assets on which there are no executed reinsurance agreements or other satisfactory evidence of cover and which are a material amount of surplus. This condition shall not apply to reinsurance transactions where individual underwriters must bind that coverage. In those circumstances, a binder of coverage shall constitute execution;
   14. (N) One (1) agent or agency produces a material amount of the gross written premiums of an insurer;
   15. (O) An insurer does not follow a policy on rating and underwriting standards determined to be appropriate to the risk;
   16. (P) An insurer’s aggregate net retained risk, direct or assumed, under any one (1) policy or certificate of insurance, is in excess 20 CSR 200-1

of ten percent (10%) or an appropriate amount of surplus;

1. (Q) The insurer’s asset portfolio when viewed in light of current economic conditions is not of sufficient value, liquidity or diversity to assure the insurer’s ability to meet its outstanding obligations as they mature;
2. (R) Any controlling person, as defined in Chapter 382, RSMo, of an insurer is delinquent in the transmitting to, or payment of, net premiums to that insurer;
3. (S) The management of an insurer, including officers, directors, or any other person who, directly or indirectly, controls the operation of that insurer, fails to possess and demonstrate the competence, fitness and reputation deemed necessary to serve the insurer in that position;
4. (T) The insurer has grown so rapidly and to an extent that it lacks adequate financial and administrative capacity to meet its obligations in a timely manner;
5. (U) The company has experienced, or will experience in the foreseeable future, cash flow, liquidity problems, or both; or
6. (V) Any other conditions deemed appropriate by the director.

1. (3) The conditions enumerated in this rule do not conclusively establish an insurer’s financial condition. In evaluating any of these conditions, all circumstances surrounding the insurer’s operations shall be analyzed in making an ultimate conclusion.
2. (4) Notwithstanding any other provision of this rule to the contrary, the maximum net amount of risk to be retained by a property or liability insurer, or both, for an individual risk shall be no larger than ten percent (10%) of that insurer’s surplus. Any insurer retaining a net amount of risk for an individual risk larger than ten percent (10%) of that insurer’s surplus shall be deemed in hazardous condition.

3. (5) Remedial Action.

   1. (A) The existence of a material number of these conditions or a significant deficiency in one (1) or more conditions enumerated in this rule may result in further remedial action including, but not limited to, denying admission into this state, removing a company from the approved surplus lines list, suspending or revoking an insurer’s certificate of authority to transact the business of insurance in this state and, in the case of foreign insurers, consulting with the insurer’s domestic state.
   2. (B) In the event that the remedial action pursued is suspension or revocation of an insurer’s certificate of authority, no suspension or revocation shall be ordered until the proper notice and hearing procedures have been afforded the company as required by statute and 20 CSR 800-1.100.
   3. (C) Upon an evaluation of the conditions set forth in this rule, the department has the authority to require additional surplus, based upon the type, volume and nature of insurance business transacted. Any requirement of additional capital and surplus under this subsection shall be accomplished under section 375.1162, RSMo or pursuant to a conservatorship action or administrative supervision.

AUTHORITY: sections 374.040, RSMo (1986), 374.045, RSMo (Cum. Supp. 1993), 374.190 and Chapter 375, RSMo (Cum. Supp. 1992).* This rule was previously filed as 4 CSR 190- 11.005. Original rule filed Aug. 1, 1990, effective Dec. 31, 1990. Amended: Filed July 2, 1991, effective Dec. 9, 1991. Amended: Filed April 29, 1992, effective Dec. 3, 1992. *Original authority: 374.040, RSMo (1939), amended 1967; 374.045, RSMo (1967), amended 1993; 374.190, RSMo (1939), amended 1949, 1967, 1992; and Chapter 375 (see Chapter 375 in the Revised Statutes of Missouri 1986 and 1992).