Current through Register Vol. 60, No. 12, December 1, 2021
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:
Reduce the total amount of present and potential liability for Member services
(b) Reduce, suspend
or limit the volume of business being accepted or renewed.
(c) Reduce general expenses by methods
specified by the Authority.
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.
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
(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
(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.
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.
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
other fact, condition or circumstance found by the Authority to be hazardous to
the CCO's Members, creditors or the general public.
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.
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
(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
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
(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.
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
(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.