The Superintendent may consider the following in determining
whether the continued transaction of insurance business by any insurance
carrier in this state is currently or prospectively hazardous to policyholders,
holders of certificates of insurance, claimants, creditors, or the general
public:
A. Adverse findings reported
in financial condition and market conduct examination reports, audit reports,
and actuarial opinions, reports, or summaries;
B. The National Association of Insurance
Commissioners Insurance Regulatory Information System and its other financial
analysis solvency tools and reports;
C. Whether the carrier may have made
insufficient provision, according to presently accepted actuarial standards of
practice, for the anticipated cash flows required by the contractual
obligations and related expenses of the carrier, when considered in light of
the assets held by the carrier with respect to its reserves and related
actuarial items including, but not limited to, the investment earnings on such
assets, and the considerations anticipated to be received and retained under
the carrier's policies and contracts;
D. The risk that assuming reinsurer(s) may be
unable to fulfill contractual obligations, or that the carrier's reinsurance
program may provide inadequate security after taking into account cash flow,
the classes of business written, and the financial condition of the assuming
reinsurer(s);
E. The carrier's
operating loss in the last twelve-month period or any shorter intervening
period, relative to the carrier's surplus in excess of minimum requirements,
giving appropriate consideration to the carrier's net capital gains or losses,
change in non-admitted assets, cash dividends paid to shareholders, and other
relevant factors;
Drafting Note: The NAIC model hazardous
condition regulation, at Subsections
3(E) and
3(F), specifically
identifies operating losses exceeding 50% of the carrier's remaining surplus
cushion (excess over minimum required surplus), or exceeding 20% of the
carrier's remaining surplus cushion after excluding net capital gains, as
indicators of hazardous financial condition. These benchmarks are significant
considerations in the Superintendent's review of a carrier's financial
condition, but are not codified in Subsection E because the purpose of Section
4 is to provide a qualitative list of
factors for the Superintendent to consider, recognizing that there is no
quantitative test that can mechanically determine whether a carrier is or is
not in hazardous condition.
F. Whether any affiliate, subsidiary,
reinsurer, or obligor is insolvent, threatened with insolvency, or delinquent
in payment of its monetary or other obligations;
G. Contingent liabilities, pledges, or
guaranties which either individually or collectively obligate the carrier to
the extent that the solvency of the carrier may be affected;
H. Whether any controlling person of the
carrier is delinquent in the payment or transmission of net premiums to the
carrier;
I. The age and
collectability of receivables;
J.
Whether the management, board of directors, or any other person who directly or
indirectly controls the operation of the carrier, fails to possess and
demonstrate the experience, fitness and business repute necessary to serve the
carrier in such position;
K.
Whether the carrier has failed to submit required financial filings, including
holding company filings, has furnished false or misleading information in
required attested financial filings, or failed to provide information
sufficient for an adequate understanding of the carrier's material risks,
including the enterprise risk to the carrier posed by its affiliates or
insurance holding company system;
L. Whether the carrier has released false or
misleading financial statements to lending institutions or to the general
public, or has made a false or misleading entry, or has omitted an entry of
material amount in the books of the carrier;
M. Whether the management of the carrier has
failed to respond to regulatory inquiries regarding the condition of the
carrier or has furnished false and misleading information in response to such
an inquiry;
N. Whether the
carrier's historical growth has strained its financial and/or administrative
capacity to meet its obligations in a timely manner;
O. Whether the carrier's projected or actual
cash flow will adversely impact the carrier's need for liquidity;
P. Whether management has established
reserves that do not comply with minimum standards established by state
insurance laws and other applicable actuarial or financial standards;
Q. Whether management persistently engages in
material under-reserving that results in adverse development;
R. Whether transactions involving affiliates,
subsidiaries, or controlling persons fail to provide sufficient value,
liquidity, or diversity to assure the carrier's ability to meet its outstanding
obligations as they mature; or
S.
Such other conditions or circumstances which have resulted or will likely
result in a material adverse financial impact upon the carrier's financial
condition or its ability to provide adequate service to its
policyholders.
