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HF 3799

1st Engrossment - 90th Legislature (2017 - 2018) Posted on 03/26/2018 04:42pm

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A bill for an act
relating to commerce; regulating fraternal benefit societies;amending Minnesota
Statutes 2016, sections 60B.03, subdivision 15; 64B.19, subdivision 4a; 64B.43;
proposing coding for new law in Minnesota Statutes, chapter 64B.

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

Section 1.

Minnesota Statutes 2016, section 60B.03, subdivision 15, is amended to read:


Subd. 15.

Insolvency or insolvent.

"Insolvency" or "insolvent" means:

(a) For an insurer organized under sections 67A.01 to 67A.26, the inability to pay any
uncontested debt as it becomes due.

(b) For purposes of a liquidation under section 64B.435, subdivision 3, a fraternal
authorized control level event under circumstances the commissioner determines will not
be promptly remedied pursuant to the plan submitted under section 64B.435, subdivision
2, a society's inability to pay its debts or meet its obligations as they mature, or that a society's
assets do not exceed its liabilities plus the greater of any surplus required by law to be
constantly maintained.

(b) (c) For any other insurer, that it is unable to pay its debts or meet its obligations as
they mature or that its assets do not exceed its liabilities plus the greater of (1) any capital
and surplus required by law to be constantly maintained, or (2) its authorized and issued
capital stock. For purposes of this subdivision, "assets" includes one-half of the maximum
total assessment liability of the policyholders of the insurer, and "liabilities" includes reserves
required by law. For policies issued on the basis of unlimited assessment liability, the
maximum total liability, for purposes of determining solvency only, shall be deemed to be
that amount that could be obtained if there were 100 percent collection of an assessment at
the rate of ten mills per dollar of insurance written by it and in force.

Sec. 2.

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 insurance regulator 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 of 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 society. The
commissioner may approve an earlier effective date for the assessment.

Sec. 3.

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


64B.43 FRATERNAL AUTHORIZED CONTROL LEVEL EVENT; FOREIGN
SOCIETIES
.

Subdivision 1.

Definition Definitions.

For purposes of this section, the terms in this
subdivision have the meanings given.

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

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

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

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

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

(5) if the 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 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 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 society that:

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

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

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

(9) notification by the commissioner to the society that the 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 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 society has not challenged the
determination under section 64B.44; or

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

(b) "Society" means a foreign fraternal benefit society not organized or operated under
the laws of this state.

Subd. 2.

Commissioner's duties.

In the event of a fraternal authorized control level
event with respect to a society, the commissioner shall:

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

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

(i) merge or otherwise consolidate with another willing authorized society;

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

(iii) suspend the issuance of new business; and

(iv) discontinue its insurance operations; or

(3) take the actions necessary to cause the 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 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 society is entitled to the
protections afforded to societies under section 60B.11 pertaining to summary proceedings.

Sec. 4.

[64B.435] FRATERNAL AUTHORIZED CONTROL LEVEL EVENT;
DOMESTIC SOCIETIES.

Subdivision 1.

Definitions.

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

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

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

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

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

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

(5) if the 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 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 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 society that:

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

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

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

(9) notification by the commissioner to the society that the 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 society to eliminate the fraternal authorized
control 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 society has not challenged
the determination under section 64B.44; or

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

(c) "Qualifying society" means a fraternal benefit society, whether foreign or domestic,
that has the financial strength and administrative capability to accept a transfer of certificates
under the provisions of subdivision 2 and is domiciled in a state accredited by the NAIC.

(d) "Society" means a domestic fraternal benefit society organized and operated under
the laws of this state.

Subd. 2.

Plan to transfer members.

(a) Within 60 days of a fraternal authorized control
level event with respect to a society, the 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 society, together with any other
assets and liabilities the 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 society's certificates or policies effective upon the
date of transfer. The commissioner shall review the plan within 30 days of its submission
and may approve the plan within that time frame if the plan provides sound financial security
for the payment of obligations arising under the certificates and policies of the society and
is otherwise in the best interest of the members.

(b) The transfer shall be:

(1) concluded within the time frame established by the commissioner, which shall not
exceed 90 days;

(2) approved by the society upon majority vote of its board of directors prior to the
submission of the plan to the commissioner; and

(3) effective notwithstanding the provisions of section 64B.14 or any other requirement
of statute or rule or the laws of the society requiring another form of notice to members or
approval by the supreme governing body. Any notice to or approval of a transfer required
by the laws of the society or statute or rule 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, a limited
certificate of authority may be issued upon application to the commissioner if the firm,
corporation, or organization is authorized to transact insurance by and is domiciled in a
state accredited by the National Association of Insurance Commissioners. Within 30 days
of application, a limited certificate of authority may be issued if the commissioner determines
that the applicant has sufficient financial strength and servicing capabilities to satisfy the
obligations arising under the transferring society's certificates and policies. The limited
certificate of authority shall authorize the firm, corporation, or organization to service the
certificates and policies resulting from a transfer, including issuing any amendments or
revisions requested by the holder of the policy and certificate and to fulfill all obligations
arising under the policy or certificate, but not to otherwise transact insurance 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
society shall be deemed to agree that any terms of a certificate subjecting the certificate to
the laws of the society or providing rights or obligations of membership, 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 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 society or any statute or rule to the contrary. Notwithstanding
any statute or rule to the contrary, no notice to members or approval by the supreme
governing body shall be required if a society has a fraternal authorized control level event
and a transfer is approved by the commissioner pursuant to this subdivision. Each society
shall amend their laws to permit the transactions contemplated by this subdivision, including
suspending any provisions requiring any notice to members or approval of the supreme
governing body with respect to the transfer of its certificates and policies, if the society has
a fraternal authorized control level event and the transfer is approved by the commissioner.

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 in the event that there are any grounds under
section 60B.20 to commence a liquidation, the commissioner may issue an order declaring
the 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 society can establish by clear and convincing evidence or the
commissioner reasonably believes that rehabilitation has a high probability of returning the
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 society: 60B.04, subdivision 2; 60B.39,
subdivision 6; 60B.40; and 60B.46, subdivisions 3 and 4, clauses (3), (4), and (5), and
subdivisions 5 and 6, unless the commissioner determines to proceed with rehabilitation
under paragraph (a). Section 60B.18 shall apply to any proceeding under this subdivision
and shall vest the authority of the rehabilitator in the liquidator, unless the commissioner
determines to proceed with rehabilitation under paragraph (a).

(c) Notwithstanding section 60B.35, no assessment levied under section 64B.19 is
permissible after a petition for liquidation is filed for the benefit of any creditor other than
those creditors described in section 60B.44, subdivisions 2 and 4.

(d) 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 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 of that transfer, each member of the society shall be
deemed to agree that any terms of a certificate subjecting the certificate to the laws of the
society or rights or obligations of membership shall be null and void except to the extent
of any outstanding lien that has not been terminated in the liquidation. The assuming firm,
corporation, or organization shall endorse the certificate accordingly. Any transfer pursuant
to this clause shall constitute a novation of the transferring society's certificates effective
upon the date of transfer.

(e) Liquidation proceedings for a 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.

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