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Minnesota Legislature

Office of the Revisor of Statutes

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.