H. B. 2766
(By Delegates H. White, Hrutkay
and R. M. Thompson)
[Introduced January 29, 2003; referred to the
Committee on Banking and Insurance then the Judiciary.]
A Bill to amend and reenact sections two, two-a, three and seven,
article twenty-seven, chapter thirty-three of the code of West
Virginia, one thousand nine hundred thirty-one, as amended,
all relating to insurance company holding systems and
amendments required by the federal Gramm-Leach-Bliley Act
(P.L. 106-102, November 12, 1999); allowing insurance
companies to acquire or be acquired by depository
institutions; amending the period of time within which a
public hearing and action thereon may be taken by the
commissioner upon a statement filed by a person offering to
acquire control of an insurance company; authorizing the
commissioner to share confidential information gathered
pursuant to article twenty-seven with the board of governors
of the federal reserve system or other appropriate federal
banking agency; and to make technical changes.
Be it enacted by the Legislature of West Virginia:
That sections two, two-a, three and seven, article
twenty-seven, chapter thirty-three of the
code of West Virginia,
one thousand nine hundred and thirty-one, as amended, be amended
and reenacted, all to read as follows:
ARTICLE 27. INSURANCE COMPANY HOLDING SYSTEMS.
§33-27-2. Definitions.
As used in this article:
(a) An "affiliate" of, or person "affiliated" with, a
specific person, is a person that, directly or
indirectly through
one or more intermediaries, controls, or is controlled by, or is
under common control with, the person specified.
(b) "Commissioner" means the insurance commissioner, his or
her deputies, or the insurance department, as appropriate.
(c) "Control" (including the terms "controlling," "controlled
by" and "under common control with") means the possession, direct
or indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership
of voting securities, by contract other than a commercial contract
for goods or nonmanagement services, or otherwise, unless the power
is the result of an official position with or corporate office held
by the person. Control shall be presumed to exist if any person,
directly or indirectly, owns, controls, holds with the power to
vote, or holds proxies representing ten percent or more of the
voting securities of any other person or controls or appoints a majority of the board of directors, voting members or similar
governing body of any other person. This presumption may be
rebutted by a showing made in the manner provided by subsection
(
l), section four of this article that control does not exist in
fact. The commissioner may determine, after furnishing all persons
in interest notice and opportunity to be heard and making specific
findings of fact to support the determination that control exists
in fact notwithstanding the absence of a presumption to that
effect.
(d) "Depository institution" means a bank or savings
association as those terms are defined in section three of the
federal deposit insurance act. The term "depository institution"
does not include an insurance company.
(d) (e) "Insurance holding company system" consists of two or
more affiliated persons, one or more of which is an insurer.
(e) (f) "Insurer" means any person or persons or corporation,
partnership or company authorized by the laws of this state to
transact the business of insurance in this state, except that it
shall not include agencies, authorities or instrumentalities of the
United States, its possessions and territories, the commonwealth of
Puerto Rico, the District of Columbia, or a state or political
subdivision of a state.
(f) (g) A "person" is "Person" means an individual, a
corporation, a partnership, an association, a joint-stock company, a trust, an unincorporated organization,
a depository institution,
or any other legal entity or any combination of the foregoing
acting in concert, but does not include any securities broker
performing no more than the usual and customary broker's function
and holding less than twenty percent of the voting securities of an
insurance company or of any person which controls an insurance
company.
(g) (h) A "security holder" of a specified person is one who
owns any security of such person, including common stock, preferred
stock, debt obligations and any other security convertible into or
evidencing the right to acquire any of the foregoing.
(h) (i) A "subsidiary" of a specified person is an affiliate
controlled by such person directly or indirectly through one or
more intermediaries.
(i) (j) "Voting security" includes any security convertible
into or evidencing a right to acquire a voting security.
§33-27-2a. Subsidiaries of insurers; authorization; investment
authority; exemptions; qualifications; cessation of
controls.
(a) Any domestic insurer, either by itself or in cooperation
with one or more persons, may organize or acquire one or more
subsidiaries engaged in the following kinds of business with the
commissioner's prior approval:
(1) Any kind of insurance business authorized by the jurisdiction in which it is incorporated;
(2) Acting as an insurance agent for its parent or for any of
its parent's insurer subsidiaries;
(3) Investing, reinvesting or trading in securities for its
own account, that of its parent, any
subsidiary of its parent, or
any affiliate or subsidiary;
(4) Management of any investment company subject to or
registered pursuant to the Investment Company Act of 1940, as
amended, including related sales and services;
(5) Acting as a broker-dealer subject to or registered
pursuant to the Securities Exchange Act of 1934, as amended;
(6) Rendering investment advice to governments, government
agencies, corporations or other organizations or groups;
(7) Rendering other services related to the operations of an
insurance business, including, but not limited to, actuarial, loss
prevention, safety engineering, data processing, accounting,
claims, appraisal and collection services;
(8) Ownership and management of assets which the parent
corporation could itself own or manage;
(9) Acting as administrative agent for a governmental
instrumentality which is performing an insurance function;
(10) Financing of insurance premiums, agents and other forms
of consumer financing;
(11) Any other business activity determined by the commissioner to be reasonably ancillary to an insurance business;
and
(12) Owning a corporation or corporations engaged or organized
to engage exclusively in one or more of the businesses specified in
this section.
(b) No provision of this section, article or chapter, or rules
promulgated by the commissioner, prevents any domestic insurer,
either by itself or in cooperation with one or more persons, from
organizing or acquiring one or more subsidiaries that are
depository institutions, with the commissioner's prior approval as
provided in this section.
(b) (c) In addition to investments in common stock, preferred
stock, debt obligations and other securities permitted under any
other provision of this chapter, a domestic insurer may also with
the commissioner's prior approval:
(1) Invest in common stock, preferred stock, debt obligations
and other securities of one or more subsidiaries, amounts which do
not exceed the lesser of ten percent of such insurer's assets or
fifty percent of such insurer's surplus as regards policyholders:
Provided, That after such investments, the insurer's surplus as
regards policyholders will be reasonable in relation to the
insurer's outstanding liabilities and adequate to its financial
needs. In calculating the amount of such investments, investments
in domestic or foreign insurance subsidiaries shall be excluded, and there shall be included:
(A) Total net moneys or other consideration expended and
obligations assumed in the acquisition or formation of a
subsidiary, including all organizational expenses and contributions
to capital and surplus of such subsidiary whether or not
represented by the purchase of capital stock or issuance of other
securities, and
(B) All amounts expended in acquiring additional common stock,
preferred stock, debt obligations and other securities, and all
contributions to the capital or surplus, of a subsidiary subsequent
to its acquisition or formation;
(2) Invest any amount in common stock, preferred stock, debt
obligations and other securities of one or more subsidiaries
engaged or organized to engage exclusively in the ownership and
management of assets authorized as investments for the insurer:
Provided, That each such subsidiary agrees to limit its investments
in any asset so that such investments will not cause the amount of
the total investment of the insurer to exceed any of the investment
limitations specified in
subsection (b)(1) subdivision (1) of this
section subsection or in article eight of this chapter applicable
to the insurer. For the purpose of this subdivision, "the total
investment of the insurer" includes:
(A) Any direct investment by the insurer in an asset; and
(B) The insurer's proportionate share of any investment in an asset by any subsidiary of the insurer, which shall be calculated
by multiplying the amount of the subsidiary's investment by the
percentage of the ownership of such subsidiary;
(3) With the approval of the commissioner, invest any greater
amount in common stock, preferred stock, debt obligations or other
securities of one or more subsidiaries:
Provided, That after such
investment the insurer's surplus as regards policyholders will be
reasonable in relation to the insurer's outstanding liabilities and
adequate to its financial needs.
(c) (d) Investments in common stock, preferred stock, debt
obligations or other securities of subsidiaries made pursuant to
subsection (b) of this section shall not be subject to any of the
otherwise applicable restrictions or prohibitions contained in this
chapter applicable to such investments of insurers except section
twenty-one, article eight of this chapter.
(d) (e) Whether any investment pursuant to subsection (a),
or
(b)
or (c) of this section meets the applicable requirements
thereof is to be determined before such investment is made, by
calculating the applicable investment limitations as though the
investment had already been made, taking into account the then
outstanding principal balance on all previous investments in debt
obligations, and the value of all previous investments in equity
securities as of the day they were made, net of any return of
capital invested, not including dividends.
(e) (f) If an insurer ceases to control a subsidiary, it shall
dispose of any investment therein made pursuant to this section
within three years from the time of the cessation of control or
within such further time as the commissioner may prescribe, unless
at any time after such investment shall have been made, such
investment shall have met the requirements for investment under any
other provision of this chapter, and the insurer has notified the
commissioner thereof.
§33-27-3. Acquisition of control of or merger with domestic
insurer; filing requirements; statements;
alternative filing material; approval by the
commissioner; hearings; notice; mailings to
shareholders; expenses; exemptions; violations and
jurisdiction.
(a) Any person other than the issuer shall not make a tender
offer for or a request or invitation for tenders of, or enter into
any agreement to exchange securities for, seek to acquire or
acquire, in the open market or otherwise, any voting security of a
domestic insurer if, after the consummation thereof,
such the
person would, directly or indirectly (or by conversion or by
exercise of any right to acquire) be in control of
such the
insurer, and a person shall not enter into an agreement to merge
with or otherwise to acquire control of a domestic insurer or any
person controlling a domestic insurer unless, at the time any such offer, request or invitation is made or any such agreement is
entered into, or prior to the acquisition of such securities if no
offer or agreement is involved,
such the person has filed with the
commissioner and has sent to
such the insurer, and, to the extent
permitted by applicable federal laws, rules and regulations,
such
the insurer has sent to its shareholders a statement containing the
information required by this section and
such the offer, request,
invitation, agreement or acquisition has been approved by the
commissioner in the manner hereinafter prescribed.
(b) For purposes of this section, a "domestic insurer"
includes any other person controlling a domestic insurer unless
such the other person as determined by the commissioner is either
directly or through its affiliates primarily engaged in business
other than the business of insurance.
(c) The statement to be filed with the commissioner hereunder
shall be made under oath or affirmation and shall contain the
following information:
(1) The name and address of each person by whom or on whose
behalf the merger or other acquisition of control referred to in
subsection (a) is to be effected (hereinafter called "acquiring
party");
(2) If such person is an individual, his or her principal
occupation and all offices and positions held during the past five
years, and any conviction of crimes other than minor traffic violations during the past ten years;
(3) If such person is not an individual, a report of the
nature of its business operations during the past five years or for
such lesser period as
such the person and any predecessors thereof
shall have been in existence; an informative description of the
business intended to be done by
such the person and
such the
person's subsidiaries; and a list of all individuals who are or who
have been selected to become directors or executive officers of
such the person, or who perform or will perform functions
appropriate to
such those positions.
Such The list shall include
for each
such individual the information required by subdivision
(2) of this subsection;
(4) The source, nature and amount of the consideration used or
to be used in effecting the merger or other acquisition of control,
a description of any transaction wherein funds were or are to be
obtained for any such purpose, including any pledge of the
insurer's stock, or the stock of any of its subsidiaries or
controlling affiliates, and the identity of persons furnishing such
consideration:
Provided, That where a source of
such the
consideration is a loan made in the lender's ordinary course of
business, the identity of the lender shall remain confidential, if
the person filing
such the statement so requests;
(5) Fully audited financial information as to the earnings and
financial condition of each acquiring party for the preceding five fiscal years of each
such acquiring party (or for such lesser
period as
such each acquiring party and any predecessors thereof
shall have been in existence,) and similar unaudited information as
of a date not earlier than ninety days prior to the filing of
the statement;
(6) Any plans or proposals which each acquiring party may have
to liquidate
such the insurer, to sell its assets or merge or
consolidate it with any person, or to make any other material
change in its business or corporate structure or management;
(7) The number of shares of any security referred to in
subsection (a) which each acquiring party proposes to acquire, and
the terms of the offer, request, invitation, agreement or
acquisition referred to in subsection (a), and a statement as to
the method by which the fairness of the proposal was arrived at;
(8) The amount of each class of any security referred to in
subsection (a) which is beneficially owned or concerning which
there is a right to acquire beneficial ownership by each acquiring
party;
(9) A full description of any contracts, arrangements or
understanding with respect to any security referred to in
subsection (a) in which any acquiring party is involved, including,
but not limited to, transfer of any of the securities, joint
ventures, loan or option arrangements, puts or calls, guarantees of
loans, guarantees against loss or guarantees of profits, division of losses or profits, or the giving or withholding of proxies.
Such The description shall identify the persons with whom such
contracts, arrangements or understandings have been entered into;
(10) A description of the purchase of any security referred to
in subsection (a) during the twelve calendar months preceding the
filing of the statement, by any acquiring party, including the
dates of purchase, names of the purchasers, and consideration paid
or agreed to be paid therefor;
(11) A description of any recommendations to purchase any
security referred to in subsection (a) made during the twelve
calendar months preceding the filing of the statement, by an
acquiring party, or by anyone based upon interviews or at the
suggestion of
such the acquiring party;
(12) Copies of all tender offers for, requests or invitations
for tenders of, exchange offers for, and agreements to acquire or
exchange any securities referred to in subsection (a), and (if
distributed) of additional soliciting material relating thereto;
(13) The terms of any agreement, contract or understanding
made with any broker-dealer as to solicitation of securities
referred to in subsection (a) for tender, and the amount of any
fees, commissions or other compensation to be paid to
broker-dealers with regard thereto; and
(14)
Such Any additional information as the commissioner may
by rule prescribe as necessary or appropriate for the protection of policyholders and security holders of the insurer or in the public
interest.
(d) If the person required to file the statement referred to
in subsection (a) is a partnership, limited partnership, syndicate
or other group, the commissioner may require that the information
called for by subdivisions (1) through (14) of this subsection
shall be given with respect to each partner of
such the partnership
or limited partnership, each member of
such the syndicate or group,
and each person who controls
such the partner or member. If any
partner, member or person is a corporation or the person required
to file the statement referred to in subsection (a) is a
corporation, the commissioner may require that the information
called for by subdivisions (1) through (14) shall be given with
respect to
such the corporation, and each person who is directly or
indirectly the beneficial owner of more than ten percent of the
outstanding voting securities of
such the corporation.
(e) If any material change occurs in the facts set forth in
the statement filed with the commissioner and sent to
such the
insurer pursuant to this section, an amendment setting forth such
change, together with copies of all documents and other material
relevant to such change, shall be filed with the commissioner and
sent to
such the insurer within two business days after the person
learns of
such the change.
Such The insurer shall send
such the
amendment to its shareholders.
(f) If any offer, request, invitation, agreement or
acquisition referred to in subsection (a) is proposed to be made by
means of a registration statement under the Securities Act of 1933
or in circumstances requiring the disclosure of similar information
under the Securities Exchange Act of 1934, or under a state law
requiring similar registration or disclosure, the person required
to file the statement referred to in subsection (a) may utilize
such documents in furnishing the information called for by that
statement.
(g) The commissioner shall approve any merger or other
acquisition of control referred to in subsection (a) unless, after
a public hearing thereon, he or she finds that any of the following
conditions exists:
(1) After the change of control the domestic insurer referred
to in subsection (a) would not be able to satisfy the requirements
for the issuance of a license to write the line or lines of
insurance for which it is presently authorized;
(2) The effect of the merger or other acquisition of control
would be substantially to lessen competition in insurance in this
state or tend to create a monopoly therein;
(3) The financial condition of any acquiring party is such as
might jeopardize the financial stability of the insurer, or
prejudice the interest of its policyholders or the interests of any
remaining security holders who are unaffiliated with
such the acquiring party;
(4) The terms of the offer, request, invitation, agreement or
acquisition referred to in subsection (a) are unfair and
unreasonable to the security holders of the insurer;
(5) The plans or proposals which the acquiring party has to
liquidate the insurer, sell its assets or consolidate or merge it
with any person, or to make any other material change in its
business or corporate structure or management, are unfair and
unreasonable to policyholders of the insurer and not in the public
interest;
(6) The competence, experience and integrity of those persons
who would control the operation of the insurer are such that it
would not be in the interest of policyholders of the insurer and of
the public to permit the merger or other acquisition of control; or
(7) The acquisition is likely to be hazardous or prejudicial
to the insurance-buying public.
(h) The public hearing required by this section shall be held
within
sixty forty days after the statement required by subsection
(a) is filed, and at least fifteen days' notice thereof shall be
given by the commissioner to the person filing the statement. Not
less than seven days' notice of
such the public hearing shall be
given by the person filing the statement to the insurer and to
such
any other persons as may be designated by the commissioner. The
insurer shall give
such notice
of the public hearing to its security holders. The commissioner shall make a determination
within
forty-five twenty days after the conclusion of
such the
hearing.
(i) The commissioner may retain at the acquiring person's
expense any attorneys, actuaries, accountants and other experts not
otherwise a part of the commissioner's staff as may be reasonably
necessary to assist the commissioner in reviewing the proposed
acquisition of control.
(j) To the extent permitted by applicable federal laws, rules
and regulations, all statements, amendments or other material filed
pursuant to the provisions of this section, and all notices of
public hearings held pursuant to the provisions of this section,
shall be mailed by the insurer to its shareholders within five
business days after the insurer has received such statements,
amendments, other material or notices. The expenses of mailing
shall be borne by the person making the filing. As security for
the payment of such expenses, such person shall file with the
commissioner an acceptable bond or other deposit in an amount to be
determined by the commissioner.
(k) The provisions of this section shall not apply to any
offer, request, invitation, agreement or acquisition which the
commissioner by order shall exempt therefrom as (1) not having been
made or entered into for the purpose of, and not having the effect
of, changing or influencing the control of a domestic insurer; or (2) as otherwise not comprehended within the purposes of this
section.
(
l) The following are violations of this section:
(1) The failure to file any statement, amendment or other
material required to be filed pursuant to subsection (a) or (b) of
this section; or
(2) The effectuation or any attempt to effectuate an
acquisition of control of, or merger with, a domestic insurer
unless the commissioner has given his or her approval thereto.
(m) The courts of this state are hereby vested with
jurisdiction over every person not resident, domiciled or
authorized to do business in this state who files a statement with
the commissioner under this section, and over all actions involving
such person arising out of violations of this section, and each
such person shall be deemed to have performed acts equivalent to
and constituting an appointment by
such a the person of the
secretary of state to be his or her true and lawful attorney upon
whom may be served all lawful process in any action, suit or
proceeding arising out of violations of this section. Copies of
all such lawful process shall be served on the secretary of state
and transmitted by registered or certified mail by the secretary of
state to such person at his or her last known address.
§33-27-7. Confidential treatment.
All information, documents and copies thereof obtained by or disclosed to the commissioner or any other person in the course of
an examination or investigation made pursuant to section six of
this article and all information reported pursuant to sections four
and five of this article, shall be given confidential treatment and
are not subject to subpoena and may not be made public by the
commissioner or any other person, except to insurance departments
of other states
and to the board of governors of the federal
reserve system or other appropriate federal banking agency in
accordance with section nineteen, article two of this chapter,
without the prior written consent of the insurer to which it
pertains unless the commissioner, after giving the insurer and its
affiliates who would be affected thereby, notice and opportunity to
be heard, determines that the interests of policyholders,
shareholders or the public will be served by the publication
thereof, in which event he or she may publish all or any part
thereof in
such any manner as he or she may consider appropriate.
NOTE: The purpose of this bill is to amend sections in
article twenty-seven, chapter thirty-three of the West Virginia
Code that have been affected by the federal Gramm-Leach-Bliley Act
("GLBA"). That Act preempts any state law that would prevent or
restrict a depository institution from being affiliated directly or
indirectly or associated with an insurance company, and imposes a
sixty day limit on actions of a state insurance regulator on
efforts by a depository institution to acquire control of an
insurance company, therefore amendments to sections two, two-a and
three are needed to make state law consistent with GLBA and thereby
avoid federal preemption. GLBA further encourages exchange of
information between federal banking agencies and state insurance
regulators, therefore amendment to section seven is needed to
clarify that the Commissioner may share certain confidential information with federal banking agencies.
Strike-through indicates language that would be stricken from
the present law, and underscoring indicates new language that would
be added.
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