Minnesota Session Laws - 1992, Regular Session

  

                         Laws of Minnesota 1992 

                        CHAPTER 540-S.F.No. 2463 
           An act relating to insurance; solvency; making various 
          technical corrections; requiring notice; regulating 
          business transacted with a producer controlled 
          insurer; modifying various provisions relating to the 
          guaranty association; amending Minnesota Statutes 
          1990, sections 45.025, subdivision 2, as amended; 
          60A.03, subdivision 6; 60A.10, subdivision 4; 61B.03, 
          subdivision 5; 61B.06, subdivision 7; and 61B.12, by 
          adding subdivisions; Minnesota Statutes 1991 
          Supplement, sections 60A.031, subdivision 1; 60A.092, 
          subdivision 3; 60A.11, subdivisions 13 and 20; 
          60A.112; 60A.12, subdivision 10; 60A.124; 60D.17, 
          subdivision 1; 61A.28, subdivision 1; and 61B.12, 
          subdivision 6; Laws 1991, chapter 325, article 5, 
          section 6; proposing coding for new law in Minnesota 
          Statutes, chapters 60C; and 60J; repealing Minnesota 
          Statutes 1991 Supplement, sections 60J.01; 60J.02; 
          60J.03; 60J.04; 60J.05; and 72A.206. 
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 

                                ARTICLE 1

              BUSINESS TRANSACTED WITH PRODUCER CONTROLLED

                      PROPERTY/CASUALTY INSURER ACT
    Section 1.  [60J.06] [SHORT TITLE.] 
    Sections 1 to 6 may be cited as the "business transacted 
with producer controlled insurer act." 
    Sec. 2.  [60J.07] [DEFINITIONS.] 
    Subdivision 1.  [APPLICATION.] The definitions in this 
section apply to sections 1 to 6. 
    Subd. 2.  [ACCREDITED STATE.] "Accredited state" means a 
state in which the insurance department or regulatory agency has 
qualified as meeting the minimum financial regulatory standards 
promulgated and established from time to time by the National 
Association of Insurance Commissioners (NAIC). 
    Subd. 3.  [CAPTIVE INSURER.] "Captive insurer" means an 
insurance company owned by another organization whose exclusive 
purpose is to insure risks of the parent organization and 
affiliated companies or, in the case of groups and associations, 
an insurance organization owned by the insureds whose exclusive 
purpose is to insure risks to member organizations or group 
members and their affiliates. 
    Subd. 4.  [COMMISSIONER.] "Commissioner" means the 
commissioner of commerce. 
    Subd. 5.  [CONTROL.] "Control" or "controlled" has the 
meaning given in section 60D.15, subdivision 4. 
    Subd. 6.  [CONTROLLED INSURER.] "Controlled insurer" means 
a licensed insurer which is controlled, directly or indirectly, 
by a producer. 
    Subd. 7.  [CONTROLLING PRODUCER.] "Controlling producer" 
means a producer who, directly or indirectly, controls an 
insurer. 
    Subd. 8.  [LICENSED INSURER.] "Licensed insurer" or 
"insurer" means any person, firm, association, or corporation 
licensed to transact a property/casualty insurance business in 
this state.  The following entities are not licensed insurers 
for the purposes of sections 1 to 6: 
    (1) all risk retention groups as defined in the Superfund 
Amendments Reauthorization Act of 1986, Public Law Number 
99-499, 100 Stat. 1613; the Risk Retention Act, 15 United States 
Code, section 3901, et seq.; and chapter 60; 
    (2) all residual market pools and joint underwriting 
authorities or associations; and 
    (3) all captive insurers. 
    Subd. 9.  [PRODUCER.] "Producer" means an insurance broker 
or any other person, firm, association, or corporation, when, 
for any compensation, commission or other thing of value, the 
person, firm, association, or corporation acts or aids in any 
manner in soliciting, negotiating, or procuring the making of 
any insurance contract on behalf of an insured other than the 
person, firm, association, or corporation. 
    Sec. 3.  [60J.08] [APPLICATION.] 
    Sections 1 to 6 apply to licensed insurers, either 
domiciled in this state or domiciled in a state that is not an 
accredited state having in effect a substantially similar law.  
All provisions of chapter 60D, to the extent they are not 
superseded by sections 1 to 6, apply to all parties within 
holding company systems subject to sections 1 to 6. 
    Sec. 4.  [60J.09] [MINIMUM STANDARDS.] 
    Subdivision 1.  [APPLICATION.] The provisions of this 
section apply if, in any calendar year, the aggregate amount of 
gross written premium on business placed with a controlled 
insurer by a controlling producer is equal to or greater than 
five percent of the admitted assets of the controlled insurer, 
as reported in the controlled insurer's quarterly statement 
filed as of September 30 of the prior year. 
    Subd. 2.  [EXEMPTION.] Notwithstanding subdivision 1, this 
section does not apply under the following conditions: 
    (1) the controlling producer: 
    (i) places insurance only with the controlled insurer, or 
only with the controlled insurer and a member of the controlled 
insurer's holding company system, or the controlled insurer's 
parent, affiliate, or subsidiary and receives no compensation 
based upon the amount of premiums written in connection with the 
insurance; and 
    (ii) accepts insurance placements only from nonaffiliated 
subproducers and not directly from insureds; and 
    (2) the controlled insurer, except for insurance business 
written through a residual market facility, accepts insurance 
business only from a controlling producer, a producer controlled 
by the controlled insurer, or a producer that is a subsidiary of 
the controlled insurer. 
    Subd. 3.  [REQUIRED CONTRACT PROVISIONS.] A controlled 
insurer shall not accept business from a controlling producer 
and a controlling producer shall not place business with a 
controlled insurer unless there is a written contract between 
the controlling producer and the insurer specifying the 
responsibilities of each party.  The contract must be approved 
by the board of directors of the insurer and contain the 
following minimum provisions: 
    (1) the controlled insurer may terminate the contract for 
cause, upon written notice to the controlling producer.  The 
controlled insurer shall suspend the authority of the 
controlling producer to write business during the pendency of 
any dispute regarding the cause for the termination; 
    (2) the controlling producer shall submit accounts to the 
controlled insurer detailing all material transactions, 
including information necessary to support all commissions, 
charges, and other fees received by, or owing to, the 
controlling producer; 
    (3) the controlling producer shall remit all funds due 
under the terms of the contract to the controlled insurer on at 
least a monthly basis.  The due date must be fixed so that 
premiums or installments collected are remitted no later than 90 
days after the effective date of any policy placed with the 
controlled insurer under this contract; 
    (4) all funds collected for the controlled insurer's 
account shall be held by the controlling producer in a fiduciary 
capacity, in one or more appropriately identified bank accounts 
in banks that are members of the Federal Reserve System, in 
accordance with the provisions of the insurance law as 
applicable.  Funds of a controlling producer not required to be 
licensed in this state must be maintained in compliance with the 
requirements of the controlling producer's domiciliary 
jurisdiction; 
    (5) the controlling producer shall maintain separately 
identifiable records of business written for the controlled 
insurer; 
    (6) the contract may not be assigned in whole or in part by 
the controlling producer; 
    (7) the controlled insurer shall provide the controlling 
producer with its underwriting standards, rules, and procedures, 
manuals specifying the rates to be charged, and the conditions 
for the acceptance or rejection of risks.  The controlling 
producer shall adhere to the standards, rules, procedures, 
rates, and conditions.  The standards, rules, procedures, rates, 
and conditions must be the same as those applicable to 
comparable business placed with the controlled insurer by a 
producer other than the controlling producer; 
    (8) the rates and terms of the controlling producer's 
commissions, charges, or other fees and the purposes for those 
charges or fees.  The rates of the commissions, charges, and 
other fees may be no greater than those applicable to comparable 
business placed with the controlled insurer by producers other 
than controlling producers.  For purposes of this clause and 
clause (7), examples of "comparable business" include the same 
lines of insurance, same kinds of insurance, same kinds of 
risks, similar policy limits, and similar quality of business; 
    (9) if the contract provides that the controlling producer, 
on insurance business placed with the insurer, is to be 
compensated contingent upon the insurer's profits on that 
business, then the compensation may not be determined and paid 
until at least five years after the premiums on liability 
insurance are earned and at least one year after the premiums 
are earned on any other insurance.  In no event may the 
commissions be paid until the adequacy of the controlled 
insurer's reserves on remaining claims has been independently 
verified as provided under subdivision 5; 
    (10) a limit on the controlling producer's writings in 
relation to the controlled insurer's surplus and total 
writings.  The insurer may establish a different limit for each 
line or subline of business.  The controlled insurer shall 
notify the controlling producer when the applicable limit is 
approached and shall not accept business from the controlling 
producer if the limit is reached.  The controlling producer 
shall not place business with the controlled insurer if it has 
been notified by the controlled insurer that the limit has been 
reached; and 
    (11) the controlling producer may negotiate but may not 
bind reinsurance on behalf of the controlled insurer on business 
the controlling producer places with the controlled insurer, 
except that the controlling producer may bind facultative 
reinsurance contracts pursuant to obligatory facultative 
agreements if the contract with the controlled insurer contains 
underwriting guidelines including, for both reinsurance assumed 
and ceded, a list of reinsurers with which the automatic 
agreements are in effect, the coverages and amounts or 
percentages that may be reinsured and commission schedules. 
    Subd. 4.  [AUDIT COMMITTEE.] A controlled insurer shall 
have an audit committee of the board of directors composed of 
independent directors.  The audit committee shall annually meet 
with management, the insurer's independent certified public 
accountants, and an independent casualty actuary or other 
independent loss reserve specialist acceptable to the 
commissioner to review the adequacy of the insurer's loss 
reserves. 
    Subd. 5.  [REPORTING REQUIREMENTS.] In addition to any 
other required loss reserve certification, the controlled 
insurer shall annually, on April 1 of each year, file with the 
commissioner an opinion of an independent casualty actuary, or 
other independent loss reserve specialist acceptable to the 
commissioner, reporting loss ratios for each line of business 
written and attesting to the adequacy of loss reserves 
established for losses incurred and outstanding as of year end, 
including incurred but not reported, on business placed by the 
producer.  The controlled insurer shall annually report to the 
commissioner the amount of commissions paid to the producer, the 
percentage the amount represents of the net premiums written, 
and comparable amounts and percentage paid to noncontrolling 
producers for placements of the same kinds of insurance. 
    Sec. 5.  [60J.10] [DISCLOSURE.] 
    The producer, prior to the effective date of the policy, 
shall deliver written notice to the prospective insured 
disclosing the relationship between the producer and the 
controlled insurer; except that, if the business is placed 
through a subproducer who is not a controlling producer, the 
controlling producer shall retain in the producer's records a 
signed commitment from the subproducer that the subproducer is 
aware of the relationship between the insurer and the producer 
and that the subproducer has or will notify the insured. 
    Sec. 6.  [60J.11] [PENALTIES.] 
    Subdivision 1.  [CEASE AND DESIST ORDER.] If the 
commissioner believes that the controlling producer or any other 
person has not materially complied with sections 1 to 6 or any 
rule or order, after notice and opportunity to be heard, the 
commissioner may order the controlling producer to cease placing 
business with the controlled insurer. 
     Subd. 2.  [COMMISSIONER'S AUTHORITY.] If the commissioner 
finds pursuant to the procedural requirements of section 45.027, 
that a person has violated a provision of this chapter, the 
commissioner may take any action authorized under that section. 
    Subd. 3.  [CIVIL ACTION BY COMMISSIONER.] The commissioner 
may maintain a civil action or intervene in an action brought by 
or on behalf of the insurer or policyholder for recovery of 
compensatory damages for the benefit of the insurer or 
policyholder or other appropriate relief. 
    Subd. 4.  [CIVIL ACTION BY RECEIVER.] If an order for 
liquidation or rehabilitation of the controlled insurer has been 
entered under chapter 60B and the receiver appointed under that 
order believes that the controlling producer or any other person 
has not materially complied with sections 1 to 6, or any rule or 
order, and the insurer suffered any loss or damage therefrom, 
the receiver may maintain a civil action for recovery of damages 
or other appropriate sanctions for the benefit of the insurer. 
    Subd. 5.  [ADDITIONAL PENALTIES AND RIGHTS.] Nothing 
contained in this section affects the right of the commissioner 
to impose any other penalties provided for in the insurance 
law.  Nothing contained in this section is intended to or shall 
in any manner alter or affect the rights of policyholders, 
claimants, creditors, or other third parties. 
    Sec. 7.  [REPEALER.] 
    Minnesota Statutes 1991 Supplement, sections 60J.01; 
60J.02; 60J.03; 60J.04; and 60J.05, are repealed. 

                                ARTICLE 2

                    MISCELLANEOUS SOLVENCY PROVISIONS
    Section 1.  Minnesota Statutes 1990, section 60A.03, 
subdivision 6, is amended to read: 
    Subd. 6.  [EXAMINATION REVOLVING FUND.] (1) [REVOLVING FUND 
CREATED.] There is hereby created the department of commerce 
examination revolving fund for the purpose of carrying on the 
examination of foreign and domestic insurance companies. 
    (2) [MONEY IN REVOLVING FUND.] Such fund shall consist of 
the $7,500 appropriated therefor and the money transferred to it 
as herein provided, which are reappropriated to the commissioner 
of commerce for the purpose of this subdivision. 
    (3) [FUND TO BE KEPT IN STATE TREASURY.] Such fund shall be 
kept in the state treasury and shall be paid out in the manner 
prescribed by law for money therein. 
    (4) [PURPOSES FOR WHICH FUND MAY BE EXPENDED.] Such fund 
shall be used for the payment of per diem salaries and expenses 
of special examiners and appraisers, and the expenses of the 
commissioner of commerce, deputy commissioner of commerce, chief 
examiner, actuary other than a consulting actuary appointed 
under subdivision 3, clause (3) hereof, regular salaried 
examiners and other employees of the department of commerce when 
participating in examinations.  Expenses include meals, lodging, 
laundry, transportation, and mileage.  The salary of regular 
employees of the division of insurance shall not be paid out of 
this fund. 
    (5) [COLLECTIONS TO BE DEPOSITED IN FUND.] All moneys 
collected by the division of insurance from insurance companies 
for fees and expenses of examinations, shall be deposited in the 
insurance division examination revolving fund. 
    (6) [PAYMENTS FROM SUCH FUND.] Upon authorization by the 
commissioner of commerce, the moneys due each examiner or 
employee engaged in an examination shall be paid from the 
insurance division examination revolving fund in the manner 
prescribed by law. 
    (7) [EXCESS OVER $7,500 $25,000 CANCELED INTO GENERAL 
FUND.] The balance in such fund on June 30 of each year in 
excess of $7,500 $25,000 shall be forthwith canceled into the 
general fund. 
     Sec. 2.  Minnesota Statutes 1991 Supplement, section 
60A.031, subdivision 1, is amended to read: 
    Subdivision 1.  [POWER TO EXAMINE.] (1)  [INSURERS AND 
OTHER LICENSEES.] At any time and for any reason related to the 
enforcement of the insurance laws, or to ensure that companies 
are being operated in a safe and sound manner and to protect the 
public interest, the commissioner may examine the affairs and 
conditions of any foreign or domestic insurance or reinsurance 
company, including reciprocals and fraternals, licensee or 
applicant for a license under the insurance laws, or any other 
person or organization of persons doing or in the process of 
organizing to do any insurance business in this state, and of 
any licensed advisory organization serving any of the foregoing 
in this state. 
    The commissioner shall examine the affairs and conditions 
of every domestic insurance company at least insurer licensed in 
this state not less frequently than once every five years. 
    (2)  [WHO MAY BE EXAMINED.] The commissioner in making any 
examination of an insurance company as authorized by this 
section may, if in the commissioner's discretion, there is cause 
to believe the commissioner is unable to obtain relevant 
information from such insurance company or that the examination 
or investigation is, in the discretion of the commissioner, 
necessary or material to the examination of the company, examine 
any person, association, or corporation: 
     (a) transacting, having transacted, or being organized to 
transact the business of insurance in this state; 
     (b) engaged in or proposing to be engaged in the 
organization, promotion, or solicitation of shares or capital 
contributions to or aiding in the formation of a domestic 
insurance company; 
      (c) holding shares of capital stock of an insurance company 
for the purpose of controlling the management thereof as voting 
trustee or otherwise; 
      (d) having a contract, written or oral, pertaining to the 
management or control of an insurance company as general agent, 
managing agent, attorney-in-fact, or otherwise; 
      (e) which has substantial control directly or indirectly 
over an insurance company whether by ownership of its stock or 
otherwise, or owning stock in any domestic insurance company, 
which stock constitutes a substantial proportion of either the 
stock of the domestic insurance company or of the assets of the 
owner thereof; 
      (f) which is a subsidiary or affiliate of an insurance 
company; 
      (g) which is a licensed agent or solicitor or has made 
application for the licenses; 
      (h) engaged in the business of adjusting losses or 
financing premiums. 
    Nothing contained in this clause (2) shall authorize the 
commissioner to examine any person, association, or corporation 
which is subject to regular examination by another division of 
the commerce department of this state.  The commissioner shall 
notify the other division when an examination is deemed 
advisable. 
    Sec. 3.  Minnesota Statutes 1991 Supplement, section 
60A.092, subdivision 3, is amended to read: 
    Subd. 3.  [ACCREDITED ASSUMING INSURER.] (a) Reinsurance is 
ceded to an assuming insurer if the assuming insurer is 
accredited as a reinsurer in this state.  An accredited 
reinsurer is one which: 
    (1) files with the commissioner evidence of its submission 
to this state's jurisdiction; 
    (2) submits to this state's authority to examine its books 
and records; 
    (3) is licensed to transact insurance or reinsurance in at 
least one state, or in the case of a United States branch of an 
alien assuming insurer is entered through and licensed to 
transact insurance or reinsurance in at least one state; 
    (4) files annually with the commissioner a copy of its 
annual statement filed with the insurance department of its 
state of domicile and, a copy of its most recent audited 
financial statement, and a filing fee of $225; and 
    (5)(i) maintains a surplus as regards policyholders in an 
amount not less than $20,000,000 and whose accreditation has not 
been denied by the commissioner within 90 days of its 
submission, or maintains a surplus as regards policyholders in 
an amount less than $20,000,000 and whose accreditation has been 
approved by the commissioner; or 
    (ii) maintains a surplus as regards policyholders in an 
amount not less than $50,000,000 for long-tail casualty 
reinsurers.  For purposes of this section, "long-tail casualty 
reinsurance" means insurance for medical or legal malpractice, 
pollution liability, directors and officers liability, and 
products liability.  The commissioner may determine that an 
assuming insurer that maintains a surplus as regards 
policyholders in an amount not less than $20,000,000 is 
accredited as a reinsurer if there is no detriment to 
policyholders and the interest of the public, and to not allow 
accrediting would be a hardship or detriment to the reinsurer. 
The commissioner shall report to the legislature on any 
determination to allow accrediting to a long-term casualty 
reinsurer maintaining a surplus in an amount less than 
$50,000,000. 
     Clause (5) does not apply to reinsurance ceded and assumed 
pursuant to pooling arrangements among insurers in the same 
holding company system. 
     (b) No credit shall be allowed or continue to be allowed a 
domestic ceding insurer if the assuming insurer's accreditation 
has been revoked by the commissioner after receipt of a cease 
and desist order pursuant to section 45.027, subdivision 5. 
    Sec. 4.  Minnesota Statutes 1990, section 60A.10, 
subdivision 4, is amended to read: 
    Subd. 4.  [SAFEKEEPING OF SECURITIES ON DEPOSIT.] No later 
than July 1, 1975, all securities held on deposit with the 
commissioner pursuant to the laws of this state, or in 
accordance with an order of the commissioner, shall be deposited 
for the account of the commissioner in such state or national 
bank in this state as the depositing insurer may designate and 
the commissioner may approve.  Said deposits shall be made and 
maintained in accordance with a custodial agreement between the 
bank and the depositing insurer in a form approved by the 
commissioner which shall provide as a minimum that (1) the fees 
of the custodian are to be the obligation of the depositing 
insurer, and (2) there shall be no exchange, release or transfer 
of any deposited security unless the commissioner has assented 
thereto in writing.  Securities evidenced by the Federal Reserve 
book entry system may or held in a clearing corporation, as that 
term is defined in section 60A.11, subdivision 10, must be 
deposited in the name of through an approved custodian or the 
commissioner of commerce for the account of the commissioner of 
commerce for the benefit of all policyholders of the depositor. 
    Sec. 5.  Minnesota Statutes 1991 Supplement, section 
60A.11, subdivision 13, is amended to read: 
    Subd. 13.  [UNITED STATES GOVERNMENT OBLIGATIONS.] (a) 
Obligations issued or guaranteed by the United States of America 
or any agency or instrumentality of the United States of America 
backed by the full faith and credit of the issuer, including 
rights to purchase or sell these obligations if those rights are 
traded upon a contract market designated and regulated by a 
federal agency.  Pursuant to section 106 of title I of the 
Secondary Mortgage Market Enhancement Act of 1984, United States 
Code, title 15, section 77r-1, included under this paragraph are 
obligations issued or guaranteed by the Federal Home Loan 
Mortgage Corporation and the Federal National Mortgage 
Association. 
    (b) Obligations issued or guaranteed by an agency or 
instrumentality of the United States of America other than those 
backed by the full faith and credit thereof, including rights to 
purchase or sell these obligations if those rights are traded 
upon a contract market designated and regulated by a federal 
agency.  The securities of a single issuer under this paragraph 
shall comprise no more than 20 percent of the company's admitted 
assets. 
    Sec. 6.  Minnesota Statutes 1991 Supplement, section 
60A.11, subdivision 20, is amended to read: 
    Subd. 20.  [REAL ESTATE.] (a) Except as provided in 
paragraphs (b) to (d), a company may only acquire, hold, and 
convey real estate which:  
    (1) has been mortgaged to it in good faith by way of 
security for loans previously contracted, or for money due; 
    (2) has been conveyed to it in satisfaction of debts 
previously contracted in the course of its dealings; 
    (3) has been purchased at sales on judgments, decrees or 
mortgages obtained or made for the debts; and 
    (4) is subject to a contract for deed under which the 
company holds the vendor's interest to secure the payments the 
vendee is required to make thereunder.  
    All the real estate specified in clauses (1) to (3) must be 
sold and disposed of within five years after the company has 
acquired title to it, or within five years after it has ceased 
to be necessary for the accommodation of the company's business, 
and the company must not hold this property for a longer period 
unless the company elects to hold the real estate under another 
section, or unless it procures a certificate from the 
commissioner of commerce that its interest will suffer 
materially by the forced sale thereof, in which event the time 
for the sale may be extended to the time the commissioner 
directs in the certificate.  The market value of real estate 
specified in clauses (1) to (3) must be established by the 
written certification of a licensed real estate appraiser.  The 
appraisal is required at the time the company elects to hold the 
real estate under this subdivision clauses (1) to (3).  
    (b) A company may acquire and hold real estate for the 
convenient accommodation of its business.  
    (c) A company may acquire real estate or any interest in 
real estate, including oil and gas and other mineral interests, 
as an investment for the production of income, and may hold, 
improve or otherwise develop, subdivide, lease, sell and convey 
real estate so acquired directly or as a joint venture or 
through a limited or general partnership in which the company is 
a partner.  
    (d) A company may also hold real estate (1) if the purpose 
of the acquisition is to enhance the sale value of real estate 
previously acquired and held by the company under this section, 
and (2) if the company expects the real estate so acquired to 
qualify under paragraph (b) or (c) above within five years after 
acquisition.  
    (e) A company may, after securing the approval of the 
commissioner, acquire and hold real estate for the purpose of 
providing necessary living quarters for its employees.  The 
company must dispose of the real estate within five years after 
it has ceased to be necessary for that purpose unless the 
commissioner agrees to extend the holding period upon 
application by the company.  
     (f) A company may not invest more than 25 percent of its 
total admitted assets in real estate.  The cost of any parcel of 
real estate held for both the accommodation of business and for 
the production of income must be allocated between the two uses 
annually.  No more than ten percent of a company's total 
admitted assets may be invested in real estate held under 
paragraph (b).  No more than 15 percent of a company's total 
admitted assets may be invested in real estate held under 
paragraph (c).  No more than three percent of its total admitted 
assets may be invested in real estate held under paragraph (e).  
Upon application by a company, the commissioner of commerce may 
increase any of these limits up to an additional five percent. 
    Sec. 7.  Minnesota Statutes 1991 Supplement, section 
60A.112, is amended to read: 
     60A.112 [INVESTMENT POLICY REQUIRED.] 
     Each domestic company must have a written investment 
policy, designed to provide guidance for investment decisions by 
management.  The policy must be approved by its board of 
directors.  The policy must be reviewed by the company's board 
of directors and reapproved no less often than once every 12 
months.  The investment policy must address asset type 
diversification, diversification within asset types, 
concentration risks, interest rate risk, liquidity, foreign 
investments, loans secured by real estate, and investment real 
estate.  The policy must set forth, in detail, company practices 
relating to internal controls regarding the delegation of 
investment authority within the company. 
     The board of directors must also determine at least 
annually the extent to which the company has complied with its 
investment policy within the preceding 12 months and shall adopt 
a written determination.  
     The company must file, as an attachment to its annual 
statement, a certification that: 
     (1) the company has a written investment policy meeting the 
requirements of this section; 
     (2) the company's board of directors has reviewed and 
approved or reapproved the policy within the period covered by 
the annual statement; and 
     (3) the company's board of directors performed the 
compliance review and made the written determination required by 
this section within for the period covered by the annual 
statement. 
    A company's failure to meet the requirements of this 
section does not affect its ability to enforce its legal or 
equitable rights with respect to its investments. 
    Sec. 8.  Minnesota Statutes 1991 Supplement, section 
60A.12, subdivision 10, is amended to read: 
    Subd. 10.  [LOSS RESERVE CERTIFICATION.] Each domestic 
company engaged in providing the types of coverage described in 
section 60A.06, subdivision 1, clause (1), (2), (3), (5)(b), 
(6), (8), (9), (10), (11), (12), (13), or (14), must have its 
loss reserves certified to annually by a qualified actuary.  The 
company must file the certification with the commissioner within 
30 days of completion of the certification but no later than 
June 1. The actuary providing the certification must not be an 
employee of the company.  This subdivision does not apply to 
township mutual companies, or to other domestic insurers having 
less than $100,000 of premiums written in any year and fewer 
than 500 policyholders.  The commissioner may allow an exception 
to the stand alone certification where it can be demonstrated 
that a company in a group has a pooling or 100 percent 
reinsurance agreement used in a group which substantially 
affects the solvency and integrity of the reserves of the 
company, or where it is only the parent company of a group which 
is licensed to do business in Minnesota.  If these circumstances 
exist, the company may file a written request with the 
commissioner for an exception. 
    Sec. 9.  Minnesota Statutes 1991 Supplement, section 
60A.124, is amended to read: 
    60A.124 [INDEPENDENT AUDIT.] 
    The audit report of the independent certified public 
accountant which prepares the audit of an insurer's annual 
statement as required under section 60A.13, subdivision 3, 
paragraph (a), must contain findings by the auditor that: 
    (1) the insurer has adopted valuation procedures meeting 
the minimum standards required in section 60A.123; 
    (2) the procedures adopted by the board of directors have 
been uniformly applied by the insurer in conformance with this 
section; and 
    (3) the management of the insurer has an adequate system of 
internal controls. 
    The audit report of the independent certified public 
accountant that performs the audit of an insurer's annual 
statement as required under section 60A.13, subdivision 3a, 
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.  [60C.21] [INSOLVENCY; NOTICE OF GUARANTY FUND 
PROTECTION.] 
    Subdivision 1.  [NOTICE REQUIRED.] No person, including an 
insurer, agent, or affiliate of an insurer or agent shall sell, 
or offer for sale, a covered property and casualty insurance 
policy, unless the notice, in the form specified in subdivision 
2, is delivered with or as a part of the application for that 
policy.  A copy of the notice must be given to the applicant.  
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 
and shall include a copy of the notice with the policy or 
contract when delivered to the applicant.  This section does not 
apply to renewals, unless the renewal increases the dollar 
amount of a coverage by more than 100 percent. 
    Subd. 2.  [FORM.] The notice required under subdivision 1 
must be in the following form: 
 "NOTICE CONCERNING POLICYHOLDER RIGHTS IN AN
 INSOLVENCY UNDER THE MINNESOTA INSURANCE
 GUARANTY ASSOCIATION LAW
     The financial strength of your insurer is one of the most 
important things for you to consider when determining from whom 
to purchase a property or liability insurance policy.  It is 
your best assurance that you will receive the protection for 
which you purchased the policy.  If your insurer becomes 
insolvent, you may have protection from the Minnesota Insurance 
Guaranty Association as described below but to the extent that 
your policy is not protected by the Minnesota Insurance Guaranty 
Association or if it exceeds the guaranty association's limits, 
you will only have the assets, if any, of the insolvent insurer 
to satisfy your claim. 
    Residents of Minnesota who purchase property and casualty 
or liability insurance from insurance companies licensed to do 
business in Minnesota are protected, SUBJECT TO LIMITS AND 
EXCLUSIONS, in the event the insurer becomes insolvent.  This 
protection is provided by the Minnesota Insurance Guaranty 
Association. 
 Minnesota Insurance Guaranty Association
  (insert current 
address and telephone number)
    The maximum amount that the Minnesota Insurance Guaranty 
Association will pay in regard to a claim under all policies 
issued by the same insurer is limited to $300,000.  This limit 
does not apply to workers' compensation insurance.  Protection 
by the guaranty association is subject to other substantial 
limitations and exclusions.  If your claim exceeds the guaranty 
association's limits, you may still recover a part or all of 
that amount from the proceeds from 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 property and casualty or liability 
insurance in Minnesota after the insolvency occurs.  Claims are 
paid from the assessment. 
    THE PROTECTION 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 PROTECTION 
BY THE GUARANTY ASSOCIATION. 
    THIS NOTICE IS REQUIRED BY MINNESOTA STATE LAW TO ADVISE 
POLICYHOLDERS OF PROPERTY AND CASUALTY INSURANCE POLICIES OF 
THEIR RIGHTS IN THE EVENT THEIR INSURANCE CARRIER BECOMES 
INSOLVENT.  THIS NOTICE IN NO WAY IMPLIES THAT THE COMPANY 
CURRENTLY HAS ANY TYPE OF FINANCIAL PROBLEMS.  ALL PROPERTY AND 
CASUALTY 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. 
    Subd. 3.  [EFFECT OF NOTICE.] The distribution, delivery, 
contents, or interpretation of the notice required by this 
section shall not mean that the policy would be covered in the 
event of the insolvency of a member insurer if coverage is not 
otherwise provided by this chapter.  Failure to receive the 
notice does not give the policyholder, certificate holder, or 
any other interested party any greater rights than those 
provided by this chapter. 
    Subd. 4.  [EXEMPTION.] This section does not apply to 
fraternal benefit societies regulated under chapter 64B or to 
fidelity or surety bonds, policies, or contracts. 
     Sec. 11.  [60C.22] [NOTICE FOR POLICY OR CONTRACT NOT 
COVERED.] 
    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 10 
point type, stamped in red ink 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."
    Sec. 12.  Minnesota Statutes 1991 Supplement, section 
60D.17, subdivision 1, is amended to read: 
    Subdivision 1.  [FILING REQUIREMENTS.] No person other than 
the issuer shall:  (1) make a tender offer for or a request or 
invitation for tenders of, or enter into any agreement to 
exchange securities or, seek to acquire, or acquire, in the open 
market or otherwise, any voting security of a domestic insurer 
if, after the consummation thereof, the person would, directly 
or indirectly, or by conversion or by exercise of any right to 
acquire, be in control of the insurer.  No person shall; or (2) 
enter into an agreement to merge with or otherwise to acquire 
control of a domestic insurer or any person controlling a 
domestic insurer unless, at the time the offer, request, or 
invitation is made or the agreement is entered into, or before 
the acquisition of the securities if no offer or agreement is 
involved, the person has filed with the commissioner and has 
sent to the insurer, a statement containing the information 
required by this section and the offer, request, invitation, 
agreement, or acquisition has been approved by the commissioner 
in the manner prescribed in this section. 
    For purposes of this section, a domestic insurer includes a 
person controlling a domestic insurer unless the person as 
determined by the commissioner is either directly or through its 
affiliates primarily engaged in business other than the business 
of insurance.  However, the person shall file a preacquisition 
notification with the commissioner containing the information 
set forth in section 60D.18, subdivision 3, paragraph (b), 30 
days before the proposed effective date of the acquisition.  
Failure to file is subject to section 60D.18, subdivision 5.  
For the purposes of this section, "person" does not include any 
securities broker holding, in the usual and customary brokers 
function, less than 20 percent of the voting securities of an 
insurance company or of any person that controls an insurance 
company. 
     Sec. 13.  Minnesota Statutes 1991 Supplement, section 
61A.28, subdivision 1, is amended to read: 
    Subdivision 1.  [INVESTMENT GUIDELINES AND PROCEDURES.] 
Each domestic life insurance company must comply with section 
60A.112. 
    No investment or loan, except policy loans, shall be made 
by a domestic life insurance company unless authorized or 
approved by the board of directors or by a committee of 
directors, officers, or employees of the company designated by 
the board and charged with the duty of supervising the 
investment or loan.  Accurate records of all authorizations and 
approvals must be maintained. 
    The capital, surplus and other funds of every domestic life 
insurance company, whether incorporated by special act or under 
the general law (in addition to investments in real estate as 
otherwise permitted by law) may be invested only in one or more 
of the following kinds of securities or property.  An investment 
may not be made under this section if the required interest 
obligation is in default. 
    Investments must be valued in accordance with the valuation 
procedures established by the National Association of Insurance 
Commissioners, unless the commissioner requires or finds another 
method of valuation reasonable under the circumstances.  Other 
invested assets must be valued according to the procedures 
promulgated by the National Association of Insurance 
Commissioners, if not addressed in another section, unless the 
commissioner requires or finds another method of valuation 
reasonable under the circumstances. 
    Sec. 14.  Minnesota Statutes 1990, section 61B.03, 
subdivision 5, is amended to read: 
    Subd. 5.  [CONTRACTUAL OBLIGATION.] (a) "Contractual 
obligation" means any obligation under covered policies, except 
as provided in paragraphs (c) and (d) of this subdivision. 
    (b) For purposes of this chapter, contractual obligation 
includes an unallocated annuity contract which funds a qualified 
defined contribution pension plan pursuant to Internal Revenue 
Code of 1986, sections 401(k), 403(b), and 457. 
    (c) Notwithstanding the definition of contractual 
obligation contained in paragraphs (a) and (b), contractual 
obligation does not include any obligation to nonresident 
participants of a covered plan or to the plan sponsor, employer, 
trustee, or other party who owns the contract; in such cases, 
the association is obligated under this chapter only to 
participants in a covered plan who are residents of the state of 
Minnesota on the date of impairment. 
    (d) Except as provided in paragraphs (a) and (b), 
contractual obligation does not include an unallocated annuity 
contract issued in connection with a defined benefit plan 
protected by the federal Pension Benefit Guaranty Corporation, 
or a contract issued to, or purchased at the direction of, any 
governmental bonding authorities, such as a municipal guaranteed 
investment contract. 
    Sec. 15.  Minnesota Statutes 1990, section 61B.06, 
subdivision 7, is amended to read: 
    Subd. 7.  [ASSIGNMENT; SUBROGATION.] (a) Any A person 
receiving benefits under sections 61B.01 to 61B.16 shall be 
deemed considered to have assigned rights under, and any causes 
of action relating to, the covered policy or contract to the 
association to the extent of the benefits received because of 
sections 61B.01 to 61B.16, whether the benefits are payments 
of or on account of contractual obligations or continuation of 
coverage, or provision of substitute or alternative coverages.  
The association may require an assignment to it of the those 
rights and causes of action by any a payee, policy or contract 
owner, beneficiary, insured, or annuitant as a condition 
precedent to the receipt of any rights or benefits conferred by 
sections 61B.01 to 61B.16 upon the that person.  The association 
shall be subrogated to these rights against the assets of any 
impaired insurer The subrogation rights of the association 
include any rights that a person may have as a beneficiary of a 
plan covered under the Employee Retirement Income Security Act 
of 1974, United States Code, title 29, section 1003, as amended 
through December 31, 1991.  
    (b) The subrogation rights of the association under this 
subdivision shall have the same priority against the assets of 
the impaired or insolvent insurer as that of possessed by the 
person entitled to receive benefits under sections 61B.01 to 
61B.16. 
    (c) In addition to paragraphs (a) and (b), the association 
has all common law rights of subrogation and other equitable or 
legal remedies that would have been available to the impaired or 
insolvent insurer or holder of a policy or contract with respect 
to that policy or contract. 
    Sec. 16.  Minnesota Statutes 1991 Supplement, section 
61B.12, subdivision 6, is amended to read: 
    Subd. 6.  [NOTICE CONCERNING LIMITATIONS AND EXCLUSIONS.] 
On and after January 1, 1992, 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 separate notice in the 
form the commissioner from time to time may approve for use in 
this state specified in subdivision 8, relating to coverage 
provided by the Minnesota Life and Health Insurance Guaranty 
Association.  The notice must be signed by the applicant and 
kept on file by the person offering the policy or contract for 
sale.  A copy of the signed notice must be given to the 
applicant 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 and shall include a copy of the notice with 
the policy or contract when delivered to the applicant. 
    Sec. 17.  Minnesota Statutes 1990, section 61B.12, is 
amended by adding a subdivision to read: 
    Subd. 8.  [FORM.] The notice required under subdivision 6 
must be in the following form: 
 "NOTICE CONCERNING POLICYHOLDER RIGHTS IN AN
 INSOLVENCY UNDER THE MINNESOTA LIFE AND HEALTH
 INSURANCE GUARANTY ASSOCIATION LAW
    If the insurer who 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. 
 Minnesota Life & 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 is limited 
to $300,000.  Subject to this $300,000 limit, the guaranty 
association will pay up to $100,000 in life insurance cash 
surrender values, $300,000 in life insurance death benefits, or 
up to $300,000 for other types of benefits.  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. 18.  Minnesota Statutes 1990, section 61B.12, is 
amended by adding a subdivision to read: 
    Subd. 9.  [NOTICE FOR POLICY OR CONTRACT NOT COVERED.] 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 10 
point type, stamped in red ink 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."
     Sec. 19.  Minnesota Statutes 1990, section 61B.12, is 
amended by adding a subdivision to read: 
    Subd. 10.  [COMBINATION FIXED-VARIABLE POLICY.] The notice 
required in subdivision 8 must clearly describe what portions of 
a combination fixed-variable policy are not covered by the 
Minnesota Life and Health Insurance Guaranty Association.  The 
notice requirements specified in subdivision 9 do not apply to a 
combination fixed-variable policy. 
    Sec. 20.  Laws 1991, chapter 325, article 5, section 6, is 
amended to read: 
    Sec. 6.  [EFFECTIVE DATE.] 
    Sections 2 and 3 are effective August 1, 1992 1993. 
    Sec. 21.  [ACTUARY.] 
    Minnesota Statutes, section 43A.17, subdivision 1, does not 
apply to the salary of the actuary authorized under Laws 1991, 
chapter 325, article 7, section 7. 
    Sec. 22.  [REPEALER.] 
    Minnesota Statutes 1991 Supplement, section 72A.206, is 
repealed. 
    Sec. 23.  [EFFECTIVE DATE.] 
    Sections 1 to 9, 12 to 15, 20, 21, and 22 are effective the 
day after final enactment.  Sections 14 and 15 are intended to 
clarify existing law and apply to all covered policies or 
contracts issued or renewed by insurers which become insolvent 
after May 27, 1977. 

                                ARTICLE 3

                        INTEREST RATE ADVERTISING
    Section 1.  Minnesota Statutes 1990, section 45.025, 
subdivision 2, as amended by Laws 1992, chapter 427, section 2, 
is amended to read: 
    Subd. 2.  [GENERAL RESTRICTION.] A person may not advertise 
the interest rate of an investment product unless: (1) the 
effective net annual yield, or the yield to maturity if the 
investment product is a note, bond, or debenture that bears 
interest at a fixed rate and has a stated maturity; or (2) the 
effective net annual yield if the investment product does not 
bear interest at a fixed rate or has an indefinite life, is 
disclosed in an equally prominent manner. 
    The name and address of the issuer, or a person from whom 
the name and address of the issuer may be obtained, and any 
prepayment expense, surrender charge, or withdrawal penalty 
charged by the issuer must also be disclosed in a prominent 
manner.  If the expense, charge, or penalty varies according to 
the length of time the product is held, the advertisement must 
disclose the expense, fee, or penalty imposed if surrendered or 
terminated within one year. 
    Presented to the governor April 17, 1992 
    Signed by the governor April 27, 1992, 1:57 p.m.