HF 3799

as introduced - 90th Legislature (2017 - 2018) Posted on 03/14/2018 11:50am

A bill for an act
relating to commerce; regulating fraternal benefit societies; amending Minnesota
Statutes 2016, sections 64B.19, subdivision 4a; 64B.43.

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

Section 1.

Minnesota Statutes 2016, section 64B.19, subdivision 4a, is amended to read:

Subd. 4a.

Notice of extra assessments.

In the event that a society intends to make extra
assessments, as provided in subdivision 4, it shall provide notice of the assessments it plans
to make to the commissioner, and to the commissioner of its state of domicile if it is a foreign
society, at least 90 days before the effective date of the assessments. Within 60 days after
filing, the commissioner may disapprove the assessment of a domestic society if the
assessment was not duly adopted, is not in the best interests of the benefit members, or does
not materially improve the long-term viability of the domestic society. The commissioner
may approve an earlier effective date for the assessment.

Sec. 2.

Minnesota Statutes 2016, section 64B.43, is amended to read:

64B.43 FRATERNAL AUTHORIZED CONTROL LEVEL EVENT.

Subdivision 1.

Definition Definitions.

(a) For purposes of this section, the following
terms have the meanings given.

(b) "Domestic society" means a fraternal society organized under the laws of this state,
unless otherwise indicated.

(c) "Fraternal authorized control level event" means any of the following events:

(1) the filing of a risk-based capital report by the domestic society that indicates that the
domestic society's total adjusted capital is less than its fraternal authorized control level
risk-based capital;

(2) the notification by the commissioner to the domestic society of an adjusted risk-based
capital report that indicates the event in clause (1), provided the domestic society does not
challenge the adjusted risk-based capital report under section 64B.44;

(3) if, pursuant to section 64B.44, the domestic society challenges an adjusted risk-based
capital report that indicates the event in clause (1), notification by the commissioner to the
domestic society that the commissioner has, after a hearing, rejected the domestic society's
challenge;

(4) the failure of the domestic society to respond, in a manner satisfactory to the
commissioner, to a corrective order, provided the domestic society has not challenged the
corrective order under section 64B.44;

(5) if the domestic society has challenged a corrective order under section 64B.44 and
the commissioner has, after a hearing, rejected the challenge or modified the corrective
order, the failure of the domestic society to respond, in a manner satisfactory to the
commissioner, to the corrective order subsequent to rejection or modification by the
commissioner;

(6) the failure of the domestic society to submit a risk-based capital plan to the
commissioner within the time period in section 64B.42;

(7) notification by the commissioner to the domestic society that:

(i) the risk-based capital plan or revised risk-based capital plan submitted by the domestic
society is, in the judgment of the commissioner, unsatisfactory; and

(ii) the domestic society has not challenged the determination under section 64B.44;

(8) if, pursuant to section 64B.44, the domestic society challenges a determination by
the commissioner under the notification by the commissioner to the domestic society that
the commissioner has, after a hearing, rejected the challenge;

(9) notification by the commissioner to the domestic society that the domestic society
has failed to adhere to its risk-based capital plan or revised risk-based capital plan, but only
if the failure has a substantial adverse effect on the ability of the domestic society to eliminate
the fraternal action level event according to its risk-based capital plan or revised risk-based
capital plan and the commissioner has so stated in the notification, provided the domestic
society has not challenged the determination under section 64B.44; or

(10) if, pursuant to section 64B.44, the domestic society challenges a determination by
the commissioner under clause (9), the notification by the commissioner to the domestic
society that the commissioner has, after a hearing, rejected the challenge.

(d) "Qualifying society" means a fraternal benefit society, whether foreign or domestic,
that has the financial strength and administrative capacity to accept a transfer of certificates
under subdivision 2 and is domiciled in a state accredited by the National Association of
Insurance Commissioners.

Subd. 1a.

Plan to transfer members.

(a) Within 60 days of a fraternal authorized control
level event with respect to a domestic society, the domestic society shall present to the
commissioner a plan to protect the interests of its members. The plan shall include
transferring all members, certificates, policies, and related assets and liabilities of the
domestic society, together with any other assets and liabilities the domestic society desires
to transfer, to another firm, corporation, or organization through merger, consolidation,
assumption, or other means. Any transfer shall constitute a novation of the transferring
domestic society's certificates effective upon the date of transfer.

(b) The transfer shall be:

(1) concluded within the time frame established by the commissioner and subject to
approval by the commissioner;

(2) approved by the domestic society upon majority vote of its board of directors; and

(3) effective notwithstanding the provisions of section 64B.14, or any other requirement
of law, or the laws of the domestic society requiring another form of notice to or approval
by members. Any notice to or approval of a transfer required by the laws of the domestic
society shall be suspended by this subdivision.

(c) In the event of a transfer under this subdivision to a firm, corporation, or organization
that does not have a certificate of authority to transact insurance in this state, the
commissioner may grant a limited certificate of authority, upon request, if the firm,
corporation, or organization does not apply for and obtain a certificate of authority to transact
insurance in this state. A limited license may be granted to a firm, corporation, or organization
if the firm, corporation, or organization is licensed to transact insurance and is domiciled
in a state accredited by the National Association of Insurance Commissioners. The
commissioner shall grant a limited license within 30 days of a request if the commissioner
believes the transfer is in the best interest of the domestic society's members. The limited
certificate of authority authorizes the firm, corporation, or organization to service the
certificates and policies resulting from a transfer and to fulfill all obligations owed to
certificate and policy holders but not to otherwise transact insurance business in this state.

(d) Upon the effective date of a transfer to a firm, corporation, or organization that is
not a domestic or foreign society and in consideration for that transfer, each member of the
domestic society shall be deemed to agree that any terms of a certificate subjecting the
certificate to the laws of the domestic society or providing for the maintenance of the
domestic society's solvency, except to the extent of any outstanding lien not released by the
terms of the transfer, shall be null and void and the assuming firm, corporation, or
organization shall endorse the certificates accordingly.

(e) The board of directors of a domestic society may suspend or modify its qualifications
for membership as necessary or appropriate to facilitate a transfer under this subdivision,
notwithstanding the laws of the domestic society or any statute or rule to the contrary.

Subd. 2.

Commissioner's duties.

In the event of a fraternal authorized control level
event with respect to a domestic society under circumstances the commissioner determines
will not be promptly remedied pursuant to the plan submitted under subdivision 1a, the
commissioner shall:

(1) take the actions required under section 64B.42 regarding a domestic society with
respect to which a fraternal action level event has occurred; or

(2) commence a liquidation proceeding pursuant to subdivision 3;

(2) (3) if the commissioner considers it to be in the best interests of the certificate holders
of the domestic society, require the domestic society to take one or more of the following
actions:

(i) merge or otherwise consolidate with another willing authorized society transfer its
members, certificates, and other assets and liabilities to another firm, corporation, or
organization pursuant to subdivision 1a;

(ii) cede any individual risk or risks, in whole or in part, to a willing society or life
insurer;

(iii) (ii) suspend the issuance of new business; and

(iv) (iii) discontinue its insurance operations; or

(3) (4) take the actions necessary to cause the domestic society to be placed under
regulatory control under chapter 60B. In the event the commissioner takes these actions,
the fraternal authorized control level event is considered sufficient grounds for the
commissioner to take action under chapter 60B, and the commissioner has the rights, powers,
and duties with respect to the domestic society set forth in chapter 60B. In the event the
commissioner takes actions under this clause pursuant to an adjusted risk-based capital
report, the domestic society is entitled to the protections afforded to societies under section
60B.11 pertaining to summary proceedings.

Subd. 3.

Liquidation.

(a) In the event of a fraternal authorized control level event under
circumstances the commissioner determines will not be promptly remedied pursuant to the
authorization provided in subdivision 2, or there are any grounds under section 60B.20 to
commence a liquidation, the commissioner may issue an order declaring the domestic society
to be in hazardous financial condition and initiate proceedings pursuant to this subdivision.
For purposes of a proceeding commenced pursuant to this subdivision, rehabilitation under
section 60B.15 shall be presumed to be futile and serve no useful purpose, unless the domestic
society can establish by clear and convincing evidence or the commissioner reasonably
believes that rehabilitation has a high probability of returning the domestic society to
long-term viability.

(b) A liquidation proceeding under this subdivision shall be governed by chapter 60B,
except to the extent the provisions of chapter 60B are in conflict or inconsistent with any
provisions in this chapter. Notwithstanding the application of chapter 60B, the following
sections shall not apply to the liquidation of a domestic society: sections 60B.04, subdivision
2; 60B.39, subdivision 6; 60B.40; and 60B.46, subdivisions 3, 4, clauses (3), (4), and (5),
5, and 6. Section 60B.18 shall apply to any proceeding under this subdivision and shall vest
the authority of the rehabilitator in the liquidator.

(c) Notwithstanding the provisions of section 60B.35, no assessment levied under section
64B.35 is permissible after a petition for liquidation is filed for the benefit of any creditor
other than those described in section 60B.44, subdivisions 2 and 4. Any assessment levied
under section 64B.35, which exceeds funds necessary to satisfy claims under section 60B.44,
subdivisions 2 and 4, shall be returned to the owner of the policy or certificate.

(d) The owner of an in-force certificate that has been assessed or encumbered pursuant
to section 64B.19, subdivision 4, prior to the filing of a petition for liquidation may pursue
a claim for the amount of the assessment or to remove the encumbrance as a claim under
section 60B.44, subdivision 6.

(e) Pursuant to section 60B.25, clause (8), the commissioner shall attempt to transfer by
way of assignment, assumption, or other means the certificates of the liquidating domestic
society to another qualified society, whether domestic or foreign, or, if no qualified society
will accept such a transfer, to a firm, corporation, or organization authorized to transact life
insurance in this state. No society shall be obligated to accept such a transfer. Upon the
effective date of a transfer to a firm, corporation, or organization that is not a fraternal
benefit society and in consideration for that transfer, each member of the domestic society
shall be deemed to agree that any terms of a certificate subjecting the certificate to the
bylaws of the domestic society or providing for the maintenance of the domestic society's
solvency shall be null and void except to the extent of any outstanding lien that has not been
terminated in the liquidation, and the assuming firm, corporation, or organization shall
endorse the certificate accordingly. Any transfer pursuant to this paragraph shall constitute
a novation of the transferring domestic society's certificates effective upon the date of
transfer.

(f) Liquidation proceedings for a domestic society shall be conducted consistent with
the purposes of section 60B.01, subdivision 4, paragraph (c), in a manner designed to
conserve assets and to limit expenses of the liquidation under section 60B.44, subdivision
2.

Sec. 3. DOMESTIC FRATERNAL BENEFIT SOCIETIES.

By July 1, 2019, each domestic society, as defined under Minnesota Statutes, section
64B.43, subdivision 1, shall amend its laws to provide that any notice to or approval of the
members that is required by law or the domestic society's laws relating to the transfer of
their certificate will be suspended if the domestic society has a fraternal authorized control
level event and the transfer is approved by the commissioner of commerce. A domestic
society that does not amend its bylaws as of July 1, 2019, as required shall be deemed
amended.