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SF 1849

2nd Engrossment - 86th Legislature (2009 - 2010) Posted on 02/09/2010 02:23am

KEY: stricken = removed, old language.
underscored = added, new language.
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A bill for an act
relating to commerce; regulating consumer small loan lenders and residential
mortgage originators and servicers; providing for the calculation of reserves and
nonforfeiture values of preneed funeral insurance contracts; revising annual audit
requirements for insurers; regulating life and health guaranty association notices;
regulating the powers of, and surplus requests for, township mutuals; imposing
penalties; amending Minnesota Statutes 2008, sections 47.58, subdivision 1;
47.60, subdivisions 1, 3, 6; 58.05, subdivision 3; 58.06, subdivision 2; 58.126;
58.13, subdivision 1; 60A.124; 60B.03, subdivision 15; 60L.02, subdivision 3;
61B.28, subdivisions 7, 8; 67A.01; 67A.06; 67A.07; 67A.14, subdivisions 1, 7;
67A.18, subdivision 1; proposing coding for new law in Minnesota Statutes,
chapters 60A; 61A; 67A; repealing Minnesota Statutes 2008, sections 60A.129;
67A.14, subdivision 5; 67A.17; 67A.19; Minnesota Rules, parts 2675.2180;
2675.7100; 2675.7110; 2675.7120; 2675.7130; 2675.7140.

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

Section 1.

Minnesota Statutes 2008, section 47.58, subdivision 1, is amended to read:


Subdivision 1.

Definitions.

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

(a) "Reverse mortgage loan" means a loan:

(1) Made to a borrower wherein the committed principal amount is paid to the
borrower in equal or unequal installments over a period of months or years, interest is
assessed, and authorized closing costs are incurred as specified in the loan agreement;

(2) Which is secured by a mortgage on residential property owned solely by the
borrower; and

(3) Which is due when the committed principal amount has been fully paid to the
borrower, or upon sale of the property securing the loan, or upon the death of the last
surviving borrower, or upon the borrower terminating use of the property as principal
residence so as to disqualify the property from the homestead credit given in chapter 290A.

(b) "Lender" means any bank subject to chapter 48, credit union subject to chapter
52, savings bank organized and operated pursuant to chapter 50, savings association
subject to chapter 51A,new text begin any residential mortgage originator subject to chapter 58,new text end or any
insurance company as defined in section 60A.02, subdivision 4. "Lender" also includes
any federally chartered bank supervised by the comptroller of the currency or federally
chartered savings association supervised by the Federal Home Loan Bank Board or
federally chartered credit union supervised by the National Credit Union Administration,
to the extent permitted by federal law.

(c) "Borrower" includes any natural person holding an interest in severalty or as joint
tenant or tenant-in-common in the property securing a reverse mortgage loan.

(d) "Outstanding loan balance" means the current net amount of money owed by the
borrower to the lender whether or not that sum is suspended pursuant to the terms of the
reverse mortgage loan agreement or is immediately due and payable. The outstanding
loan balance is calculated by adding the current totals of the items described in clauses (1)
to (5) and subtracting the current totals of the item described in clause (6):

(1) The sum of all payments made by the lender which are necessary to clear the
property securing the loan of any outstanding mortgage encumbrance or mechanics or
material supplier's lien.

(2) The total disbursements made by the lender to date pursuant to the loan
agreement as formulated in accordance with subdivision 3.

(3) All taxes, assessments, insurance premiums and other similar charges paid to
date by the lender pursuant to subdivision 6, which charges were not reimbursed by the
borrower within 60 days.

(4) All actual closing costs which the borrower has deferred, if a deferral provision
is contained in the loan agreement as authorized by subdivision 7.

(5) The total accrued interest to date, as authorized by subdivision 5.

(6) All payments made by the borrower pursuant to subdivision 4.

(e) "Actual closing costs" mean reasonable charges or sums ordinarily paid at the
time of closing for the following, whether or not retained by the lender:

(1) Any insurance premiums on policies covering the mortgaged property including
but not limited to premiums for title insurance, fire and extended coverage insurance, flood
insurance, and private mortgage insurance.

(2) Abstracting, title examination and search, and examination of public records
related to the mortgaged property.

(3) The preparation and recording of any or all documents required by law or custom
for closing a reverse mortgage loan agreement.

(4) Appraisal and survey of real property securing a reverse mortgage loan.

(5) A single service charge, which service charge shall include any consideration,
not otherwise specified in this section as an "actual closing cost," paid by the borrower to
the lender for or in relation to the acquisition, making, refinancing or modification of a
reverse mortgage loan, and shall also include any consideration received by the lender
for making a commitment for a reverse mortgage loan, whether or not an actual loan
follows the commitment. The service charge shall not exceed one percent of the bona fide
committed principal amount of the reverse mortgage loan.

(6) Charges and fees necessary for or related to the transfer of real property securing
a reverse mortgage loan or the closing of a reverse mortgage loan agreement paid by the
borrower and received by any party other than the lender.

Sec. 2.

Minnesota Statutes 2008, section 47.60, subdivision 1, is amended to read:


Subdivision 1.

Definitions.

For purposes of this section, the terms defined have
the meanings given them:

(a) "Consumer small loan" is a loan transaction in which cash is advanced to a
borrower for the borrower's own personal, family, or household purpose. A consumer
small loan is a short-term, unsecured loan to be repaid in a single installment. The cash
advance of a consumer small loan is equal to or less than $350. A consumer small loan
includes an indebtedness evidenced by but not limited to a promissory note or agreement
to defer the presentation of a personal check for a fee.

(b) "Consumer small loan lender" is a financial institution as defined in section
47.59 or a deleted text beginpersondeleted text endnew text begin business entitynew text end registered with the commissioner and engaged in the
business of making consumer small loans.

Sec. 3.

Minnesota Statutes 2008, section 47.60, subdivision 3, is amended to read:


Subd. 3.

Filing.

Before a deleted text beginpersondeleted text endnew text begin business entitynew text end other than a financial institution
as defined by section 47.59 engages in the business of making consumer small loansnew text begin to
Minnesota residents
new text end, the deleted text beginpersondeleted text endnew text begin business entitynew text end shall file with the commissioner as a
consumer small loan lender. The filing must be on a form prescribed by the commissioner
together with a fee of $250 for each place of business and contain the following
information in addition to the information required by the commissioner:

(1) evidence that the filer has available for the operation of the business at the
location specified, liquid assets of at least $50,000; and

(2) a biographical statement on the principal person responsible for the operation
and management of the business to be certified.

Revocation of the filing deleted text beginand the right to engage in the business of a consumer small
loan lender
deleted text end is the same as in the case of a regulated lender license in section 56.09.

new text begin For purposes of this subdivision, "business entity" includes one that does not have a
physical location in Minnesota that makes a consumer small loan electronically via the
Internet.
new text end

Sec. 4.

Minnesota Statutes 2008, section 47.60, subdivision 6, is amended to read:


Subd. 6.

Penalties for violation.

A deleted text beginpersondeleted text endnew text begin business entitynew text end or the deleted text beginperson'sdeleted text endnew text begin entity'snew text end
members, officers, directors, agents, and employees who violate or participate in the
violation of any of the provisions of this section may be liable in the same manner as in
section 56.19.

Sec. 5.

Minnesota Statutes 2008, section 58.05, subdivision 3, is amended to read:


Subd. 3.

Certificate of exemption.

A person must obtain a certificate of exemption
from the commissioner to qualify as an exempt person under section 58.04, subdivision 1,
paragraph (c), a financial institution under clause (2), or by order of the commissioner
under clause (6); or under section 58.04, subdivision 2, paragraph (b), as a financial
institution under clause deleted text begin(3)deleted text endnew text begin (4)new text end, or by order of the commissioner under clause deleted text begin(7)deleted text endnew text begin (8)new text end.

Sec. 6.

Minnesota Statutes 2008, section 58.06, subdivision 2, is amended to read:


Subd. 2.

Application contents.

(a) The application must contain the name and
complete business address or addresses of the license applicant. The license applicant
must be a partnership, limited liability partnership, association, limited liability company,
corporation, or other form of business organization, and the application must contain the
names and complete business addresses of each partner, member, director, and principal
officer. The application must also include a description of the activities of the license
applicant, in the detail and for the periods the commissioner may require.

(b) deleted text beginAndeleted text endnew text begin A residential mortgage originatornew text end applicant must submit one of the following:

(1) evidence which shows, to the commissioner's satisfaction, that either the federal
Department of Housing and Urban Development or the Federal National Mortgage
Association has approved the new text beginresidential mortgage originator new text endapplicant as a mortgagee;

(2) a surety bond or irrevocable letter of credit in the amount of not less than
$50,000 in a form approved by the commissioner, issued by an insurance company or bank
authorized to do so in this state. The bond or irrevocable letter of credit must be available
for the recovery of expenses, fines, and fees levied by the commissioner under this chapter
and for losses incurred by borrowers. The bond or letter of credit must be submitted with
the license application, and evidence of continued coverage must be submitted with each
renewal. Any change in the bond or letter of credit must be submitted for approval by the
commissioner within ten days of its execution; or

(3) a copy of the new text beginresidential mortgage originator new text endapplicant's most recent audited
financial statement, including balance sheet, statement of income or loss, statements of
changes in shareholder equity, and statement of changes in financial position. Financial
statements must be as of a date within 12 months of the date of application.

(c) The application must also include all of the following:

(1) an affirmation under oath that the applicant:

(i) is in compliance with the requirements of section 58.125;

(ii) will maintain a perpetual roster of individuals employed as residential mortgage
originators, including employees and independent contractors, which includes the deleted text begindatedeleted text endnew text begin
dates
new text end that mandatory new text begintesting,new text end initial education deleted text beginwasdeleted text endnew text begin, and continuing education werenew text end
completed. In addition, the roster must be made available to the commissioner on demand,
within three business days of the commissioner's request;

(iii) will advise the commissioner of any material changes to the information
submitted in the most recent application within ten days of the change;

(iv) will advise the commissioner in writing immediately of any bankruptcy petitions
filed against or by the applicant or licensee;

(v) will maintain at all times either a net worth, net of intangibles, of at least
$250,000 or a surety bond or irrevocable letter of credit in the amount of at least $50,000;

(vi) complies with federal and state tax laws; and

(vii) complies with sections 345.31 to 345.60, the Minnesota unclaimed property
law;

(2) information as to the mortgage lending, servicing, or brokering experience of the
applicant and persons in control of the applicant;

(3) information as to criminal convictions, excluding traffic violations, of persons in
control of the license applicant;

(4) whether a court of competent jurisdiction has found that the applicant or persons
in control of the applicant have engaged in conduct evidencing gross negligence, fraud,
misrepresentation, or deceit in performing an act for which a license is required under
this chapter;

(5) whether the applicant or persons in control of the applicant have been the subject
of: an order of suspension or revocation, cease and desist order, or injunctive order, or
order barring involvement in an industry or profession issued by this or another state or
federal regulatory agency or by the Secretary of Housing and Urban Development within
the ten-year period immediately preceding submission of the application; and

(6) other information required by the commissioner.

Sec. 7.

Minnesota Statutes 2008, section 58.126, is amended to read:


58.126 EDUCATION new text beginAND TESTING new text endREQUIREMENT.

new text begin (a) new text endNo individual shall engage in residential mortgage origination or make residential
mortgage loans, whether as an employee or independent contractor, before the completion
of deleted text begin15deleted text endnew text begin 20new text end hours of educational training which has been approved by the commissioner, and
covering state and federal laws concerning residential mortgage lending.

new text begin (b) In addition to the initial education requirements in paragraph (a), each individual
must also complete eight hours of continuing education annually. The education must
include:
new text end

new text begin (1) three hours of federal law and regulations;
new text end

new text begin (2) two hours of ethics, which must include fraud, consumer protection, and fair
lending; and
new text end

new text begin (3) two hours of standards governing nontraditional mortgage lending.
new text end

new text begin (c) The commissioner may by rule establish testing requirements for individuals
subject to the requirements of paragraphs (a) and (b). An individual must satisfy the
testing requirements established by the commissioner before engaging in residential
mortgage loan origination or making residential mortgage loans.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective January 1, 2010, and applies to
license applications and renewals made on or after that date.
new text end

Sec. 8.

Minnesota Statutes 2008, section 58.13, subdivision 1, is amended to read:


Subdivision 1.

Generally.

(a) No person acting as a residential mortgage originator
or servicer, including a person required to be licensed under this chapter, and no person
exempt from the licensing requirements of this chapter under section 58.04, except as
otherwise provided in paragraph (b), shall:

(1) fail to maintain a trust account to hold trust funds received in connection with a
residential mortgage loan;

(2) fail to deposit all trust funds into a trust account within three business days of
receipt; commingle trust funds with funds belonging to the licensee or exempt person; or
use trust account funds for any purpose other than that for which they are received;

(3) unreasonably delay the processing of a residential mortgage loan application,
or the closing of a residential mortgage loan. For purposes of this clause, evidence of
unreasonable delay includes but is not limited to those factors identified in section 47.206,
subdivision 7
, clause (d);

(4) fail to disburse funds according to its contractual or statutory obligations;

(5) fail to perform in conformance with its written agreements with borrowers,
investors, other licensees, or exempt persons;

(6) charge a fee for a product or service where the product or service is not actually
provided, or misrepresent the amount charged by or paid to a third party for a product
or service;

(7) fail to comply with sections 345.31 to 345.60, the Minnesota unclaimed property
law;

(8) violate any provision of any other applicable state or federal law regulating
residential mortgage loans including, without limitation, sections 47.20 to 47.208new text begin, and
47.58
new text end;

(9) make or cause to be made, directly or indirectly, any false, deceptive, or
misleading statement or representation in connection with a residential loan transaction
including, without limitation, a false, deceptive, or misleading statement or representation
regarding the borrower's ability to qualify for any mortgage product;

(10) conduct residential mortgage loan business under any name other than that
under which the license or certificate of exemption was issued;

(11) compensate, whether directly or indirectly, coerce or intimidate an appraiser for
the purpose of influencing the independent judgment of the appraiser with respect to the
value of real estate that is to be covered by a residential mortgage or is being offered as
security according to an application for a residential mortgage loan;

(12) issue any document indicating conditional qualification or conditional approval
for a residential mortgage loan, unless the document also clearly indicates that final
qualification or approval is not guaranteed, and may be subject to additional review;

(13) make or assist in making any residential mortgage loan with the intent that the
loan will not be repaid and that the residential mortgage originator will obtain title to
the property through foreclosure;

(14) provide or offer to provide for a borrower, any brokering or lending services
under an arrangement with a person other than a licensee or exempt person, provided that
a person may rely upon a written representation by the residential mortgage originator that
it is in compliance with the licensing requirements of this chapter;

(15) claim to represent a licensee or exempt person, unless the person is an employee
of the licensee or exempt person or unless the person has entered into a written agency
agreement with the licensee or exempt person;

(16) fail to comply with the record keeping and notification requirements identified
in section 58.14 or fail to abide by the affirmations made on the application for licensure;

(17) represent that the licensee or exempt person is acting as the borrower's agent
after providing the nonagency disclosure required by section 58.15, unless the disclosure
is retracted and the licensee or exempt person complies with all of the requirements of
section 58.16;

(18) make, provide, or arrange for a residential mortgage loan that is of a lower
investment grade if the borrower's credit score or, if the originator does not utilize credit
scoring or if a credit score is unavailable, then comparable underwriting data, indicates
that the borrower may qualify for a residential mortgage loan, available from or through
the originator, that is of a higher investment grade, unless the borrower is informed that
the borrower may qualify for a higher investment grade loan with a lower interest rate
and/or lower discount points, and consents in writing to receipt of the lower investment
grade loan;

For purposes of this section, "investment grade" refers to a system of categorizing
residential mortgage loans in which the loans are: (i) commonly referred to as "prime" or
"subprime"; (ii) commonly designated by an alphabetical character with "A" being the
highest investment grade; and (iii) are distinguished by interest rate or discount points
or both charged to the borrower, which vary according to the degree of perceived risk
of default based on factors such as the borrower's credit, including credit score and
credit patterns, income and employment history, debt ratio, loan-to-value ratio, and prior
bankruptcy or foreclosure;

(19) make, publish, disseminate, circulate, place before the public, or cause to be
made, directly or indirectly, any advertisement or marketing materials of any type, or any
statement or representation relating to the business of residential mortgage loans that is
false, deceptive, or misleading;

(20) advertise loan types or terms that are not available from or through the licensee
or exempt person on the date advertised, or on the date specified in the advertisement.
For purposes of this clause, advertisement includes, but is not limited to, a list of sample
mortgage terms, including interest rates, discount points, and closing costs provided by
licensees or exempt persons to a print or electronic medium that presents the information
to the public;

(21) use or employ phrases, pictures, return addresses, geographic designations, or
other means that create the impression, directly or indirectly, that a licensee or other
person is a governmental agency, or is associated with, sponsored by, or in any manner
connected to, related to, or endorsed by a governmental agency, if that is not the case;

(22) violate section 82.49, relating to table funding;

(23) make, provide, or arrange for a residential mortgage loan all or a portion
of the proceeds of which are used to fully or partially pay off a "special mortgage"
unless the borrower has obtained a written certification from an authorized independent
loan counselor that the borrower has received counseling on the advisability of the
loan transaction. For purposes of this section, "special mortgage" means a residential
mortgage loan originated, subsidized, or guaranteed by or through a state, tribal, or
local government, or nonprofit organization, that bears one or more of the following
nonstandard payment terms which substantially benefit the borrower: (i) payments vary
with income; (ii) payments of principal or interest are not required or can be deferred under
specified conditions; (iii) principal or interest is forgivable under specified conditions;
or (iv) where no interest or an annual interest rate of two percent or less is charged in
connection with the loan. For purposes of this section, "authorized independent loan
counselor" means a nonprofit, third-party individual or organization providing homebuyer
education programs, foreclosure prevention services, mortgage loan counseling, or credit
counseling certified by the United States Department of Housing and Urban Development,
the Minnesota Home Ownership Center, the Minnesota Mortgage Foreclosure Prevention
Association, AARP, or NeighborWorks America;

(24) make, provide, or arrange for a residential mortgage loan without verifying
the borrower's reasonable ability to pay the scheduled payments of the following, as
applicable: principal; interest; real estate taxes; homeowner's insurance, assessments,
and mortgage insurance premiums. For loans in which the interest rate may vary, the
reasonable ability to pay shall be determined based on a fully indexed rate and a repayment
schedule which achieves full amortization over the life of the loan. For all residential
mortgage loans, the borrower's income and financial resources must be verified by tax
returns, payroll receipts, bank records, or other similarly reliable documents.

Nothing in this section shall be construed to limit a mortgage originator's or exempt
person's ability to rely on criteria other than the borrower's income and financial resources
to establish the borrower's reasonable ability to repay the residential mortgage loan,
including criteria established by the United States Department of Veterans Affairs or the
United States Department of Housing and Urban Development for interest rate reduction
refinancing loans or streamline loans, or criteria authorized or promulgated by the
Federal National Mortgage Association or Federal Home Loan Mortgage Corporation;
however, such other criteria must be verified through reasonably reliable methods and
documentation. The mortgage originator's analysis of the borrower's reasonable ability
to repay may include, but is not limited to, consideration of the following items, if
verified: (1) the borrower's current and expected income; (2) current and expected cash
flow; (3) net worth and other financial resources other than the consumer's equity in the
dwelling that secures the loan; (4) current financial obligations; (5) property taxes and
insurance; (6) assessments on the property; (7) employment status; (8) credit history; (9)
debt-to-income ratio; (10) credit scores; (11) tax returns; (12) pension statements; and
(13) employment payment records, provided that no mortgage originator shall disregard
facts and circumstances that indicate that the financial or other information submitted by
the consumer is inaccurate or incomplete. A statement by the borrower to the residential
mortgage originator or exempt person of the borrower's income and resources or sole
reliance on any single item listed above is not sufficient to establish the existence of the
income or resources when verifying the reasonable ability to pay.

(25) engage in "churning." As used in this section, "churning" means knowingly or
intentionally making, providing, or arranging for a residential mortgage loan when the
new residential mortgage loan does not provide a reasonable, tangible net benefit to the
borrower considering all of the circumstances including the terms of both the new and
refinanced loans, the cost of the new loan, and the borrower's circumstances;

(26) the first time a residential mortgage originator orally informs a borrower of the
anticipated or actual periodic payment amount for a first-lien residential mortgage loan
which does not include an amount for payment of property taxes and hazard insurance,
the residential mortgage originator must inform the borrower that an additional amount
will be due for taxes and insurance and, if known, disclose to the borrower the amount of
the anticipated or actual periodic payments for property taxes and hazard insurance. This
same oral disclosure must be made each time the residential mortgage originator orally
informs the borrower of a different anticipated or actual periodic payment amount change
from the amount previously disclosed. A residential mortgage originator need not make
this disclosure concerning a refinancing loan if the residential mortgage originator knows
that the borrower's existing loan that is anticipated to be refinanced does not have an
escrow account; or

(27) make, provide, or arrange for a residential mortgage loan, other than a reverse
mortgage pursuant to United States Code, title 15, chapter 41, if the borrower's compliance
with any repayment option offered pursuant to the terms of the loan will result in negative
amortization during any six-month period.

(b) Paragraph (a), clauses (24) through (27), do not apply to a state or federally
chartered bank, savings bank, or credit union, an institution chartered by Congress under
the Farm Credit Act, or to a person making, providing, or arranging a residential mortgage
loan originated or purchased by a state agency or a tribal or local unit of government. This
paragraph supersedes any inconsistent provision of this chapter.

Sec. 9.

Minnesota Statutes 2008, section 60A.124, is amended to read:


60A.124 INDEPENDENT AUDIT.

The audit report of the independent certified public accountant that performs the
audit of an insurer's annual statement as required under section deleted text begin60A.129deleted text endnew text begin 60A.1291new text end,
subdivision deleted text begin3deleted text endnew text begin 2new text end
, deleted text beginparagraph (a),deleted text end should contain a statement as to whether anything, in
connection with their audit, came to their attention that caused them to believe that the
insurer failed to adopt and consistently apply the valuation procedure as required by
sections 60A.122 and 60A.123.

Sec. 10.

new text begin [60A.1291] ANNUAL AUDIT.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin The definitions in this subdivision apply to this section.
new text end

new text begin (a) "Accountant" and "independent public accountant" mean an independent certified
public accountant or accounting firm in good standing with the American Institute of
Certified Public Accountants and in all states in which the accountant or firm is licensed
to practice. For Canadian and British companies, the term means a Canadian-chartered
or British-chartered accountant.
new text end

new text begin (b) "Audit committee" means a committee or equivalent body established by the
board of directors of an entity for the purpose of overseeing the accounting and financial
reporting processes of an insurer or group of insurers, and audits of financial statements of
the insurer or group of insurers. The audit committee of any entity that controls a group of
insurers may be deemed to be the audit committee for one or more of these controlled
insurers solely for the purposes of this section at the election of the controlling person
under subdivision 15, paragraph (e). If an audit committee is not designated by the insurer,
the insurer's entire board of directors constitutes the audit committee.
new text end

new text begin (c) "Indemnification" means an agreement of indemnity or a release from liability
where the intent or effect is to shift or limit in any manner the potential liability of the
person or firm for failure to adhere to applicable auditing or professional standards,
whether or not resulting in part from knowing of other misrepresentations made by the
insurer or its representatives.
new text end

new text begin (d) "Independent board member" has the same meaning as described in subdivision
15, paragraph (c).
new text end

new text begin (e) "Internal control over financial reporting" means a process effected by an entity's
board of directors, management and other personnel designed to provide reasonable
assurance regarding the reliability of the financial statements, for example, those items
specified in subdivision 4, paragraphs (a), clauses (2) to (6), (b), and (c), and includes
those policies and procedures that:
new text end

new text begin (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of assets;
new text end

new text begin (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of the financial statements, for example, those items specified in subdivision 4,
paragraphs (a), clauses (2) to (6), (b), and (c), and that receipts and expenditures are being
made only in accordance with authorizations of management and directors; and
new text end

new text begin (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of assets that could have a material effect on
the financial statements, for example, those items specified in subdivision 4, paragraphs
(a), clauses (2) to (6), (b), and (c).
new text end

new text begin (f) "SEC" means the United States Securities and Exchange Commission.
new text end

new text begin (g) "Section 404" means Section 404 of the Sarbanes-Oxley Act of 2002 and the
SEC's rules and regulations promulgated under it.
new text end

new text begin (h) "Section 404 report" means management's report on "internal control over
financial reporting" as defined by the SEC and the related attestation report of the
independent certified public accountant as described in subdivision 1, paragraph (a).
new text end

new text begin (i) "SOX compliant entity" means an entity that either is required to be
compliant with, or voluntarily is compliant with, all of the following provisions of the
Sarbanes-Oxley Act of 2002: (i) the preapproval requirements of Section 201 (section
10A(i) of the Securities Exchange Act of 1934); (ii) the audit committee independence
requirements of Section 301 (section 10A(m)(3) of the Securities Exchange Act of 1934);
and (iii) the internal control over financial reporting requirements of Section 404 (Item
308 of SEC Regulation S-K).
new text end

new text begin Subd. 2. new text end

new text begin Filing requirements. new text end

new text begin Every insurance company doing business in this
state, including fraternal benefit societies, reciprocal exchanges, service plan corporations
licensed pursuant to chapter 62C, and legal service plans licensed pursuant to chapter
62G, unless exempted by the commissioner pursuant to subdivision 9, paragraph (a), or by
subdivision 18, shall have an annual audit of the financial activities of the most recently
completed calendar year performed by an independent certified public accountant, and
shall file the report of this audit with the commissioner on or before June 1 for the
immediately preceding year ending December 31. The commissioner may require an
insurer to file an audited financial report earlier than June 1 with 90 days' advance notice
to the insurer.
new text end

new text begin Extensions of the June 1 filing date may be granted by the commissioner for 30-day
periods upon a showing by the insurer and its independent certified public accountant of
the reasons for requesting the extension and a determination by the commissioner of good
cause for the extension.
new text end

new text begin The request for extension must be submitted in writing not less than ten days before
the due date in sufficient detail to permit the commissioner to make an informed decision
with respect to the requested extension.
new text end

new text begin If an extension is granted in accordance with this subdivision, a similar extension of
30 days is granted to the filing of management's report of internal control over financial
reporting.
new text end

new text begin Every insurer required to file an annual audited financial report pursuant to this
subdivision shall designate a group of individuals as constituting its audit committee. The
audit committee of an entity that controls an insurer may be deemed to be the insurer's
audit committee for purposes of this subdivision at the election of the controlling person.
new text end

new text begin Subd. 3. new text end

new text begin Exemptions. new text end

new text begin Foreign and alien insurers filing audited financial reports in
another state under the other state's requirements of audited financial reports which have
been found by the commissioner to be substantially similar to these requirements are
exempt from this subdivision if a copy of the audited financial report, communication of
internal control related matters noted in an audit, accountant's letter of qualifications, and
report on significant deficiencies in internal controls, which are filed with the other state,
are filed with the commissioner in accordance with the filing dates specified in subdivision
2 (Canadian insurers may submit accountants' reports as filed with the Canadian Dominion
Department of Insurance); and a copy of any notification of adverse financial condition
report filed with the other state is filed with the commissioner within the time specified
in subdivision 11. Foreign or alien insurers required to file management's report of
internal control over financial reporting in another state are exempt from filing the report
in this state provided the other state has substantially similar reporting requirements and
the report is filed with the commissioner of the other state within the time specified.
This subdivision does not prohibit or in any way limit the commissioner from ordering,
conducting, and performing examinations of insurers under the authority of this chapter.
new text end

new text begin Subd. 4. new text end

new text begin Contents of annual audit; financial report. new text end

new text begin (a) The annual audited
financial report must report, in conformity with statutory accounting practices required
or permitted by the commissioner of insurance of the state of domicile, the financial
position of the insurer as of the end of the most recent calendar year and the results of
its operations, cash flows, and changes in capital and surplus for the year ended. The
annual audited financial report must include:
new text end

new text begin (1) a report of an independent certified public accountant;
new text end

new text begin (2) a balance sheet reporting admitted assets, liabilities, capital, and surplus;
new text end

new text begin (3) a statement of operations;
new text end

new text begin (4) a statement of cash flows;
new text end

new text begin (5) a statement of changes in capital and surplus; and
new text end

new text begin (6) notes to the financial statements.
new text end

new text begin (b) The notes required under paragraph (a) are those required by the appropriate
National Association of Insurance Commissioners (NAIC) annual statement instructions
and National Association of Insurance Commissioners Accounting Practices and
Procedures Manual and include reconciliation of differences, if any, between the audited
statutory financial statements and the annual statement filed under section 60A.13,
subdivision 1, with a written description of the nature of these differences.
new text end

new text begin (c) The financial statements included in the audited financial report must be prepared
in a form and using language and groupings substantially the same as the relevant sections
of the annual statement of the insurer filed with the commissioner. The financial statement
must be comparative, presenting the amounts as of December 31 of the current year and
the amounts as of the immediately preceding December 31. In the first year in which an
insurer is required to file an audited financial report, the comparative data may be omitted.
The amounts may be rounded to the nearest $1,000, and all insignificant amounts may
be combined.
new text end

new text begin Subd. 5. new text end

new text begin Designation of independent certified public accountant. new text end

new text begin Each insurer
required by this section to file an annual audited financial report must notify the
commissioner in writing of the name and address of the independent certified public
accountant or accounting firm retained to conduct the annual audit within 60 days after
becoming subject to the annual audit requirement. The insurer shall obtain from the
accountant a letter which states that the accountant is aware of the provisions that relate
to accounting and financial matters in the insurance laws and the rules of the insurance
regulatory authority of the state of domicile. The letter shall affirm that the accountant will
express an opinion on the financial statements in terms of their conformity to the statutory
accounting practices prescribed or otherwise permitted by that insurance regulatory
authority, specifying the exceptions believed to be appropriate. A copy of the accountant's
letter shall be filed with the commissioner.
new text end

new text begin Subd. 6. new text end

new text begin Report of disagreements. new text end

new text begin If an accountant who was the accountant for the
immediately preceding filed audited financial report is dismissed or resigns, the insurer
shall notify the commissioner of this event within five business days. Within ten business
days of this notification, the insurer shall also furnish the commissioner with a separate
letter stating whether in the 24 months preceding this event there were any disagreements
with the former accountant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of the former accountant, would have caused that person to make reference to
the subject matter of the disagreement in connection with the opinion. The disagreements
required to be reported in response to this subdivision include both those resolved to
the former accountant's satisfaction and those not resolved to the former accountant's
satisfaction. Disagreements contemplated by this subdivision are those disagreements
between personnel of the insurer responsible for presentation of its financial statements
and personnel of the accounting firm responsible for rendering its report. The insurer
shall also in writing request the former accountant to furnish a letter addressed to the
insurer stating whether the accountant agrees with the statements contained in the insurer's
letter and, if not, stating the reasons for any disagreement. The insurer shall furnish this
responsive letter from the former accountant to the commissioner together with its own.
new text end

new text begin Subd. 7. new text end

new text begin Qualifications of independent certified public accountant. new text end

new text begin (a) The
commissioner shall not recognize any person or firm as a qualified independent certified
public accountant that is not in good standing with the American Institute of Certified
Public Accountants and in all states in which the accountant is licensed to practice, or for
a Canadian or British company, that is not a chartered accountant. Except as otherwise
provided, an independent certified public accountant must be recognized as qualified as
long as the person conforms to the standards of the person's profession, as contained in
the Code of Professional Ethics of the American Institute of Certified Public Accountants
and the rules of professional conduct of the Minnesota Board of Public Accountancy or
similar code.
new text end

new text begin (b) The lead or coordinating audit partner, having primary responsibility for the
audit, may not act in that capacity for more than five consecutive years. The person shall
be disqualified from acting in that or a similar capacity for the same company or its
insurance subsidiaries or affiliates for a period of five consecutive years. An insurer may
make application to the commissioner for relief from this rotation requirement on the
basis of unusual circumstances. This application must be made at least 30 days before
the end of the calendar year. The commissioner may consider the following factors in
determining if the relief should be granted:
new text end

new text begin (1) number of partners, expertise of the partners, or the number of insurance clients
in the currently registered firm;
new text end

new text begin (2) premium volume of the insurer; or
new text end

new text begin (3) number of jurisdictions in which the insurer transacts business.
new text end

new text begin (i) The insurer shall file, with its annual statement filing, the approval for relief from
this paragraph with the states that it is licensed in or doing business in and with the NAIC.
If the nondomestic state accepts electronic filing with the NAIC, the insurer shall file the
approval in an electronic format acceptable to the NAIC.
new text end

new text begin (ii) The commissioner shall not recognize as a qualified independent certified public
accountant, nor accept an annual audited financial report, prepared in whole or in part by
an accountant who provides to an insurer, contemporaneously with the audit, nonaudit
services; and any other services that the commissioner determines, by statute or rule
are impermissible.
new text end

new text begin (c) The commissioner shall not recognize as a qualified independent certified public
accountant, nor accept any audited financial report, prepared in whole or in part by any
natural person who has been convicted of fraud, bribery, a violation of the Racketeer
Influenced and Corrupt Organizations Act, United States Code, title 18, sections 1961 to
1968, or any dishonest conduct or practices under federal or state law, has been found to
have violated the insurance laws of this state with respect to any previous reports submitted
under this section, or has demonstrated a pattern or practice of failing to detect or disclose
material information in previous reports filed under the provisions of this section.
new text end

new text begin (d) The commissioner, after notice and hearing under chapter 14, may find that
the accountant is not qualified for purposes of expressing an opinion on the financial
statements in the annual audited financial report. The commissioner may require the
insurer to replace the accountant with another whose relationship with the insurer is
qualified within the meaning of this section.
new text end

new text begin Subd. 8. new text end

new text begin Exemptions to qualifications of certified public accountant. new text end

new text begin (a)
Insurers having direct written and assumed premiums of less than $100,000,000 in any
calendar year may request an exemption from subdivision 7. The insurer shall file with
the commissioner a written statement discussing the reasons why the insurer should be
exempt from these provisions. If the commissioner finds, upon review of this statement,
that compliance with this section would constitute a financial or organizational hardship
upon the insurer, an exemption may be granted.
new text end

new text begin (b) A qualified independent certified public accountant who performs the audit may
engage in other nonaudit services, including tax services, only if the activity is approved
in advance by the audit committee, in accordance with paragraph (c).
new text end

new text begin (c) All auditing services and nonaudit services provided to an insurer by the qualified
independent certified public accountant of the insurer must be preapproved by the audit
committee. The preapproval requirement is waived with respect to nonaudit services if
the insurer is a SOX compliant entity or a direct or indirect wholly owned subsidiary of a
SOX compliant entity or:
new text end

new text begin (1) the aggregate amount of all such nonaudit services provided to the insurer
constitutes not more than five percent of the total amount of fees paid by the insurer to
its qualified independent certified public accountant during the fiscal year in which the
nonaudit services are provided;
new text end

new text begin (2) the services were not recognized by the insurer at the time of the engagement to
be nonaudit services; and
new text end

new text begin (3) the services are promptly brought to the attention of the audit committee and
approved before the completion of the audit by the audit committee or by one or more
members of the audit committee who are the members of the board of directors to whom
authority to grant such approvals has been delegated by the audit committee.
new text end

new text begin (d) The audit committee may delegate to one or more designated members of the
audit committee the authority to grant the preapprovals required by paragraph (c). The
decisions of any member to whom this authority is delegated must be presented to the full
audit committee at each of its scheduled meetings.
new text end

new text begin (1) The commissioner shall not recognize an independent certified public accountant
as qualified for a particular insurer if a member of the board, president, chief executive
officer, controller, chief financial officer, chief accounting officer, or any person serving in
an equivalent position for that insurer, was employed by the independent certified public
accountant and participated in the audit of that insurer during the one-year period preceding
the date that the most current statutory opinion is due. This paragraph applies only to
partners and senior managers involved in the audit. An insurer may make application to
the commissioner for relief from this paragraph on the basis of unusual circumstances.
new text end

new text begin (2) The insurer shall file, with its annual statement filing, the approval for relief
from clause (1) with the states that it is licensed in or doing business in and the NAIC. If
the nondomestic state accepts electronic filing with the NAIC, the insurer shall file the
approval in an electronic format acceptable to the NAIC.
new text end

new text begin Subd. 9. new text end

new text begin Consolidated or combined audits. new text end

new text begin (a) The commissioner may allow
an insurer to file consolidated or combined audited financial statements required by
subdivision 2, in lieu of separate annual audited financial statements, where it can be
demonstrated that an insurer is part of a group of insurance companies that has a pooling
or 100 percent reinsurance agreement which substantially affects the solvency and
integrity of the reserves of the insurer and the insurer cedes all of its direct and assumed
business to the pool. An affiliated insurance company not meeting these requirements may
be included in the consolidated or combined audited financial statements, if the company's
total admitted assets are less than five percent of the consolidated group's total admitted
assets. If these circumstances exist, then the company may file a written application to
file consolidated or combined audited financial statements. This application must be for
a specified period.
new text end

new text begin (b) Upon written application by a domestic insurer, the commissioner may
authorize the domestic insurer to include additional affiliated insurance companies in the
consolidated or combined audited financial statements. A foreign insurer must obtain the
prior written authorization of the commissioner of its state of domicile in order to submit
an application for authority to file consolidated or combined audited financial statements.
This application must be for a specified period.
new text end

new text begin (c) A consolidated annual audit filing must include a columnar consolidated or
combining worksheet. Amounts shown on the audited consolidated or combined financial
statement must be shown on the worksheet. Amounts for each insurer must be stated
separately. Noninsurance operations may be shown on the worksheet on a combined or
individual basis. Explanations of consolidating or eliminating entries must be shown on
the worksheet. A reconciliation of any differences between the amounts shown in the
individual insurer columns of the worksheet and comparable amounts shown on the annual
statement of the insurers must be included on the worksheet.
new text end

new text begin Subd. 10. new text end

new text begin Scope of audit and report of independent certified public accountant.
new text end

new text begin Financial statements furnished pursuant to subdivision 4 must be examined by an
independent certified public accountant. The audit of the insurer's financial statements
must be conducted in accordance with generally accepted auditing standards. In
accordance with AU section 319 of the professional standards of the AICPA, Consideration
of Internal Control in a Financial Statement Audit, the independent certified public
accountant should obtain an understanding of internal control sufficient to plan the audit.
To the extent required by AU 319, for those insurers required to file a management's report
of internal control over financial reporting pursuant to subdivision 17, the independent
certified public accountant should consider (as that term is defined in Statement on
Auditing Standards (SAS) No. 102, Defining Professional Requirements in Statements
on Auditing Standards or its replacement) the most recently available report in planning
and performing the audit of the statutory financial statements. Consideration should be
given to other procedures illustrated in the Financial Condition Examiners Handbook
promulgated by the National Association of Insurance Commissioners as the independent
certified public accountant deems necessary.
new text end

new text begin Subd. 11. new text end

new text begin Notification of adverse financial condition. new text end

new text begin The insurer required to
furnish the annual audited financial report shall require the independent certified public
accountant to provide written notice within five business days to the board of directors of
the insurer or its audit committee of any determination by that independent certified public
accountant that the insurer has materially misstated its financial condition as reported to
the commissioner as of the balance sheet date currently under examination or that the
insurer does not meet the minimum capital and surplus requirement of sections 60A.07,
66A.32, and 66A.33 as of that date. An insurer required to file an annual audited financial
report who received a notification of adverse financial condition from the accountant
shall file a copy of the notification with the commissioner within five business days of
the receipt of the notification. The insurer shall provide the independent certified public
accountant making the notification with evidence of the report being furnished to the
commissioner. If the independent certified public accountant fails to receive the evidence
within the required five-day period, the independent certified public accountant shall
furnish to the commissioner a copy of the notification to the board of directors or its audit
committee within the next five business days. No independent certified public accountant
is liable in any manner to any person for any statement made in connection with this
subdivision if the statement is made in good faith in compliance with this subdivision. If
the accountant becomes aware of facts which might have affected the audited financial
report after the date it was filed, the accountant shall take the action prescribed by
Professional Standards issued by the American Institute of Certified Public Accountants.
new text end

new text begin Subd. 12. new text end

new text begin Communication of internal control related matters noted in an
audit.
new text end

new text begin In addition to the annual audited financial report, each insurer shall furnish the
commissioner with a written communication as to any unremediated material weaknesses
in its internal control over financial reporting noted during the audit. The communication
must be prepared by the accountant within 60 days after the filing of the annual audited
financial report, and must contain a description of any unremediated material weakness,
as the term material weakness is defined by Statement on Auditing Standard 60,
Communication of Internal Control Related Matters Noted in an Audit, or its replacement,
as of December 31 immediately preceding so as to coincide with the audited financial
report discussed in subdivision 2 in the insurer's internal control over financial reporting
noted by the accountant during the course of their audit of the financial statements. If no
unremediated material weaknesses were noted, the communication should so state.
new text end

new text begin The insurer is required to provide a description of remedial actions taken or
proposed to correct unremediated material weaknesses, if the actions are not described in
the accountant's communication.
new text end

new text begin Subd. 13. new text end

new text begin Accountant's letter of qualification. new text end

new text begin The accountant shall furnish the
insurer in connection with, and for inclusion in, the filing of the annual audited financial
report, a letter stating that the accountant is independent with respect to the insurer and
conforms to the standards of the accountant's profession as contained in the Code of
Professional Ethics of the American Institute of Certified Public Accountants and the
rules of professional conduct of the Minnesota Board of Accountancy or similar code;
the background and experience in general, and the experience in audits of insurers of the
staff assigned to the engagement and whether each is an independent certified public
accountant; that the accountant understands that the annual audited financial report and the
opinion on it will be filed in compliance with this statute and that the commissioner will
be relying on this information in the monitoring and regulation of the financial position of
insurers; that the accountant consents to the requirements of subdivision 14 and that the
accountant consents and agrees to make available for review by the commissioner, or the
commissioner's designee or appointed agent, the work papers, as defined in subdivision
14; a representation that the accountant is properly licensed by the appropriate state
licensing authority and is a member in good standing in the American Institute of Certified
Public Accountants; and a representation that the accountant complies with subdivision 7.
Nothing in this section prohibits the accountant from utilizing staff the accountant deems
appropriate where use is consistent with the standards prescribed by generally accepted
auditing standards.
new text end

new text begin Subd. 14. new text end

new text begin Availability and maintenance of independent certified public
accountants' work papers.
new text end

new text begin Work papers are the records kept by the independent certified
public accountant of the procedures followed, tests performed, information obtained,
and conclusions reached pertinent to the independent certified public accountant's
examination of the financial statements of an insurer. Work papers may include audit
planning documents, work programs, analyses, memoranda, letters of confirmation and
representation, management letters, abstracts of company documents, and schedules or
commentaries prepared or obtained by the independent certified public accountant in
the course of the examination of the financial statements of an insurer and that support
the accountant's opinion. Every insurer required to file an audited financial report shall
require the accountant, through the insurer, to make available for review by the examiners
the work papers prepared in the conduct of the examination and any communications
related to the audit between the accountant and the insurer. The work papers must be
made available at the offices of the insurer, at the offices of the commissioner, or at any
other reasonable place designated by the commissioner. The insurer shall require that the
accountant retain the audit work papers and communications until the commissioner
has filed a report on examination covering the period of the audit but no longer than
seven years after the period reported upon. In the conduct of the periodic review by the
examiners, it must be agreed that photocopies of pertinent audit work papers may be made
and retained by the commissioner. These copies shall be part of the commissioner's work
papers and must be given the same confidentiality as other examination work papers
generated by the commissioner.
new text end

new text begin Subd. 15. new text end

new text begin Requirements for audit committee. new text end

new text begin (a) The audit committee must
be directly responsible for the appointment, compensation, and oversight of the work
of any accountant including resolution of disagreements between management and the
accountant regarding financial reporting for the purpose of preparing or issuing the audited
financial report or related work pursuant to this regulation. Each accountant shall report
directly to the audit committee.
new text end

new text begin (b) Each member of the audit committee must be a member of the board of directors
of the insurer or a member of the board of directors of an entity elected pursuant to
paragraph (e) and subdivision 1, paragraph (b).
new text end

new text begin (c) In order to be considered independent for purposes of this section, a member of
the audit committee may not, other than in his or her capacity as a member of the audit
committee, the board of directors, or any other board committee, accept any consulting,
advisory, or other compensatory fee from the entity or be an affiliated person of the entity
or any subsidiary of the entity. However, if law requires board participation by otherwise
nonindependent members, that law shall prevail and such members may participate in the
audit committee and be designated as independent for audit committee purposes, unless
they are an officer or employee of the insurer or one of its affiliates.
new text end

new text begin (d) If a member of the audit committee ceases to be independent for reasons outside
the member's reasonable control, that person, with notice by the responsible entity to the
state, may remain an audit committee member of the responsible entity until the earlier of
the next annual meeting of the responsible entity or one year from the occurrence of the
event that caused the member to be no longer independent.
new text end

new text begin (e) To exercise the election of the controlling person to designate the audit committee
for purposes of this section, the ultimate controlling person shall provide written notice to
the commissioners of the affected insurers. Notification must be made timely before the
issuance of the statutory audit report and include a description of the basis for the election.
The election can be changed through notice to the commissioner by the insurer, which
shall include a description of the basis for the change. The election remains in effect for
perpetuity, until rescinded.
new text end

new text begin (f) The audit committee shall require the accountant that performs for an insurer any
audit required by this section to timely report to the audit committee in accordance with
the requirements of SAS 61, Communication with Audit Committees, or its replacement,
including:
new text end

new text begin (1) all significant accounting policies and material permitted practices;
new text end

new text begin (2) all material alternative treatments of financial information within statutory
accounting principles that have been discussed with management officials of the insurer,
ramifications of the use of the alternative disclosures and treatments, and the treatment
preferred by the accountant; and
new text end

new text begin (3) other material written communications between the accountant and the
management of the insurer, such as any management letter or schedule of unadjusted
differences.
new text end

new text begin (g) If an insurer is a member of an insurance holding company system, the reports
required by paragraph (f) may be provided to the audit committee on an aggregate basis
for insurers in the holding company system, provided that any substantial differences
among insurers in the system are identified to the audit committee.
new text end

new text begin (h) The proportion of independent audit committee members shall meet or exceed
the following criteria:
new text end

new text begin (1) for companies with prior calendar year direct written and assumed premiums $0
to $300,000,000, no minimum requirements;
new text end

new text begin (2) for companies with prior calendar year direct written and assumed premiums
over $300,000,000 to $500,000,000, majority of members must be independent; and
new text end

new text begin (3) for companies with prior calendar year direct written and assumed premiums
over $500,000,000, 75 percent or more must be independent.
new text end

new text begin (i) An insurer with direct written and assumed premium, excluding premiums
reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, less
than $500,000,000 may make application to the commissioner for a waiver from the
requirements of this subdivision based upon hardship. The insurer shall file, with its
annual statement filing, the approval for relief from this subdivision with the states that
it is licensed in or doing business in and the NAIC. If the nondomestic state accepts
electronic filing with the NAIC, the insurer shall file the approval in an electronic format
acceptable to the NAIC.
new text end

new text begin This section does not apply to foreign or alien insurers licensed in this state or an
insurer that is a SOX compliant entity or a direct or indirect wholly-owned subsidiary of
a SOX compliant entity.
new text end

new text begin Subd. 16. new text end

new text begin Conduct of insurer in connection with the preparation of required
reports and documents.
new text end

new text begin (a) No director or officer of an insurer shall, directly or indirectly:
new text end

new text begin (1) make or cause to be made a materially false or misleading statement to an
accountant in connection with any audit, review, or communication required under this
section; or
new text end

new text begin (2) omit to state, or cause another person to omit to state, any material fact necessary
in order to make statements made, in light of the circumstances under which the statements
were made, not misleading to an accountant in connection with any audit, review, or
communication required under this section.
new text end

new text begin (b) No officer or director of an insurer, or any other person acting under the direction
thereof, shall directly or indirectly take any action to coerce, manipulate, mislead, or
fraudulently influence any accountant engaged in the performance of an audit pursuant to
this section if that person knew or should have known that the action, if successful, could
result in rendering the insurer's financial statements materially misleading.
new text end

new text begin (c) For purposes of paragraph (b), actions that, "if successful, could result in
rendering the insurer's financial statements materially misleading" include, but are not
limited to, actions taken at any time with respect to the professional engagement period to
coerce, manipulate, mislead, or fraudulently influence an accountant:
new text end

new text begin (1) to issue or reissue a report on an insurer's financial statements that is not
warranted in the circumstances due to material violations of statutory accounting
principles prescribed by the commissioner, generally accepted auditing standards, or
other professional or regulatory standards;
new text end

new text begin (2) not to perform audit, review, or other procedures required by generally accepted
auditing standards or other professional standards;
new text end

new text begin (3) not to withdraw an issued report; or
new text end

new text begin (4) not to communicate matters to an insurer's audit committee.
new text end

new text begin Subd. 17. new text end

new text begin Management's report of internal control over financial reporting.
new text end

new text begin (a) Every insurer required to file an audited financial report pursuant to this section that
has annual direct written and assumed premiums, excluding premiums reinsured with the
Federal Crop Insurance Corporation and Federal Flood Program, of $500,000,000 or
more, shall prepare a report of the insurer's or group of insurers' internal control over
financial reporting, as these terms are defined in subdivision 1. The report must be filed
with the commissioner along with the communication of internal control related matters
noted in an audit described under subdivision 12. Management's report of internal control
over financial reporting shall be as of December 31 immediately preceding.
new text end

new text begin (b) Notwithstanding the premium threshold in paragraph (a), the commissioner may
require an insurer to file management's report of internal control over financial reporting if
the insurer is in any RBC level event, or meets any one or more of the standards of an
insurer deemed to be in hazardous financial condition as pursuant to sections 606.20
to 606.22.
new text end

new text begin (c) An insurer or a group of insurers that is:
new text end

new text begin (1) directly subject to Section 404;
new text end

new text begin (2) part of a holding company system whose parent is directly subject to Section 404;
new text end

new text begin (3) not directly subject to Section 404 but is a SOX compliant entity; or
new text end

new text begin (4) a member of a holding company system whose parent is not directly subject to
Section 404 but is a SOX compliant entity;
new text end

new text begin may file its or its parent's Section 404 report and an addendum in satisfaction of this
requirement provided that those internal controls of the insurer or group of insurers
having a material impact on the preparation of the insurer's or group of insurers' audited
statutory financial statements, consisting of those items included in subdivision 4,
paragraphs (a), clauses (2) to (6), (b), and (c), were included in the scope of the Section
404 report. The addendum shall be a positive statement by management that there are
no material processes with respect to the preparation of the insurer's or group of insurers'
audited statutory financial statements, consisting of those items included in subdivision 4,
paragraphs (a), clauses (2) to (6), (b), and (c), excluded from the Section 404 report. If
there are internal controls of the insurer or group of insurers that have a material impact on
the preparation of the insurer's or group of insurers' audited statutory financial statements
and those internal controls were not included in the scope of the Section 404 report, the
insurer or group of insurers may either file (i) a report under this subdivision, or (ii) the
Section 404 report and a report under this subdivision for those internal controls that have
a material impact on the preparation of the insurer's or group of insurers' audited statutory
financial statements not covered by the Section 404 report.
new text end

new text begin (d) Management's report of internal control over financial reporting shall include:
new text end

new text begin (1) a statement that management is responsible for establishing and maintaining
adequate internal control over financial reporting;
new text end

new text begin (2) a statement that management has established internal control over financial
reporting and an assertion, to the best of management's knowledge and belief, after diligent
inquiry, as to whether its internal control over financial reporting is effective to provide
reasonable assurance regarding the reliability of financial statements in accordance with
statutory accounting principles;
new text end

new text begin (3) a statement that briefly describes the approach or processes by which
management evaluated the effectiveness of its internal control over financial reporting;
new text end

new text begin (4) a statement that briefly describes the scope of work that is included and whether
any internal controls were excluded;
new text end

new text begin (5) disclosure of any unremediated material weaknesses in the internal control over
financial reporting identified by management as of December 31 immediately preceding.
Management is not permitted to conclude that the internal control over financial reporting
is effective to provide reasonable assurance regarding the reliability of financial statements
in accordance with statutory accounting principles if there is one or more unremediated
material weaknesses in its internal control over financial reporting;
new text end

new text begin (6) a statement regarding the inherent limitations of internal control systems; and
new text end

new text begin (7) signatures of the chief executive officer and the chief financial officer or
equivalent position or title.
new text end

new text begin (e) Management shall document and make available upon financial condition
examination the basis upon which its assertions, required in paragraph (d), are made.
Management may base its assertions, in part, upon its review, monitoring, and testing of
internal controls undertaken in the normal course of its activities.
new text end

new text begin (1) Management has discretion as to the nature of the internal control framework
used, and the nature and extent of documentation, in order to make its assertion in a
cost-effective manner and, as such, may include assembly of or reference to existing
documentation.
new text end

new text begin (2) Management's report on internal control over financial reporting, required by
paragraph (a), and any documentation provided in support of the report during the course
of a financial condition examination, must be kept confidential by the Department of
Commerce.
new text end

new text begin Subd. 18. new text end

new text begin Exemptions. new text end

new text begin (a) Upon written application of any insurer, the
commissioner may grant an exemption from compliance with the provisions of this
section. In order to receive an exemption, an insurer must demonstrate to the satisfaction
of the commissioner that compliance would constitute a financial or organizational
hardship upon the insurer. An exemption may be granted at any time and from time
to time for specified periods. Within ten days from the denial of an insurer's written
request for an exemption, the insurer may request in writing a hearing on its application
for an exemption. This hearing must be held in accordance with chapter 14. Upon written
application of any insurer, the commissioner may permit an insurer to file annual audited
financial reports on some basis other than a calendar year basis for a specified period. An
exemption may not be granted until the insurer presents an alternative method satisfying
the purposes of this section. Within ten days from a denial of a written request for an
exemption, the insurer may request in writing a hearing on its application. The hearing
must be held in accordance with chapter 14.
new text end

new text begin (b) This section applies to all insurers, unless otherwise indicated, required to file
an annual audit by subdivision 2, except insurers having less than $1,000,000 of direct
written premiums in this state in any calendar year and fewer than 1,000 policyholders
or certificate holders of directly written policies nationwide at the end of the calendar
year, are exempt from this section for that year, unless the commissioner makes a
specific finding that compliance is necessary for the commissioner to carry out statutory
responsibilities, except that insurers having assumed premiums from reinsurance contracts
or treaties of $1,000,000 or more are not exempt.
new text end

new text begin Subd. 19. new text end

new text begin Canadian and British companies. new text end

new text begin (a) In the case of Canadian and
British insurers, the annual audited financial report means the annual statement of total
business on the form filed by these companies with their domiciliary supervision authority
and duly audited by an independent chartered accountant.
new text end

new text begin (b) For these insurers the letter required in subdivision 5 shall state that the
accountant is aware of the requirements relating to the annual audited statement filed
with the commissioner under subdivision 2, and shall affirm that the opinion expressed
is in conformity with those requirements.
new text end

new text begin Subd. 20. new text end

new text begin Commercial mortgage loan valuation procedures. new text end

new text begin The audit report of
the independent certified public accountant that performs the audit of an insurer's annual
statement as required under subdivision 2, shall contain a statement as to whether anything
in connection with the audit came to the accountant's attention that caused the accountant
to believe that the insurer failed to adopt and consistently apply the valuation procedures
as required by sections 60A.122 and 60A.123.
new text end

new text begin Subd. 21. new text end

new text begin Examinations. new text end

new text begin (a) The commissioner or a designated representative shall
determine the nature, scope, and frequency of examinations under this section conducted
by examiners under section 60A.031. These examinations may cover all aspects of the
insurer's assets, condition, affairs, and operations and may include and be supplemented
by audit procedures performed by independent certified public accountants. Scheduling
of examinations will take into account all relevant matters with respect to the insurer's
condition, including results of the National Association of Insurance Commissioners,
Insurance Regulatory Information Systems, changes in management, results of market
conduct examinations, and audited financial reports. The type of examinations performed
by examiners under this section must be compliance examinations, targeted examinations,
and comprehensive examinations.
new text end

new text begin (b) Compliance examinations will consist of a review of the accountant's workpapers
defined under this section and a general review of the insurer's corporate affairs and
insurance operations to determine compliance with the Minnesota insurance laws and
the rules of the Department of Commerce. The examiners may perform alternative or
additional examination procedures to supplement those performed by the accountant
when the examiners determine that the procedures are necessary to verify the financial
condition of the insurer.
new text end

new text begin (c) Targeted examinations may cover limited areas of the insurer's operations as
the commissioner may deem appropriate.
new text end

new text begin (d) Comprehensive examinations will be performed when the report of the
accountant as provided for in subdivision 7, paragraph (b), the notification required by
subdivision 7, paragraph (c), the results of compliance or targeted examinations, or other
circumstances indicate in the judgment of the commissioner or a designated representative
that a complete examination of the condition and affairs of the insurer is necessary.
new text end

new text begin (e) Upon completion of each targeted, compliance, or comprehensive examination,
the examiner appointed by the commissioner shall make a full and true report on the
results of the examination. Each report shall include a general description of the audit
procedures performed by the examiners and the procedures of the accountant that
the examiners may have utilized to supplement their examination procedures and the
procedures that were performed by the registered independent certified public accountant
if included as a supplement to the examination.
new text end

new text begin Subd. 22. new text end

new text begin Penalties. new text end

new text begin An annual statement, report, or document related to the
business of insurance must not be filed with the commissioner or issued to the public if it
is signed by anyone who is represented in the instrument as an "accountant," unless the
person is qualified as defined by this section. A violation of this subdivision is a violation
of section 72A.19 and punishable in accordance with section 72A.25.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin (a) Domestic insurers retaining a certified public accountant
on the effective date of this act who qualify as independent shall comply with this act for
the year ending December 31, 2010, and each year thereafter unless the commissioner
permits otherwise.
new text end

new text begin (b) Domestic insurers not retaining a certified public accountant on the effective date
of this act who qualifies as independent shall meet the following schedule for compliance
unless the commissioner permits otherwise.
new text end

new text begin (1) As of December 31, 2010, file with the commissioner an audited financial report.
new text end

new text begin (2) For the year ending December 31, 2010, and each year thereafter, such insurers
shall file with the commissioner all reports and communication required by this section.
new text end

new text begin (c) Foreign insurers shall comply with this act for the year ending December 31,
2010, and each year thereafter, unless the commissioner permits otherwise.
new text end

new text begin (d) The requirements of subdivision 7, paragraph (b), are in effect for audits of the
year beginning January 1, 2010, and thereafter.
new text end

new text begin (e) The requirements of subdivision 15 are in effect January 1, 2010. An insurer or
group of insurers that is not required to have independent audit committee members or
only a majority of independent audit committee members, as opposed to a supermajority,
because the total written and assumed premium is below the threshold and subsequently
becomes subject to one of the independence requirements due to changes in premium has
one year following the year the threshold is exceeded, but not earlier than January 1,
2010, to comply with the independence requirements. Likewise, an insurer that becomes
subject to one of the independence requirements as a result of a business combination
has one calendar year following the date of acquisition or combination to comply with
the independence requirements.
new text end

new text begin (f) An insurer or group of insurers that is not required to file a report because the total
written premium is below the threshold and subsequently becomes subject to the reporting
requirements has two years following the year the threshold is exceeded, but not earlier
than December 31, 2010, to file a report. Likewise, an insurer acquired in a business
combination has two calendar years following the date of acquisition or combination to
comply with the reporting requirements.
new text end

new text begin (g) The requirements and provisions contained in this section are effective January
1, 2010, and thereafter.
new text end

Sec. 11.

Minnesota Statutes 2008, section 60B.03, subdivision 15, is amended to read:


Subd. 15.

Insolvency.

"Insolvency" means:

(a) For an insurer organized under sections 67A.01 to 67A.26, the inability to pay
any uncontested debt as it becomes due deleted text beginor any other loss within 30 days after the due date
specified in the first assessment notice issued pursuant to section 67A.17
deleted text end.

(b) 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. 12.

Minnesota Statutes 2008, section 60L.02, subdivision 3, is amended to read:


Subd. 3.

Additional requirements.

(a) In order to be eligible to be governed by
sections 60L.01 to 60L.15, the insurer must meet the requirements specified under this
subdivision.

(b) The insurer shall:

(1) have been in continuous operation for a minimum of five years; and

(2) maintain a minimum claims-paying, financial strength, or equivalent rating from
at least one nationally recognized statistical rating organization in one of the organization's
three highest rating categories for the time period during which sections 60L.01 to 60L.15
apply to the insurer. For purposes of this subdivision, the rating must be based on a
review of the insurer by the nationally recognized statistical rating organization with the
cooperation of the insurer; must not depend on a guarantee or other credit enhancement
from another entity; and must not be modified or otherwise qualified to show dependence
of the rating on the performance or a contractual obligation of, or the insurer's affiliation
with, another insurer.

(c) The insurer or an affiliate, as defined in section 60D.15, subdivision 2, of the
insurer shall employ at least one individual as a professional investment manager for
the insurer's investments whom the board of directors or trustees of the insurer finds
is qualified on the basis of experience, education or training, competence, personal
integrity, and who conducts professional investment management activities in accordance
with the Code of Ethics and Standards of Professional Conduct of the Association for
Investment Management and Research. For purposes of complying with this paragraph,
an employee of an affiliate may only be used if they are responsible for managing the
insurer's investments.

(d) The board of directors of the insurer must annually adopt a resolution finding
that the insurer or an affiliate, as defined in section 60D.15, subdivision 2, of the insurer
has employed a professional investment manager for the insurer's investments with
sufficient expertise and has sufficient other resources to implement and monitor the
insurer's investment policies and strategies.

(e) In the report required under section deleted text begin60A.129deleted text endnew text begin 60A.1291new text end, subdivision deleted text begin3deleted text endnew text begin 12new text end,
deleted text begin paragraph (l),deleted text end the insurer's independent auditor shall not have identified any significant
deficiencies in the insurer's internal control structure related to investments during any of
the five years immediately preceding the date on which sections 60L.01 to 60L.15 begin to
apply to the insurer, and as long as sections 60L.01 to 60L.15 apply to the insurer.

Sec. 13.

new text begin [61A.258] PRENEED INSURANCE PRODUCTS; MINIMUM
MORTALITY STANDARDS FOR RESERVES AND NONFORFEITURE VALUES.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin For the purposes of this section, the following terms
have the meanings given them:
new text end

new text begin (1) "2001 CSO Mortality Table (2001 CSO)" means that mortality table, consisting
of separate rates of mortality for male and female lives, developed by the American
Academy of Actuaries CSO Task Force from the Valuation Basic Mortality Table
developed by the Society of Actuaries Individual Life Insurance Valuation Mortality
Task Force, and adopted by the National Association of Insurance Commissioners
(NAIC) in December 2002. The 2001 CSO Mortality Table (2001 CSO) is included in
the Proceedings of the NAIC (2nd Quarter 2002). Unless the context indicates otherwise,
the "2001 CSO Mortality Table (2001 CSO)" includes both the ultimate form of that
table and the select and ultimate form of that table and includes both the smoker and
nonsmoker mortality tables and the composite mortality tables. It also includes both the
age-nearest-birthday and age-last-birthday bases of the mortality tables;
new text end

new text begin (2) "Ultimate 1980 CSO" means the Commissioners' 1980 Standard Ordinary Life
Valuation Mortality Tables (1980 CSO) without ten-year selection factors, incorporated
into the 1980 amendments to the NAIC Standard Valuation Law approved in December
1983; and
new text end

new text begin (3) "preneed insurance" is any life insurance policy or certificate that is issued
in combination with, in support of, with an assignment to, or as a guarantee for a
prearrangement agreement for goods and services to be provided at the time of and
immediately following the death of the insured. Goods and services may include, but
are not limited to embalming, cremation, body preparation, viewing or visitation, coffin
or urn, memorial stone, and transportation of the deceased. The status of the policy or
contract as preneed insurance is determined at the time of issue in accordance with the
policy form filing.
new text end

new text begin Subd. 2. new text end

new text begin Minimum valuation mortality standards. new text end

new text begin For preneed insurance
contracts, the minimum mortality standard for determining reserve liabilities and
nonforfeiture values for both male and female insureds shall be the Ultimate 1980 CSO.
new text end

new text begin Subd. 3. new text end

new text begin Minimum valuation interest rate standards. new text end

new text begin (a) The interest rates used
in determining the minimum standard for valuation of preneed insurance shall be the
calendar year statutory valuation interest rates as defined in section 61A.25.
new text end

new text begin (b) The interest rates used in determining the minimum standard for nonforfeiture
values for preneed insurance shall be the calendar year statutory nonforfeiture interest
rates as defined in section 61A.24.
new text end

new text begin Subd. 4. new text end

new text begin Minimum valuation method standards. new text end

new text begin (a) The method used in
determining the standard for the minimum valuation of reserves of preneed insurance shall
be the method defined in section 61A.25.
new text end

new text begin (b) The method used in determining the standard for the minimum nonforfeiture
values for preneed insurance shall be the method defined in section 61A.24.
new text end

new text begin EFFECTIVE DATE; TRANSITION RULES. new text end

new text begin (a) This section is effective January
1, 2009, and applies to preneed insurance policies and certificates issued on or after that
date.
new text end

new text begin (b) For preneed insurance policies issued on or after the effective date of this
section and before January 1, 2012, the 2001 CSO may be used as the minimum standard
for reserves and minimum standard for nonforfeiture benefits for both male and female
insureds.
new text end

new text begin (c) If an insurer elects to use the 2001 CSO as a minimum standard for any policy
issued on or after the effective date of section 1 and before January 1, 2012, the insurer
shall provide, as a part of the actuarial opinion memorandum submitted in support of
the company's asset adequacy testing, an annual written notification to the domiciliary
commissioner. The notification shall include:
new text end

new text begin (1) a complete list of all preneed policy forms that use the 2001 CSO as a minimum
standard;
new text end

new text begin (2) a certification signed by the appointed actuary stating that the reserve
methodology employed by the company in determining reserves for the preneed policies
issued after the effective date and using the 2001 CSO as a minimum standard, develops
adequate reserves (For the purposes of this certification, the preneed insurance policies
using the 2001 CSO as a minimum standard cannot be aggregated with any other
policies.); and
new text end

new text begin (3) supporting information regarding the adequacy of reserves for preneed insurance
policies issued after the effective date of section 1 and using the 2001 CSO as a minimum
standard for reserves.
new text end

new text begin (d) Preneed insurance policies issued on or after January 1, 2012, must use the
Ultimate 1980 CSO in the calculation of minimum nonforfeiture values and minimum
reserves.
new text end

Sec. 14.

Minnesota Statutes 2008, section 61B.28, subdivision 7, is amended to read:


Subd. 7.

Notice concerning limitations and exclusions.

(a) No person, including
an insurer, agent, or affiliate of an insurer or agent, shall offer for sale in this state a
covered life insurance, annuity, or health insurance policy or contract without delivering
at the time of application for that policy or contract a notice in the form specified in
subdivision 8, new text beginwith amounts adjusted for inflation as prescribed in section 61B.19,
subdivision 6,
new text endor in a form approved by the commissioner under paragraph (b), relating to
coverage provided by the Minnesota Life and Health Insurance Guaranty Association.
The notice may be part of the application. A copy of the notice must be given to the
applicant. The notice must be delivered to the applicant at the time of application for the
policy or contract, except that if the application is not taken from the applicant in person,
the notice must be sent to the applicant within 72 hours after the application is taken. The
person offering the policy or contract shall document the fact that the notice was given at
the time of application or was sent within the specified time. This does not require that the
receipt of the notice be acknowledged by the applicant.

(b) The association may prepare, and file with the commissioner for approval, a form
of notice as an alternative to the form of notice specified in subdivision 8 describing the
general purposes and limitations of this chapter. The form of notice shall:

(1) state the name, address, and telephone number of the Minnesota Life and Health
Insurance Guaranty Association;

(2) prominently warn the policy or contract holder that the Minnesota Life and
Health Insurance Guaranty Association may not cover the policy or, if coverage is
available, it will be subject to substantial limitations and exclusions and conditioned on
continued residence in the state;

(3) state that the insurer and its agents are prohibited by law from using the existence
of the Minnesota Life and Health Insurance Guaranty Association for the purpose of sales,
solicitation, or inducement to purchase any form of insurance;

(4) emphasize that the policy or contract holder should not rely on coverage under
the Minnesota Life and Health Insurance Guaranty Association when selecting an insurer;

(5) provide other information as directed by the commissioner. The commissioner
may approve any form of notice proposed by the association and, as to the approved form
of notice, the association may notify all member insurers by mail that the form of notice is
available as an alternative to the notice specified in subdivision 8.

(c) A policy or contract not covered by the Minnesota Life and Health Insurance
Guaranty Association or the Minnesota Insurance Guaranty Association must contain the
following notice in ten-point type, stamped in red ink or contrasting type on the policy
or contract and the application:

"THIS POLICY OR CONTRACT IS NOT PROTECTED BY THE MINNESOTA
LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION OR THE
MINNESOTA INSURANCE GUARANTY ASSOCIATION. IN THE CASE OF
INSOLVENCY, PAYMENT OF CLAIMS IS NOT GUARANTEED. ONLY THE
ASSETS OF THIS INSURER WILL BE AVAILABLE TO PAY YOUR CLAIM."

This section does not apply to fraternal benefit societies regulated under chapter 64B.

Sec. 15.

Minnesota Statutes 2008, section 61B.28, subdivision 8, is amended to read:


Subd. 8.

Form.

The form of notice referred to in subdivision 7, paragraph (a),
is as follows:

"....................

....................

....................

(insert name, current address, and

telephone number of insurer)

NOTICE CONCERNING POLICYHOLDER RIGHTS IN AN

INSOLVENCY UNDER THE MINNESOTA LIFE AND HEALTH

INSURANCE GUARANTY ASSOCIATION LAW

If the insurer that issued your life, annuity, or health insurance policy becomes
impaired or insolvent, you are entitled to compensation for your policy from the assets of
that insurer. The amount you recover will depend on the financial condition of the insurer.

In addition, residents of Minnesota who purchase life insurance, annuities, or
health insurance from insurance companies authorized to do business in Minnesota are
protected, SUBJECT TO LIMITS AND EXCLUSIONS, in the event the insurer becomes
financially impaired or insolvent. This protection is provided by the Minnesota Life
and Health Insurance Guaranty Association.new text begin Annually, the commissioner of commerce
will publish the current limits for the benefits and provide them to the Minnesota Life
and Health Guaranty Association.
new text end

Minnesota Life and Health Insurance Guaranty Association

(insert current

address and telephone number)

The maximum amount the guaranty association will pay for all policies issued
on one life by the same insurer deleted text beginis limited to $300,000deleted text endnew text begin will be annually determined by
the commissioner of commerce
new text end. Subject to deleted text beginthis $300,000deleted text endnew text begin thenew text end limitnew text begin determined by the
commissioner of commerce
new text end, the guaranty association will pay up to deleted text begin$300,000deleted text endnew text begin $.......new text end in life
insurance death benefits, deleted text begin$100,000deleted text endnew text begin $.......new text end in net cash surrender and net cash withdrawal
values for life insurance, deleted text begin$300,000deleted text endnew text begin $.......new text end in health insurance benefits, including any
net cash surrender and net cash withdrawal values, deleted text begin$100,000deleted text endnew text begin $.......new text end in annuity net cash
surrender and net cash withdrawal values, deleted text begin$300,000deleted text endnew text begin $.......new text end in present value of annuity
benefits for annuities which are part of a structured settlement or for annuities in regard
to which periodic annuity benefits, for a period of not less than the annuitant's lifetime
or for a period certain of not less than ten years, have begun to be paid on or before the
date of impairment or insolvency, or if no coverage limit has been specified for a covered
policy or benefit, the coverage limit shall be deleted text begin$300,000deleted text endnew text begin $.......new text end in present value. Unallocated
annuity contracts issued to retirement plans, other than defined benefit plans, established
under section 401, 403(b), or 457 of the Internal Revenue Code of 1986, as amended
through December 31, 1992, are covered up to deleted text begin$100,000deleted text endnew text begin $.......new text end in net cash surrender
and net cash withdrawal values, for Minnesota residents covered by the plan provided,
however, that the association shall not be responsible for more than $7,500,000 in claims
from all Minnesota residents covered by the plan. If total claims exceed $7,500,000, the
$7,500,000 shall be prorated among all claimants. These are the maximum claim amounts.
Coverage by the guaranty association is also subject to other substantial limitations and
exclusions and requires continued residency in Minnesota. If your claim exceeds the
guaranty association's limits, you may still recover a part or all of that amount from the
proceeds of the liquidation of the insolvent insurer, if any exist. Funds to pay claims
may not be immediately available. The guaranty association assesses insurers licensed
to sell life and health insurance in Minnesota after the insolvency occurs. Claims are
paid from this assessment.

THE COVERAGE PROVIDED BY THE GUARANTY ASSOCIATION IS NOT
A SUBSTITUTE FOR USING CARE IN SELECTING INSURANCE COMPANIES
THAT ARE WELL MANAGED AND FINANCIALLY STABLE. IN SELECTING AN
INSURANCE COMPANY OR POLICY, YOU SHOULD NOT RELY ON COVERAGE
BY THE GUARANTY ASSOCIATION.

THIS NOTICE IS REQUIRED BY MINNESOTA STATE LAW TO ADVISE
POLICYHOLDERS OF LIFE, ANNUITY, OR HEALTH INSURANCE POLICIES
OF THEIR RIGHTS IN THE EVENT THEIR INSURANCE CARRIER BECOMES
FINANCIALLY INSOLVENT. THIS NOTICE IN NO WAY IMPLIES THAT THE
COMPANY CURRENTLY HAS ANY TYPE OF FINANCIAL PROBLEMS. ALL LIFE,
ANNUITY, AND HEALTH INSURANCE POLICIES ARE REQUIRED TO PROVIDE
THIS NOTICE."

Additional language may be added to the notice if approved by the commissioner
prior to its use in the form. This section does not apply to fraternal benefit societies
regulated under chapter 64B.

Sec. 16.

Minnesota Statutes 2008, section 67A.01, is amended to read:


67A.01 NUMBER OF MEMBERS REQUIRED, PROPERTY AND
TERRITORY.

new text begin Subdivision 1. new text end

new text begin Number of members. new text end

deleted text begin(a)deleted text end It shall be lawful for any number of
persons, not less than 25, residing in adjoining deleted text begintownshipsdeleted text endnew text begin countiesnew text end in this state, who shall
collectively own property worth at least $50,000, to form themselves into a corporation
for mutual insurance against loss or damage by the perils listed in section 67A.13.

deleted text begin (b) Except as otherwise provided in this section, the company shall operate in no
more than 150 adjoining townships in the aggregate at the same time. The company may,
if approval has been granted by the commissioner, operate in more than 150 adjoining
townships in the aggregate at the same time, subject to a maximum of 300 townships.
If the company confines its operations to one county it may transact business in that
county by so providing in its certificate of incorporation. In case of merger of two or
more companies having contiguous territories, the surviving company in the merger may
transact business in the entire territory of the merged companies, but the territory of the
surviving company in the merger must not be larger than 300 townships.
deleted text end

new text begin Subd. 2. new text end

new text begin Authorized territory. new text end

new text begin (a) A township mutual fire insurance company may
be authorized to write business in up to nine adjoining counties in the aggregate at the
same time. If policyholder surplus is at least $500,000 as reported in the company's last
annual financial statement filed with the commissioner, the company may, if approval has
been granted by the commissioner, be authorized to write business in ten or more counties
in the aggregate at the same time, subject to a maximum of 20 adjoining counties, in
accordance with the following schedule:
new text end

new text begin Number of
Counties
new text end
new text begin Surplus
Requirement
new text end
new text begin 10
new text end
new text begin $500,000
new text end
new text begin 11
new text end
new text begin 600,000
new text end
new text begin 12
new text end
new text begin 700,000
new text end
new text begin 13
new text end
new text begin 800,000
new text end
new text begin 14
new text end
new text begin 900,000
new text end
new text begin 15
new text end
new text begin 1,000,000
new text end
new text begin 16
new text end
new text begin 1,100,000
new text end
new text begin 17
new text end
new text begin 1,200,000
new text end
new text begin 18
new text end
new text begin 1,300,000
new text end
new text begin 19
new text end
new text begin 1,400,000
new text end
new text begin 20
new text end
new text begin 1,500,000
new text end

new text begin (b) In the case of a merger of two or more companies having contiguous territories,
the surviving company in the merger may transact business in the entire territory of the
merged companies; however, the territory of the surviving company in the merger may not
be larger than 20 counties.
new text end

new text begin (c) A township mutual fire insurance company may write new and renewal insurance
on property in cities within the company's authorized territory having a population less
than 25,000. A township mutual may continue to write new and renewal insurance once
the population increases to 25,000 or greater provided that amended and restated articles
are filed with the commissioner along with a certification that such city's population has
increased to 25,000 or greater.
new text end

new text begin (d) A township mutual fire insurance company may write new and renewal insurance
on property in cities within the company's authorized territory with a population of 25,000
or greater, but less than 150,000, if approval has been granted by the commissioner.
No township mutual fire insurance company shall insure any property in cities with a
population of 150,000 or greater.
new text end

new text begin (e) If a township mutual fire insurance company provides evidence to the
commissioner that the company had insurance in force on December 31, 2007, in a city
within the company's authorized territory with a population of 25,000 or greater, but less
than 150,000, the company may write new and renewal insurance on property in that city
provided that the company files amended and restated articles by July 31, 2010, naming
that city.
new text end

Sec. 17.

Minnesota Statutes 2008, section 67A.06, is amended to read:


67A.06 POWERS OF CORPORATION.

Every corporation formed under the provisions of sections 67A.01 to 67A.26,
shall have power:

(1) to have succession by its corporate name for the time stated in its certificate of
incorporation;

(2) to sue and be sued in any court;

(3) to have and use a common seal and alter the same at pleasure;

(4) to acquire, by purchase or otherwise, and to hold, enjoy, improve, lease,
encumber, and convey all real and personal property necessary for the purpose of its
organization, subject to such limitations as may be imposed by law or by its articles of
incorporation;

(5) to elect or appoint in such manner as it may determine all necessary or proper
officers, agents, boards, and committees, fix their compensation, and define their powers
and duties;

(6) to make and amend consistently with law bylaws providing for the management
of its property and the regulation and government of its affairs;

(7) to wind up and liquidate its business in the manner provided by chapter 60B; deleted text beginand
deleted text end

(8) to indemnify certain persons against expenses and liabilities as provided in
section 302A.521. In applying section 302A.521 for this purpose, the term "members"
shall be substituted for the terms "shareholders" and "stockholdersdeleted text begin.deleted text end"new text begin; and
new text end

new text begin (9) to eliminate or limit a director's personal liability to the company or its members
for monetary damages for breach of fiduciary duty as a director. A company shall not
eliminate or limit the liability of a director:
new text end

new text begin (i) for breach of loyalty to the company or its members;
new text end

new text begin (ii) for acts or omissions made in bad faith or with intentional misconduct or
knowing violation of law;
new text end

new text begin (iii) for transactions from which the director derived an improper personal benefit; or
new text end

new text begin (iv) for acts or omissions occurring before the date that the provisions in the articles
eliminating or limiting liability become effective.
new text end

Sec. 18.

Minnesota Statutes 2008, section 67A.07, is amended to read:


67A.07 PRINCIPAL OFFICE.

The principal office of a township mutual fire insurance company shall be located in
a deleted text begintownship or in a city in a townshipdeleted text endnew text begin countynew text end in which the company is authorized to do
business.

Sec. 19.

Minnesota Statutes 2008, section 67A.14, subdivision 1, is amended to read:


Subdivision 1.

Kinds of propertynew text begin; property outside authorized territorynew text end.

(a)
Township mutual fire insurance companies may insure qualified property. Qualified
property means dwellings, household goods, appurtenant structures, farm buildings, farm
personal property, churches, church personal property, county fair buildings, community
and township meeting halls and their usual contents.

(b) Township mutual fire insurance companies may extend coverage to include
an insured's secondary property if the township mutual fire insurance company covers
qualified property belonging to the insured. Secondary property means any real or
personal property that is not considered qualified property for a township mutual fire
insurance company to cover under this chapter. The maximum amount of coverage that a
township mutual fire insurance company may write for secondary property is 25 percent of
the total limit of liability of the policy issued to an insured covering the qualified property.

new text begin (c) A township mutual fire insurance company may insure any real or personal
property, including qualified or secondary property, subject to the limitations in
subdivision 1, paragraph (b), located outside the limits of the territory in which the
company is authorized by its certificate or articles of incorporation to transact business, if
the company is already covering qualified property belonging to the insured, inside the
limits of the company's territory.
new text end

new text begin (d) A township mutual fire insurance company may insure property temporarily
outside of the authorized territory of the township mutual fire insurance company.
new text end

Sec. 20.

Minnesota Statutes 2008, section 67A.14, subdivision 7, is amended to read:


Subd. 7.

Amount of insurable risk.

No township mutual new text beginfire new text endinsurance company
shall insure or reinsure a single risk or hazard in a larger sum than the greater of $3,000, or
one tenth of its net assets plus two tenths of a mill of its insurance in force; provided that
no portion of any such risk or hazard which shall have been reinsured, as authorized by
the laws of this state, shall be included in determining the limitation of risk prescribed
by this subdivision.

Sec. 21.

new text begin [67A.175] SURPLUS REQUIREMENTS.
new text end

new text begin Subdivision 1. new text end

new text begin Minimum. new text end

new text begin Township mutual fire insurance companies shall maintain
a minimum policyholders' surplus of $300,000 at all times.
new text end

new text begin Subd. 2. new text end

new text begin Corrective action plan; filing. new text end

new text begin A township mutual fire insurance company
that falls below the $300,000 minimum surplus requirement must file a corrective action
plan with the commissioner. The plan shall state how the company will correct its surplus
deficiency. The plan must be submitted within 45 days of the company falling below the
minimum surplus level.
new text end

new text begin Subd. 3. new text end

new text begin Corrective action plan; commissioner's notification. new text end

new text begin Within 30 days
after the submission by a township mutual fire insurance company of a corrective action
plan, the commissioner shall notify the insurer whether the plan may be implemented or
is, in the judgment of the commissioner, unsatisfactory. If the commissioner determines
the plan is unsatisfactory, the notification to the company must set forth the reasons for the
determination, and may set forth proposed revisions that will render the plan satisfactory
in the judgment of the commissioner. Upon notification from the commissioner, the
insurer shall prepare a revised corrective action plan that may incorporate by reference
any revisions proposed by the commissioner, and shall submit the revised plan to the
commissioner within 45 days.
new text end

Sec. 22.

Minnesota Statutes 2008, section 67A.18, subdivision 1, is amended to read:


Subdivision 1.

By member.

Any member may terminate membership in the
company by giving written notice or returning the member's policy to the secretary deleted text beginand
paying the withdrawing member's share of all existing claims
deleted text end.

Sec. 23. new text begin REPEALER.
new text end

new text begin Subdivision 1. new text end

new text begin Annual audits. new text end

new text begin Minnesota Statutes 2008, section 60A.129, new text end new text begin is
repealed.
new text end

new text begin Subd. 2. new text end

new text begin Township mutual insured properties, joint or partial risks, and
assessments.
new text end

new text begin Minnesota Statutes 2008, sections 67A.14, subdivision 5; 67A.17; and
67A.19,
new text end new text begin are repealed.
new text end

new text begin Subd. 3. new text end

new text begin Banking procedures; real estate tax records. new text end

new text begin Minnesota Rules, part
2675.2180,
new text end new text begin is repealed.
new text end

new text begin Subd. 4. new text end

new text begin Debt prorating companies. new text end

new text begin Minnesota Rules, parts 2675.7100;
2675.7110; 2675.7120; 2675.7130; and 2675.7140,
new text end new text begin are repealed.
new text end