Indiana Code
Chapter 23. Regulation of Insurance Holding Company Systems
27-1-23-4. Material Transactions; Standards; Prohibitions; Review; Notice; Financial Status; Extraordinary Dividends; Civil Penalty

Sec. 4. (a) Material transactions within an insurance holding company system to which an insurer subject to registration is a party shall be subject to the following standards:
(1) The terms shall be fair and reasonable.
(2) Agreements concerning cost sharing services and management must include provisions required by the commissioner in rules adopted under IC 4-22-2.
(3) The charges or fees for services performed shall be reasonable.
(4) The expenses incurred and payment received shall be allocated to the insurer in conformity with customary insurance accounting practices consistently applied.
(5) The books, accounts, and records of each party as to all transactions described in this subsection shall be so maintained as to clearly and accurately disclose the nature and details of the transactions, including accounting information necessary to support the reasonableness of the charges or fees to the respective parties.
(6) The insurer's surplus as regards policyholders following any transactions with affiliates or shareholder dividend shall be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs.
(b) The following transactions involving a domestic insurer and any person in its insurance holding company system (including amendments or modifications to affiliate agreements previously filed under this chapter) that are subject to any materiality standards described in subdivisions (1) through (7) may not be entered into unless the insurer has notified the commissioner in writing of its intention to enter into such transaction at least thirty (30) days prior thereto, or such shorter period as the commissioner may permit, and the commissioner has not disapproved it within that period:
(1) Sales, purchases, exchanges, loans or extensions of credit, guarantees, or investments, provided those transactions are equal to or exceed:
(A) with respect to nonlife insurers, the lesser of three percent (3%) of the insurer's admitted assets or twenty-five percent (25%) of surplus as regards policyholders; and
(B) with respect to life insurers, three percent (3%) of the insurer's admitted assets;
each as of December 31 next preceding.
(2) Loans or extensions of credit to any person who is not an affiliate, where the insurer makes those loans or extensions of credit with the agreement or understanding that the proceeds of such transactions, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase assets of, or to make investments in, any affiliate of the insurer making such loans or extensions of credit, provided those transactions are equal to or exceed:
(A) with respect to nonlife insurers, the lesser of three percent (3%) of the insurer's admitted assets or twenty-five percent (25%) of surplus as regards policyholders; and
(B) with respect to life insurers, three percent (3%) of the insurer's admitted assets;
each as of December 31 next preceding.
(3) Reinsurance agreements or modifications thereto, including:
(A) reinsurance pooling agreements; and
(B) agreements under which:
(i) a reinsurance premium;
(ii) a change in the insurer's liabilities; or
(iii) the projected reinsurance premium;
in any of the immediately succeeding three (3) years equals or exceeds five percent (5%) of the insurer's surplus as regards policyholders, as of December 31 next preceding, including those agreements that may require as consideration the transfer of assets from an insurer to a nonaffiliate, if an agreement or understanding exists between the insurer and nonaffiliate that any portion of the assets will be transferred to one (1) or more affiliates of the insurer.
(4) Management agreements, service contracts, cost-sharing arrangements, lease agreements, guarantees, and tax allocation agreements.
(5) Guarantees made by the insurer, only as follows:
(A) A guarantee, the amount of which is not quantifiable.
(B) A guarantee, the amount of which is quantifiable, if the amount of the guarantee exceeds the lesser of:
(i) one-half of one percent (0.5%) of the insurer's admitted assets; or
(ii) ten percent (10%) of surplus as regards policyholders;
on December 31 of the immediately preceding calendar year.
(6) Direct or indirect acquisitions or investments, as follows:
(A) In:
(i) a person that controls the insurer; or
(ii) an affiliate of the insurer in an amount that, together with the insurer's present holdings in the investments, exceeds two and one-half percent (2.5%) of the insurer's surplus to policyholders.
(B) This subdivision does not apply to direct or indirect acquisitions or investments in:
(i) subsidiaries acquired under section 2.6 of this chapter; or
(ii) nonsubsidiary insurance affiliates that are subject to this chapter.
(7) Material transactions, specified by rule, that the commissioner determines may adversely affect the interests of the insurer's policyholders.
This subsection does not authorize or permit any transactions that, in the case of an insurer not a member of the same insurance holding company system, would be otherwise contrary to law. Notice concerning amendments or modifications of a transaction must include the reasons for the change and the financial impact on the domestic insurer. Not more than thirty (30) days after an agreement that was previously filed under this section is terminated, the domestic insurer shall send written notice of the termination to the commissioner. The commissioner shall determine whether a filing concerning the termination is required and shall notify the domestic insurer of the commissioner's determination.
(c) A domestic insurer may not enter into transactions that are part of a plan or series of like transactions with persons within the insurance holding company system if the purpose of those separate transactions is to avoid the statutory threshold amount and thus avoid the review that would occur otherwise.
(d) The commissioner, in reviewing transactions pursuant to subsection (b), shall consider whether the transactions comply with the standards set forth in subsection (a) and whether the transactions may adversely affect the interests of policyholders.
(e) The commissioner shall be notified within thirty (30) days of any investment of the domestic insurer in any one (1) corporation if the total investment in that corporation by the insurance holding company system exceeds ten percent (10%) of the corporation's voting securities.
(f) For purposes of this chapter, in determining whether an insurer's surplus is reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs, the following factors, among others, shall be considered:
(1) The size of the insurer as measured by its assets, capital and surplus, reserves, premium writings, insurance in force and other appropriate criteria.
(2) The extent to which the insurer's business is diversified among the several lines of insurance.
(3) The number and size of risks insured in each line of business.
(4) The extent of the geographical dispersion of the insurer's insured risks.
(5) The nature and extent of the insurer's reinsurance program.
(6) The quality, diversification, and liquidity of the insurer's investment portfolio.
(7) The recent past and projected future trend in the size of the insurer's surplus as regards policyholders.
(8) The surplus as regards policyholders maintained by other comparable insurers in respect of the factors described in subdivisions (1) through (7).
(9) The adequacy of the insurer's reserves.
(10) The quality and liquidity of investments in subsidiaries, except that the commissioner may discount or treat any such investment in subsidiaries as a disallowed asset for purposes of determining the adequacy of surplus whenever in the commissioner's judgment such investment so warrants.
(11) The quality of the earnings of the insurer and the extent to which the reported earnings of the insurer include extraordinary items.
(g) No domestic insurer subject to registration under section 3 of this chapter shall pay an extraordinary dividend or make any other extraordinary distribution to its security holders until:
(1) thirty (30) days after the commissioner has received notice of the declaration thereof and has not within such period disapproved such payment; or
(2) the commissioner shall have approved such payment within such thirty (30) day period.
(h) For purposes of subsection (g), an extraordinary dividend or distribution is any dividend or distribution of cash or other property whose fair market value, together with that of other dividends or distributions made within the twelve (12) consecutive months ending on the date on which the proposed dividend or distribution is scheduled to be made, exceeds the greater of:
(1) ten percent (10%) of such insurer's surplus as regards policyholders as of the most recently preceding December 31; or
(2) the:
(A) net gain from operations of such insurer, if such insurer is a life insurer; or
(B) net income, if such insurer is not a life insurer;
for the twelve (12) month period ending on the most recently preceding December 31.
(i) Notwithstanding any other provision of law, a domestic insurer may declare an extraordinary dividend or distribution which is conditional upon the commissioner's approval thereof, but such a declaration shall confer no rights upon shareholders until:
(1) the commissioner has approved the payment of such dividend or distribution; or
(2) the commissioner has not disapproved the payment within the thirty (30) day period referred to in subsection (g).
(j) The commissioner may impose a civil penalty of five thousand dollars ($5,000) on a person who fails to file a transaction as required by this section. The commissioner shall deposit a civil penalty collected under this subsection in the department of insurance fund established by IC 27-1-3-28.
Formerly: Acts 1971, P.L.387, SEC.1. As amended by Acts 1981, P.L.244, SEC.4; P.L.26-1991, SEC.12; P.L.130-1994, SEC.31; P.L.116-1994, SEC.41; P.L.11-2011, SEC.17; P.L.81-2012, SEC.15; P.L.146-2015, SEC.24; P.L.72-2016, SEC.12; P.L.148-2017, SEC.4.