1.1                          A bill for an act 
  1.2             relating to title insurance; providing for required 
  1.3             premium reserves; defining a term; amending Minnesota 
  1.4             Statutes 2002, sections 68A.02; 68A.03, subdivision 3; 
  1.5             proposing coding for new law in Minnesota Statutes, 
  1.6             chapter 68A. 
  1.7   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.8      Section 1.  Minnesota Statutes 2002, section 68A.02, is 
  1.9   amended to read: 
  1.10     68A.02 [UNEARNED HISTORIC STATUTORY PREMIUM RESERVE.] 
  1.11     Subdivision 1.  [1964-2001 PREMIUM RESERVE.] Upon issuance 
  1.12  of each contract of title insurance issued on or after January 
  1.13  1, 1964, through January 1, 2001, by a domestic real estate 
  1.14  title insurance company, there shall be reserved initially a sum 
  1.15  equal to ten percent of the original premium charged therefor.  
  1.16  At the end of each calendar year following the year in which the 
  1.17  contract of title insurance is issued, there shall be a 
  1.18  reduction in the sum so reserved in the amount of one-twentieth 
  1.19  of such sum.  On any contract of title insurance issued prior to 
  1.20  January 1, 1964, by a domestic real estate title insurance 
  1.21  company, a reserve shall be set up on January 1, 1964, and 
  1.22  thereafter maintained in such sum as would have been required if 
  1.23  the foregoing requirements with respect to title insurance 
  1.24  reserves had existed at and after the date of the contract of 
  1.25  title insurance.  Such sums herein required to be reserved shall 
  1.26  at all times and for all purposes be considered and constitute 
  2.1   unearned portions of the original premiums on such contracts of 
  2.2   title insurance, shall be charged as a reserve liability of the 
  2.3   real estate title insurance company in determining its financial 
  2.4   condition, and, for the purpose of applying the provisions of 
  2.5   section 60A.23, subdivision 4, shall be deemed to constitute the 
  2.6   whole amount of the premiums on the unexpired risks of such real 
  2.7   estate title insurance company.  
  2.8      Subd. 2.  [2001-2004 PREMIUM RESERVE.] (a) Additions to the 
  2.9   reserve after January 1, 2001, and through January 1, 2004, must 
  2.10  be made out of total charges for title insurance policies and 
  2.11  guarantees written, equal to the sum of the following items, as 
  2.12  set forth in the title insurer's most recent annual statement 
  2.13  filed with the commissioner; 
  2.14     (1) for each title insurance policy on a single risk 
  2.15  written or assumed after January 1, 2001, a minimum rate of 
  2.16  $0.36 per $1,000 of net retained liability for policies under 
  2.17  $500,000 and $0.16 per $1,000 of net retained liability for 
  2.18  policies of $500,000 or greater; and 
  2.19     (2) a minimum of eight percent of escrow, settlement, and 
  2.20  closing fees collected in contemplation of the issuance of title 
  2.21  insurance policies or guarantees. 
  2.22     (b) The amounts in paragraph (a) must be released from the 
  2.23  reserve in accordance with section 68A.03, subdivision 3, 
  2.24  paragraph (b). 
  2.25     Sec. 2.  Minnesota Statutes 2002, section 68A.03, 
  2.26  subdivision 3, is amended to read: 
  2.27     Subd. 3.  [STATUTORY PREMIUM RESERVE.] (a) A title insurer 
  2.28  shall establish and maintain a statutory premium reserve 
  2.29  consisting of: 
  2.30     (1) the amount of statutory premium reserve required by the 
  2.31  laws of the domiciliary state of the insurer if the insurer is a 
  2.32  foreign or non-U.S. title insurer; or 
  2.33     (2) if the insurer is a domestic title insurer of this 
  2.34  state, a statutory or unearned premium reserve consisting of: 
  2.35     (i) the amount of the statutory or unearned premium or 
  2.36  reinsurance reserve legally held on January 1, 2001 2004, which 
  3.1   balance must be released according to the law in effect at the 
  3.2   time the sums were added to the reserve, all as set forth in 
  3.3   section 68A.02; and 
  3.4      (ii) additions to the reserve after January 1, 2001, must 
  3.5   be made out of total charges for title insurance policies and 
  3.6   guarantees written, equal to the sum of the following items, as 
  3.7   set forth in the title insurer's most recent annual statement 
  3.8   filed with the commissioner 2004, a sum equal to a minimum of 
  3.9   eight percent of the following items: 
  3.10     (A) for each title insurance policy on a single risk 
  3.11  written or assumed after January 1, 2001, a minimum rate of 
  3.12  $0.36 per $1,000 of net retained liability for policies under 
  3.13  $500,000 and $0.16 per $1,000 of net retained liability for 
  3.14  policies of $500,000 or greater direct risk premiums written; 
  3.15  and 
  3.16     (B) a minimum of eight percent of escrow, settlement, and 
  3.17  closing fees collected in contemplation of the issuance of title 
  3.18  insurance policies or guarantees premiums for reinsurance 
  3.19  assumed, plus other income, less premiums for reinsurance ceded 
  3.20  as set forth in schedule P of the title insurer's most recent 
  3.21  annual statement filed with the commissioner. 
  3.22     (b) The aggregate of the amounts set aside in this reserve 
  3.23  in any calendar year pursuant to paragraph (a), clause (2), item 
  3.24  (ii), must be released from the reserve and restored to net 
  3.25  profits over a period of 20 years at an amortization rate not to 
  3.26  exceed the following formula:  35 percent of the aggregate sum 
  3.27  on July 1 of the year next succeeding the year of addition; 15 
  3.28  percent of the aggregate sum on July 1 of each of the succeeding 
  3.29  two years; ten percent of the aggregate sum on July 1 of the 
  3.30  next succeeding year; three percent of the aggregate sum on July 
  3.31  1 of each of the next three succeeding years; two percent of the 
  3.32  aggregate sum on July 1 of each of the next three succeeding 
  3.33  years; and one percent of the aggregate sum on July 1 of each of 
  3.34  the next succeeding ten years. 
  3.35     (c) The insurer shall calculate an adjusted statutory or 
  3.36  unearned premium reserve as of the year of first application of 
  4.1   paragraph (a), clause (2), item (ii).  The adjusted reserve must 
  4.2   be calculated as if paragraph (a), clause (2), item (ii), had 
  4.3   been in effect for all years beginning 20 years before the year 
  4.4   of first application of paragraph (a), clause (2), item (ii).  
  4.5   For purposes of this calculation, the balance of the reserve as 
  4.6   of that date is considered to be zero.  If the adjusted reserve 
  4.7   so calculated exceeds the aggregate amount set aside for 
  4.8   statutory or unearned premiums in the insurer's most recent 
  4.9   annual statement filed with the commissioner, the insurer shall, 
  4.10  out of total charges for policies of title insurance, increase 
  4.11  its statutory or unearned premium reserve by an amount equal to 
  4.12  one-sixth of that excess in each of the succeeding six years, 
  4.13  beginning with the calendar year that includes the year of first 
  4.14  application of paragraph (a), clause (2), item (ii), until the 
  4.15  entire excess has been added. 
  4.16     (d) The aggregate of the amounts set aside in this reserve 
  4.17  in any calendar year as adjustments to the insurer's statutory 
  4.18  or unearned premium reserve pursuant to paragraph (c) must be 
  4.19  released from the reserve and restored to net profits, or equity 
  4.20  if the additions required by paragraph (c) reduced equity 
  4.21  directly, over a period not exceeding ten years pursuant to the 
  4.22  following table: 
  4.23            Year of addition          Release 
  4.24              Year 1*           Equally over ten years 
  4.25              Year 2            Equally over nine years 
  4.26              Year 3            Equally over eight years 
  4.27              Year 4            Equally over seven years 
  4.28              Year 5            Equally over six years 
  4.29              Year 6            Equally over five years 
  4.30     * The calendar year following the year of first application 
  4.31     of paragraphs (a), clause (2), item (ii), (b), and (c). 
  4.32     (e) A supplemental reserve must be established consisting 
  4.33  of any other reserves necessary, when taken in combination with 
  4.34  the reserves required by this section and section 68A.02, to 
  4.35  cover the company's liabilities with respect to all losses, 
  4.36  claims, and loss adjusted expenses. 
  4.37     (f) Each title insurer subject to the provisions of this 
  4.38  chapter shall file with its annual statement, required under 
  4.39  section 60A.13, subdivision 1, a certification by a member in 
  5.1   good standing of the American Academy of Actuaries.  The 
  5.2   actuarial certification required of a title insurer must conform 
  5.3   to the National Association of Insurance Commissioners' annual 
  5.4   statement instructions for title insurers. 
  5.5      Sec. 3.  [68A.04] [DEFINITION OF DIRECT RISK PREMIUMS.] 
  5.6      For purposes of this chapter, "direct risk premiums" means 
  5.7   the charge for title insurance made by a title insurance company 
  5.8   or its agents according to the company's rate filing approved by 
  5.9   the commissioner of commerce without a deduction for commissions 
  5.10  paid to or retained by the agent and is that portion of the fee 
  5.11  charged by a title insurance company to an insured or an 
  5.12  applicant for insurance for the assumption by the title 
  5.13  insurance company of the risk created by the issuance of the 
  5.14  title insurance policy.  Direct risk premiums of a title 
  5.15  insurance company do not include any other charge or fee for 
  5.16  abstracting, searching, or examining the title, or for escrow, 
  5.17  closing, or other related services.