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NORTH CAROLINA STATUTES AND CODES

§ 58-19-30. Standards and management of an insurer within a holding company system.

§ 58‑19‑30. Standards and management of an insurer within a holding company system.

(a)        Transactions withina holding company system to which an insurer subject to registration is a partyare subject to all of the following standards:

(1)        The terms shall befair and reasonable.

(2)        Charges or fees forservices performed shall be reasonable.

(3)        Expenses incurredand payment received shall be allocated to the insurer in conformity withcustomary insurance accounting practices consistently applied.

(4)        The books, accounts,and records of each party to all such transactions shall be so maintained as toclearly and accurately disclose the nature and details of the transactions,including such accounting information as is necessary to support thereasonableness of the charges or fees to the respective parties.

(5)        The insurer'ssurplus as regards policyholders following any dividends or distributions toshareholder affiliates shall be reasonable in relation to the insurer'soutstanding liabilities and adequate to its financial needs.

(b)        The followingtransactions involving a domestic insurer and any person in its holding companysystem may not be entered into unless the insurer has notified the Commissionerin writing of its intention to enter into the transaction at least 30 daysbefore the transaction, or such shorter period as the Commissioner permits, andthe Commissioner has not disapproved it within that period:

(1)        Sales, purchases,exchanges, loans or extensions of credit, or investments, provided the transactionsequal or exceed: (i) with respect to nonlife insurers, the lesser of threepercent (3%) of the insurer's admitted assets or twenty‑five percent(25%) of surplus as regards policyholders; (ii) with respect to life insurers,three percent (3%) of the insurer's admitted assets; each as of the precedingDecember 31.

(2)        Loans or extensionsof credit to any person who is not affiliated, where the insurer makes theloans or extensions of credit with the agreement or understanding that theproceeds of the transactions, in whole or in substantial part, are to be usedto make loans or extensions of credit to, to purchase assets of, or to makeinvestments in, any affiliate of the insurer making the loans or extensions ofcredit provided the transactions equal or exceed: (i) with respect to nonlifeinsurers, the lesser of three percent (3%) of the insurer's admitted assets ortwenty‑five percent (25%) of surplus as regards policyholders; (ii) withrespect to life insurers, three percent (3%) of the insurer's admitted assets;each as of the preceding December 31.

(3)        Reinsuranceagreements or modifications to the agreements in which the reinsurance premiumor a change in the insurer's liabilities equals or exceeds five percent (5%) ofthe insurer's surplus as regards policyholders, as of the preceding December31, including those agreements that may require as consideration the transferof assets from an insurer to a nonaffiliate, if an agreement or understandingexists between the insurer and nonaffiliate that any portion of the assets willbe transferred to one or more affiliates of the insurer.

(4)        All managementagreements, service contracts, guarantees, or cost‑sharing arrangements.

(5)        Any materialtransactions, specified by rule, that the Commissioner determines may adverselyaffect the interests of the insurer's policyholders.

Nothing in this sectionauthorizes or permits any transactions that, in the case of an insurer, not amember of the same holding company system, would be otherwise contrary to law.A domestic insurer may not enter into transactions that are part of a plan orseries of like transactions with persons within the holding company system ifthe purpose of those separate transactions is to avoid the statutory thresholdamount and thus avoid the review that would otherwise occur. If theCommissioner determines that such separate transactions were entered into overany 12‑month period for that purpose, the Commissioner may exercise theCommissioner's authority under G.S. 58‑19‑50. The Commissioner, inreviewing transactions pursuant to this subsection, shall consider whether thetransactions comply with the standards set forth in subsection (a) of thissection and whether they may adversely affect the interests of policyholders.The Commissioner shall be notified within 30 days after any investment of adomestic insurer in any one corporation if, as a result of the investment, thetotal investment in the corporation by the insurance holding company systemexceeds ten percent (10%) of the corporation's voting securities.

(c)        No domestic insurershall pay any extraordinary dividend or make any other extraordinarydistribution to its shareholders until (i) 30 days after the Commissioner hasreceived notice of the declaration thereof and has not within that perioddisapproved the payment or (ii) the Commissioner has approved the paymentwithin the 30‑day period.

For the purposes of thissection, an "extraordinary dividend" or "extraordinarydistribution" includes any dividend or distribution of cash or otherproperty, whose fair market value together with that of other dividends ordistributions made within the preceding 12 months exceeds the greater of (i)ten percent (10%) of the insurer's surplus as regards policyholders as of thepreceding December 31, or (ii) the net gain from operations of the insurer, ifthe insurer is a life insurer, or the net income, if the insurer is not a lifeinsurer, not including realized capital gains, for the 12‑month periodending the preceding December 31; but does not include pro rata distributionsof any class of the insurer's own securities.

Notwithstanding any otherprovision of law, an insurer may declare an extraordinary dividend ordistribution that is conditional upon the Commissioner's approval, and thedeclaration shall confer no rights upon shareholders until (i) the Commissionerhas approved the payment of the dividend or distribution or (ii) theCommissioner has not disapproved the payment within the 30‑day periodreferred to above.

(d)        For the purposes ofthis Article, in determining whether an insurer's surplus as regardspolicyholders is reasonable in relation to the insurer's outstandingliabilities and adequate to its financial needs, all of the following factors,among others, shall be considered:

(1)        The size of theinsurer as measured by its assets, capital and surplus, reserves, premiumwritings, insurance in force, and other appropriate criteria.

(2)        The extent to whichthe insurer's business is diversified among the several kinds of insurance.

(3)        The number and sizeof risks insured in each kind of insurance.

(4)        The extent of thegeographic dispersion of the insurer's insured risks.

(5)        The nature andextent of the insurer's reinsurance program.

(6)        The quality,diversification, and liquidity of the insurer's investment portfolio.

(7)        The recent past andprojected future trend in the size of the insurer's surplus as regardspolicyholders.

(8)        The surplus asregards policyholders maintained by other comparable insurers.

(9)        The adequacy of theinsurer's reserves.

(10)      The quality andliquidity of investments in affiliates. The Commissioner may treat any suchinvestment as a disallowed asset for purposes of determining the adequacy ofsurplus as regards policyholders whenever in his judgment such investment sowarrants.

(11)      The quality of theinsurer's earnings and the extent to which the reported earnings of the insurerinclude extraordinary items. (1989, c. 722, s. 1; 1991, c. 681, ss. 35, 36; c. 720,s. 18; 1993, c. 452, s. 33; 2001‑223, s. 16.7; 2005‑215, s. 14;2006‑105, ss. 3.3, 3.4.)

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