PURPOSE: This rule specifies information which must be submitted to the director for prior approval of subordinated indebtedness agreements, the form which consideration for these agreements must take and the accounting procedures to be followed. This rule implements sections 354.355, 354.480, 375.535, 375.540, 375.560 and 380.271, RSMo.

1. (1) Application. This rule applies to all health service corporations, health maintenance organizations (HMOs), insurance companies and reciprocal interinsurance exchanges organized under the laws of this state and is applicable to any debts other than those shown as a legal liability of the company. Notwithstanding any other provision to the contrary, no company or other entity which has the power to assess its members may issue any subordinated indebtedness unless it is a mutual company organized under sections 379.205—379.310, RSMo.
2. (2) Definition, Subordinated Indebtedness (Surplus Notes). Subordinated indebtedness, for the purposes of this rule includes any contingent obligation for the repayment of a sum of money upon a written agreement that the loan or advance with interest shall be repaid only out of surplus profits of the company in excess of the minimum surplus as required by Missouri law and as shall be deemed necessary by the director of insurance to secure the interests of the policyholders and creditors of this company.

3. (3) Approval by the Director.

   1. (A) The following shall be submitted to the director of insurance for approval:

      1. 1. Duplicate copies of the entire indebt-

edness agreement; and

1. 2. Certified copy of the resolution of the

board of directors of proper company body or committee which is empowered to authorize these agreements. The resolution shall stipulate the maximum amount of subordinated indebtedness authorized and the purpose for which it is incurred. It also shall limit the application of the proceeds to the specific purpose for which the indebtedness is incurred.

1. (B) After submission of the documents and approval, the director may authorize the execution of the indebtedness agreement. All agreements shall be executed and the consideration received immediately after the approval.

1. (4) Consideration. The consideration tendered to the company in exchange for the agreement shall be lawful money or other consideration as may be acceptable to and approved by the director.

2. (5) Reporting and Accounting of Indebtedness.

   1. (A) The director shall be notified immediately in writing upon the execution of any indebtedness agreement as to the amount and to whom payable.
   2. (B) Any existing subordinated indebtedness incurred prior to March 29, 1976, also shall be reported immediately in writing to the director.
   3. (C) All outstanding subordinated indebtedness and interest accruing shall be reported at face value in the annual statement on page 3 and in other financial statements of the company as a special surplus account.
3. (6) Approval of Repayment by Director. Repayment of principal or payment of interest may be made only with the approval of the director when s/he is satisfied that the financial condition of the company warrants this action.
4. (7) Other Loans. Nothing in this section shall be construed to mean that a company may not otherwise borrow money, but the amount so borrowed with accrued interest shall be carried by the company as a liability.

AUTHORITY: sections 354.120, 354.485, 374.045 and 380.561, RSMo (1986).* This rule was previously filed as 4 CSR 190-11.010. Original rule filed June 12, 1970, effective July 1, 1970. Amended: Filed Aug. 5, 1974, effective Aug. 15, 1974. Amended: Filed July 18, 1989, effective Nov. 1, 1989. *Original authority: 354.040, RSMo (1973), amended 1983; 354.485, RSMo (1983); 374.045, RSMo (1967); and 380.561, RSMo (1984).