HB 2083-- Am. by S
=================================================================================
As Amended by Senate Committee
=================================================================================
As Amended by House Committee
=================================================================================
Session of 1997
HOUSE BILL No. 2083
By Committee on Insurance
1-24
----------------------------------------------------------------------------
12 AN ACT concerning insurance companies; regarding the reporting of
13 material transactions; concerning the analysis of acquisitions; regarding
14 the change of control or ownership; amending K.S.A. 40-3304 and
15 K.S.A. 1996 Supp. 40-3302 and repealing the existing sections; also
16 repealing K.S.A. 40-3314 and K.S.A. 1996 Supp. 40-2,158.
17
18 Be it enacted by the Legislature of the State of Kansas:
19 New Section 1. (1) (a) No nonrenewals, cancellations or revisions of
20 ceded reinsurance agreements need be reported pursuant to K.S.A. 1996
21 Supp. 40-2,156 and amendments thereto if the nonrenewals, cancellations
22 or revisions are not material. For purposes of this act, a material nonre-
23 newal, cancellation or revision is one that affects:
24 (1) As respects property and casualty business, including accident and
25 health business written by a property and casualty insurer:
26 (A) More than 50% of the insurer's total ceded written premium; or
27 (B) more than 50% of the insurer's total ceded indemnity and loss
28 adjustment reserves.
29 (2) As respects life, annuity and accident and health business: more
30 than 50% of the total reserve credit taken for business ceded, on an
31 annualized basis, as indicated in the insurer's most recent annual state-
32 ment.
33 (3) As respects either property and casualty or life, annuity, and ac-
34 cident and health business, either of the following events shall constitute
35 a material revision which must be reported:
36 (A) An authorized reinsurer representing more than 10% of a total
37 cession is replaced by one or more unauthorized reinsurers; or
38 (B) previously established collateral requirements have been reduced
39 or waived as respects one or more unauthorized reinsurers representing
40 collectively more than 10% of a total cession.
41 (b) No filing is required pursuant to subsection (a) if:
42 (1) As respects property and casualty business, including accident and
43 health business written by a property and casualty insurer, the insurer's
HB 2083--Am. by S
2
1 total ceded written premium represents, on an annualized basis, less than
2 10% of its total written premium for direct and assumed business; or
3 (2) as respects life, annuity and accident and health business: the total
4 reserve credit taken for business ceded represents, on an annualized basis,
5 less than 10% of the statutory reserve requirement prior to any cession.
6 (c) The following information is required to be disclosed in any report
7 of a material nonrenewal, cancellation or revision of ceded reinsurance
8 agreements:
9 (1) The effective date of the nonrenewal, cancellation or revision;
10 (2) the description of the transaction with an identification of the
11 initiator thereof;
12 (3) the purpose of, or reason for, the transaction; and
13 (4) the identity of the replacement reinsurers, if applicable.
14 (d) Insurers are required to report all material nonrenewals, cancel-
15 lations or revisions of ceded reinsurance agreements on a nonconsolidated
16 basis unless the insurer is part of a consolidated group of insurers which
17 utilizes a pooling arrangement or 100% reinsurance agreement that af-
18 fects the solvency and integrity of the insurer's reserves and the insurer
19 ceded substantially all of its direct and assumed business to the pool. An
20 insurer is deemed to have ceded substantially all of its direct and assumed
21 business to a pool if the insurer has less than $1,000,000 total direct plus
22 assumed written premiums during a calendar year that are not subject to
23 a pooling arrangement and the net income of the business not subject to
24 the pooling arrangement represents less than 5% of the insurer's capital
25 and surplus.
26 Sec. 2. K.S.A. 1996 Supp. 40-3302 is hereby amended to read as
27 follows: 40-3302. As used in this act, unless the context otherwise re-
28 quires:
29 (a) ``Affiliate'' of, or person ``affiliated'' with, a specific person, means
30 a person that directly, or indirectly through one or more intermediaries,
31 controls, or is controlled by, or is under common control with, the person
32 specified.
33 (b) ``Commissioner of insurance'' means the commissioner of insur-
34 ance, the commissioner's deputies, or the insurance department, as ap-
35 propriate.
36 (c) ``Control'' including the terms ``controlling,'' ``controlled by'' and
37 ``under common control with'', means the possession, direct or indirect,
38 of the power to direct or cause the direction of the management and
39 policies of a person, whether through the ownership of voting securities,
40 by contract other than a commercial contract for goods or nonmanage-
41 ment services, or otherwise, unless the power is the result of an official
42 position with or corporate office held by the person. Control shall be
43 presumed to exist if any person, directly or indirectly, owns, controls,
HB 2083--Am. by S
3
1 holds with the power to vote, or holds proxies representing 10% or more
2 of the voting securities of any other person. This presumption may be
3 rebutted only for registration purposes pursuant to K.S.A. 40-3305 and
4 amendments thereto by a showing made in the manner provided by sub-
5 section (i) (k) of K.S.A. 40-3305 and amendments thereto, that control
6 does not exist in fact. The commissioner of insurance may determine,
7 after a hearing in accordance with the provisions of the Kansas adminis-
8 trative procedure act, that control exists in fact, notwithstanding the ab-
9 sence of a presumption to that effect.
10 (d) ``Insurance holding company system'' means two or more affili-
11 ated persons, one or more of which is an insurer.
12 (e) ``Insurer'' means any corporation, company, association, society,
13 fraternal benefit society, health maintenance organization, mutual non-
14 profit medical and hospital service corporation, nonprofit medical service
15 corporation, nonprofit dental service corporation, nonprofit optometric
16 service corporation, reciprocal exchange, person or partnership writing
17 contracts of insurance, indemnity or suretyship in this state upon any type
18 of risk or loss except lodges, societies, persons or associations transacting
19 business pursuant to the provisions of K.S.A. 40-202 and amendments
20 thereto.
21 (f) ``Person'' means an individual, corporation, a partnership, an as-
22 sociation, a joint stock company, a trust, an unincorporated organization,
23 any similar entity or any combination of the foregoing acting in concert.
24 (g) ``Securityholder'' of a specified person means one who owns any
25 security of such person, including common stock, preferred stock, debt
26 obligations, and any other security convertible into or evidencing the right
27 to acquire any of the foregoing.
28 (h) ``Subsidiary'' of a specified person means an affiliate controlled
29 by such person directly, or indirectly, through one or more intermediar-
30 ies.
31 (i) ``Voting security'' means any security convertible into or evidenc-
32 ing a right to acquire a voting security.
33 Sec. 3. K.S.A. 40-3304 is hereby amended to read as follows: 40-
34 3304. (a) No person other than the issuer shall make a tender offer for
35 or a request or invitation for tenders of, or enter into any agreement to
36 exchange securities or, seek to acquire, or acquire, in the open market or
37 otherwise, any voting security of a domestic insurer if, after the consum-
38 mation thereof, such person would, directly or indirectly (or by conversion
39 or by exercise of any right to acquire) be in control of such insurer, and
40 no person shall enter into an agreement to merge with or otherwise to
41 acquire control of a domestic insurer or any person controlling a domestic
42 insurer unless, at the time any such offer, request, or invitation is made
43 or any such agreement is entered into, or prior to the acquisition of such
HB 2083--Am. by S
4
1 securities if no offer or agreement is involved, such person has filed with
2 the commissioner of insurance and has sent to such insurer, a statement
3 containing the information required by this section and such offer, re-
4 quest, invitation, agreement or acquisition has been approved by the com-
5 missioner of insurance in the manner hereinafter prescribed. The
6 requirements of this section shall not apply to the merger or consolidation
7 of those companies subject to the requirements of K.S.A. 40-507 and 40-
8 1216 to 40-1225, inclusive, and amendments thereto.
9 For the purposes of this section a domestic insurer shall include any
10 person controlling a domestic insurer unless such person as determined
11 by the commissioner is either directly or through its affiliates primarily
12 engaged in business other than the business of insurance. However, such
13 person shall file a preacquisition notification with the commissioner con-
14 taining the information set forth in subsection (c)(1) of K.S.A. 40-3314
15 and amendments thereto 30 days prior to the proposed effective date of
16 the acquisition. Failure to file is subject to subsection (e)(3) of K.S.A. 40-
17 3314 and amendments thereto. For the purposes of this section, ``person''
18 shall not include any securities broker holding, in the usual and customary
19 broker's function, less than 20% of the voting securities of an insurance
20 company or of any person which controls an insurance company.
21 (b) The statement to be filed with the commissioner of insurance
22 hereunder shall be made under oath or affirmation, shall be accompanied
23 by a nonrefundable filing fee of $1,000 and shall contain the following
24 information:
25 (1) The name and address of each person by whom or on whose
26 behalf the merger or other acquisition of control referred to in subsection
27 (a) of this section is to be affected, hereinafter called ``acquiring party'',
28 and: (A) If such person is an individual, such individual's principal oc-
29 cupation and all offices and positions held during the past five years and
30 any conviction of crimes other than minor traffic violations during the
31 past 10 years; (B) if such person is not an individual, a report of the nature
32 of its business operations during the past five years or for such lesser
33 period as such person and any predecessors thereof shall have been in
34 existence; an informative description of the business intended to be done
35 by such person and such person's subsidiaries; and a list of all individuals
36 who are or who have been selected to become directors or executive
37 officers of such person, or who perform or will perform functions appro-
38 priate to such positions. Such list shall include for each such individual
39 the information required by subparagraph (A) of this subsection;
40 (2) the source, nature and amount of the consideration used or to be
41 used in effecting the merger or other acquisition of control, a description
42 of any transaction wherein funds were or are to be obtained for any such
43 purpose including any pledge of the insurer's stock, or the stock of any
HB 2083--Am. by S
5
1 of its subsidiaries or controlling affiliates, and the identity of persons fur-
2 nishing such consideration, except that where a source of such consid-
3 eration is a loan made in the lender's ordinary course of business, the
4 identity of the lender shall remain confidential, if the person filing such
5 statement so requests;
6 (3) fully audited financial information as to the earnings and financial
7 condition of each acquiring party for the preceding five fiscal years of
8 each such acquiring party or for such lesser period as such acquiring party
9 and any predecessors thereof shall have been in existence, and similar
10 unaudited information as of a date not earlier than 90 days prior to the
11 filing of the statement;
12 (4) any plans or proposals which each acquiring party may have to
13 liquidate such insurer, to sell its assets or merge or consolidate it with
14 any person or to make any other material change in its business or cor-
15 porate structure or management;
16 (5) the number of shares of any security referred to in subsection (a)
17 of this section which each acquiring party proposes to acquire and the
18 terms of the offer, request, invitation, agreement or acquisition referred
19 to in subsection (a) of this section, and a statement as to the method by
20 which the fairness of the proposal was arrived at;
21 (6) the amount of each class of any security referred to in subsection
22 (a) of this section which is beneficially owned or concerning which there
23 is a right to acquire beneficial ownership by each acquiring party;
24 (7) a full description of any contracts, arrangements or understand-
25 ings with respect to any security referred to in subsection (a) of this sec-
26 tion in which any acquiring party is involved, including but not limited to
27 transfer of any of the securities, joint ventures, loan or option arrange-
28 ments, puts or calls, guarantees of loans, guarantees against loss or guar-
29 antees of profits, division of losses or profits, or the giving or withholding
30 of proxies. Such description shall identify the persons with whom such
31 contracts, arrangements or understandings have been entered into;
32 (8) a description of the purchase of any security referred to in sub-
33 section (a) of this section during the 12 calendar months preceding the
34 filing of the statement, by any acquiring party, including the dates of
35 purchase, names of the purchasers, and consideration paid or agreed to
36 be paid therefor;
37 (9) a description of any recommendations to purchase any security
38 referred to in subsection (a) of this section made during the 12 calendar
39 months preceding the filing of the statement, by any acquiring party, or
40 by anyone based upon interviews or at the suggestion of such acquiring
41 party;
42 (10) copies of all tender offers for, requests or invitations for tenders
43 of, exchange offers for and agreements to acquire or exchange any se-
HB 2083--Am. by S
6
1 curities referred to in subsection (a) of this section, and, if distributed, of
2 additional soliciting material relating thereto;
3 (11) the terms of any agreement, contract or understanding made
4 with or proposed to be made with any broker-dealer as to solicitation of
5 securities referred to in subsection (a) of this section for tender, and the
6 amount of any fees, commissions or other compensation to be paid to
7 broker-dealers with regard thereto;
8 (12) such additional information as the commissioner of insurance
9 may by rule or regulation prescribe as necessary or appropriate for the
10 protection of policyholders of the insurer or in the public interest.
11 If the person required to file the statement referred to in subsection
12 (a) of this section is a partnership, limited partnership, syndicate or other
13 group, the commissioner of insurance may require that the information
14 called for by paragraphs (1) through (12) of subsection (b) of this section
15 shall be given with respect to each partner of such partnership or limited
16 partnership, each member of such syndicate or group, and each person
17 who controls such partner or member. If any such partner, member or
18 person is a corporation or the person required to file the statement re-
19 ferred to in subsection (a) of this section is a corporation, the commis-
20 sioner of insurance may require that the information called for by para-
21 graphs (1) through (12) of subsection (b) of this section shall be given
22 with respect to such corporation, each officer and director of such cor-
23 poration and each person who is directly or indirectly the beneficial owner
24 of more than 10% of the outstanding voting securities of such corporation.
25 If any material change occurs in the facts set forth in the statement
26 filed with the commissioner of insurance and sent to such insurer pur-
27 suant to this section, an amendment setting forth such change, together
28 with copies of all documents and other material relevant to such change,
29 shall be filed with the commissioner of insurance and sent to such insurer
30 within two business days after the person learns of such change.
31 (c) If any offer, request, invitation, agreement or acquisition referred
32 to in subsection (a) of this section is proposed to be made by means of a
33 registration statement under the securities act of 1933 or in circumstances
34 requiring the disclosure of similar information under the securities
35 exchange act of 1934, or under a state law requiring similar registration
36 or disclosure, the person required to file the statement referred to in
37 subsection (a) of this section may utilize such documents in furnishing
38 the information called for by that statement.
39 (d) (1) The commissioner of insurance shall approve any merger or
40 other acquisition of control referred to in subsection (a) of this section
41 unless, after a public hearing thereon conducted in accordance with the
42 provisions of the Kansas administrative procedure act, the commissioner
43 finds that:
HB 2083--Am. by S
7
1 (A) After the change of control the domestic insurer referred to in
2 subsection (a) of this section would not be able to satisfy the requirements
3 for the issuance of a license to write the line or lines of insurance for
4 which it is presently licensed;
5 (B) the effect of the merger or other acquisition of control would be
6 substantially to lessen competition in insurance in this state or tend to
7 create a monopoly therein. In applying the competitive standard in this
8 paragraph:
9 (i) The informational requirements of subsection (c)(1) of K.S.A. 40-
10 3314 and amendments thereto and the standards of subsection (d)(2) of
11 K.S.A. 40-3314 and amendments thereto shall apply;
12 (ii) the merger or other acquisition shall not be disapproved if the
13 commissioner finds that any of the situations meeting the criteria pro-
14 vided by subsection (d)(3) of K.S.A. 40-3314 and amendments thereto
15 exist; and
16 (iii) the commissioner may condition the approval of the merger or
17 other acquisition on the removal of the basis of disapproval within a spec-
18 ified period of time.
19 (C) (B) the financial condition of any acquiring party is such as might
20 jeopardize the financial stability of the insurer or prejudice the interest
21 of its policyholders;
22 (D) (C) the plans or proposals which the acquiring party has to liq-
23 uidate the insurer, sell its assets or consolidate or merge it with any per-
24 son, or to make any other material change in its business or corporate
25 structure or management, are unfair and unreasonable to policyholders
26 of the insurer and not in the public interest; or
27 (E) (D) the competence, experience and integrity of those persons
28 who would control the operation of the insurer are such that it would not
29 be in the interest of policyholders of the insurer and of the public to
30 permit the merger or other acquisition of control; or
31 (F) (E) the acquisition is likely to be hazardous or prejudicial to the
32 insurance-buying public.
33 (2) The public hearing referred to in paragraph (1) of subsection (d)
34 of this section shall be held as soon as practical after the statement re-
35 quired by this subsection (a) of this section is filed, and at least 20 days'
36 notice thereof shall be given by the commissioner of insurance to the
37 person filing the statement. Not less than seven days' notice of such public
38 hearing shall be given by the person filing the statement to the insurer
39 and to such other persons as may be designated by the commissioner of
40 insurance. At such hearing, the person filing the statement, the insurer,
41 any person to whom notice of hearing was sent, and any other person
42 whose interests may be affected thereby shall have the right to present
43 evidence, examine and cross-examine witnesses, and offer oral and writ-
HB 2083--Am. by S
8
1 ten arguments in accordance with the Kansas administrative procedure
2 act. In the absence of intervention, such insurer or person shall have the
3 right to present oral or written statements in accordance with subsection
4 (c) of K.S.A. 77-523 and amendments thereto.
5 (3) The commissioner may retain at the acquiring person's expense
6 any attorneys, actuaries, accountants and other experts not otherwise a
7 part of the commissioner's staff as may be reasonably necessary to assist
8 the commissioner in reviewing the proposed acquisition of control.
9 (e) The provisions of this section shall not apply to:
10 Any offer, request, invitation, agreement or acquisition which the com-
11 missioner of insurance by order shall exempt therefrom as: (A) (1) Not
12 having been made or entered into for the purpose and not having the
13 effect of changing or influencing the control of a domestic insurer; or (B)
14 (2) as otherwise not comprehended within the purposes of this section.
15 (f) The following shall be violations of this section:
16 (1) The failure to file any statement, amendment or other material
17 required to be filed pursuant to subsection (a) or (b) of this section; or
18 (2) the effectuation or any attempt to effectuate an acquisition of
19 control of, or merger with, a domestic insurer unless the commissioner
20 of insurance has given the commissioner's approval thereto.
21 (g) The courts of this state are hereby vested with jurisdiction over
22 every securityholder of a domestic insurer and every person not resident,
23 domiciled or authorized to do business in this state who files a statement
24 with the commissioner of insurance under this section and over all actions
25 involving such person arising out of violations of this section. Each such
26 person shall be deemed to have performed acts equivalent to and con-
27 stituting an appointment by such a person of the commissioner of insur-
28 ance to be such person's true and lawful attorney upon whom may be
29 served all lawful process in any action, suit or proceeding arising out of
30 violations of this section. Copies of all such lawful process shall be served
31 on the commissioner of insurance and transmitted by registered or cer-
32 tified mail by the commissioner of insurance to such person at such per-
33 son's last known address.
34 Sec. 4. K.S.A. 40-3304, 40-3314 and K.S.A. 1996 Supp. 40-2,158
35 and 40-3302 are hereby repealed.
36 Sec. 5. This act shall take effect and be in force from and after its
37 publication in the statute book.