BILL REQ. #:  Z-0329.1 

Read first time 01/31/13.   Referred to Committee on Financial Institutions, Housing & Insurance.

     AN ACT Relating to adopting the insurer state of entry model act; amending RCW 48.05.090; adding new sections to chapter 48.35 RCW; repealing RCW 48.35.010, 48.35.020, 48.35.030, 48.35.040, 48.35.050, 48.35.060, 48.35.070, 48.35.080, 48.35.090, 48.35.100, 48.35.110, 48.35.120, 48.35.130, 48.35.140, 48.35.150, 48.35.160, 48.35.170, 48.35.180, 48.35.190, and 48.35.200; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The definitions in this section apply throughout this chapter.
     (1) "Non-United States insurer" means an insurer organized under the laws of a foreign country. It also means an "alien insurer," which is defined in RCW 48.05.010.
     (2) "United States branch" means the business unit through which business is transacted within the United States by a non-United States insurer and the assets and liabilities of the insurer within the United States pertaining to such business.

NEW SECTION.  Sec. 2   This chapter and RCW 48.05.090(1)(b) apply to a United States branch using this state as a state of entry to transact insurance in the United States. The United States branch is also subject to all state laws applicable to an insurer domiciled in this state unless otherwise provided.

NEW SECTION.  Sec. 3   (1) A non-United States insurer may use this state as a state of entry to transact insurance in the United States through a United States branch by:
     (a) Qualifying as an insurer licensed to do business in this state; and
     (b) Establishing a trust account, pursuant to a trust agreement approved by the commissioner with a United States bank approved by the commissioner, in an amount at least equal to the minimum capital and surplus or authorized control level risk-based capital, whichever is greater, required to be maintained by a domestic insurer licensed to do the same kind of insurance.
     (2) Before authorizing the entry through this state of a United States branch of any non-United States insurer, the commissioner shall require the non-United States insurer, in addition to the requirements of section 5 of this act and any other requirement of the insurance code to submit:
     (a) A copy of its charter and bylaws, if any, currently in force, and such other documents necessary to show the kinds of business that it is empowered to do in its domiciliary jurisdiction, attested to as accurate and complete by the insurance supervisory official in its home jurisdiction, and a full statement, subscribed and affirmed as true under the penalties of perjury by two officers or equivalent responsible representatives in such manner as the commissioner prescribes, of its financial conditions as of the close of its latest fiscal year, showing its assets, liabilities, income disbursements, business transacted and other facts required to be shown in its annual statement, as reported to the insurance supervisory official in its home jurisdiction; an English language translation, as necessary, of any of the documents required in this section; and
     (b) To an examination of the insurer's affairs at its principal office within the United States. However, the commissioner may instead accept a report of the insurance supervisory official of the insurer's home jurisdiction.

NEW SECTION.  Sec. 4   The assets in the trust account are known as "trusteed assets" and must at all times be in an amount equal to the United States branch's reserves and other liabilities plus the minimum capital and surplus or authorized control level risk-based capital, whichever is greater, required to be maintained by a domestic insurer licensed to do the same kind of insurance.

NEW SECTION.  Sec. 5   (1) The deed of trust and all amendments thereto must be authenticated in the form and manner as the commissioner prescribes and are not effective unless approved by the commissioner upon a finding that:
     (a) A deed of trust or its amendments are sufficient in form and in conformity with law;
     (b) The trustee or trustees are eligible as such; and
     (c) The deed of trust is adequate to protect the interests of the beneficiaries of the trust.
     (2) If at any time the commissioner finds, after reasonable notice and hearing, that the requisites for the approval no longer exist, the commissioner may withdraw approval.
     (3) The commissioner may from time to time approve modifications of, or variations in any deed of trust, which in the commissioner's judgment are not prejudicial to the interests of the people of this state or the United States policyholders and creditors of the United States branch.
     (4)(a) The deed of trust must contain provisions that:
     (i) Vest legal title to trusteed assets in the trustees, and their successors lawfully appointed;
     (ii) Require that all assets deposited in the trust must be continuously kept within the United States;
     (iii) Provide for substitution of a new trustee or trustees in case of a vacancy by death, resignation or otherwise, subject to the approval of the commissioner;
     (iv) Require that the trustee or trustees shall continuously maintain a record at all times sufficient to identify the assets of such a fund;
     (v) Require that the trusteed assets must consist of cash and/or investments eligible for investment of the funds of domestic insurers and accrued interest thereon if collectable by the trustee;
     (vi) Require that the trust must be for the exclusive benefit, security, and protection of the policyholders, or policyholders and creditors, of the United States branch in the United States and that it must be maintained as long as there is outstanding any liability of the non-United States insurer arising out of its insurance transactions in the United States; and
     (vii) Provide, in substance, that no withdrawals of assets, other than income as specified in (b) of this subsection may be made or permitted by the trustee or trustees without the approval of the commissioner except to:
     (A) Make deposits required by law in any state for the security or benefit of all policyholders, or policyholders and creditors, of the United States branch in the United States;
     (B) Substitute other assets permitted by law and at least equal in value and quality to those withdrawn, upon the specific written direction of the United States manager when duly empowered and acting pursuant to either general or specific written authority previously given or delegated by the board of directors; or
     (C) Transfer such assets to an official liquidator or rehabilitator pursuant to an order of a court of competent jurisdiction.
     (b) The deed of trust may provide that income, earnings, dividends, or interest accumulations of the assets of the fund may be paid over to the United States manager of the United States branch upon request, provided that the total trusteed assets are not less than the amount required to be maintained pursuant to section 4 of this act.
     (5) Upon withdrawal of trusteed assets deposited in another state in which the insurer is authorized to do business, it is sufficient if the deed of trust requires similar written approval of the insurance supervising official of that state in lieu of approval of the commissioner provided that the total trusteed assets are not then less than the amount required to be maintained pursuant to section 4 of this act. In all such cases, the United States branch shall notify the commissioner in writing of the nature and extent of the withdrawal.
     (6) The commissioner may from time to time:
     (a) Make examinations of the trusteed assets of any authorized United States branch at the insurer's expense; and
     (b) Require the trustee or trustees to file a statement, in the form the commissioner prescribes, certifying the assets of the trust fund and the amounts thereof.
     (7) Refusal or neglect of any trustee to comply with the requirements of this section is ground for the revocation of the insurer's license or the liquidation of its United States branch.

NEW SECTION.  Sec. 6   (1) In addition to other requirements of this chapter, every authorized United States branch must, not later than the first day of March in each year and the fifteenth day of the second month after the end of each of the first three calendar year quarters, file with the national association of insurance commissioners:
     (a) Annual and quarterly statements of the business transacted within the United States and the assets held by or for it within the United States for the protection of policyholders and creditors within the United States, and of the liabilities incurred against such assets. The forms must not contain any statement in regard to its assets and business elsewhere. The statements must be in the same format required of an insurer domiciled in the United States branch's state of entry state and licensed to write the same kinds of insurance; and
     (b) A statement of trusteed surplus, in such form as the commissioner prescribes, as of the end of the same period covered by the statement filed pursuant to this subsection. The aggregate value of the insurer's general state deposits and trusteed assets deposited with a trustee in compliance with section 5 of this act, plus accrued investment income thereon where such interest is collected by the states for trustees, less the aggregate net amount of all of its reserves and other liabilities in the United States as determined in accordance with this section are known as its "trusteed surplus" in the United States. In determining the net amount of the United States branch's liabilities in the United States to be reported in the statement of trusteed surplus, the United States branch shall make adjustments to total liabilities reported on the accompanying annual or quarterly statement as follows:
     (i) Add back liabilities used to offset admitted assets reported in the accompanying quarterly or annual statement; and
     (ii) Deduct:
     (A) Unearned premiums on agent's balances or uncollected premiums not more than ninety days past due;
     (B) Reinsurance on losses with authorized insurers, less unpaid reinsurance premiums;
     (C) Reinsurance recoverables on paid losses from unauthorized insurers that are included as an asset in the annual statement, but only to the extent a liability for such unauthorized recoverables is included in the liabilities report in the trusteed surplus statement;
     (D) Special state deposits held for the exclusive benefit of policyholders, or policyholders and creditors, of any particular state not exceeding net liabilities reports for that state;
     (E) Secured accrued retrospective premiums;
     (F) If a life insurer:
     (I) The amount of its policy loans to policyholders within the United States, not exceeding the amount of legal reserve required on each such policy; and
     (II) The net amount of uncollected and deferred premiums; and
     (G) Any other nontrusteed asset which the commissioner determines secures liabilities in a substantially similar manner; and
     (c) Any additional information that the commissioner requires relating to the total business or assets, or any portion thereof, of the non-United States insurer.
     (2) The annual statement and trusteed surplus statement must be signed and verified by the United States manager, attorney-in-fact, or a duly empowered assistant United States manager, of the United States branch. The items of securities and other property held under trust deeds must be certified in the trusteed surplus statement by the United States trustee or trustees.
     (3) Every report on examination of a United States branch must include a trusteed surplus statement as of the date of examination in addition to the general statement of the financial condition of the United States branch.

NEW SECTION.  Sec. 7   (1) Before issuing any new or renewal license to any United States branch, the commissioner may require satisfactory proof, either in the non-United States insurer's charter or by an agreement evidenced by a duly certified resolution of its board of directors, or otherwise as the commissioner requires, that the insurer will not engage in any insurance business in contravention of this section or not authorized by its charter.
     (2) The commissioner must issue a renewal license to any United States branch if satisfied, by such proof as required, that the insurer is not delinquent with respect to any requirement imposed by this chapter and that its continuance in business in this state will not be hazardous or prejudicial to the best interests of the people of this state.
     (3) A United States branch must not be licensed to do in this state any kind of insurance business, or any combination of kinds of insurance business, that are not permitted to be done by domestic insurers licensed under this chapter. A United States branch must not be authorized to do any insurance business in this state if it does anywhere within the United States any kind of business other than an insurance business and the business necessarily or properly incidental to the kind or kinds of insurance business that it is authorized to do in this state.
     (4) Except as otherwise specifically provided, a United States branch, entering through this state or another state, may not be or continue to be authorized to do an insurance business in this state if it fails to comply substantially with any requirement or limitation of this chapter, applicable to similar domestic insurers organized after the effective date of this section, that in the judgment of the commissioner is reasonably necessary to protect the interest of the policyholders.
     (5) A United States branch that does outside of this state any kind or combination of kinds of insurance business not permitted to be done in this state by similar domestic insurers organized after the effective date of this section, may not be or continue to be authorized to do an insurance business in this state, unless in the judgment of the commissioner the doing of such kind or combination of kinds of insurance business will not be prejudicial to the best interests of the people of this state.
     (6) A United States branch may not be or continue to be authorized to do an insurance business in this state if it fails to keep full and correct entries of its transactions, that must at all times be open to the inspection of persons invested by law with the rights of inspection and be maintained in its principal office within this state.

NEW SECTION.  Sec. 8   Whenever it appears to the commissioner from any annual or quarterly statement or trusteed surplus statement or any other report that a United States branch's trusteed surplus is reduced below minimum capital and surplus or the authorized control level risk-based capital, whichever is greater, required to be maintained by a domestic insurer licensed to transact the same kinds of insurance, the commissioner may proceed against the insurer pursuant to chapter 48.31 RCW as an insurer whose condition is such that its further transaction of business in the United States will be hazardous to its policyholders, its creditors, or the public in the United States.

NEW SECTION.  Sec. 9   All trusts of trusteed assets created before January 1, 2014, must be continued under the instruments creating those trusts. If the commissioner determines that the instruments are inconsistent with this chapter, the insurer must correct those inconsistencies within six months of the commissioner's determination.

Sec. 10   RCW 48.05.090 and 1949 c 190 s 4 are each amended to read as follows:
     (1) An alien insurer ((shall)) must not be authorized to transact insurance in this state unless it maintains within the United States assets in amount not less than its outstanding liabilities arising out of its insurance transactions in the United States, nor unless it maintains a trust deposit in an amount not less than the required reserves under its policies resulting from such transactions (after deducting, in the case of a life insurer, the amount of outstanding policy loans on such policies) plus assets equal to the larger of the following sums:
     (a) The largest amount of deposit required under this title to be made in this state by any type of domestic insurer transacting like kinds of insurance; or
     (b) ((Two hundred thousand dollars.)) The minimum capital and surplus or the authorized control level risk-based capital, whichever is greater, required to be maintained by a domestic insurer licensed to transact the same kinds of insurance. Except an alien insurer, until December 31, 2016, using a state of entry other than this state that is authorized in this state prior to the effective date of this section is permitted to maintain only the trust deposit required by its state of entry as long as it remains continuously authorized in this state.
     (2) The trust deposit ((shall)) must be for the security of all policyholders or policyholders and obligees of the insurer in the United States. It ((shall)) must not be subject to diminution below the amount currently determined in accordance with subsection (1) of this section so long as the insurer has outstanding any liabilities arising out of its business transacted in the United States.
     (3) The trust deposit ((shall)) must be maintained with public depositaries or trust institutions within the United States approved by the commissioner.

NEW SECTION.  Sec. 11   The following acts or parts of acts are each repealed:
     (1) RCW 48.35.010 (Application -- Definition) and 1991 c 268 s 1;
     (2) RCW 48.35.020 (Deposit required -- Amount) and 1991 c 268 s 2;
     (3) RCW 48.35.030 (Deposit required -- Duration) and 1991 c 268 s 4;
     (4) RCW 48.35.040 (Trusts created before May 17, 1991) and 1991 c 268 s 3;
     (5) RCW 48.35.050 (Alien insurer -- State authorization required) and 1991 c 268 s 6;
     (6) RCW 48.35.060 (Trusteed assets -- Creation -- Commissioner's approval of trust agreement) and 1991 c 268 s 5;
     (7) RCW 48.35.070 (Trust agreement -- Amendment) and 1991 c 268 s 7;
     (8) RCW 48.35.080 (Trust agreement -- Withdrawal of commissioner's approval) and 1991 c 268 s 8;
     (9) RCW 48.35.090 (Trust agreement -- Vesting of trusteed assets) and 1991 c 268 s 9;
     (10) RCW 48.35.100 (Trusteed assets -- Trustee's records) and 1991 c 268 s 10;
     (11) RCW 48.35.110 (Trusteed assets -- Trustee's statements--Commissioner's approval) and 1991 c 268 s 11;
     (12) RCW 48.35.120 (Trusteed assets -- Examination -- Commissioner's approval of assignment or transfer) and 1991 c 268 s 12;
     (13) RCW 48.35.130 (Trusteed assets -- Commissioner's approval of withdrawals) and 1991 c 268 s 13;
     (14) RCW 48.35.140 (Trusteed assets -- Substitution of trustee) and 1991 c 268 s 14;
     (15) RCW 48.35.150 (Trusteed assets -- Compensation and expenses of trustees) and 1991 c 268 s 15;
     (16) RCW 48.35.160 (United States manager -- Mexican or Canadian insurers) and 1991 c 268 s 16;
     (17) RCW 48.35.170 (Domestication of alien insurer -- Commissioner's approval) and 1991 c 268 s 17;
     (18) RCW 48.35.180 (Domestication agreement -- Necessary authorization) and 1991 c 268 s 18;
     (19) RCW 48.35.190 (Domestication agreement -- Commissioner's approval of corporate proceedings) and 1991 c 268 s 19; and
     (20) RCW 48.35.200 (Domestication -- When effective -- Deposits--Transfer of assets) and 1991 c 268 s 20.

NEW SECTION.  Sec. 12   Sections 1 through 9 of this act are each added to chapter 48.35 RCW.

NEW SECTION.  Sec. 13   This act takes effect January 1, 2014.