Office of the Revisor of Statutes
Minnesota Session Laws - 1994, Regular Session
Key: (1) language to be deleted (2) new language
CHAPTER 426-H.F.No. 1964
An act relating to insurance; solvency; regulating
reinsurance, loss reserve certifications and annual
audits, and annual statements; regulating certain
guaranty association coverages; modifying the
incorporation requirements of domestic mutuals;
amending Minnesota Statutes 1992, sections 60A.092,
subdivision 7; 60A.206, subdivision 6; 60C.02,
subdivision 1; 62E.10, subdivision 2; and 66A.03;
Minnesota Statutes 1993 Supplement, sections 60A.129,
subdivisions 3, 5, and 7; 60A.13, subdivision 1; and
61B.19, subdivision 3; proposing coding for new law in
Minnesota Statutes, chapter 60A; repealing Minnesota
Statutes 1992, sections 60A.80; 60A.801; and 60A.802.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
Section 1. Minnesota Statutes 1992, section 60A.092,
subdivision 7, is amended to read:
Subd. 7. [INDIVIDUAL UNINCORPORATED UNDERWRITERS GROUP;
TRUST FUND REQUIREMENTS.] In the case of a group of including
incorporated and individual unincorporated underwriters, the
trust shall consist of a trusteed account representing the
group's liabilities attributable to business written in the
United States. The group shall maintain a trusteed surplus of
which $100,000,000 shall be held jointly for the benefit of
United States ceding insurers of any member of the group. The
incorporated members of the group shall not be engaged in any
business other than underwriting as a member of the group and
must be subject to the same level of solvency regulation and
control by the group's domiciliary regulator as are the
unincorporated members. The group shall make available to the
commissioner an annual certification by the group's domiciliary
regulator and its independent public accountants of the solvency
of each underwriter.
Sec. 2. [60A.096] [QUALIFYING LETTER OF CREDIT.]
Subdivision 1. [GENERALLY.] An admitted asset or a
reduction in liability for reinsurance ceded to an unauthorized
assuming insurer providing a letter of credit pursuant to
section 60A.093 shall only be allowed when the letter of credit
meets the requirements of this section.
Subd. 2. [CONTENT.] The letter of credit must be clean,
irrevocable, and unconditional and issued or confirmed by a
qualified United States financial institution as defined in
section 60A.091. The letter of credit must contain an issue
date and date of expiration and must stipulate that the
beneficiary need only draw a sight draft under the letter of
credit and present it to obtain funds and that no other document
need be presented. The letter of credit must also state that it
is not subject to any condition or qualification outside of the
letter of credit. In addition, the letter of credit must not
contain reference to any other agreements, documents, or
entities, except as provided in subdivision 10, paragraph (a).
As used in this section, "beneficiary" means the domestic
insurer for whose benefit the letter of credit has been
established and any successor of the beneficiary by operation of
law. If a court of law appoints a successor in interest to the
named beneficiary, then the named beneficiary includes and is
limited to the court appointed domiciliary receiver, including
conservator, rehabilitator, or liquidator.
Subd. 3. [FORM.] The heading of the letter of credit may
include a boxed section which contains the name of the applicant
and other appropriate notations to provide a reference for the
letter of credit. The boxed section must be clearly marked to
indicate that the information is for internal identification
purposes only.
Subd. 4. [REIMBURSEMENT CONTINGENCY PROHIBITED.] The
letter of credit must contain a statement to the effect that the
obligation of the qualified United States financial institution
under the letter of credit is in no way contingent upon
reimbursement with respect to it.
Subd. 5. [EXPIRATION.] The term of the letter of credit
must be for at least one year and must contain an "evergreen
clause" which prevents the expiration of the letter of credit
without due notice from the issuer. The "evergreen clause" must
provide for a period of no less than 30 days' notice before the
expiration date or nonrenewal.
Subd. 6. [GOVERNING LAW.] The letter of credit must state
whether it is subject to and governed by the laws of this state
or the Uniform Customs and Practice for Documentary Credits of
the International Chamber of Commerce (Publication 400), and
that all drafts drawn under it shall be presentable at an office
in the United States of a qualified United States financial
institution.
Subd. 7. [EXTENSIONS.] If the letter of credit is made
subject to the Uniform Customs and Practice for Documentary
Credits of the International Chamber of Commerce (Publication
400), then the letter of credit must specifically address and
make provision for an extension of time to draw against the
letter of credit in the event that one or more of the
occurrences specified in Article 19 of Publication 400 occur.
Subd. 8. [ISSUANCE OR CONFIRMATION.] The letter of credit
must be issued or confirmed by a qualified United States
financial institution authorized to issue letters of credit
under section 60A.093.
Subd. 9. [ADDITIONAL REQUIREMENTS.] If the letter of
credit is issued by a qualified United States financial
institution authorized to issue letters of credit, other than a
qualified United States financial institution as described in
subdivision 8, then the following additional requirements must
be met:
(1) the issuing qualified United States financial
institution shall formally designate the confirming qualified
United States financial institution as its agent for the receipt
and payment of the drafts; and
(2) the "evergreen clause" must provide for no less than 30
days' notice before the expiration date or nonrenewal.
Subd. 10. [REINSURANCE AGREEMENTS PROVISIONS.] (a) The
reinsurance agreement in conjunction with which the letter of
credit is obtained may contain provisions which:
(1) require the assuming insurer to provide letters of
credit to the ceding insurer and specify what they are to cover;
(2) stipulate that the assuming insurer and ceding insurer
agree that the letter of credit provided by the assuming insurer
pursuant to the provisions of the reinsurance agreement may be
drawn upon at any time, notwithstanding any other provisions in
the agreement, and must be utilized by the ceding insurer or its
successors in interest only for one or more of the following
reasons: to reimburse the ceding insurer for the assuming
insurer's share of premiums returned to the owners of policies
reinsured under the reinsurance agreement on account of
cancellations of these policies; to reimburse the ceding insurer
for the assuming insurer's share of surrenders and benefits or
losses paid by the ceding insurer under the terms and provisions
of the policies reinsured under the reinsurance agreement; to
fund an account with the ceding insurer in an amount at least
equal to the deduction, for reinsurance ceded, from the ceding
insurer's liabilities for policies ceded under the agreement,
including but not limited to, amounts for policy reserves,
claims and losses incurred, and unearned premium reserves; and
to pay any other amounts the ceding insurer claims are due under
the reinsurance agreement; and
(3) provide that all of the provisions of this paragraph
should be applied without diminution because of insolvency of
the ceding insurer or assuming insurer.
(b) Nothing in this subdivision precludes the ceding
insurer and assuming insurer from providing for:
(1) an interest payment, at a rate not in excess of the
prime rate of interest, on the amounts held under paragraph (a),
clause (2); and
(2) the return of any amounts drawn down on the letters of
credit in excess of the actual amounts required or, in the case
of paragraph (a), clause (2), any amounts that are subsequently
determined not to be due.
(c) When a letter of credit is obtained in conjunction with
a reinsurance agreement covering risks other than life,
annuities, and health, where it is customary practice to provide
a letter of credit for a specific purpose, then the reinsurance
agreement may, in lieu of paragraph (a), clause (2), require
that the parties enter into a "trust agreement" which may be
incorporated into the reinsurance agreement or be a separate
document.
Subd. 11. [LIMITATION ON USE.] A letter of credit may not
be used to reduce any liability for reinsurance ceded to an
unauthorized assuming insurer in financial statements required
to be filed with the commissioner unless an acceptable letter of
credit with the filing ceding insurer as beneficiary has been
issued on or before the date of filing of the financial
statement. Further, the reduction for the letter of credit may
be up to the amount available under the letter of credit but no
greater than the specific obligation under the reinsurance
agreement which the letter of credit was intended to secure.
Subd. 12. [EXISTING DOCUMENTS.] Notwithstanding the
effective date of this section, any letter of credit or
underlying reinsurance agreement in existence prior to the
effective date of this section will continue to be acceptable
until December 31, 1995, at which time the agreements will have
to be in full compliance with this section for the letter of
credit to be acceptable; provided however that the letter of
credit or underlying reinsurance agreement has been in
compliance with laws or regulations in existence immediately
preceding the effective date of this section.
Sec. 3. [60A.097] [QUALIFYING TRUST AGREEMENTS.]
Subdivision 1. [REQUIREMENTS.] An admitted asset or a
reduction in liability for reinsurance ceded to an unauthorized
assuming insurer providing a trust fund pursuant to section
60A.093 shall only be allowed if the requirements of this
section are met.
Subd. 2. [DEFINITIONS.] As used in this section, the
following terms have the meanings given:
(a) "Beneficiary" means the entity for whose sole benefit
the trust has been established and any successor of the
beneficiary by operation of law. If a court of law appoints a
successor in interest to the named beneficiary, the named
beneficiary includes and is limited to the court appointed
domiciliary receiver, including a conservator, rehabilitator, or
liquidator.
(b) "Grantor" means the entity that has established a trust
for the sole benefit of the beneficiary. When established in
conjunction with a reinsurance agreement, the grantor is the
unlicensed, unaccredited assuming insurer.
(c) "Obligations" as used in subdivision 3, paragraph (k),
means: (1) reinsured losses and allocated loss expenses paid by
the ceding company, but not recovered from the assuming insurer;
(2) reserves for reinsured losses reported and outstanding; (3)
reserves for reinsured losses incurred but not reported; and (4)
reserves for allocated reinsured loss expenses and unearned
premiums.
Subd. 3. [REQUIRED CONDITIONS.] (a) The trust agreement
must be entered into between the beneficiary, the grantor, and a
trustee which must be a qualified United States financial
institution as defined in section 60A.091.
(b) The trust agreement must create a trust account into
which assets must be deposited.
(c) All assets in the trust account must be held by the
trustee at the trustee's office in the United States, except
that a bank may apply for the commissioner's permission to use a
foreign branch office of the bank as trustee for trust
agreements established pursuant to this section. If the
commissioner approves the use of the foreign branch office as
trustee, then its use must be approved by the beneficiary in
writing and the trust agreement must provide that the written
notice described in paragraph (d), clause (1), must also be
presentable, as a matter of legal right, at the trustee's
principal office in the United States.
(d) The trust agreement must provide that:
(1) the beneficiary shall have the right to withdraw assets
from the trust account at any time, without notice to the
grantor, subject only to written notice from the beneficiary to
the trustee;
(2) no other statement or document is required to be
presented in order to withdraw assets, except that the
beneficiary may be required to acknowledge receipt of withdrawn
assets;
(3) it is not subject to any conditions or qualifications
outside of the trust agreement; and
(4) it shall not contain references to any other agreements
or documents except as provided for under paragraph (k).
(e) The trust agreement must be established for the sole
benefit of the beneficiary.
(f) The trust agreement must require the trustee to:
(1) receive assets and hold all assets in a safe place;
(2) determine that all assets are in such form that the
beneficiary, or the trustee upon direction by the beneficiary,
may whenever necessary negotiate the assets, without consent or
signature from the grantor or any other person or entity;
(3) furnish to the grantor and the beneficiary a statement
of all assets in the trust account upon its inception and at
intervals no less frequent than the end of each calendar
quarter;
(4) notify the grantor and the beneficiary within ten days
of any deposits to or withdrawals from the trust account;
(5) upon written demand of the beneficiary, immediately
take any and all steps necessary to transfer absolutely and
unequivocally all right, title, and interest in the assets held
in the trust account to the beneficiary and deliver physical
custody of the assets to the beneficiary; and
(6) allow no substitutions or withdrawals of assets from
the trust account, except on written instructions from the
beneficiary, except that the trustee may, without the consent of
but with notice to the beneficiary, upon call or maturity of any
trust asset, withdraw the asset upon condition that the proceeds
are paid into the trust account.
(g) The trust agreement must provide that at least 30 days,
but not more than 45 days, before termination of the trust
account, written notification of termination must be delivered
by the trustee to the beneficiary.
(h) The trust agreement must be made subject to and
governed by the laws of the state in which the trust is
established.
(i) The trust agreement must prohibit invasion of the trust
corpus for the purpose of paying compensation to, or reimbursing
the expenses of, the trustee.
(j) The trust agreement must provide that the trustee is
liable for its own negligence, willful misconduct, or lack of
good faith.
(k) Notwithstanding other provisions of this section, when
a trust agreement is established in conjunction with a
reinsurance agreement covering risks other than life, annuities,
and accident and health, where it is customary practice to
provide a trust agreement for a specific purpose, the trust
agreement may, notwithstanding any other conditions in this
section, provide that the ceding insurer must undertake to use
and apply amounts drawn upon the trust account, without
diminution because of the insolvency of the ceding insurer or
the assuming insurer for the following purposes:
(1) to pay or reimburse the ceding insurer for the assuming
insurer's share under the specific reinsurance agreement
regarding any losses and allocated loss expenses paid by the
ceding insurer, but not recovered from the assuming insurer, or
for unearned premiums due to the ceding insurer if not otherwise
paid by the assuming insurer;
(2) to make payment to the assuming insurer of any amounts
held in the trust account that exceed 102 percent of the actual
amount required to fund the assuming insurer's obligations under
the specific reinsurance agreement; or
(3) where the ceding insurer has received notification of
termination of the trust account and where the assuming
insurer's entire obligations under the specific reinsurance
agreement remain unliquidated and undischarged ten days before
the termination date, to withdraw amounts equal to the
obligations and deposit those amounts in a separate account, in
the name of the ceding insurer in any qualified United States
financial institution as defined in section 60A.091 apart from
its general assets, in trust for the uses and purposes specified
in paragraphs (1) and (2) that remain executory after the
withdrawal and for any period after the termination date.
(l) The reinsurance agreement entered into in conjunction
with the trust agreement may, but need not, contain the
provisions required by subdivision 5, paragraph (a), clause (2),
so long as these required conditions are included in the trust
agreement.
Subd. 4. [PERMITTED CONDITIONS.] (a) The trust agreement
may provide that the trustee may resign upon delivery of a
written notice of resignation, effective not less than 90 days
after receipt by the beneficiary and grantor of the notice and
that the trustee may be removed by the grantor by delivery to
the trustee and the beneficiary of a written notice of removal,
effective not less than 90 days after receipt by the trustee and
the beneficiary of the notice. No resignation or removal is
effective until a successor trustee has been appointed and
approved by the beneficiary and the grantor and all assets in
the trust have been duly transferred to the new trustee.
(b) The grantor may have the full and unqualified right to
vote any shares or stock in the trust account and to receive
from time to time payment of any dividends or interest upon any
shares of stock or obligations included in the trust account.
Interest or dividends must be either forwarded promptly upon
receipt to the grantor or deposited in a separate account
established in the grantor's name.
(c) The trustee may be given authority to invest, and
accept substitutions of, any funds in the account. No
investment or substitution must be made without prior approval
of the beneficiary, unless the trust specifies categories of
investments acceptable to the beneficiary and authorizes the
trustee to invest funds and to accept substitutions which the
trustee determines are at least equal in market value to the
assets withdrawn and that are consistent with the restrictions
in subdivision 5, paragraph (a), clause (2).
(d) The trust agreement may provide that the beneficiary
may at any time designate a party to which all or part of the
trust assets are to be transferred. The transfer may be
conditioned upon the trustee receiving, prior to or
simultaneously, other specified assets.
(e) The trust agreement may provide that, upon termination
of the trust account, all assets not previously withdrawn by the
beneficiary shall, with written approval by the beneficiary, be
delivered to the grantor.
Subd. 5. [ADDITIONAL CONDITIONS APPLICABLE TO REINSURANCE
AGREEMENTS.] (a) A reinsurance agreement, which is entered into
in conjunction with a trust agreement and the establishment of a
trust account, may contain provisions that:
(1) require the assuming insurer to enter into a trust
agreement and to establish a trust account for the benefit of
the ceding insurer, and specifying what the agreement is to
cover;
(2) stipulate that assets deposited in the trust account
must be valued according to their current fair market value and
must consist only of United States legal tender, certificates of
deposit issued by a United States bank and payable in United
States legal tender, and investments of the types permitted by
state insurance law or any combination of the above, if the
investments are issued by an institution that is not the parent,
subsidiary or affiliate of either the grantor or the
beneficiary. The reinsurance agreement may further specify the
types of investments to be deposited. Where a trust agreement
is entered into in conjunction with a reinsurance agreement
covering risks other than life, annuities, and accident and
health, then the trust agreement may contain the provisions in
this paragraph in lieu of including these provisions in the
reinsurance agreement;
(3) require the assuming insurer, before depositing assets
with the trustee, to execute assignments or endorsements in
blank, or to transfer legal title to the trustee of all shares,
obligations or any other assets requiring assignments, in order
that the ceding insurer, or the trustee upon the direction of
the ceding insurer, may whenever necessary negotiate these
assets without consent or signature from the assuming insurer or
any other entity;
(4) require that all settlements of account between the
ceding insurer and the assuming insurer be made in cash or its
equivalent; and
(5) stipulate that the assuming insurer and the ceding
insurer agree that the assets in the trust account, established
pursuant to the provisions of the reinsurance agreement, may be
withdrawn by the ceding insurer at any time, notwithstanding any
other provisions in the reinsurance agreement, and must be
utilized and applied by the ceding insurer or its successors in
interest by operation of law, including without limitation any
liquidator, rehabilitator, receiver or conservator of the
company, without diminution because of insolvency on the part of
the ceding insurer or the assuming insurer, only for the
following purposes:
(i) to reimburse the ceding insurer for the assuming
insurer's share of premiums returned to the owners of policies
reinsured under the reinsurance agreement because of
cancellations of the policies;
(ii) to reimburse the ceding insurer for the assuming
insurer's share of surrenders and benefits or losses paid by the
ceding insurer pursuant to the provisions of the policies
reinsured under the reinsurance agreement;
(iii) to fund an account with the ceding insurer in an
amount at least equal to the deduction, for reinsurance ceded,
from the ceding insurer liabilities for policies ceded under the
agreement. The account must include, but not be limited to,
amounts for policy reserves, claims and losses incurred,
including losses incurred but not reported, loss adjustment
expenses, and unearned premium reserves; and
(iv) to pay any other amounts the ceding insurer claims are
due under the reinsurance agreement.
(b) The reinsurance agreement may also contain provisions
that:
(1) give the assuming insurer the right to seek approval
from the ceding insurer to withdraw from the trust account all
or any part of the trust assets and transfer those assets to the
assuming insurer, and provide that the ceding insurer shall not
unreasonably or arbitrarily withhold its approval, provided:
(i) the assuming insurer shall, at the time of withdrawal,
replace the withdrawn assets with other qualified assets having
a market value equal to the market value of the assets withdrawn
so as to maintain at all times the deposit in the required
amount; or
(ii) after withdrawal and transfer, the market value of the
trust account is no less than 102 percent of the required
amount;
(2) provide for:
(i) the return of any amount withdrawn in excess of the
actual amounts required for paragraph (a), clause (5), items
(i), (ii), and (iii), or in the case of paragraph (a), clause
(5), item (iv), any amounts that are subsequently determined not
to be due; and
(ii) interest payments, at a rate not in excess of the
prime rate of interest, on the amounts held pursuant to
paragraph (a), clause (5), item (iii); and
(3) permit the award by any arbitration panel or court of
competent jurisdiction of:
(i) interest at a rate different from that provided in
clause (2), item (ii);
(ii) court or arbitration costs;
(iii) attorney's fees; and
(iv) any other reasonable expenses.
Subd. 6. [FINANCIAL REPORTING.] A trust agreement may be
used to reduce any liability for reinsurance ceded to an
unauthorized assuming insurer in financial statements required
to be filed with the commissioner when established on or before
the date of filing of the financial statement of the ceding
insurer. Further, the reduction for the existence of an
acceptable trust account may be up to the current fair market
value of acceptable assets available to be withdrawn from the
trust account at that time, but the reduction must be no greater
than the specific obligations under the reinsurance agreement
that the trust account was established to secure.
Subd. 7. [EXISTING AGREEMENTS.] Notwithstanding the
effective date of this section, any trust agreement or
underlying reinsurance agreement in existence prior to the
effective date of this section will continue to be acceptable
until December 31, 1995, at which time the agreements will have
to be in full compliance with this section for the trust
agreement to be acceptable; provided however that the trust
agreement or underlying reinsurance agreement has been in
compliance with laws or regulations in existence immediately
preceding the effective date of this section.
Subd. 8. [EFFECT OF FAILURE TO IDENTIFY BENEFICIARY.] The
failure of any trust agreement to specifically identify the
beneficiary, as defined in subdivision 2, paragraph (a), must
not be construed to affect any actions or rights which the
commissioner may take or possess pursuant to the laws of this
state.
Sec. 4. Minnesota Statutes 1993 Supplement, section
60A.129, subdivision 3, is amended to read:
Subd. 3. [ANNUAL AUDIT.] (a) 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 4 5, paragraph (a), or by subdivision 7,
shall have an annual audit of the financial activities of the
most recently completed fiscal calendar year performed by an
independent certified public accountant as prescribed by the
commissioner, and shall file the report of this audit with the
commissioner on or before June 30 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.
Extensions of the June 30 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.
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.
(b) 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, the evaluation of accounting
procedures accountant's letter of qualifications, and systems of
report on significant deficiencies in internal control
report controls, which are filed with the other state, are filed
with the commissioner in accordance with the filing dates
specified in paragraphs (a) and (i) (l), (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
paragraph (h) (k). This paragraph does not prohibit or in any
way limit the commissioner from ordering, conducting, and
performing examinations of insurers under the authority of this
chapter.
(c)(i) The annual audited financial report shall report, in
conformity with statutory accounting practices required or
permitted by the commissioner of insurance of the state of
domicile, the financial condition position of the insurer as of
the end of the most recent calendar year and the results of its
operations, changes in financial position cash flows, and
changes in capital and surplus for the year ended. The annual
audited financial report shall include a report of an
independent certified public accountant; a balance sheet
reporting admitted assets, liabilities, capital, and surplus; a
statement of gain or loss from operations; a statement of cash
flows; a statement of changes in capital and surplus; any and
notes to the financial statements; and any additional
information that the commissioner may from time to time require
to be disclosed.
(ii) The notes required under item (i), shall be those
required by the appropriate National Association of Insurance
Commissioners annual statement instructions and any other notes
required by generally accepted accounting principles and shall
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; and a narrative
explanation of all significant intercompany transactions and
balances shall also include a summary of ownership and
relationships of the insurer and all affiliated companies.
(iii) The financial statements included in the audited
financial report shall 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 shall 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.
(d) 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 opinions accountant will express an opinion on the
financial statements will be expressed in terms of their
conformity to the statutory accounting practices prescribed or
other otherwise permitted by that insurance regulatory
authority, unless exceptions to these practices are
appropriate. The letter shall specify all specifying the
exceptions believed to be appropriate. A copy of this the
accountant's letter shall be filed with the commissioner.
(e) If an accountant who was not the accountant for the
immediately preceding filed audited financial report is engaged
to audit the insurer's financial statements dismissed or
resigns, the insurer shall notify the commissioner of this event
within 30 five business days of the date the accountant is
engaged. 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
engagement 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 paragraph include both those
resolved to the former accountant's satisfaction and those not
resolved to the former accountant's satisfaction. Disagreements
contemplated by this section 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.
(f) The commissioner shall not recognize any person or firm
as an 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, a
an independent certified public accountant shall be recognized
as independent 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. The
commissioner, after notice and hearing under chapter 14, may
find that the accountant is not independent 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 independent.
(g) No partner or other person responsible for rendering a
report for calendar year 1997 and thereafter may act in that
capacity for more than seven consecutive years. Following any
period of service, 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 two years.
An insurer may make application to the commissioner for relief
from the above rotation requirement on the basis of unusual
circumstances. The commissioner may consider the number of
partners, the expertise of the partners or the number of
insurance clients in the currently registered firm, the premium
volume of the insurer, or the number of jurisdictions in which
the insurer transacts business in determining if the relief
should be granted.
(h) 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.
(i) 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.
(g) (j) Financial statements furnished under paragraph (a),
shall be examined by an independent certified public
accountant. The examination of the insurer's financial
statements shall be conducted in accordance with generally
accepted auditing standards and consideration should be given to
other procedures illustrated in the Financial Condition
Examiners Handbook, issued by the National Association of
Insurance Commissioners, as the independent certified public
accountant considers necessary.
(h) (k) The insurer required to furnish the annual audited
financial report shall require the independent certified public
accountant to immediately notify in writing provide written
notice an executive officer and all within five business days to
the board of directors of the insurer or its audit committee of
the final 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 section 60A.07 as of that date. An executive
officer or director of an insurer required to file an annual
audited financial report who received a notification of adverse
financial condition from the accountant shall make a written
report to the commissioner of the existence of the materially
misstated financial condition or the failure to meet the minimum
capital and surplus requirements of file a copy of the
notification with the commissioner within three 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 shall
be liable in any manner to any person for any statement made in
connection with this paragraph if the statement is made in good
faith in compliance with this paragraph. If the accountant
becomes aware of facts which might have affected this the
audited financial report after the date of the audited financial
report it was filed under this section, the accountant shall
take the action prescribed by Professional Standards issued by
the American Institute of Certified Public Accountants.
(i) (l) In addition to the annual audited financial report
statements, each insurer shall furnish the commissioner with
a written report of the evaluation performed prepared by the
accountant, in connection with the examination, of the
accounting procedures of describing significant deficiencies in
the insurer and its system of insurer's internal control
structure noted by the accountant during the audit. A report of
the evaluation The accountant shall follow the professional
standards issued by the American Institute of Certified Public
Accountants, which require an accountant to communicate
significant deficiencies, known as reportable conditions, noted
during a financial statement audit, to the appropriate parties
within an entity. No report shall be issued if the accountant
does not identify significant deficiencies. Any such report by
the accountant of the accounting procedures of the insurer and
its system of describing significant deficiencies in the
insurer's internal control, including any remedial action taken
or proposed structure, shall be filed annually by the insurer
with the division commissioner within 60 days after the filing
of the annual audited financial report statements. This report
on internal control shall be in the form prescribed by generally
accepted auditing standards. The insurer shall provide the
commissioner with a description of remedial actions taken or
proposed to correct significant deficiencies, if those actions
are not described in the accountant's report.
(m) 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 thereon 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 paragraph (n) and that the accountant consents
and agrees to make available for review by the commissioner, or
the commissioner's designee or appointed agent, the workpapers,
as defined in paragraph (n); 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 paragraph (f).
Nothing in this section shall be construed as prohibiting the
accountant from utilizing staff the accountant deems appropriate
where use is consistent with the standards prescribed by
generally accepted auditing standards.
(j) (n) Workpapers 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.
Workpapers 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 workpapers prepared in the conduct of the
examination and any communications related to the audit between
the accountant and the insurer. The workpapers shall 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 workpapers and communications until the
commissioner has filed a report on examination covering the
period of the audit but for a period of not no less longer
than five seven years after the period reported upon. In the
conduct of the periodic review by the examiners, it shall be
agreed that photocopies of pertinent audit workpapers may be
made and retained by the department of commerce commissioner.
These copies shall be part of the commissioner's workpapers and
shall be given the same confidentiality as other examination
workpapers generated by the commissioner.
(k) With the commissioner's approval, an insurer may comply
with this section by filing the requisite reports that have been
prepared in accordance with generally accepted accounting
principles if the notes to the financial statements include a
reconciliation of differences between net income and capital and
surplus on the annual statement filed pursuant to section
60A.13, subdivision 1, and comparable totals on the audited
financial statements, and a written description of the nature of
these differences.
(l) (o)(i) 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.
(ii) For these insurers, the letter required in paragraph
(d), shall state that the accountant is aware of the
requirements relating to the annual audited statement filed with
the commissioner under paragraph (a), and shall affirm that the
opinion expressed is in conformity with those requirements.
(m) (p) The audit report of the independent certified
public accountant that performs the audit of an insurer's annual
statement as required under paragraph (a), 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.
Sec. 5. Minnesota Statutes 1993 Supplement, section
60A.129, subdivision 5, is amended to read:
Subd. 5. [CONSOLIDATED FILING.] (a) The commissioner may
allow an exception to the stand alone an insurer to file a
consolidated loss reserve certification required by subdivision
2, in lieu of separate loss certifications and may allow an
insurer to file consolidated or combined audited financial
statements required by subdivision 3, paragraph (a), in lieu of
separate annual audited financial statements, where it can be
demonstrated that a company in a group an insurer is part of a
group of insurance companies that 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 insurer and the insurer
cedes all of its direct and assumed business to the pool. If
these circumstances exist, then the company may file a written
application to file a consolidated loss reserve certification
and a report of an annual audit and/or consolidated or combined
audited financial statements. This application shall be for a
specified period.
(b) A consolidated annual audit filing shall include an
organizational chart of the companies together with a columnar
consolidated or combining worksheet. Amounts shown on the
audited consolidated or combined financial statement shall be
shown on the worksheet. Amounts for each insurer shall be
stated separately. Noninsurance operations may be shown on the
worksheet on a combined or individual basis. Explanations of
consolidating or eliminating entries shall 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 shall be included on the worksheet.
Sec. 6. Minnesota Statutes 1993 Supplement, section
60A.129, subdivision 7, is amended to read:
Subd. 7. [EXEMPTIONS.] (a) Upon written application of any
company insurer, the commissioner may grant an exemption from
compliance with the provisions of this section. In order to
receive an exemption, a company an insurer must demonstrate to
the satisfaction of the commissioner that compliance would
constitute a financial or organizational hardship upon the
company 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 shall 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. No exemption shall 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 shall be held in
accordance with chapter 14.
(b) This section applies to all insurers, unless otherwise
indicated, required to file an annual audit by subdivision 3,
paragraph (a), 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 in this state or certificate
holders of directly written policies nationwide at the end
of any 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.
Sec. 7. Minnesota Statutes 1993 Supplement, section
60A.13, subdivision 1, is amended to read:
Subdivision 1. [ANNUAL STATEMENTS REQUIRED.] Every
insurance company, including fraternal benefit societies, and
reciprocal exchanges, doing business in this state, shall
transmit to the commissioner, annually, on or before March 1,
the appropriate verified National Association of Insurance
Commissioners' annual statement blank, prepared in accordance
with the association's instructions handbook and following those
accounting procedures and practices prescribed by the
association's accounting practices and procedures manual, unless
the commissioner requires or finds another method of valuation
reasonable under the circumstances. Another method of valuation
permitted by the commissioner must be at least as conservative
as those prescribed in the association's manual. All companies
required to file an annual statement under this subdivision must
also file with the commissioner a copy of their annual statement
on computer diskette. All Minnesota domestic insurers required
to file annual statements under this subdivision must also file
quarterly statements with the commissioner for the first,
second, and third calendar quarter on or before 45 days after
the end of the applicable quarter, prepared in accordance with
the association's instruction handbook. All companies required
to file quarterly statements under this subdivision must also
file a copy of their quarterly statement on computer diskette.
In addition, the commissioner may require the filing of any
other information determined to be reasonably necessary for the
continual enforcement of these laws. The statement may be
limited to the insurer's business and condition in the United
States unless the commissioner finds that the business conducted
outside the United States may detrimentally affect the interests
of policyholders in this state. The statements shall also
contain a verified schedule showing all details required by law
for assessment and taxation. The statement or schedules shall
be in the form and shall contain all matters the commissioner
may prescribe, and it may be varied as to different types of
insurers so as to elicit a true exhibit of the condition of each
insurer.
Sec. 8. Minnesota Statutes 1992, section 60A.206,
subdivision 6, is amended to read:
Subd. 6. [ALTERNATIVE MEANS OF COMPLIANCE.] Subdivisions 3
and 5 shall not apply to a group including incorporated and
unincorporated, individual alien insurers which, in place of the
requirements prescribed in subdivisions 3 and 5, maintain assets
as provided in subdivision 3 and hold in trust for all
policyholders and beneficiaries in the United States not less
than $50,000,000 in the aggregate. The incorporated members of
the group shall not be engaged in any business other than
underwriting as a member of the group and must be subject to the
same level of solvency regulation and control by the group's
domiciliary regulator as are the unincorporated members.
Sec. 9. [60A.803] [LIFE AND HEALTH REINSURANCE
AGREEMENTS.]
Subdivision 1. [SCOPE.] This section applies to: (1) all
domestic life and accident and sickness insurers; (2) all other
licensed life and accident and sickness insurers which are not
subject to a substantially similar regulation in their
domiciliary state; and (3) licensed insurers with respect to
their accident and sickness business. This section does not
apply to assumption reinsurance, yearly renewable term
reinsurance, or certain nonproportional reinsurance such as stop
loss or catastrophe reinsurance.
Subd. 2. [ACCOUNTING REQUIREMENTS.] No insurer subject to
this section shall, for reinsurance ceded, reduce any liability
or establish any asset in any financial statement filed with the
commissioner if, by the terms of the reinsurance agreement, in
substance or effect, any of the conditions in paragraphs (a) to
(k) exist:
(a) The renewal expense allowances provided or to be
provided to the ceding insurer by the reinsurer in any
accounting period, are not sufficient to cover anticipated
allocable renewal expenses of the ceding insurer on the portion
of the business reinsured, unless a liability is established for
the present value of the shortfall, using assumptions equal to
the applicable statutory reserve basis on the business
reinsured. Those expenses include commissions, premium taxes,
and direct expenses including, but not limited to, billing,
valuation, claims, and maintenance expected by the company at
the time the business is reinsured.
(b) The ceding insurer can be deprived of surplus or assets
at the reinsurer's option or automatically upon the occurrence
of some event, such as the insolvency of the ceding insurer,
except that termination of the reinsurance agreement by the
reinsurer for nonpayment of reinsurance premiums or other
amounts due, such as modified coinsurance reserve adjustments,
interest and adjustments on funds withheld, and tax
reimbursements, shall not be considered to be a deprivation of
surplus or assets.
(c) The ceding insurer is required to reimburse the
reinsurer for negative experience under the reinsurance
agreement, except that neither offsetting experience refunds
against current and prior years' losses under the agreement nor
payment by the ceding insurer of an amount equal to the current
and prior years' losses under the agreement upon voluntary
termination of in force reinsurance by the ceding insurer is
considered such a reimbursement to the reinsurer for negative
experience. Voluntary termination does not include situations
where termination occurs because of unreasonable provisions
which allow the reinsurer to reduce its risk under the
agreement. An example of such a provision is the right of the
reinsurer to increase reinsurance premiums or risk and expense
charges to excessive levels forcing the ceding company to
prematurely terminate the reinsurance treaty.
(d) The ceding insurer must, at specific points in time
scheduled in the agreement, terminate or automatically recapture
all or part of the reinsurance ceded.
(e) The reinsurance agreement involves the possible payment
by the ceding insurer to the reinsurer of amounts other than
from income realized from the reinsured policies. It is
improper for a ceding company to pay reinsurance premiums, or
other fees or charges to a reinsurer, which are greater than the
direct premiums collected by the ceding company.
(f) The reinsurance agreement does not transfer all of the
significant risk inherent in the business being reinsured. The
following table identifies, for a representative sampling of
products or type of business, the risks that are considered to
be significant. For products not specifically included, the
risks determined to be significant must be consistent with this
table.
Risk categories:
(1) morbidity;
(2) mortality;
(3) lapse, which is the risk that a policy will voluntarily
terminate prior to the recoupment of a statutory surplus strain
experienced at issue of the policy;
(4) credit quality (C1), which is the risk that invested
assets supporting the reinsured business will decrease in
value. The main hazards are that assets will default or that
there will be a decrease in earning power. It excludes market
value declines due to changes in interest rate;
(5) reinvestment (C3), which is the risk that interest
rates will fall and funds reinvested (coupon payments or money
received upon asset maturity or call) will therefore earn less
than expected. If asset durations are less than liability
durations, the mismatch will increase; and
(6) disintermediation (C3), which is the risk that interest
rates rise and policy loans and surrenders increase or maturing
contracts do not renew at anticipated rates of renewal. If
asset durations are greater than the liability durations, the
mismatch will increase. Policyholders will move their funds
into new products offering higher rates. The company may have
to sell assets at a loss to provide for these withdrawals.
RISK CATEGORY
+ = Significant
0 = Insignificant
1 2 3 4 5 6
Health Insurance - other than LTC/LTD* + 0 + 0 0 0
Health Insurance - LTC/LTD* + 0 + + + 0
Immediate Annuities 0 + 0 + + 0
Single Premium Deferred Annuities 0 0 + + + +
Flexible Premium Deferred Annuities 0 0 + + + +
Guaranteed Interest Contracts 0 0 0 + + +
Other Annuity Deposit Business 0 0 + + + +
Single Premium Whole Life 0 + + + + +
Traditional Non-Par Permanent 0 + + + + +
Traditional Non-Par Term 0 + + 0 0 0
Traditional Par Permanent 0 + + + + +
Traditional Par Term 0 + + 0 0 0
Adjustable Premium Permanent 0 + + + + +
Indeterminate Premium Permanent 0 + + + + +
Universal Life Flexible Premium 0 + + + + +
Universal Life Fixed Premium 0 + + + + +
Universal Life Fixed Premium (dump-in 0 + + + + +
premiums allowed)
*LTC = Long Term Care Insurance
LTD = Long Term Disability Insurance
(g)(1) The credit quality, reinvestment, or
disintermediation risk is significant for the business reinsured
and the ceding company does not, other than for the classes of
business excepted in clause (2), either transfer the underlying
assets to the reinsurer or legally segregate such assets in a
trust or escrow account or otherwise establish a mechanism
satisfactory to the commissioner that legally segregates, by
contract or contract provision, the underlying assets.
(2) Notwithstanding the requirements of clause (1), the
assets supporting the reserves for the following classes of
business and any classes of business that do not have a
significant credit quality, reinvestment or disintermediation
risk, may be held by the ceding company without segregation of
the assets:
(i) Health Insurance - LTC/LTD;
(ii) Traditional Non-Par Permanent;
(iii) Traditional Par Permanent;
(iv) Adjustable Premium Permanent;
(v) Indeterminate Premium Permanent; and/or
(vi) Universal Life Fixed Premium (no dump-in premiums
allowed).
The associated formula for determining the reserve interest
rate adjustment must reflect the ceding company's investment
earnings and incorporate all realized and unrealized gains and
losses reflected in the statutory statement. The following is
an acceptable formula:
Rate = 2(I+CG) / (X + Y - I - CG)
Where: I is the net investment income
CG is capital gains less capital losses
X is the current year cash and invested assets plus
investment income due and accrued less borrowed
money
Y is the same as X but for the prior year
(h) Settlements are made less frequently than quarterly or
payments due from the reinsurer are not made in cash within 90
days of the settlement date.
(i) The ceding insurer is required to make representations
or warranties not reasonably related to the business being
reinsured.
(j) The ceding insurer is required to make representations
or warranties about future performance of the business being
reinsured.
(k) The reinsurance agreement is entered into for the
principal purpose of producing significant surplus aid for the
ceding insurer, typically on a temporary basis, while not
transferring all of the significant risks inherent in the
business reinsured and, in substance or effect, the expected
potential liability to the ceding insurer remains basically
unchanged.
Subd. 3. [COMMISSIONER APPROVAL.] Notwithstanding
subdivision 2, an insurer subject to this section may, with the
prior approval of the commissioner, take such reserve credit or
establish such asset as the commissioner deems consistent with
state insurance law or rules.
Subd. 4. [FILING.] (a) Agreements entered into after the
effective date of this section that involve the reinsurance of
business issued prior to the effective date of the agreements,
along with any subsequent amendments thereto, shall be filed by
the ceding company with the commissioner within 30 days from
their date of execution. Each filing shall include data
detailing the financial impact of the transaction. The ceding
insurer's actuary who signs the financial statement actuarial
opinion with respect to valuation of reserves shall consider
this section and any applicable actuarial standards of practice
when determining the proper credit in financial statements filed
with the commissioner. The actuary shall maintain adequate
documentation and be prepared upon request to describe the
actuarial work performed for inclusion in the financial
statements and to demonstrate that the work conforms to this
section.
(b) Any increase in surplus net of federal income tax
resulting from arrangements described in paragraph (a) must be
identified separately on the insurer's statutory financial
statement as a surplus item (aggregate write-ins for gains and
losses in surplus in the capital and surplus account of the
annual statement) and recognition of the surplus increase as
income must be reflected on a net of tax basis in the
"Reinsurance ceded" line of the annual statement as earnings
emerge from the business reinsured.
Subd. 5. [WRITTEN AGREEMENTS.] No reinsurance agreement or
amendment to any agreement may be used to reduce any liability
or to establish any asset in any financial statement filed with
the commissioner, unless the agreement, amendment, or a binding
letter or intent has been duly executed by both parties no later
than the "as of date" of the financial statement. In the case
of a letter of intent, a reinsurance agreement or an amendment
to a reinsurance agreement must be executed within a reasonable
period of time, not exceeding 90 days from the execution date of
the letter of intent, in order for credit to be granted for the
reinsurance ceded. The reinsurance agreement must provide that:
(1) the agreement constitutes the entire agreement between
the parties with respect to the business being reinsured under
it and that there are no understandings between the parties
other than as expressed in the agreement; and
(2) any change or modification to the agreement is null and
void unless made by amendment to the agreement and signed by
both parties.
Subd. 6. [RESERVE CREDITS.] Insurers subject to this
section shall reduce to zero by December 31, 1995, any reserve
credits or assets established with respect to reinsurance
agreements entered into prior to the effective date of this
section that under the provisions of this section would not be
entitled to recognition of the reserve credits or assets;
provided, however, that the reinsurance agreements have been in
compliance with laws or regulations in existence immediately
preceding the effective date of this section.
Sec. 10. Minnesota Statutes 1992, section 60C.02,
subdivision 1, is amended to read:
Subdivision 1. [SCOPE.] This chapter applies to all kinds
of direct insurance, except life, title, accident and
sickness written by life insurance companies, credit, mortgage
guaranty, financial guaranty or other forms of insurance
offering protection against investment risks, and ocean marine.
Sec. 11. Minnesota Statutes 1993 Supplement, section
61B.19, subdivision 3, is amended to read:
Subd. 3. [LIMITATION OF COVERAGE.] Sections 61B.18 to
61B.32 do not provide coverage for:
(1) a portion of a policy or contract under which the
investment risk is borne by the policy or contract holder;
(2) a policy or contract of reinsurance, unless assumption
certificates have been issued and the insured has consented to
the assumption as provided under section 60A.09, subdivision 4a;
(3) a policy or contract issued by an assessment benefit
association operating under section 61A.39, or a fraternal
benefit society operating under chapter 64B;
(4) a health insurance policy issued by a person other than
a person authorized to write life insurance in this state or
other than a person whose corporate charter would permit the
writing of life insurance but who is authorized to write only
health insurance in this state;
(5) any obligation to nonresident participants of a covered
retirement plan or to the plan sponsor, employer, trustee, or
other party who owns the contract; in these 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 or insolvency;
(6) (5) an annuity contract issued in connection with and
for the purpose of funding a structured settlement of a
liability claim, where the liability insurer remains liable;
(7) (6) a portion of an unallocated annuity contract which
is not issued to or in connection with a specific employee,
union, or association of natural persons benefit plan or a
governmental lottery, including but not limited to, a contract
issued to, or purchased at the direction of, any governmental
bonding authority, such as a municipal guaranteed investment
contract;
(8) (7) a plan or program of an employer, association, or
similar entity to provide life, health, or annuity benefits to
its employees or members to the extent that the plan or program
is self-funded or uninsured, including benefits payable by an
employer, association, or similar entity under:
(i) a multiple employer welfare arrangement as defined in
the Employee Retirement Income Security Act of 1974, United
States Code, title 29, section 1002(40)(A), as amended;
(ii) a minimum premium group insurance plan;
(iii) a stop-loss group insurance plan; or
(iv) an administrative services only contract;
(9) (8) any policy or contract issued by an insurer at a
time when it was not licensed or did not have a certificate of
authority to issue the policy or contract in this state;
(10) (9) an unallocated annuity contract issued to an
employee benefit plan protected under the federal Pension
Benefit Guaranty Corporation; and
(11) (10) a portion of a policy or contract to the extent
that it provides dividends or experience rating credits except
to the extent the dividends or experience rating credits have
actually become due and payable or have been credited to the
policy or contract before the date of impairment or insolvency,
or provides that a fee or allowance be paid to a person,
including the policy or contract holder, in connection with the
service to, or administration of, the policy or contract.
Sec. 12. Minnesota Statutes 1992, section 62E.10,
subdivision 2, is amended to read:
Subd. 2. [BOARD OF DIRECTORS; ORGANIZATION.] The board of
directors of the association shall be made up of nine members as
follows: five insurer directors selected by participating
contributing members, subject to approval by the commissioner;
four public directors selected by the commissioner, at least two
of whom must be plan enrollees. Public members may include
licensed insurance agents. In determining voting rights at
members' meetings, each member shall be entitled to vote in
person or proxy. The vote shall be a weighted vote based upon
the member's cost of self-insurance, accident and health
insurance premium, subscriber contract charges, or health
maintenance contract payment derived from or on behalf of
Minnesota residents in the previous calendar year, as determined
by the commissioner. In approving directors of the board, the
commissioner shall consider, among other things, whether all
types of members are fairly represented. Insurer Directors
selected by contributing members may be reimbursed from the
money of the association for expenses incurred by them as
directors, but shall not otherwise be compensated by the
association for their services. The costs of conducting
meetings of the association and its board of directors shall be
borne by members of the association.
Sec. 13. Minnesota Statutes 1992, section 66A.03, is
amended to read:
66A.03 [INCORPORATION.]
Domestic mutual insurance companies are incorporated under
the provisions of chapter 300. Except as otherwise provided in
this chapter, the certificate or articles of incorporation shall
comply with section 300.025, other than:
(1) the requirement that a majority of board members must
always be residents of this state; and
(2) the requirements of section 300.025, paragraph (a),
clause (7).
Sec. 14. [REPEALER.]
Minnesota Statutes 1992, sections 60A.80; 60A.801; and
60A.802, are repealed.
Presented to the governor April 11, 1994
Signed by the governor April 13, 1994, 1:12 p.m.
Official Publication of the State of Minnesota
Revisor of Statutes