Title: S967 [Edition 1]
Category: Introduced Bill 2003

GENERAL ASSEMBLY OF NORTH CAROLINA	SESSION 2003

GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2003
S	1
SENATE BILL 967

Short Title:	Insurance Financial Amendments Omnibus. | (Public)
Sponsors: | Senators Dalton; and Dorsett.
Referred to: | Commerce.
April 3, 2003

A BILL TO BE ENTITLED
AN ACT to make substantive and technical amendments in the laws concerning insurance company solvency.
The General Assembly of North Carolina enacts:
SECTION 1.  G.S. 58‑5‑5 reads as rewritten:
"§ 58‑5‑5.  Amount of deposits required of foreign or alien fire and/or marine insurance companies.
Unless otherwise provided in this Article, every fire, marine, or fire and marine insurance company chartered by any other state or foreign government shall make and maintain deposits of securities with the Commissioner in the amount of one hundred thousand dollars ($100,000) market value."
SECTION 2.  G.S. 58‑5‑10 reads as rewritten:
"§ 58‑5‑10.  Amount of deposits required of foreign or alien fidelity, surety and casualty insurance companies.
Unless otherwise provided in this Article, every fidelity, surety or casualty insurance company chartered by any other state or foreign government shall make and maintain deposits of securities with the Commissioner in the amount of two hundred thousand dollars ($200,000) market value."
SECTION 3.  G.S. 58‑5‑50 reads as rewritten:
"§ 58‑5‑50.  Deposits of foreign life insurance companies.
In addition to other requirements of Articles 1 through 64 of this Chapter, all foreign life insurance companies shall deposit securities, as specified in G.S. 58‑5‑20, having a market value of four hundred thousand dollars ($400,000) as a prerequisite of doing business in this State. All foreign life insurance companies shall deposit an additional two hundred thousand dollars ($200,000) where such companies cannot show three years of net operational gains prior to admission. Foreign life insurance companies that are licensed on or before the effective date of this section shall have one year from that date to comply with this section."
SECTION 4.  G.S. 58‑7‑162(2) reads as rewritten:
"(2)	Investments, securities, properties, and loans acquired or held in accordance with this 							
Chapter."
SECTION 5.  G.S. 58‑7‑162(5) and G.S. 58‑7‑162(7) are repealed.
SECTION 6.  G.S. 58‑7‑162(12) reads as rewritten:
"(12)	Electronic and mechanical machines, including operating and system software constituting a management information system."
SECTION 7.  G.S. 58‑7‑163 reads as rewritten:
"§ 58‑7‑163.  Assets not allowed.
In addition to assets impliedly excluded by the provisions of G.S. 58‑7‑162, the following expressly shall not be allowed as assets in any determination of the financial condition of an insurer:
	
(2)	Advances (other than policy loans) to officers, directors, and controlling stockholders, whether secured or not, and advances to employees, agents, and other persons on personal security only.
(3)	Stock of the insurer or any material equity therein or loans secured thereby, or any material proportionate interest in the stock acquired or held through the ownership by the insurer of an interest in another firm, corporation, or business unit.
	
(5)	The amount, if any, by which the aggregate book value of investments as carried in the ledger assets of the insurer exceeds the aggregate value of the investments as determined under this Chapter.
(6)	Bonds, notes, or other evidences of indebtedness that are secured by mortgages or deeds of trust that are in default, to the extent of the cost or carrying value that is in excess of the value as determined pursuant to other provisions of this Chapter.
	(8)	Certificates of contribution, surplus notes, or other similar evidences of indebtedness, to the extent that admission of these investments results in the double counting of these investments in the reporting entity's balance sheet.
(9)	Any asset that is encumbered in any manner unless the asset is authorized under G.S. 58‑7‑187 or G.S. 58‑7‑162(13)."
SECTION 8.  G.S. 58‑7‑192 reads as rewritten:
"§ 58‑7‑192.  Valuation of securities and investments.
			(d)	No valuations shall be greater than any applicable valuation or method contained in the latest edition of the NAIC publications entitled "Purposes and Procedures Manual of the NAIC Securities Valuation Office" or the "Accounting Practices and Procedures Manual", unless the Commissioner determines that another valuation method is appropriate when it results in a more conservative valuation.
	"
SECTION 9.  G.S. 58‑7‑193 reads as rewritten:
"§ 58‑7‑193.  Valuation of property.
		
(c)	Personal property acquired pursuant to chattel mortgages made in accordance with G.S. 58‑7‑180 shall not be valued at an amount greater than the unpaid balance of principal on the defaulted loan at the date of acquisition, or the fair market value of the property, whichever amount is less.
(d)	If the Commissioner and an insurer do not agree on the value of real or personal property of an insurer, in carrying out the Commissioner's responsibilities under this section, the Commissioner may retain the services of a qualified real or personal property appraiser. The insurer shall reimburse the Commissioner for the costs of the services of any appraiser incurred with respect to the Commissioner's responsibilities under this section."
SECTION 10.  G.S. 58‑7‑195 is repealed.
SECTION 11.  G.S. 58‑7‑179(d) reads as rewritten:
"(d)	In the case of a purchase money mortgage given to secure the purchase price of real estate sold by the insurer, the amount lent or invested shall not exceed the unpaid part of the purchase price."
SECTION 12.  G.S. 58‑23‑26(c) reads as rewritten:
"(c)	Each pool is subject to G.S. 58‑2‑131, 58‑2‑132, 58‑2‑133, 58‑2‑134, 58‑2‑150, 58‑2‑155, 58‑2‑165, 58‑2‑180, 58‑2‑185, 58‑2‑190, 58‑2‑200, 58‑3‑71, 58‑3‑75, 58‑3‑81, 58‑3‑105, 58‑6‑5, 58‑7‑21, 58‑7‑26, 58‑7‑30, 58‑7‑31, 58‑7‑50, 58‑7‑55, 58‑7‑140, 58‑7‑160, 58‑7‑162, 58‑7‑163, 58‑7‑165, 58‑7‑167, 58‑7‑168, 58‑7‑170, 58‑7‑172, 58‑7‑173, 58‑7‑175, 58‑7‑179, 58‑7‑180, 58‑7‑183, 58‑7‑185, 58‑7‑187, 58‑7‑188, 58‑7‑192, 58‑7‑193, 58‑7‑197, 58‑7‑200, and Articles 13, 19, and 34 of this Chapter. Annual financial statements required by G.S. 58‑2‑165 shall be filed by each pool within 60 days after the end of the pool's fiscal year, subject to extension by the Commissioner."
SECTION 13.  G.S. 58‑47‑80 reads as rewritten:
"§ 58‑47‑80.  Assets and invested assets.
Funds shall be held and invested by the board under G.S. 58‑7‑160, 58‑7‑162, 58‑7‑163, 58‑7‑165, 58‑7‑167, 58‑7‑168, 58‑7‑170, 58‑7‑172, 58‑7‑173, 58‑7‑178, 58‑7‑179, 58‑7‑180, 58‑7‑183, 58‑7‑185, 58‑7‑187, 58‑7‑188, 58‑7‑192, 58‑7‑193, 58‑7‑197, 58‑7‑200, and 58‑19‑10."
SECTION 14.  G.S. 58‑8‑15 reads as rewritten:
"§ 58‑8‑15.  Directors in mutual companies. 
Every mutual insurance company shall elect by ballot a board of not less than seven directors, who shall manage and conduct its business and hold office for one year or for such term as the bylaws provide and until their successors are qualified. The directors need not be residents of this State or members of the company. In companies with a guaranty capital, no more than one-half of the directors shall be elected by the holders of guaranty capital, except where guaranty capital holders are policyholders. Policyholders which are holders of guaranty capital shall be entitled to one vote for each policy that person holds and one vote for each unit of guaranty capital that person holds."
SECTION 15.  G.S. 58‑8‑20 reads as rewritten:
"§ 58‑8‑20.  Mutual companies with a guaranty capital.
(a)	A mutual insurance company formed as provided in Articles 1 through 64 of this Chapter, in lieu of the contributed surplus required for the organization of mutual companies under the provisions of G.S. 58‑7‑75, or a mutual insurance company now existing, may, with the prior approval of the Commissioner, tender a guaranty capital offering of not less than fifty thousand dollars ($50,000), divided into units of one hundred dollars ($100.00) each, which shall be invested in the same manner as is provided in this Chapter for the investment of the capital stock of insurance companies.
(a1)	Guaranty capital may be issued by an existing domestic mutual insurance company only under the following terms and conditions:
(1)	To aid and assist a financially troubled domestic mutual insurance company which otherwise faces rehabilitation or liquidation by this Department; or
(2)	For any other reason as presented in a petition to the Commissioner and which is found by the Commissioner to be reasonable, justifiable, and in the best interest of all the policyholders of the company.
Guaranty capital issued under subdivision (2) of this subsection shall require written notification of the action proposed by the board of directors of the company to be mailed to the policyholders of the company not less than 30 days before the meeting when the action may be taken. The written notification shall be advertised in two newspapers of general circulation, approved by the Commissioner, not less than three times a week for a period of not less than four weeks before the meeting. The written notification to policyholders shall include a proxy statement to allow policyholders to vote on the proposed action without personal attendance at the meeting, and the Commissioner shall approve both the written notification and the proxy statement. The proposed action shall be effected by a vote of two-thirds of the policyholders voting thereon in person or by proxy.
(b)	The board of directors of a company may  distribute interest to the holders of guaranty capital in accordance with the guaranty capital filing approved by the Department.
(c)	Guaranty capital shall be applied to the payment of losses only when the company has exhausted its cash in hand and the invested assets, exclusive of uncollected premiums, and when thus impaired, the directors may make good the whole or any part of it by assessments upon the contingent funds of the company at the date of such impairment. 
(d)	 Guaranty capital holders are entitled to one vote per unit of guaranty capital. Guaranty capital holders who are not policyholders are not entitled to participate in the policyholder votes prescribed under subdivision (a1)(2) and subsection (e) of this section.
(e)	Guaranty capital may be reduced or retired by vote of the policyholders of the company and the assent of the Commissioner, if the net assets of the company above its reserve and all other claims and obligations, exclusive of guaranty capital, for two years immediately preceding and including the date of its last annual statement, is not less than twenty‑five percent (25%) of the guaranty capital. Due notice of such proposed action on the part of the company must be mailed to each policyholder of the company not less than 30 days before the meeting when the action may be taken, and must also be advertised in two papers of general circulation, approved by the Commissioner, not less than three times a week for a period of not less than four weeks before such meeting. 
(f)	No insurance company with guaranty capital shall distribute to its holders of guaranty capital its assets, except as provided in the guaranty capital filing as approved by the Commissioner.
(g)	In the event of a merger, demutualization, or other event where the entity ceases to exist, guaranty capital shall only be returned or repaid to the holders of guaranty capital to the extent that the guaranty capital has been contributed together with accrued interest as specified in the filing approved by the Commissioner."
SECTION 16.  G.S. 58‑8‑50 reads as rewritten:
"§ 58‑8‑50.  Guaranty against assessments prohibited.
If any director, officer, or agent of a mutual insurance company, either officially or privately, gives a guarantee to a policyholder of the company against an assessment to which that policyholder would otherwise be liable, the director, officer, or agent shall be punished by a fine not exceeding one thousand dollars ($1,000) for each offense."
SECTION 17.  G.S. 58‑65‑1 reads as rewritten:
"§ 58‑65‑1.  Regulation and definitions; application of other laws; profit and foreign corporations prohibited.
(a)	Any corporation organized under the general corporation laws of the State of North Carolina for the purpose of maintaining and operating a nonprofit hospital or medical or dental service plan whereby hospital care or medical or dental service may be provided in whole or in part by the corporation or by hospitals, physicians, or dentists participating in the plan, or plans, shall be governed by this Article and Article 66 of this Chapter and shall be exempt from all other provisions of the insurance laws of this State, unless otherwise provided.
The term "hospital service plan" as used in this Article includes the contracting for certain fees for, or furnishing of, hospital care, laboratory facilities, X‑ray facilities, drugs, appliances, anesthesia, nursing care, operating and obstetrical equipment, accommodations or any other services authorized or permitted to be furnished by a hospital under the laws of the State of North Carolina and approved by the North Carolina Hospital Association or the American Medical Association.
The term "medical service plan" as used in this Article includes the contracting for the payment of fees toward, or furnishing of, medical, obstetrical, surgical or any other professional services authorized or permitted to be furnished by a duly licensed physician or other provider listed in G.S. 58‑50‑30. The term "medical services plan" also includes the contracting for the payment of fees toward, or furnishing of, professional medical services authorized or permitted to be furnished by a duly licensed provider of health services licensed under Chapter 90 of the General Statutes.
The term "dental service plan" as used in this Article includes contracting for the payment  of fees toward, or furnishing of dental or any other professional services authorized or permitted to be furnished by a duly licensed dentist.
The term "hospital service corporation" as used in this Article is intended to mean any nonprofit corporation operating a hospital or medical or dental service plan, as defined in this section. Any corporation organized and subject to the provisions of this Article, the certificate of incorporation of which authorizes the operation of either a hospital or medical or dental service plan, or any or all of them, may, with the approval of the Commissioner, issue subscribers' contracts or certificates approved by the Commissioner of Insurance, for the payment of either hospital or medical or dental fees, or the furnishing of such services, or any or all of them, and may enter into contracts with hospitals for physicians or dentists, or any or all of them, for the furnishing of fees or services respectively under a hospital or medical or dental service plan, or any or all of them.
The term "preferred provider" as used in this Article with respect to contracts, organizations, policies or otherwise means a health care service provider who has agreed to accept, from a corporation organized for the purposes authorized by this Article or other applicable law, special reimbursement terms in exchange for providing services to beneficiaries of a plan administered pursuant to this Article. Except to the extent prohibited either by G.S. 58‑65‑140 or by rules adopted by the Commissioner not inconsistent with this Article, the contractual terms and conditions for special reimbursement shall be those which the corporation and preferred provider find to be mutually agreeable.

(b)	through (c)  Repealed by Session Laws 2001‑297.

(d)	No foreign or alien hospital or medical or dental service corporation as herein defined shall be authorized to do business in this State."
SECTION 18.  G.S. 58‑65‑95(a) reads as rewritten:
"(a)	Corporations subject to this Article shall invest in or hold only those assets permitted by Article 7 of this Chapter for life and health insurance companies."
SECTION 19.  G.S. 58‑67‑5(i) reads as rewritten:
"(i)	"Net worth" means the excess of total assets over the total liabilities and may include borrowed funds that are repayable only from the net earned income of the health maintenance organization and repayable only with the advance permission of the Commissioner. For the purposes of this subsection, "assets" means (i) tangible assets and (ii) other investments permitted under  G.S. 58‑67‑60."
SECTION 20.  G.S. 58‑67‑40 is repealed.
SECTION 21.  G.S. 58‑67‑110 reads as rewritten:
"§ 58‑67‑110.  Protection against insolvency.
(a)	The Commissioner shall require deposits in accordance with the provisions of G.S. 58‑67‑25.
(b)	Each full service health maintenance organization shall maintain a minimum net worth  equal to the greater of one million dollars ($1,000,000) or the amount required pursuant to the risk-based capital provisions of Article 12 of this Chapter. Each single service health maintenance organization shall maintain a minimum net worth equal to the greater of fifty thousand dollars ($50,000) or that amount required pursuant to the risk-based capital provisions of Article 12 of this Chapter.
									(e)	Every full service medical health maintenance organization shall have and maintain at all times an adequate plan for protection against insolvency acceptable to the Commissioner. In determining the adequacy of such a plan, the Commissioner may consider:
(1)	A reinsurance agreement preapproved by the Commissioner covering excess loss, stoploss, or catastrophes. The agreement must provide that the Commissioner will be notified no less than 60 days prior to cancellation or reduction of coverage.
(2)	A conversion policy or policies that will be offered by an insurer to the enrollees in the event of the health maintenance organization's insolvency.
(3)	Any other arrangements offering protection against insolvency that the Commissioner may require."
SECTION 22.  G.S. 58‑67‑140(a)(3) reads as rewritten:
"(3)	Is no longer financially responsible and may reasonably be expected to be unable to meet its obligations to enrollees or prospective enrollees."
SECTION 23.  G.S. 58‑67‑140(a)(7) reads as rewritten:
"(7)	Has knowingly published or made to the Department or to the public any false statement or report, including any report or any data that serves as the basis for any report, required to be submitted under G.S. 58-3-191."
SECTION 24.  G.S. 58‑47‑65(a) reads as rewritten:
"(a)	No group shall self‑insure its workers' compensation liabilities under the Act unless it is licensed by the Commissioner under this Part. This subsection does not apply to a group that was organized and approved under the North Carolina law before July 1, 1995, and whose authority to self-insure its workers' compensation liabilities under the Act has not terminated after that date."
SECTION 25.  G.S. 97‑170(a) reads as rewritten:
"(a)	No employer shall self‑insure its workers' compensation liabilities under the Act unless it is licensed by the Commissioner under this Article. This subsection does not apply to an employer authorized to self-insure its workers' compensation liabilities under the Act prior to December 1, 1997, whose authority to self-insure its workers' compensation liabilities under the Act has not terminated after that date."
SECTION 26.(a)  G.S. 58‑6‑7 reads as rewritten:
"§ 58‑6‑7.  Licenses; annual license renewal fees for insurance companies.
(a)	In order to do business in this State, an insurance company shall apply for and obtain a license from the Commissioner. If an application for licensure is received by March 1 and approved by the Commissioner, the license shall become effective the following July 1. Applications received after March 1 shall become effective July 1 of the next year, unless the Commissioner authorizes an earlier effective date. A license shall remain in effect subject to timely payment of the annual license renewal fee in accordance with this Chapter and any other provision of the insurance laws in this State, until the insurance company is no longer authorized as a licensee under this Chapter or has ceased doing business in this State. Except as provided in subsection (b) of this section, the insurance company shall pay an annual license renewal fee as follows: 
For each domestic farmer's mutual assessment fire
	insurance company 	$ 25.00
For each fraternal order 	100.00
For each of all other insurance companies, except
	mutual burial associations taxed under G.S.105‑121.1 	1,000.00
The fees levied in this subsection are in addition to those specified in G.S. 58‑6‑5.
(b)	When the paid‑in capital stock or surplus, or both, of an insurance company, other than a farmer's mutual assessment company or a fraternal order, does not exceed one hundred thousand dollars ($100,000), the fee levied in this section shall be one‑half the amount specified.
(c)	Upon payment of the fee specified above and the fees and taxes elsewhere specified each insurance company, exchange, bureau, or agency, shall be entitled to do the types of business specified in Chapter 58, of the General Statutes of North Carolina as amended, to the extent authorized therein, except that: Insurance companies authorized to do either the types of business specified for (i) life insurance companies, or (ii) for fire and marine companies, or (iii) for casualty and fidelity and surety companies, in G.S. 58‑7‑75, which shall also do the types of business authorized in one or both of the other of the above classifications shall in addition to the fees above specified pay one hundred dollars ($100.00) for each such additional classification of business done. All fees and charges collected by the Commissioner under this Chapter are nonrefundable.
(d)	Any rating bureau established by action of the General Assembly of North Carolina shall be exempt from the fees in this section."
SECTION 26.(b)  G.S. 58‑6‑15 reads as rewritten:
"§ 58‑6‑15.  Licenses run from July 1.
Subject to timely payment of the annual license renewal fee in accordance with this Chapter and any other provision of the insurance laws of this State, the license required of insurance companies shall continue, unless revoked as provided in Articles 1 through 64 of this Chapter.  Annual license renewal fees must be submitted on or before the first day of March on a form to be supplied by the Commissioner.  Any company which does not qualify for continuation of its license before July 1 shall cease to do business in the State of North Carolina as of July 1, unless its license is sooner revoked by the Commissioner.
Nothing contained in this section shall be interpreted as applying to licenses issued to individual representatives of insurance companies."
SECTION 27.  If any section or provision of this act is declared unconstitutional, preempted, or otherwise invalid by the courts, it does not affect the validity of the act as a whole or any part other than the part declared to be unconstitutional, preempted, or otherwise invalid.
SECTION 28.  This act becomes effective October 1, 2003.

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