45th legislature - STATE OF NEW MEXICO - first session, 2001

RELATING TO INSURANCE; CHANGING PROVISIONS OF THE NEW MEXICO INSURANCE CODE PERTAINING TO SUBSIDIARIES AND AFFILIATES OF INSURERS; AMENDING SECTIONS OF THE NMSA 1978.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

Section 1. Section 59A-9-12 NMSA 1978 (being Laws 1984, Chapter 127, Section 145) is amended to read:

"59A-9-12. INVESTMENTS IN SUBSIDIARIES.--

A. An insurer either by itself or in cooperation with one or more other business entities, may organize or acquire one or more subsidiaries engaged or to be engaged in any of the following businesses:

(1) [any] an insurance business authorized by the jurisdiction in which the subsidiary is incorporated;

(2) acting as insurance broker or 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 registered pursuant to the federal Investment Company Act of l940, as amended, including related sales and services;

(5) acting as a broker-dealer registered pursuant to the federal Securities Exchange Act of l934, as amended;

(6) rendering investment advice to governments, government agencies, corporations or other organizations or groups;

(7) rendering other services related to 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] owning and [management of] managing assets [which] that the parent corporation could itself own or manage;

(9) acting as administrative agent for a government instrumentality [which] that is performing an insurance function; or

(10) financing insurance premiums, agents and other forms of consumer financing; and

(11) any other business activity determined by the superintendent to be reasonably [ancilliary] ancillary to an insurance business.

B. In addition to investments in common stock, preferred stock, debt obligations and other securities permitted under all other sections of [this article] Chapter 59A, Article 9 NMSA 1978 an insurer may also:

(1) invest, in common stock, preferred stock, debt obligations and other securities of one or more subsidiaries, amounts which unless otherwise approved by the superintendent do not exceed the lesser of [five] ten percent of [such] the insurer's assets or fifty percent of [such] the insurer's surplus as regards policyholders, if, after [such] the 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] the investments, there shall be included:

(a) total net money 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] the subsidiary, whether or not represented by the purchase of capital stock or the 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 and surplus of a subsidiary subsequent to its acquisition or formation;

(2) if the insurer's total liabilities, as calculated for annual statement purposes, are less than ten percent of assets, invest any amount in common stock, preferred stock, debt obligations and other securities of one or more subsidiaries, if, after [such] the investment, the insurer's surplus as regards policyholders, considering [such] the investment as if it were a disallowed asset, will be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs;

(3) invest any amount in common stock, preferred stock, debt obligations and other securities of one or more subsidiaries, if each [such] subsidiary agrees to limit its investments in any asset so that [such] the investments will not cause the amount of the total investment of the insurer to exceed any of the investment limitations specified in Paragraph (1) of this subsection or in [this article] Chapter 59A, Article 9 NMSA 1978, applicable to the insurer. For the purpose of this paragraph "the total investment of the insurer" [shall include] 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 insurer's ownership of [such] the subsidiary;

(4) with the approval of the superintendent, invest any amount in common stock, preferred stock, debt obligations or other securities of one or more subsidiaries, if, after [such] the 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; and

(5) invest any amount in the common stock, preferred stock, debt obligations or other securities of any subsidiary exclusively engaged in holding title to, or holding title to and managing or developing, real or personal property, if, after considering as a disallowed asset so much of the investment as is represented by subsidiary assets which if held directly by the insurer would be considered as a disallowed asset, the insurer's surplus as regards policyholders will be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs, and if, following such investment, all voting securities of such subsidiary would be owned by the insurer.

C. 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 article applicable to [such] the investments of the insurer.

D. Whether any investment made pursuant to Subsection B of this section meets the applicable requirements thereof is to be determined immediately after [such] the investment is made, taking into account the then outstanding balance on all previous investments in debt obligations and the value of all previous equity securities as of the date they were made.

E. If an insurer ceases to control a subsidiary, it shall dispose of any investment [therein] made in it pursuant to this section within three [(3)] years from time of the cessation of control or within such further time as the superintendent may prescribe, unless at any time after [such] the investment [shall have been] is made, [such] the investments [shall have met] meet the requirements for investment under any other section of [this article] the Insurance Code, and the insurer has so notified the superintendent [thereof]."

Section 2. Section 59A-37-3 NMSA 1978 (being Laws 1993, Chapter 320, Section 72) is amended to read:

"59A-37-3. SUBSIDIARIES OF INSURERS.--

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:

(1) [any kind of] an insurance business authorized by the jurisdiction in which it is incorporated;

(2) acting as an insurance broker or 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 federal 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 federal 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 relating 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] owning and [management of] managing assets [which] that the parent corporation could itself own or manage;

(9) acting as administrative agent for a governmental instrumentality [which] that 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 superintendent 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. In addition to investments in common stock, preferred stock, debt obligations and other securities permitted [under all other sections of] pursuant to the federal Insurance Holding Company Law, a domestic insurer may also:

(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] the insurer's surplus as regards policyholders, provided that after [such] the investments, the insurer's surplus as regards policyholders shall be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs. In calculating the amount of [such] the investments, investments in domestic or foreign insurance subsidiaries shall be excluded, and there shall be included:

(a) total net [monies] money 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] the 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] the investments will not cause the amount of the total investment of the insurer to exceed any of the investment limitations specified in Paragraph (1) of this subsection or in Chapter 59A, Article 9 NMSA 1978 applicable to the insurer. For the purpose of this paragraph, "the total investment of the insurer" [shall include] 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] the subsidiary; or

(3) with the approval of the superintendent, invest any greater amount in common stock, preferred stock, debt obligations, or other securities of one or more subsidiaries, provided that after [such] the 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. 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 [the] any of the otherwise applicable restrictions or prohibitions contained in the Insurance Code applicable to [such] the investments of the insurer.

D. Whether any investment pursuant to Subsection B of this section meets the applicable requirements [thereof is to be] of that subsection shall be determined before [such] the 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 and not including dividends.

E. If an insurer ceases to control a subsidiary, it shall dispose of any investment [therein] made in it pursuant to this section within three years from the time of the cessation of control or within such further time as the superintendent may prescribe, unless at any time after the investment [shall have been] is made, the investment [shall have met] meets the requirements for investment under any other section of the Insurance Code, and the insurer has so notified the superintendent [thereof]."

Section 3. Section 59A-37-20 NMSA 1978 (being Laws 1993, Chapter 320, Section 83) is amended to read:

"59A-37-20. TRANSACTIONS WITH AFFILIATES.--

A. Transactions within a 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) charges or fees for services performed shall be reasonable;

(3) expenses incurred and payment received shall be allocated to the insurer in conformity with customary insurance accounting practices consistently applied;

(4) the books, accounts and records of each party to all [such] transactions shall be [so] maintained [as] to clearly and accurately disclose the nature and details of the transactions, including [such] accounting information [as is] necessary to support the reasonableness of the charges or fees to the respective parties; and

(5) the insurer's surplus as regards policyholders following any dividends or distributions to shareholder affiliates 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 holding company system may not be entered into unless the insurer has notified the superintendent in writing of its intention to enter into [such] the transactions at least thirty days prior thereto, or such shorter period as the superintendent may permit, and the superintendent has not disapproved it within that period:

(1) sales, purchases, exchanges, loans or extensions of credit, guarantees or investments, provided the transactions are equal to or exceed:

(a) with respect to nonlife insurers, [the lesser of three percent of the insurer's admitted assets or] twenty-five percent of surplus as regards policyholders as of December 31 next preceding; or

(b) with respect to life insurers, three percent of the insurer's admitted assets as of December 31 next preceding;

(2) loans or extensions of credit to any person who is not an affiliate, where the insurer makes loans or extensions of credit with the agreement or understanding that the proceeds of the 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 the loans or extensions of credit, provided the transactions are equal to or exceed:

(a) with respect to nonlife insurers, [the lesser of three percent of the insurer's admitted assets or] twenty-five percent of surplus as regards policyholders as of December 31 next preceding; or

(b) with respect to life insurers, three percent of the insurer's admitted assets as of December 31 next preceding;

(3) reinsurance agreements or modifications thereto in which the reinsurance premium or a change in the insurer's liabilities equals or exceeds five percent of the insurer's surplus as regards policyholders, as of December 31 next preceding, including those agreements which may require as consideration the transfer of assets from an insurer to a non-affiliate, if an agreement or understanding exists between the insurer and non-affiliate that any portion of [such] the assets will be transferred to one or more affiliates of the insurer;

(4) all management agreements, service contracts and all cost-sharing arrangements; and

(5) any material transactions, specified by [regulation, which] rule, that the superintendent determines may adversely affect the interests of the insurer's policyholders.

C. Nothing contained in [this] Subsection B of this section [shall be deemed to authorize] authorizes or [permit any] permits transactions which, in the case of an insurer not a member of the same holding company system, would be otherwise contrary to law.

[C.] D. A domestic insurer may not enter into transactions [which] that are part of a plan or series of like transactions with persons within the 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. If the superintendent determines that [such] separate transactions were entered into over any twelve-month period for that purpose, he may exercise his authority under Section 59A-37-26 NMSA 1978.

[D.] E. The superintendent, in reviewing transactions pursuant to Subsection B of this section, shall consider whether the transactions comply with the standards set forth in Subsection A of this section and whether they may adversely affect the interests of policyholders.

[E.] F. The superintendent shall be notified within thirty days of any investment of the domestic insurer in any one corporation if the total investment in [such] that corporation by the insurance holding company system exceeds ten percent of the corporation's voting securities."

Section 4. EFFECTIVE DATE.--The effective date of the provisions of this act is July 1, 2001.