WSR 09-20-066




[ Insurance Commissioner Matter No. R 2009-06 -- Filed October 5, 2009, 7:47 a.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 09-14-082.

Title of Rule and Other Identifying Information: Standards for determining insurer's financial condition.

Hearing Location(s): OIC Tumwater Office, Training Room 120, 5000 Capitol Boulevard, Tumwater, WA,, on November 12, 2009, at 10:00 a.m.

Date of Intended Adoption: November 23, 2009.

Submit Written Comments to: Kacy Scott, P.O. Box 40258, Olympia, WA 98504-0258, e-mail, fax (360) 586-3109, by November 10, 2009.

Assistance for Persons with Disabilities: Contact Lorie Villaflores by November 10, 2009, TTY (360) 586-0241 or (360) 725-7087.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: Accreditation standards require that a state's laws contain the National Association of Insurance Commissioner's (NAIC) "Model Regulation to Define Standards and Commissioner's Authority for Companies Deemed to be in Hazardous Financial Condition" or a substantially similar provision. This provision authorizes the commissioner to order a company that may be in hazardous condition to take necessary corrective action, provide additional reporting, or cease certain practices. The NAIC has recently amended the model. These proposed rules are to amend the existing regulatory standards to bring them in line with the NAIC model.

Reasons Supporting Proposal: These proposed rules will ensure that the insurance commissioner continues to meet accreditation standards.

Statutory Authority for Adoption: RCW 48.02.060, 48.31.435, 48.44.050, and 48.46.200.

Statute Being Implemented: RCW 48.31.030, 48.31.050, 48.31.400, 48.44.160.

Rule is not necessitated by federal law, federal or state court decision.

Name of Proponent: Mike Kreidler, insurance commissioner, governmental.

Name of Agency Personnel Responsible for Drafting and Implementation: Dennis Julnes, 5000 Capitol Boulevard, Tumwater, WA 98501, (360) 725-7109; and Enforcement: Jim Odiorne, 5000 Capitol Boulevard, Tumwater, WA 98501, (370) [(360)] 725-7214.

No small business economic impact statement has been prepared under chapter 19.85 RCW. The only domestic small businesses affected by this proposed rule are multiple employer welfare associations (MEWAs). In accordance with Washington law, MEWAs must be subject to the same examination standards and consequences as health care service contractors. Therefore, no small business economic impact statement is necessary because MEWAs must comply as a matter of law, regardless of their business size.

A cost-benefit analysis is not required under RCW 34.05.328. This proposed rule adopts, without any substantive deviation, model rules proposed by the NAIC. Therefore, in accordance with RCW 34.05.328 (5)(b)(iii), no cost-benefit analysis is required.

October 5, 2009

Mike Kreidler

Insurance Commissioner


AMENDATORY SECTION(Amending Order R 92-9, filed 9/9/92, effective 10/10/92)

WAC 284-16-300   Purpose.   (1) The purpose of this regulation, WAC 284-16-300 through 284-16-320 is to set forth the standards which the commissioner will use to identify insurers in such condition as to render the continuance of their business hazardous to ((the)) their policyholders, creditors or to the general public ((or to holders of their policies or certificates of insurance)).

(2) This regulation shall not be interpreted to limit the powers granted the commissioner by any laws or parts of laws of this state, nor shall this regulation be interpreted to supersede any laws or parts of laws of this state.

[Statutory Authority: RCW 48.02.060. 92-19-039 (Order R 92-9), 284-16-300, filed 9/9/92, effective 10/10/92.]

AMENDATORY SECTION(Amending Order R 92-9, filed 9/9/92, effective 10/10/92)

WAC 284-16-310   Standards.   The following standards, either singly or a combination of two or more, may be considered by the commissioner to determine whether the continued operation of any insurer transacting an insurance business in this state might be deemed to be hazardous to ((the)) its policyholders, creditors, or the general public. The commissioner may consider:

(1) Adverse findings reported in financial condition ((and)) reports, market conduct examination reports, audit reports, or actuarial opinions, reports or summaries.

(2) The National Association of Insurance Commissioners Insurance Regulatory Information System and its ((related)) other financial analysis solvency tools and reports.

(3) ((The ratios of commission expense, general insurance expense, policy benefits and reserve increases as to annual premium and net investment income which could lead to an impairment of capital and surplus.

(4) The insurer's asset portfolio when viewed in light of current economic conditions is not of sufficient value, liquidity, or diversity to assure the company's ability to meet its outstanding obligations as they mature.

(5))) Whether the insurer has made adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the insurer, when considered in light of the assets held by the insurer with respect to such reserves and related actuarial items including, but not limited to, the investment earnings on such assets, and the considerations anticipated to be received and retained under such policies and contracts.

(4) The ability of an assuming reinsurer to perform and whether the insurer's reinsurance program provides sufficient protection for the ((company's)) insurer's remaining surplus after taking into account the insurer's cash flow and the classes of business written as well as the financial condition of the assuming reinsurer.

(((6))) (5) Whether the insurer'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 dividends paid to shareholders, is greater than fifty percent of such insurer's remaining surplus as regards policyholders in excess of the minimum required.

(6) Whether the insurer's operating loss in the last twelve-month period or any shorter period of time, excluding net capital gains, is greater than twenty percent of the insurer's remaining surplus as regards policyholders in excess of the minimum required.

(7) Whether ((any affiliate)) a reinsurer, ((subsidiary, or reinsurer)) obligor or any entity within the insurer's insurance holding company system is insolvent, threatened with insolvency, or delinquent in payment of its monetary or other obligation, and which in the opinion of the commissioner may affect the solvency of the insurer.

(8) ((Contingent liabilities)) Contingencies, pledges, or guaranties which either individually or collectively involve a total amount which in the opinion of the commissioner may affect the solvency of the insurer.

(9) Whether any "controlling person" of an insurer is delinquent in the transmitting to, or payment of, net premiums to such insurer.

(10) The age and collectibility of receivables.

(11) Whether the management of an insurer, including officers, directors, or any other person who directly or indirectly controls the operation of such insurer, fails to possess and demonstrate the competence, fitness, and reputation deemed necessary to serve the insurer in such position.

(12) Whether management of an insurer has failed to respond to inquiries relative to the condition of the insurer or has furnished false or misleading information concerning an inquiry.

(13) Whether the insurer has failed to meet financial and holding company filing requirements in the absence of a reason satisfactory to the commissioner.

(14) Whether management of an insurer either has filed any false or misleading sworn financial statement, or has released 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 insurer.

(((14))) (15) Whether the insurer has grown so rapidly and to such an extent that it lacks adequate financial ((and)) or administrative capacity to meet its obligations in a timely manner.

(((15))) (16) Whether the ((company)) insurer has experienced or will experience in the foreseeable future, cash flow ((and/))or liquidity problems.

(17) Whether management has established reserves that do not comply with minimum standards established by state insurance laws, regulations, statutory accounting standards, or sound actuarial principles and standards of practice.

(18) Whether management persistently engages in material under reserving that results in adverse development.

(19) Whether transactions among affiliates, subsidiaries or controlling persons for which the insurer receives assets or capital gains, or both, do not provide sufficient value, liquidity or diversity to assure the insurer's ability to meet its outstanding obligations as they mature.

(20) Any other factor determined by the commissioner to be hazardous to the insurer's policyholders, creditors or general public.

[Statutory Authority: RCW 48.02.060. 92-19-039 (Order R 92-9), 284-16-310, filed 9/9/92, effective 10/10/92.]

AMENDATORY SECTION(Amending Order R 92-9, filed 9/9/92, effective 10/10/92)

WAC 284-16-320   Manner in which commissioner will exercise authority.   (1) For the purpose of making a determination of an insurer's financial condition under this regulation, the commissioner may:

(a) Disregard any credit or amount receivable resulting from transactions with a reinsurer which is insolvent, impaired, or otherwise subject to a delinquency proceeding;

(b) Make appropriate adjustments including disallowance to asset values attributable to investments in or transactions with parents, subsidiaries, or affiliates consistent with the NAIC Accounting Policies and Procedures Manual, state laws or regulations;

(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 insurer's liability in an amount equal to any contingent liability, pledge, or guarantee not otherwise included if there is a substantial risk that the insurer 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 insurer authorized to transact business in this state may be hazardous to ((the)) its policyholders, creditors or the general public, then the commissioner may, in conjunction with or in lieu of a notice required or permitted by RCW 48.05.150, issue an order requiring the insurer 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 insurer's capital and surplus;

(e) Suspend or limit the declaration and payment of dividend by an insurer to its stockholders or to its policyholders;

(f) File reports in a form acceptable to the commissioner concerning the market value of an insurer'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)) in such format as promulgated by the commissioner;

(j) Correct corporate governance practice deficiencies, and adopt and utilize governance practices acceptable to the commissioner;

(k) Provide a business plan to the commissioner in order to continue to transact business in the state; or

(l) Notwithstanding any other provision of law limiting the frequency or amount of premium rate adjustments, adjust rates for any nonlife insurance product written by the insurer that the commissioner considers necessary to improve the financial condition of the insurer.

If the insurer is a foreign insurer, the commissioner's order may be limited to the extent provided by statute.

(3) Any insurer 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.

[Statutory Authority: RCW 48.02.060. 92-19-039 (Order R 92-9), 284-16-320, filed 9/9/92, effective 10/10/92.]

Washington State Code Reviser's Office