AN ACT Relating to
fraternal benefit societies; amending RCW 48.36A.100, 48.36A.290, and
48.36A.310; adding new sections to chapter 48.36A RCW; and repealing RCW
48.36A.300.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF
WASHINGTON:
Sec. 1. RCW 48.36A.100 and 1987
c 366 s 10 are each amended to read as follows:
A domestic society
organized on or after January 1, 1988, shall be formed as follows, but not
until it has and continues to maintain unimpaired surplus in the minimum
amount of total capital and surplus required by RCW 48.05.340:
(1) Seven or more
citizens of the United States, a majority of whom are citizens of this state,
who desire to form a fraternal benefit society, may make, sign, and acknowledge
before some officer competent to take acknowledgment of deeds, articles of
incorporation, in which shall be stated:
(a) The proposed
corporate name of the society, which shall not so closely resemble the name of
any society or insurance company as to be misleading or confusing;
(b) The purposes for
which it is being formed and the mode in which its corporate powers are to be
exercised. The purposes shall not include more liberal powers than are granted
by this chapter;
(c) The names and
residences of the incorporators and the names, residences, and official titles
of all the officers, trustees, directors, or other persons who are to have and
exercise the general control of the management of the affairs and funds of the
society for the first year or until the ensuing election at which all the
officers shall be elected by the supreme governing body, which election shall
be held not later than one year from the date of issuance of the permanent
certificate of authority.
(2) The articles of
incorporation, duly certified copies of the society's bylaws and rules, copies
of all proposed forms of certificates, applications therefor, and circulars to
be issued by the society, and a bond conditioned upon the return to applicants
of the advanced payments if the organization is not completed within one year
shall be filed with the commissioner, who may require further information as
the commissioner deems necessary. The bond with sureties approved by the
commissioner shall be in an amount, not less than three hundred thousand
dollars nor more than one million five hundred thousand dollars as required by
the commissioner. All documents filed are to be in the English language. If
the purposes of the society conform to the requirements of this chapter and all
provisions of the law have been complied with, the commissioner shall so
certify, retain, and file the articles of incorporation and furnish the
incorporators a preliminary certificate of authority authorizing the society to
solicit members as hereinafter provided.
(3) No preliminary
certificate of authority granted under the provisions of this section shall be
valid after one year from its date or after a further period, not exceeding one
year, as may be authorized by the commissioner upon cause shown, unless the
five hundred applicants required by subsection (4) of this section have been
secured and the organization has been completed under this chapter. The
articles of incorporation and all other proceedings thereunder shall become
null and void in one year from the date of the preliminary certificate of
authority, or at the expiration of the extended period, unless the society
shall have completed its organization and received a certificate of authority
to do business under this chapter.
(4) Upon receipt of a
preliminary certificate of authority from the commissioner, the society may
solicit members for the purpose of completing its organization, shall collect
from each applicant the amount of not less than one regular monthly premium in
accordance with its table of rates, and shall issue to each applicant a receipt
for the amount collected. No society shall incur any liability other than for
the return of the advance premium, nor issue any certificate, nor pay, allow,
or offer or promise to pay or allow, any benefit to any person until:
(a) Actual bona fide
applications for benefits have been secured on not less than five hundred
applicants, and any necessary evidence of insurability has been furnished to
and approved by the society;
(b) At least ten
subordinate lodges have been established into which the five hundred applicants
have been admitted;
(c) There has been
submitted to the commissioner, under oath of the president or secretary, or corresponding
officer of the society, a list of the applicants, giving their names,
addresses, date each was admitted, name and number of the subordinate lodge of
which each applicant is a member, amount of benefits to be granted, and
premiums therefor; and
(d) It has been shown
to the commissioner, by sworn statement of the treasurer, or corresponding
officer of the society, that at least five hundred applicants have each paid in
cash at least one regular monthly premium and the total amount of collected premiums
equals at least one hundred fifty thousand dollars. The advance premiums shall
be held in trust during the period of organization and if the society has not
qualified for a certificate of authority within one year, the premiums shall be
returned to the applicants.
(5) The commissioner
may make such examination and require such further information as the
commissioner deems advisable. Upon presentation of satisfactory evidence that
the society has complied with all the provisions of this chapter, the
commissioner shall issue to the society a certificate of authority to that
effect and that the society is authorized to transact business pursuant to the
provisions of this chapter. The certificate of authority shall be prima facie
evidence of the existence of the society at the date of the certificate. The
commissioner shall cause a record of the certificate of authority to be made.
A certified copy of the record may be given in evidence with like effect as the
original certificate of authority.
(6) Any incorporated
society authorized to transact business in this state at the time this chapter
becomes effective shall not be required to reincorporate.
(7) The commissioner
may, by rule, require domestic fraternal societies to have and maintain a
larger amount of surplus than the minimum amount of capital and surplus
prescribed under RCW 48.05.340, based upon the type, volume, and nature of
insurance business transacted, consistent with the principles of risk-based
capital modified to recognize the special characteristics of fraternal benefit
societies.
Sec. 2. RCW 48.36A.290 and 1987
c 366 s 29 are each amended to read as follows:
(1) No foreign
or alien society shall transact business in this state without a license issued
by the commissioner. Any society desiring admission to this state shall comply
substantially with the requirements and limitations of this chapter applicable
to domestic societies and must have and continue to maintain unimpaired
surplus in the minimum amount of total capital and surplus required by RCW
48.05.340. A society may be licensed to transact business in this state
upon filing with the commissioner:
(((1))) (a)
A duly certified copy of its articles of incorporation;
(((2))) (b)
A copy of its bylaws, certified by its secretary or corresponding officer;
(((3))) (c)
A power of attorney to the commissioner as prescribed in RCW 48.36A.410;
(((4))) (d)
A statement of its business under oath by its president and secretary, or
corresponding officers, in a form prescribed by the commissioner, verified by
an examination made by the supervising insurance official of its home state or
other state, territory, province, or country, satisfactory to the commissioner;
(((5))) (e)
Certification from the proper official of its home state, territory, province,
or country that the society is legally incorporated and licensed to transact
business;
(((6))) (f)
Copies of its certificate forms; and
(((7))) (g)
Such other information as the commissioner may deem necessary; and upon a
showing that its assets are invested in accordance with the provisions of this
chapter.
(2) After June 30,
1997, a foreign or alien society which does not have unimpaired surplus in the
minimum amount of total capital and surplus required by RCW 48.05.340 may not
issue any new policies or certificates until the society has unimpaired surplus
in the minimum amount of total capital and surplus required by RCW 48.05.340;
however, a foreign or alien society may continue to issue new policies or
certificates to members of the society who have an existing policy or
certificate in force with the society on June 30, 1997. Once such a foreign or
alien society obtains unimpaired surplus in the minimum amount of total capital
and surplus required by RCW 48.05.340, the society must continue to maintain
unimpaired surplus in the minimum amount of total capital and surplus required
by RCW 48.05.340;
(3) After June 30,
1997, a foreign or alien society which had unimpaired surplus in the minimum
amount of total capital and surplus required by RCW 48.05.340 on December 31,
1996, must continue to maintain unimpaired surplus in the minimum amount of
total capital and surplus required by RCW 48.05.340; and
(4) The commissioner
may, by rule, require foreign or alien fraternal societies to have and maintain
a larger amount of surplus than the minimum amount of capital and surplus
prescribed under RCW 48.05.340, based upon the type, volume, and nature of
insurance business transacted, consistent with the principles of risk-based
capital modified to recognize the special characteristics of fraternal benefit
societies.
Sec. 3. RCW 48.36A.310 and 1987
c 366 s 31 are each amended to read as follows:
(1) ((When the
commissioner, upon investigation, finds that a foreign or alien society
transacting or applying to transact business in this state)) The
commissioner may refuse, suspend, or revoke a fraternal benefit society's
license, if the society:
(a) Has exceeded its
powers;
(b) Has failed to
comply with any of the provisions of this chapter;
(c) Is not fulfilling
its contracts in good faith; ((or))
(d) Is conducting its
business fraudulently ((or in a manner hazardous to its members or creditors
or the public;
the commissioner shall
notify the society of the deficiency or deficiencies and state in writing the
reasons for the commissioner's dissatisfaction. The commissioner shall
immediately issue a written notice to the society requiring that the deficiency
or deficiencies which exist be corrected. After the notice the society shall
have thirty days in which to comply with the commissioner's request for
correction. If the society fails to comply, the commissioner shall notify the
society of such findings of noncompliance and require the society to show cause
on a date named why its license should not be suspended, revoked, or refused.
If on such date the society does not present good and sufficient reasons why
its authority to do business in this state should not be suspended, revoked, or
refused, the commissioner may suspend or refuse the license of the society to
do business in this state until satisfactory evidence is furnished to the
commissioner that the suspension or refusal should be withdrawn or the
commissioner may revoke the authority of the society to do business in this
state)) (e) Has a membership
of less than four hundred after an existence of one year or more;
(f) Is found by the
commissioner to be in such a condition that its further transaction of
insurance in this state would be hazardous to certificate holders and the
people in this state;
(g) Refuses to
remove or discharge a trustee, director, or officer who has been convicted of
any crime involving fraud, dishonesty, or like moral turpitude;
(h) Refuses to be
examined, or if its trustees, directors, officers, employees, or
representatives refuse to submit to examination or to produce its accounts,
records, and files for examination by the commissioner when required, or refuse
to perform any legal obligation relative to the examination;
(i) Fails to pay any
final judgment rendered against it in this state upon any certificate, or
undertaking issued by it, within thirty days after the judgment became final or
within thirty days after time for taking an appeal has expired, or within
thirty days after dismissal of an appeal before final determination, whichever
date is the later;
(j) Is found by the
commissioner, after investigation or upon receipt of reliable information, to
be managed by persons, whether by its trustees, directors, officers, or by any
other means, who are incompetent or untrustworthy or so lacking in fraternal
benefit society managerial experience as to make a proposed operation hazardous
to its members; or that there is good reason to believe it is affiliated
directly or indirectly through ownership, control, or business relations, with
any person or persons whose business operations are or have been found to be in
violation of any law or rule, to the detriment of the members of the society or
of the public, by bad faith or by manipulation of the assets, or of accounts,
or of reinsurance of the society; or
(k) Does business
through agents or other representatives in this state or in any other state who
are not properly licensed under applicable laws and rules.
(2) Nothing in this
section shall prevent a society from continuing, in good faith, all contracts
made in this state during the time the society was legally authorized to
transact business herein.
NEW SECTION. Sec.
4. The commissioner shall
give a society notice of his or her intention to suspend, revoke, or refuse to
renew its license not less than ten days before the effective date of the order
of suspension, revocation or refusal, except that advance notice of intention
is not required where the order results from a domestic society's failure to
make good a deficiency of assets as required by the commissioner.
NEW SECTION. Sec.
5. The commissioner shall
not suspend a society's license for a period in excess of one year, and shall
state in his or her order of suspension the period during which the order is
effective.
NEW SECTION. Sec.
6. A society whose license
has been suspended, revoked, or refused may not subsequently be authorized
unless the grounds for the suspension, revocation, or refusal no longer exist
and the society is otherwise fully qualified.
NEW SECTION. Sec.
7. Upon the suspension,
revocation, or refusal of a society's license, the commissioner shall give
notice to the society and shall suspend, revoke, or refuse the authority of its
agents to represent it in this state and give notice to the agents.
NEW SECTION. Sec.
8. The following standards
may be considered by the commissioner to determine whether the continued
operation of any society transacting an insurance business in this state might
be deemed to be hazardous to the certificate holders or creditors. The
commissioner may consider:
(1) Adverse findings
reported in either a financial condition or market conduct examination report,
or both, of a state insurance department that could lead to impairment of
surplus;
(2) The national
association of insurance commissioners insurance regulatory information system
and its related reports;
(3) The ratios of
commission expense, general insurance expense, policy benefits, and reserve
increases as to annual premium and net investment income that could lead to an
impairment of surplus;
(4) The society's asset
portfolio when viewed in light of current economic conditions is not of
sufficient value, liquidity, or diversity to assure the society's ability to
meet its outstanding obligations as they mature;
(5) The ability of an
assuming reinsurer to perform and whether the society's reinsurance program
provides sufficient protection for the society's remaining surplus after taking
into account the society's cash flow and the classes of business written as
well as the financial condition of the assuming reinsurer;
(6) The society'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, change in nonadmitted assets,
and cash refunds paid to members, is greater than fifty percent of the
society's remaining surplus as regards certificate holders in excess of the
minimum required;
(7) Whether any
affiliate, subsidiary, or reinsurer is insolvent, threatened with insolvency,
or delinquent in payment of its monetary or other obligation;
(8) Contingent
liabilities, pledges, or guaranties which either individually or collectively
involve a total amount that in the opinion of the commissioner may affect the
solvency of the society;
(9) The age and
collectibility of receivables;
(10) Whether the
management of a society, including officers, trustees, directors, or any other
person who directly or indirectly controls the operation of the society, fails
to possess and demonstrate the competence, fitness, and reputation deemed
necessary to serve the society in such a position;
(11) Whether management
of a society has failed to respond to inquiries relative to the condition of
the society or has furnished misleading information concerning an inquiry;
(12) Whether management
of a society either has filed any false or misleading sworn 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 society;
(13) Whether the
society 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; and
(14) Whether the
society has experienced or will experience in the foreseeable future, either
cash flow problems or liquidity problems, or both.
NEW SECTION. Sec.
9. (1) For the purpose of
making a determination of a society's financial condition, the commissioner
may:
(a) Disregard any
credit or amount receivable resulting from transactions with a reinsurer that
is insolvent, impaired, or otherwise subject to a delinquency proceeding;
(b) Make appropriate
adjustments to asset values attributable to investments in or transactions with
parents, subsidiaries, or affiliates;
(c) Refuse to recognize
the stated value of accounts receivable if the ability to collect receivables
is highly speculative in view of the age of the account or the financial
condition of the debtor; or
(d) Increase the
society's liability in an amount equal to any contingent liability, pledge, or
guarantee not otherwise included if there is a substantial risk that the
society will be called upon to meet the obligation undertaken within the next
twelve‑month period.
(2) If the commissioner
determines that the continued operation of the society authorized to transact
business in this state may be hazardous to the certificate holders, then the
commissioner may, in conjunction with or in lieu of a notice required or
permitted by section 4 of this act, issue an order requiring the society to:
(a) Reduce the total
amount of present and potential liability for policy benefits by reinsurance;
(b) Reduce, suspend, or
limit the volume of business being accepted or renewed;
(c) Reduce general
insurance and commission expenses by specified methods;
(d) Increase the
society's surplus;
(e) Suspend or limit
the declaration and payment of refunds by a society to its members;
(f) File reports in a
form acceptable to the commissioner concerning the market value of a society's assets;
(g) Limit or withdraw
from certain investments or discontinue certain investment practices to the
extent the commissioner deems necessary;
(h) Document the
adequacy of premium rates in relation to the risks insured; or
(i) File, in addition
to regular annual statements, interim financial reports on the form adopted by
the national association of insurance commissioners or on a format promulgated
by the commissioner.
(3) Any society subject
to an order under subsection (2) of this section may make a written demand for
a hearing, subject to the requirements of RCW 48.04.010, by specifying in what
respects it is aggrieved and the grounds to be relied upon as basis for the
relief to be demanded at the hearing.
NEW SECTION. Sec.
10. (1) Any rehabilitation,
liquidation, or conservation of a domestic fraternal benefit society is the
same as the rehabilitation, liquidation, or conservation of an insurance
company and shall be conducted under the supervision of the commissioner
pursuant to the law governing the rehabilitation, liquidation, or conservation
of insurance companies. The commissioner may apply for an order directing the
commissioner to rehabilitate, liquidate, or conserve a domestic fraternal
benefit society upon any one or more of the following grounds: That the
domestic fraternal benefit society:
(a) Is insolvent; or
(b) Has ceased
transacting insurance business for a period of one year; or
(c) Is insolvent and
has commenced voluntary liquidation or dissolution, or attempts to commence or
prosecute any action or proceeding to liquidate its business or affairs, or to
dissolve its corporate charter, or to procure the appointment of a receiver,
trustee, custodian, or sequestrator under any law except this code; or
(d) Any of the matters
set forth in RCW 48.36A.310.
(2) The priority of the
distribution of claims from a domestic fraternal benefit society's estate shall
be as set forth in RCW 48.31.280.
NEW SECTION. Sec.
11. RCW 48.36A.300 and 1987 c 366 s 30 are
each repealed.
NEW
SECTION. Sec. 12. Sections 4 through 10 of
this act are each added to chapter 48.36A RCW.
