Or. Admin. R. 410-141-5365 - CCO INSOLVENCY AND DISSOLUTION: Hazardous Operations

Current through Register Vol. 60, No. 12, December 1, 2021

(1) Without limitation or exclusion of any other authority, actions or remedies that are available to the Authority under these rules or under Applicable Law, if the Authority determines that the continued operation of a CCO is hazardous to its Members or to the public in general, the Authority may order the CCO to take one or more of the following actions:

(a) Reduce the total amount of present and potential liability for Member services by reinsurance.

(b) Reduce, suspend or limit the volume of business being accepted or renewed.

(c) Reduce general expenses by methods specified by the Authority.

(d) Increase the capital and surplus of the CCO.

(e) Suspend or limit the declaration and payment of dividends by the CCO to its stockholders or members.

(f) Limit or withdraw from certain investments or discontinue certain investment practices to the extent the Authority determines such action to be necessary.

(2) The Authority may issue an order under subsection (1) with or without a hearing. A CCO subject to an order issued without a hearing may file a written request for a hearing to review the order. A request for hearing shall not stay the effect of the order. The hearing shall be held within thirty days following the filing of the request. The Authority shall render its decision within thirty days following completion of the hearing and the closing of the hearing record.

(3) Without limiting the facts, conditions, circumstances or factors that the Authority may identify, evaluate or rely upon in determining whether the continued operation of a CCO could be hazardous to the CCO's Members, its creditors or the general public, and without limiting the Authority's discretion to make such determinations, the Authority may consider the following:

(a) Adverse findings reported in financial condition examination reports, audit reports, and actuarial opinions, reports or summaries.

(b) Whether the CCO has made adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the CCO, when considered in light of the assets held by the CCO with respect to such reserves and related actuarial items including but not limited the investment earnings on such assets, and the considerations anticipated to be received and retained under such contracts.

(c) The ability of a CCO's reinsurers to perform and whether the CCO's reinsurance program provides sufficient protection for the CCO's capital and surplus after taking into account the CCO's cash flow and the classes of business written as well as the financial condition of the CCO's reinsurers.

(d) Whether the CCO's operating loss in the last 12-month period or any shorter period of time is greater than 50 percent of the CCO's remaining capital and surplus in excess of the minimum required.

(e) Whether the CCO's operating loss in the last 12-month period or any shorter period of time, excluding net capital gains, is greater than 20 percent of the CCO's remaining surplus in excess of the minimum required.

(f) Whether any of the CCO's reinsurers or any of the CCO's other counterparty obligors, or any entity within the CCO's holding company system is insolvent, threatened with insolvency or delinquent in payment or performance of its monetary or other obligations to the CCO, which could materially and adversely affect the solvency of the CCO.

(g) Contingent liabilities, pledges or guaranties that either individually or collectively involve a total amount that may materially and adversely affect the solvency of the CCO.

(h) Whether any "controlling person" of a CCO is delinquent in remitting amounts due the CCO.

(i) The age and collectability of receivables.

(j) Whether the management of a CCO, including officers, directors or any other person who directly or indirectly controls the operation of the CCO, fails to possess and demonstrate the competence, fitness and reputation determined by the Authority to be necessary to serve the CCO in such position.

(k) Whether management of a CCO has failed to respond to inquiries relating to the condition of the CCO or has furnished false and misleading information concerning an inquiry.

(l) Whether the CCO has failed to meet financial responsibility, accountability or filing requirements.

(m) Whether management of a CCO has filed a false or misleading sworn financial statement or has released a false or misleading financial statement 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 CCO.

(n) Whether the CCO has grown so rapidly and to such an extent that it lacks adequate financial and administrative capacity to meet its obligations in a timely manner.

(o) Whether the CCO has experienced or is projected to experience in the foreseeable future cash flow or liquidity issues that could materially and adversely affect the CCO's solvency and/or prospects for continued operation.

(p) Whether management has established reserves that do not comply with minimum standards established by the CCO contract or regulations, accounting standards, sound actuarial principles and standards of practice.

(q) Whether management of the CCO has caused the CCO to maintain materially insufficient statutory loss reserves or loss adjustment expense reserves.

(r) In respect of transactions between or among the CCO and affiliates within the CCO's holding company system:

(A) Whether the CCO has accurately and timely reported those transactions;

(B) Whether the CCO has filed for and obtained required regulatory approvals of those transactions;

(C) Whether those transactions are fair and reasonable to the CCO, and are otherwise consistent with terms that would be available to the CCO in an unaffiliated arms-length transaction;

(D) Whether any of those transactions were for the principal benefit of an affiliate of the CCO or otherwise were not in the best interests of the CCO and its Members; and

(E) Whether those transactions otherwise comply with the procedural and substantive standards that apply under Applicable Law.

(s) Any other fact, condition or circumstance found by the Authority to be hazardous to the CCO's Members, creditors or the general public.

(4) For the purposes of making a determination of the financial condition of a CCO under these rules or the CCO contract, the Authority may do one or more of the following:

(a) Disregard any credit or amount receivable resulting from transactions with a reinsurer that is insolvent, impaired or otherwise subject to a delinquency proceeding.

(b) Make appropriate adjustments to asset values attributable to investments in or transactions with parents, subsidiaries or affiliates.

(c) Refuse to recognize the stated value of accounts receivable and/or amounts due from affiliates if the ability to collect receivables is speculative in view of the age of the account or the financial condition of the debtor or affiliated organization.

(d) Increase the CCO's liability in an amount equal to any contingent liability, pledge, or guarantee not otherwise included if there is a substantial risk that the CCO will be called upon to meet the obligation undertaken within the next twelve-month period.

(5) In circumstances where the Authority determines, in its discretion, that the financial condition, operating history or future prospects of a CCO warrant such actions, the Authority may require that the CCO:

(a) Promptly provide written responses to an inquiry of the Authority for a current valuation of assets or liabilities of the CCO.

(b) In addition to the required annual and quarterly financial statements, file interim financial statements as of a particular date or with such greater frequency as the Authority may specify.

(c) Promptly produce its personnel and/or records, and/or the records and personnel of its affiliates, for examination by the Authority.

(d) Correct corporate governance practice deficiencies and adopt and utilize governance practices acceptable to the Authority.

(e) Provide a business plan to the Authority demonstrating corrective action the CCO will take to improve its financial condition or such other conditions or deficiencies as may be identified by the Authority.

Notes

Or. Admin. R. 410-141-5365

DMAP 60-2019, adopt filed 12/18/2019, effective 1/1/2020

Statutory/Other Authority: ORS 413.042, 414.615, 414.625, 414.635 & 414.651

Statutes/Other Implemented: ORS 414.610 - 414.685