AN
ACT Relating to the safeguarding of securities of domestic insurance companies,
health care service contractors, health maintenance organizations, and health
carriers; amending RCW 48.04.010 and 48.04.020; and adding new sections to
chapter 48.13 RCW.
BE IT ENACTED BY THE
LEGISLATURE OF THE STATE OF WASHINGTON:
NEW
SECTION. Sec. 1. The
definitions in this section apply throughout sections 1 through 6 of this act
unless the context clearly requires otherwise.
(1)
"Broker" means a broker as defined in RCW 62A.8‑102(1)(c).
(2)
"Clearing corporation" means a depository corporation which maintains
a book entry accounting system and which meets the requirements of RCW 62A.8‑102(1)(e).
(3)
"Commissioner" means the insurance commissioner of the state of
Washington.
(4)
"Federal reserve book-entry securities system" means 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, and managed by the federal reserve system for
participating financial institutions.
(5)
"Participating financial institution" means a depositary financial
institution such as a national bank, state bank, savings and loan, credit
union, or trust company that is:
(a)
Authorized to participate in the federal reserve book-entry system; and
(b)
Licensed by the United States or the banking authorities in its state of
domicile and is regularly examined by the licensing authority.
(6)
"Qualified custodian" means either a participating financial
institution or a clearing corporation, or both. A qualified custodian does not
include a broker.
(7)
"Securities" means instruments as defined in RCW 62A.8‑102(1)(o).
NEW
SECTION. Sec. 2.
Notwithstanding any other provision of law, a domestic insurance company may
deposit or arrange for the deposit of securities held in or purchased for its
general account and its separate accounts in a clearing corporation or the
federal reserve book-entry securities system. When securities are deposited
with a clearing corporation, certificates representing securities of the same
class of the same issuer may be merged and held in bulk in the name of the
nominee of such clearing corporation with any other securities deposited with
such clearing corporation by any person, regardless of the ownership of such
securities, and certificates representing securities of small denominations may
be merged into one or more certificates of larger denominations. The records
of any participating financial institution through which an insurance company
holds securities in the federal reserve book-entry securities system, and the
records of any custodian banks through which an insurance company holds
securities in a clearing corporation, shall at all times show that such
securities are held for such insurance company and for which accounts thereof.
Ownership of, and other interests in, such securities may be transferred by
bookkeeping entry on the books of such clearing corporation or in the federal
reserve book-entry securities system without, in either case, physical delivery
of certificates representing such securities.
NEW
SECTION. Sec. 3. The
following are the only authorized methods of holding securities:
(1)
A domestic insurance company may hold securities in definitive certificates;
(2)
A domestic insurance company may, pursuant to an agreement, designate a
participating financial institution or institutions as its custodian through
which it can transact and maintain book-entry securities on behalf of the
insurance company; or
(3)
A domestic insurance company may, pursuant to an agreement, participate in
depository systems of clearing corporations directly or through a custodian
bank.
NEW
SECTION. Sec. 4. A
domestic insurance company using the methods of holding securities under
section 3 (2) or (3) of this act is required to receive a confirmation from:
(1)
The participating financial institution or the qualified custodian whenever
securities are received or surrendered pursuant to the domestic insurance
company's instructions to a securities broker; or
(2)
The securities broker provided that the domestic insurance company has given
the participating financial institution or qualified custodian and the
securities broker matching instructions authorizing the transaction, which have
been confirmed by the participating financial institution or qualified
custodian prior to surrendering funds or securities to conduct the transaction.
NEW
SECTION. Sec. 5. (1) A
broker executing a securities trade pursuant to an order from a domestic
insurance company shall send confirmation to the domestic insurance company or
the clearing corporation confirming the order has been executed within
twenty-four hours after order completion.
(2)
A broker may not hold in its own account for longer than seventy-two hours any
securities bought or sold pursuant to an order from a domestic insurance
company.
NEW
SECTION. Sec. 6. (1)
Notwithstanding the maintenance of securities with a qualified custodian
pursuant to agreement, if the commissioner:
(a)
Has reasonable cause to believe that the domestic insurer:
(i)
Is conducting its business and affairs in such a manner as to threaten to
render it insolvent;
(ii)
Is in a hazardous condition or is conducting its business and affairs in a
manner that is hazardous to its policyholders, creditors, or the public; or
(iii)
Has committed or is committing or has engaged or is engaging in any act that
would constitute grounds for rendering it subject to rehabilitation or
liquidation proceedings; or
(b)
Determines that irreparable loss and injury to the property and business of the
domestic insurer has occurred or may occur unless the commissioner acts
immediately;
then
the commissioner may, without hearing, order the insurer and the qualified
custodian promptly to effect the transfer of the securities to another
qualified custodian approved by the commissioner. Upon receipt of the order,
the qualified custodian shall promptly effect the transfer of the securities.
Notwithstanding the pendency of any hearing or request for hearing, the order
shall be complied with by those persons subject to that order. Any challenge
to the validity of the order shall be made under chapter 48.04 RCW, however,
the stay of action provisions of RCW 48.04.020 do not apply. It is the
responsibility of both the insurer and the qualified custodian to oversee that
compliance with the order is completed as expeditiously as possible. Upon
receipt of an order, there shall be no trading of the securities without
specific instructions from the commissioner until the securities are received
by the new qualified custodian, except to the extent trading transactions are
in process on the day the order is received by the insurer and the failure to
complete the trade may result in loss to the insurer's account. Issuance of an
order does not affect the qualified custodian's liabilities with regard to the
securities that are the subject of the order.
(2)
No person other than the insurer has standing at the hearing by the
commissioner or for any judicial review of the order.
NEW
SECTION. Sec. 7. The
commissioner may adopt rules to implement and administer sections 1 through 6
of this act.
Sec.
8. RCW
48.04.010 and 1990 1st ex.s. c 3 s 1 are each amended to read as follows:
(1)
The commissioner may hold a hearing for any purpose within the scope of this
code as he or she may deem necessary. The commissioner shall hold a hearing:
(a)
If required by any provision of this code; or
(b)
Except under section 6 of this act, upon written demand for a hearing
made by any person aggrieved by any act, threatened act, or failure of the
commissioner to act, if such failure is deemed an act under any provision of
this code, or by any report, promulgation, or order of the commissioner other
than an order on a hearing of which such person was given actual notice or at
which such person appeared as a party, or order pursuant to the order on such
hearing.
(2)
Any such demand for a hearing shall specify in what respects such person is so aggrieved
and the grounds to be relied upon as basis for the relief to be demanded at the
hearing.
(3)
Unless a person aggrieved by a written order of the commissioner demands a
hearing thereon within ninety days after receiving notice of such order, or in
the case of a licensee under Title 48 RCW within ninety days after the
commissioner has mailed the order to the licensee at the most recent address
shown in the commissioner's licensing records for the licensee, the right to
such hearing shall conclusively be deemed to have been waived.
(4)
If a hearing is demanded by a licensee whose license has been temporarily
suspended pursuant to RCW 48.17.540, the commissioner shall hold such hearing
demanded within thirty days after receipt of the demand or within thirty days
of the effective date of a temporary license suspension issued after such
demand, unless postponed by mutual consent.
Sec.
9. RCW
48.04.020 and 1982 c 181 s 2 are each amended to read as follows:
(1)
Such demand for a hearing received by the commissioner prior to the effective
date of action taken or proposed to be taken by him or her shall stay
such action pending the hearing, except as to action taken or proposed
(a)
under an order on hearing, or
(b)
under an order pursuant to an order on hearing, or
(c)
under an order to make good an impairment of the assets of an insurer, or
(d)
under an order of temporary suspension of license issued pursuant to RCW
48.17.540 as now or hereafter amended.
(2)
In any case where an automatic stay is not provided for, and if the
commissioner after written request therefor fails to grant a stay, the person
aggrieved thereby may apply to the superior court for Thurston county for a
stay of the commissioner's action.
(3)
A stay of action is not available for actions taken by the commissioner under
section 6 of this act.
NEW SECTION. Sec. 10.
Sections 1 through 7 of this act are each added to chapter 48.13 RCW.
