CHAPTER 133
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CHAPTER 133
( HB 350 )
AN ACT relating to insurance regulatory requirements.
Be it enacted by the General Assembly of the Commonwealth of Kentucky:
Section 1. KRS 304.2-205 is amended to read as follows:
(1) The provisions of this section apply to all domestic, foreign, and alien insurers, fraternal benefit societies,
health maintenance organizations, and nonprofit hospital, medical-surgical, dental, and health service
corporations authorized to transact business pursuant to this chapter.
(2) (a) 1. Each domestic, foreign, and alien insurer,[ and] fraternal benefit society, health maintenance
organization, and nonprofit hospital, medical-surgical, dental, and health service corporation
authorized to transact business pursuant to this chapter shall annually on or before March 1 of
each year file with the National Association of Insurance Commissioners a copy of its annual
statement convention blank, along with additional filings as prescribed by the commissioner, for
the preceding year.
2. The information filed with the National Association of Insurance Commissioners shall:
a. Be submitted electronically;
b. Be in the same format and scope as that required by the commissioner; and[ shall ]
c. Include the:
i. Signed jurat page; and[ the ]
ii. Life and health actuarial certification.
3. Any amendments or additions to the annual statement filing subsequently filed with the
commissioner shall also be filed electronically with the National Association of Insurance
Commissioners.
(b) Foreign insurers, health maintenance organizations, and fraternal benefit societies that are domiciled in
states which have laws substantially similar to paragraph (a) of this subsection shall be deemed in
compliance with this section.
(c) Nothing contained in this section shall be deemed to require anyone filing documents with the National
Association of Insurance Commissioners to pay any filing fee for a filing.
(3) Members of the National Association of Insurance Commissioners, their duly authorized committees,
subcommittees, and task forces, their delegates, National Association of Insurance Commissioners employees,
and all others charged with the responsibility of collecting, reviewing, analyzing, or disseminating the
information developed from the filing of the annual statement convention blanks shall not be subject to civil
liability for defamation or any other cause of action by virtue of their collection, review, analysis, or
dissemination of the data and information collected from the filings required by this section while acting in
good faith.
Section 2. KRS 304.2-230 is amended to read as follows:
(1) Whenever the commissioner determines to examine the affairs of any person, he or she shall designate one (1)
or more examiners, which may include analysts, and instruct them as to the scope of the examination. The
examiner or analyst shall, upon demand, exhibit his or her official credentials to the person under
examination. In conducting the examination, the examiner or analyst shall observe those guidelines and
procedures set forth in the Examiners' Handbook adopted by the National Association of Insurance
Commissioners. The commissioner may also employ other guidelines or procedures as the commissioner
deems appropriate.
(2) (a) 1. An examiner or analyst may not be appointed by the commissioner if the examiner or analyst,
either directly or indirectly, has a conflict of interest or is affiliated with the management of, or
owns a pecuniary interest in, any person subject to examination. ACTS OF THE GENERAL ASSEMBLY 2
2. This subsection shall not be construed to automatically preclude an examiner or analyst from
being:
a.[1.] A policyholder or claimant under an insurance policy;
b.[2.] A grantor of a mortgage or similar instrument on the examiner's or analyst's residence to
a regulated entity if done under customary terms and in the ordinary course of business;
c.[3.] An investment owner in shares of regulated diversified investment companies; or
d.[4.] A settler or beneficiary of a "blind trust" into which any otherwise impermissible holdings
have been placed.
(b) Notwithstanding the requirements of paragraph (a) of this subsection, the commissioner may retain
from time to time, on an individual basis, qualified actuaries, certified public accountants, or other
similar individuals who are independently practicing their professions even though these persons may
from time to time be similarly employed or retained by persons subject to examination.
(3) (a) Except as provided in paragraph (b) of this subsection, any examiner or analyst[person] performing
an examination of an insurer on behalf of, and as called by, the commissioner, including any analyst
engaged in review, verification, and analysis of an insurer, shall have official immunity and shall be
immune from suit and liability, both personally and in their official capacities, for any claim for damage
to, or loss of property, or personal injury, or other civil liability caused by or resulting from any alleged
act, error, or omission of the examiner or analyst, or any assistant or contractor, arising out of, or by
reason of, their duties or employment.
(b) Nothing in this subsection shall be construed to hold the examiner or analyst, or any assistant or
contractor, immune from suit and liability for any damage, loss, injury, or liability caused by the
intentional or willful and wanton misconduct of the examiner or analyst[,] or any assistant[,] or
contractor.
(4) The commissioner shall conduct the[such] examination in an expeditious, fair, and impartial manner.
(5) Upon[ any such] examination, the commissioner, or the examiner or analyst if specifically so authorized in
writing by the commissioner, shall have power to issue subpoenas, administer oaths, and to examine under
oath any individual as to any matter relevant to the affairs under examination or relevant to the examination.
(6) Every person being examined, and its officers, attorneys, employees, agents, and representatives, shall:
(a) Make freely available to the commissioner, or his or her examiners or analysts, the accounts, records,
documents, files, information, assets, and matters of the[such] person in its[his] possession or control
relating to the subject of the examination; and[ shall ]
(b) Facilitate the examination.
(7) (a) Neither the commissioner nor any examiner or analyst shall remove any record, account, document,
file, or other property of the person being examined from the offices or place of that[such] person
except with the person's written consent[ of such person] in advance of the[such] removal or pursuant
to an order of court duly obtained.
(b) This subsection[provision] shall not be deemed to affect the making and removal of copies or abstracts
of any[ such] record, account, document, or file.
(8) Any individual who refuses without just cause to be examined under oath or who willfully obstructs or
interferes with the examiners or analysts in the exercise of their authority pursuant to this section is guilty of a
violation of this code.
(9) (a) The commissioner may terminate or suspend an examination in order to pursue other legal or regulatory
action pursuant to the insurance laws of this state.
(b) Findings of fact and conclusions made pursuant to an examination shall be prima facie evidence in any
legal or regulatory action.
(c) The commissioner may use, and[,] if appropriate, may make public, any final or preliminary
examination report, any examiner's or analyst's workpapers or other documents, or any other
information discovered or developed during the course of the examination in the furtherance of any
legal or regulatory action that the commissioner may, in his or her sole discretion, deem appropriate. CHAPTER 133
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(d) Nothing in this subsection shall be binding upon the court in making determinations about relevancy
and admissibility in any civil action pertaining to any examination[such] documents.
Section 3. KRS 304.3-240 is amended to read as follows:
(1) (a) Each authorized insurer shall annually file with the commissioner a true statement of its financial
condition, transactions, and affairs as of December 31 preceding.
(b) The statement shall be:
1. Filed electronically on forms prescribed by the National Association of Insurance
Commissioners;[ and shall be ]
2. Completed according to the instructions of the National Association of Insurance
Commissioners;[,] and[ shall be ]
3. Verified by the oaths of at least two (2) of the insurer's principal officers. The annual statement
of a reciprocal insurer shall be made and verified by its attorney-in-fact.
(c) The annual statement shall be filed by March 1 of each year[, or, if filed by mail, postmarked no later
than March 1].
(d) The annual statement of a foreign or alien insurer may be executed or verified by facsimile or
reproduced signature; however, the annual statement of a domestic insurer shall contain original
signatures.
(2) The statement forms shall be in general form and context as approved by the National Association of
Insurance Commissioners for the kinds of insurance to be reported upon, and as supplemented for additional
information required by the commissioner.
(3) The annual statement of an alien insurer shall:
(a) Relate only to its assets, transactions, and affairs in the United States unless the commissioner requires
otherwise; and[. The statement shall ]
(b) Be verified by the insurer's United States manager or by its officers duly authorized.
(4) The commissioner may suspend or revoke the authority of any insurer failing to file its annual and quarterly
statement when due or failing so to file during any extension of time therefor, which the commissioner, for
good cause, may grant.
(5) Notwithstanding the provisions of this section or any other law of this Commonwealth:[, ]
(a) An authorized insurer may, subject to the requirements of administrative regulations adopted by the
commissioner, publish financial statements or information based on financial statements prepared on a
basis which:
1. Is in accordance with requirements of a competent authority; and [which]
2. Differs from the basis of the statements which have been filed with the commissioner in
compliance with this section; and[.]
(b) The[Such] differing financial statements, or information based on the financial statements, shall not be
made the basis for the application of any provision of this chapter not relating solely to the publication
of financial information unless the provision specifically so requires.
Section 4. KRS 304.5-140 is amended to read as follows:
(1) (a) For the purposes of subsection (4)(c) of this section, a "qualified United States financial institution"
means an institution that:
1. Is organized or, in the case of a United States office of a foreign banking organization, licensed
under the laws of the United States or any state thereof;
2. Is regulated, supervised, and examined by the United States federal or state authorities having
regulatory authority over banks and trust companies; and
3. Has been determined by the commissioner, or the Securities Valuation Office of the NAIC, to
meet the standards of financial condition and standing considered necessary and appropriate to ACTS OF THE GENERAL ASSEMBLY 4
regulate the quality of financial institutions whose letters of credit will be acceptable to the
commissioner.
(b) A "qualified United States financial institution" means, for purposes of those provisions of this section
specifying those institutions that are eligible to act as a fiduciary of a trust, an institution that:
1. Is organized or, in the case of a United States branch or agency office of a foreign banking
organization, licensed under the laws of the United States or any state thereof and has been
granted authority to operate with fiduciary powers; and
2. Is regulated, supervised, and examined by federal or state authorities having regulatory authority
over banks and trust companies.
(c) For purposes of subsection (3)(f)1. of this section, "reciprocal jurisdiction" means a jurisdiction that
meets one (1) of the following:
1. A non-United States jurisdiction that is subject to an in-force covered agreement with the United
States, each within its legal authority, or, in the case of a covered agreement between the United
States and the European Union, is a member state of the European Union;
2. A United States jurisdiction that meets the requirements for accreditation under the NAIC's
financial standards and accreditation program;
3. A qualified jurisdiction, as determined by the commissioner pursuant to subsection (3)(e)4. of
this section, which is not otherwise described in this paragraph, and which meets certain
additional requirements, consistent with the terms and conditions of in-force covered agreements,
as specified by the commissioner in administrative regulation; or
4. Any other jurisdiction contained on the list of reciprocal jurisdictions published by the
commissioner in accordance with subsection (3)(g) of this section.
(d) As used in this section:
1. "Covered agreement" means an agreement entered into pursuant to the Dodd-Frank Wall Street
Reform and Consumer Protection Act, 31 U.S.C. secs. 313 and 314, and that is currently in effect
or in a period of provisional application and addresses the elimination, under specified
conditions, of collateral requirements as a condition for entering into any reinsurance agreement
with the ceding insurer domiciled in this state or for allowing the ceding insurer to recognize
credit for reinsurance; and
2. "NAIC" means National Association of Insurance Commissioners.
(2) (a) Credit for reinsurance shall be allowed a ceding insurer as either an asset or a deduction from liability
on account of reinsurance ceded only when the reinsurer meets the requirements of:
1. Subsection (3)(a), (b), (c), (d), (e), (f), or (h) of this section; and
2. Paragraphs (b), (c), (d), and (e) of this subsection.
(b) The commissioner may promulgate administrative regulations pursuant to subsection (8)(a)2. of this
section that establish specific additional requirements relating to or setting forth:
1. The valuation of assets or reserve credits;
2. The amount and forms of security supporting reinsurance arrangements described in that
subsection; and
3. The circumstances pursuant to which credit will be reduced or eliminated.
(c) For reinsurers meeting the requirements of subsection (3)(c) of this section, the requirements of
paragraph (i) of that subsection shall also be met.
(d) For reinsurers meeting the requirements of subsection (3)(d) of this section, the requirements of
paragraphs (i) and (j) of that subsection shall also be met.
(e) For reinsurers meeting the requirements of subsection (3)(e) of this section, the requirements of
paragraph (j) of that subsection shall also be met.
(3) (a) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is authorized to
transact insurance or reinsurance in Kentucky. CHAPTER 133
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(b) 1. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is accredited as
a reinsurer in Kentucky. An accredited reinsurer is one which:
a. Files with the commissioner evidence of its submission to Kentucky's jurisdiction;
b. Submits to Kentucky's authority to examine its books and records;
c. Is licensed to transact insurance or reinsurance in at least one (1) state, or in the case of a
United States branch of an alien assuming insurer, is entered through and licensed to
transact insurance or reinsurance in at least one (1) state;
d. Files annually with the commissioner a copy of its annual statement filed with the
insurance regulatory official of its state of domicile and a copy of its most recent audited
financial statement; and
e. Demonstrates to the satisfaction of the commissioner that it has adequate financial
capacity to meet its reinsurance obligations and is otherwise qualified to assume
reinsurance from domestic insurers. An assuming insurer meets the requirements of this
subdivision at the time of its application if:
i. It maintains a surplus as regards policyholders in an amount that is not less than
twenty million dollars ($20,000,000); and
ii. Its accreditation has not been denied by the commissioner within ninety (90) days
after submission of its accreditation application.
2. Credit shall not be allowed a ceding insurer under this paragraph if the assuming insurer's
accreditation has been revoked by the commissioner after notice and hearing.
(c) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is domiciled and
licensed in or, in the case of a United States branch of an alien assuming insurer, is entered through a
state which employs standards regarding credit for reinsurance substantially similar to those applicable
under this section and the assuming insurer or United States branch of an alien insurer:
1. Maintains a surplus as regards policyholders in an amount not less than twenty million dollars
($20,000,000); and
2. Submits to the authority of the commissioner to examine its books and records.
However, subparagraph 1. of this paragraph shall not apply to reinsurance ceded and assumed pursuant
to pooling arrangements among insurers in the same holding company system.
(d) 1. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that maintains a
trust in a qualified United States financial institution for the payment of valid claims of its United
States policyholders and ceding insurers, their assigns, and successors in interest. The assuming
insurer shall report annually to the commissioner information substantially the same as that
required to be reported on the NAIC annual statement form by authorized insurers to enable the
commissioner to determine the sufficiency of the trust.
2. a. In the case of a single assuming insurer, the trust shall consist of a trusteed account
representing the assuming insurer's liabilities attributable to business written in the United
States and, in addition, except as provided in subdivision b. of this subparagraph, the
assuming insurer shall maintain a trusteed surplus of not less than twenty million dollars
($20,000,000).
b. At any time after the assuming insurer has permanently discontinued underwriting new
business secured by the trust for at least three (3) years, the commissioner may authorize a
reduction in the trusteed surplus required by subdivision a. of this subparagraph, but only
after a finding, based on an assessment of the risk, that the new required surplus level is
adequate for the protection of United States ceding insurers, policyholders, and claimants
in light of a reasonably foreseeable adverse loss development. The risk assessment may
involve an actuarial review, including an independent analysis of reserves and cash flows,
and shall consider all material risk factors, including, when applicable, the lines of
business involved, the stability of the incurred loss estimates, and the effect of the surplus
requirements on the assuming insurer's liquidity or solvency. The minimum required ACTS OF THE GENERAL ASSEMBLY 6
trusteed surplus may not be reduced to an amount less than thirty percent (30%) of the
assuming insurer's liabilities attributable to reinsurance ceded by United States ceding
insurers covered by the trust.
3. In the case of a group including incorporated and individual unincorporated underwriters:
a. The trust shall consist of a trusteed account representing the respective underwriter's
liabilities attributable to business written in the United States;
b. The group shall maintain a trusteed surplus of which one hundred million dollars
($100,000,000) shall be held jointly for the benefit of United States ceding insurers of any
member of the group;
c. The incorporated members of which group shall not be engaged in any business other than
underwriting as a member of the group and shall be subject to the same level of solvency
regulation and control by the group's domiciliary regulator as are the unincorporated
members; and
d. The group shall make available to the commissioner an annual certification of the
solvency of each underwriter by the group's domiciliary insurance regulatory official and
its independent public accountants.
4. In the case of a group of incorporated underwriters under common administration, the group
shall:
a. Comply with the reporting requirements contained in subparagraph 1. of this paragraph;
b. Have continuously transacted insurance business outside the United States for at least
three (3) years immediately prior to making an application for accreditation;
c. Maintain a trust in an amount not less than the group's several liabilities attributable to
business ceded by United States ceding insurers to any member of the group pursuant to
reinsurance contracts issued in the name of the group;
d. Maintain an aggregate policyholders' surplus of at least ten billion dollars
($10,000,000,000);
e. Maintain a joint trusteed surplus of which one hundred million dollars ($100,000,000)
shall be held jointly for the benefit of United States ceding insurers of any member of the
group; and
f. Each member of the group shall make available to the commissioner an annual
certification of the member's solvency by the member's domiciliary insurance regulatory
official and its independent public accountant.
5. The trust shall be established in a form approved by the commissioner. The trust instrument shall
provide that contested claims shall be valid and enforceable upon the final order of any court of
competent jurisdiction in the United States. The trust shall vest legal title to its assets in the
trustees of the trust for its United States policyholders and ceding insurers, their assigns, and
successors in interest. The trust and the assuming insurer shall be subject to examination as
determined by the commissioner. The trust shall remain in effect for as long as the assuming
insurer shall have outstanding obligations due under the reinsurance agreements subject to the
trust.
6. No later than February 28 of each year, the trustees of the trust shall report to the commissioner
in writing setting forth the balance of the trust and listing the trust's investments at the preceding
year end and shall certify the date of termination of the trust, if so planned, or certify that the
trust shall not expire prior to the next following December 31.
(e) 1. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that:
a. Has been certified by the commissioner as a reinsurer in this state; and
b. Secures its obligations in accordance with the requirements of this paragraph.
2. In order to be eligible for certification, the assuming insurer shall: CHAPTER 133
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a. Be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction,
as determined by subparagraph 4. of this paragraph;
b. Maintain minimum capital and surplus, or its equivalent, in an amount to be determined
by the commissioner by administrative regulation;
c. Maintain financial strength ratings from two (2) or more rating agencies deemed
acceptable by the commissioner by administrative regulation;
d. Agree to submit to the jurisdiction of this state, appoint the commissioner as its agent for
service of process in this state, and agree to provide security for one hundred percent
(100%) of the assuming insurer's liabilities attributable to reinsurance ceded by United
States ceding insurers if the assuming insurer resists enforcement of a final United States
judgment;
e. Agree to meet applicable information filing requirements as determined by the
commissioner, both with respect to an initial application for certification and on an
ongoing basis; and
f. Satisfy any other relevant requirements for certification as determined by the
commissioner.
3. An association, including incorporated and individual unincorporated underwriters, may be
certified as a reinsurer in this state if the association satisfies the requirements of subparagraph 2.
of this paragraph and:
a. The association satisfies its minimum capital and surplus requirements through the capital
and surplus equivalents (net of liabilities) of the association and its members, which shall
include a joint central fund that may be applied to any unsatisfied obligation of the
association or any of its members, in an amount determined by the commissioner to
provide adequate protection;
b. The incorporated members of the association are not engaged in any business other than
underwriting as a member of the association and are subject to the same level of
regulation and solvency control by the association's domiciliary regulator as are the
unincorporated members; and
c. The association provides the commissioner an annual certification by the association's
domiciliary regulator of the solvency of each underwriter member within ninety (90) days
after its financial statements are due to be filed with the association's domiciliary
regulator, or if a certification is unavailable, financial statements, prepared by independent
public accountants, of each underwriter member of the association.
4. a. The commissioner shall create and publish a list of qualified jurisdictions under which an
assuming insurer licensed and domiciled in the qualified jurisdiction is eligible to be
considered for certification by the commissioner as a certified reinsurer.
b. In order to determine whether the domiciliary jurisdiction of an assuming insurer from a
jurisdiction outside of the United States is eligible to be recognized as a qualified
jurisdiction, the commissioner shall evaluate the appropriateness and effectiveness of the
reinsurance supervisory system of the jurisdiction outside of the United States, both
initially and on an ongoing basis, and consider the rights, benefits, and the extent of
reciprocal recognition afforded by the jurisdiction outside of the United States to
reinsurers licensed and domiciled in the United States. A qualified jurisdiction shall agree
to share information and cooperate with the commissioner with respect to all certified
reinsurers domiciled within that jurisdiction. A jurisdiction may not be recognized as a
qualified jurisdiction if the commissioner has determined that the jurisdiction does not
adequately and promptly enforce final United States judgments and arbitration awards.
Additional factors may be considered in the discretion of the commissioner.
c. The commissioner shall consider the list of qualified jurisdictions published through the
NAIC's committee process when determining qualified jurisdictions. If the commissioner
approves a jurisdiction as qualified that does not appear on the list, the commissioner shall ACTS OF THE GENERAL ASSEMBLY 8
provide justification in accordance with criteria to be developed by the commissioner by
administrative regulation.
d. Jurisdictions within the United States that meet the requirements for accreditation under
the NAIC's financial standards and accreditation program shall be recognized as qualified.
e. If a certified reinsurer's domiciliary jurisdiction ceases to be a qualified jurisdiction, the
commissioner may revoke or suspend the reinsurer's certification indefinitely, in lieu of
revocation.
5. The commissioner shall assign a rating to each certified reinsurer, giving due consideration to the
financial strength ratings that have been assigned by rating agencies deemed acceptable to the
commissioner by administrative regulation. The commissioner shall publish a list of all certified
reinsurers and their ratings.
6. a. A certified reinsurer shall secure obligations assumed from United States ceding insurers
pursuant to this paragraph at a level consistent with its rating as specified by
administrative regulation promulgated by the commissioner.
b. In order for a domestic ceding insurer to qualify for full financial statement credit for
reinsurance ceded to a certified reinsurer, the certified reinsurer shall maintain security in
a form acceptable to the commissioner and consistent with subsection (4) of this section,
or in a multi-beneficiary[multibeneficiary] trust in accordance with paragraph (d) of this
subsection, except as otherwise provided in this paragraph.
c. If a certified reinsurer maintains a trust to fully secure its obligations subject to paragraph
(d) of this subsection, and chooses to secure its obligations incurred as a certified reinsurer
in the form of a multi-beneficiary[multibeneficiary] trust, the certified reinsurer shall
maintain separate trust accounts for:
i. Its obligations incurred under reinsurance agreements issued or renewed as a
certified reinsurer with reduced security as permitted by this paragraph or
comparable laws of other United States jurisdictions; and
ii. Its obligation subject to paragraph (d) of this subsection.
d. The commissioner shall not grant a certification pursuant to this paragraph unless the
certified reinsurer agrees to bind itself, by language of the trust and agreement with the
commissioner with principal regulatory oversight of each trust account, to fund, upon
termination of any applicable trust account, out of the remaining surplus of the trust any
deficiency of any other trust account.
e. The minimum trusteed surplus requirements provided in paragraph (d) of this subsection
are not applicable to a multi-beneficiary[multibeneficiary] trust maintained by a certified
reinsurer for the purpose of securing obligations incurred pursuant to this paragraph,
except that the multi-beneficiary[multibeneficiary] trust shall maintain a minimum
trusteed surplus of ten million dollars ($10,000,000).
f. With respect to obligations incurred by a certified reinsurer pursuant to this paragraph, if
the security is insufficient, the commissioner shall reduce the allowable credit by an
amount proportionate to the deficiency, and the commissioner may impose further
reductions in allowable credit upon finding that there is a material risk that the certified
reinsurer's obligations will not be paid in full when due.
g. i. For purposes of this paragraph, a certified reinsurer whose certification has been
terminated for any reason shall be treated as a certified reinsurer required to secure
one hundred percent (100%) of its obligations.
ii. As used in this subdivision, "terminated" includes revocation, suspension,
voluntary surrender, and inactive status, except if the commissioner continues to
assign a higher rating as permitted by this subsection, a certified reinsurer in
inactive status or reinsurer whose certification has been suspended shall not be
considered "terminated."
7. If an applicant for certification has been certified as a reinsurer in an NAIC-accredited
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assigned by that jurisdiction, and the reinsurer shall be considered a certified reinsurer in this
state.
8. A certified reinsurer that ceases to assume new business in this state may request to maintain its
certification in inactive status in order to continue to qualify for a reduction in security for its in-
force business. An inactive certified reinsurer shall continue to comply with all applicable
requirements of this subsection, and the commissioner shall assign a rating that takes into
account, if relevant, the reasons why the reinsurer is not assuming new business.
(f) Credit shall be allowed when the reinsurance is ceded to an assuming insurer if:
1. The assuming insurer has its head office in, or is domiciled in, as applicable, and is licensed in, a
reciprocal jurisdiction;
2. The assuming insurer has and maintains, on an ongoing basis:
a. For assuming insurers that are not associations:
i. Minimum capital and surplus, or its equivalent, calculated according to the
methodology of its domiciliary jurisdiction, in an amount to be set forth in
administrative regulation; and
ii. A minimum solvency or capital ratio, as applicable, as set forth in administrative
regulation; or
b. For assuming insurers that are associations, including incorporated and individual
unincorporated underwriters:
i. Minimum capital and surplus equivalents, net of liabilities, calculated according to
the methodology applicable in its domiciliary jurisdiction, and a central fund
containing a balance in amounts to be set forth by the commissioner in
administrative regulation; and
ii. A minimum solvency or capital ratio in the reciprocal jurisdiction where the
assuming insurer has its head office or is domiciled, as applicable, and is also
licensed;
3. The assuming insurer agrees, and provides adequate assurance, in a form prescribed by the
commissioner, to the following:
a. To provide prompt written notice and explanation to the commissioner if the assuming
insurer falls below the minimum requirements set forth in subparagraph 2. of this
paragraph, or if any regulatory action is taken against the assuming insurer for serious
noncompliance with applicable law;
b. To submit the assuming insurer's consent, in writing, to the jurisdiction of the courts of
this state and to the appointment of the commissioner as an agent for service of process.
The commissioner may require that consent for service of process be provided to the
commissioner and included in each reinsurance agreement. Nothing in this subdivision
shall be construed to limit, or in any way alter, the capacity for the parties to a reinsurance
agreement to agree to alternative dispute resolution mechanisms, except to the extent such
agreements are unenforceable under applicable insolvency or delinquency laws;
c. To submit the assuming insurer's consent, in writing, to pay all final judgments, wherever
enforcement is sought, obtained by a ceding insurer or its legal successor, that have been
declared enforceable in the jurisdiction where the judgment was obtained;
d. To include in each reinsurance agreement, a provision requiring the assuming insurer to
provide security in an amount equal to one hundred percent (100%) of the assuming
insurer's liabilities attributable to reinsurance ceded pursuant to that agreement if the
assuming insurer resists enforcement of a final judgment that is enforceable under the law
of the jurisdiction in which it was obtained or a properly enforceable arbitration award,
whether obtained by the ceding insurer or by its legal successor on behalf of its resolution
estate; and
e. i. To confirm that the assuming insurer is not presently participating in any solvent ACTS OF THE GENERAL ASSEMBLY 10
scheme of arrangement which involves this state's ceding insurers; and
ii. To notify the ceding insurer and the commissioner, and to provide security in the
amount of one hundred percent (100%) of the assuming insurer's liabilities to the
ceding insurer, should the assuming insurer enter into a solvent scheme of
arrangement referenced in subpart i. of this subdivision. The security required
under this subdivision shall be in a form consistent with the provisions of
paragraph (e) of this subsection and subsection (4) of this section, as specified by
the commissioner in administrative regulation;
4. The assuming insurer or its legal successor provides, upon request of the commissioner, on
behalf of itself and any legal predecessors, any documentation prescribed by the commissioner in
administrative regulation;
5. The assuming insurer maintains a practice of prompt payment of claims under reinsurance
agreements, pursuant to criteria set forth by the commissioner in administrative regulation; and
6. The assuming insurer's supervisory authority confirms to the commissioner on an annual basis,
as of the preceding December 31 or at the annual date otherwise statutorily reported to the
reciprocal jurisdiction, that the assuming insurer complies with the requirements of subparagraph
2. of this paragraph.
Nothing in this paragraph precludes an assuming insurer from providing the commissioner with
information on a voluntary basis.
(g) For purposes of paragraph (f) of this subsection:
1. a. The commissioner shall timely create and publish a list of reciprocal jurisdictions which
shall include reciprocal jurisdictions as defined in subsection (1) of this section.
b. The commissioner shall consider, and may approve, any other reciprocal jurisdiction:
i. On the list of reciprocal jurisdictions published by the NAIC, through the NAIC
committee process; and
ii. That meets the criteria established by the commissioner by administrative
regulation.
c. The commissioner may remove a jurisdiction from the list of reciprocal jurisdictions upon
a determination that the jurisdiction no longer meets the requirements of a reciprocal
jurisdiction, in accordance with a process established by the commissioner by
administrative regulation, except the commissioner shall not remove a reciprocal
jurisdiction, as defined in subsection (1) of this section. Upon removal of a reciprocal
jurisdiction from the commissioner's list, credit for reinsurance ceded to an assuming
insurer that has its home office or is domiciled in that jurisdiction shall be allowed if
otherwise allowed under this section;
2. a. The commissioner shall timely create and publish a list of assuming insurers that have
satisfied the conditions set forth in paragraph (f) of this subsection[,] and to which
cessions shall be granted credit in accordance with[, as set forth in] paragraph (f) of this
subsection.
b. The commissioner may add an assuming insurer to the[ commissioner's] list described in
subdivision a. of[ assuming insurers under] this subparagraph if an NAIC-
accredited[NAIC accredited] jurisdiction has added the[such] assuming insurer to a[its]
list of such assuming insurers, or if upon initial eligibility, the assuming insurer submits
information to the commissioner as required under paragraph (f)4. of this subsection and
complies with any additional requirements that the commissioner may impose by
administrative regulation, except to the extent that they[there is a] conflict with an
applicable covered agreement.
c. For purposes of carrying out the provisions of this subparagraph:
i. If an NAIC-accredited jurisdiction has determined that the conditions set forth in
paragraph (f) of this subsection have been met, the commissioner may defer to
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ii The commissioner may accept financial documentation filed with another NAIC-
accredited jurisdiction or with the NAIC;
iii. If an assuming insurer requests the commissioner to defer to another NAIC-
accredited jurisdiction's determination, the insurer shall submit the request on
forms prescribed by the commissioner, and any additional information as the
commissioner may require, by administrative regulation; and
iv. Upon receiving a request described in subpart iii. of this subdivision, the
commissioner shall notify other states through the NAIC committee process and
provide relevant information with respect to the determination of eligibility;
3. a. If the commissioner determines that an assuming insurer no longer meets one (1) or more
of the requirements of paragraph (f) of this subsection, the commissioner may revoke or
suspend the eligibility of the assuming insurer for recognition under paragraph (f) of this
subsection, in accordance with procedures set forth in administrative regulation.
b. While an assuming insurer's eligibility is suspended, no reinsurance agreement issued,
amended, or renewed after the effective date of the suspension qualifies for credit, except
to the extent that the assuming insurer's obligations under the contract are secured in
accordance with subsection (4) of this section.
c. If an assuming insurer's eligibility is revoked, no credit for reinsurance may be granted
after the effective date of the revocation with respect to any reinsurance agreements
entered into by the assuming insurer, including reinsurance agreements entered into prior
to the date of revocation, except to the extent that the assuming insurer's obligations under
the contract are secured in a form acceptable to the commissioner and consistent with the
provisions of subsection (4) of this section;
4. If subject to legal process of rehabilitation, liquidation, or conservation, as applicable, the ceding
insurer, or its representative, may seek and, if determined appropriate by the court in which the
proceedings are pending, may obtain an order requiring that the assuming insurer post security
for all outstanding ceded liabilities;
5. a. Credit may be taken under paragraph (f) of this subsection for reinsurance agreements
entered into, amended, or renewed, on or after July 15, 2020, and only with respect to
losses incurred and reserves reported after the later of:
i. The date on which the assuming insurer has met all eligibility requirements
pursuant to paragraph (f) of this subsection; or
ii. The effective date of the new reinsurance agreement, amendment, or renewal.
b. Nothing in this paragraph shall be construed to alter or impair a ceding insurer's right to
take credit for reinsurance, to the extent that credit is not available under paragraph (f) of
this subsection, as long as the reinsurance qualifies for credit under any other provision of
this section; and
6. Nothing in this paragraph or paragraph (f) of this subsection shall be construed to:
a. Limit or in any way alter the capacity of the parties to a reinsurance agreement to:
i. Agree on requirements for security or other terms in the reinsurance agreement,
except as expressly prohibited by this section or other applicable law; or
ii. Renegotiate the agreement; or
b. Authorize an assuming insurer to withdraw or reduce the security provided under any
reinsurance agreement, except as permitted by the terms of the agreement.
(h) Credit shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the
requirements of paragraph (a), (b), (c), (d), (e), or (f) of this subsection, but only with respect to the
insurance of risks located in jurisdictions where such reinsurance is required by applicable law or
regulation of that jurisdiction or reinsurance ceded to a residual market mechanism reinsurance
association, or the members thereof, created pursuant to law or which has been voluntarily created as
such by its members with the approval of the commissioner. ACTS OF THE GENERAL ASSEMBLY 12
(i) If the assuming insurer is not authorized, certified, or accredited to transact insurance or reinsurance in
Kentucky, the credit permitted by paragraphs (c) and (d) of this subsection shall not be allowed unless
the assuming insurer agrees in the reinsurance agreements:
1. That in the event of the failure of the assuming insurer to perform its obligations under the terms
of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, shall
submit to the jurisdiction of any court of competent jurisdiction in any state of the United States,
shall comply with all requirements necessary to give the court jurisdiction, and shall abide by the
final decision of the court or of any appellate court in the event of an appeal; and
2. To designate the Secretary of State or a designated attorney as its true and lawful attorney upon
whom may be served any lawful process in any action, suit, or proceeding instituted by or on
behalf of the ceding insurer.
This paragraph is not intended to conflict with or override the obligation of the parties to a reinsurance
agreement to arbitrate their disputes, if this obligation is created in the agreement.
(j) If the assuming insurer does not satisfy the requirements of paragraph (a), (b), (c), or (f) of this
subsection, the credit permitted by paragraph (d) or (e) of this subsection shall not be allowed unless the
assuming insurer agrees in the trust agreements to the following conditions:
1. Notwithstanding any other provisions in the trust instrument, if the trust is inadequate because it
contains an amount less than the amount required by paragraph (d)2. of this subsection, or if the
grantor of the trust has been declared insolvent or placed into receivership, rehabilitation,
liquidation, or similar proceedings under the laws of its state or country of domicile, the trustee
shall comply with an order of the commissioner with regulatory oversight over the trust or with
an order of a court of competent jurisdiction directing the trustee to transfer to the commissioner
with regulatory oversight all of the assets of the trust;
2. The assets shall be distributed by and claims shall be filed with and valued by the commissioner
with regulatory oversight in accordance with the laws of the state in which the trust is domiciled
that are applicable to the liquidation of domestic insurance companies;
3. If the commissioner with regulatory oversight determines that the assets of the trust fund or any
part thereof are not necessary to satisfy the claims of the United States ceding insurers of the
grantor of the trust, the assets or part thereof shall be returned by the commissioner with
regulatory oversight to the trustee for distribution in accordance with the trust agreement; and
4. The grantor shall waive any right otherwise available to it under United States law that is
inconsistent with this paragraph.
(k) 1. If an accredited or certified reinsurer ceases to meet the requirements for accreditation or
certification, the commissioner may suspend or revoke the reinsurer's accreditation or
certification.
2. The commissioner shall provide the reinsurer notice and an opportunity for hearing prior to the
entry of a suspension or revocation order.
3. A suspension or revocation order shall not take effect until after a hearing is conducted, unless:
a. The reinsurer waives its right to hearing;
b. The commissioner's order is based on regulatory action by the reinsurer's domiciliary
jurisdiction or the voluntary surrender or termination of the reinsurer's eligibility to
transact insurance or reinsurance business in its domiciliary jurisdiction or in the primary
certifying state of the reinsurer under paragraph (e)7. of this subsection; or
c. The commissioner finds that an emergency requires immediate action and a court of
competent jurisdiction has not stayed the commissioner's action.
4. While a reinsurer's accreditation or certification is suspended, no reinsurance contract issued or
renewed after the effective date of the suspension qualifies for credit except to the extent that the
reinsurer's obligations under the contract are secured in accordance with subsection (4) of this
section. If a reinsurer's accreditation or certification is revoked, no credit for reinsurance may be
granted after the effective date of the revocation except to the extent that the reinsurer's CHAPTER 133
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obligations under the contract are secured in accordance with paragraph (e)6. of this subsection
or subsection (4) of this section.
(l) 1. A ceding insurer shall manage its reinsurance recoverables proportionate to its own book of
business and diversify its reinsurance program.
2. a. A domestic ceding insurer shall notify the commissioner within thirty (30) days after:
i. Reinsurance recoverables from any single assuming insurer, or group of affiliated
assuming insurers, exceeds fifty percent (50%) of the domestic ceding insurer's last
reported surplus to policyholders; or
ii. It is determined that reinsurance recoverables from any single assuming insurer, or
group of affiliated assuming insurers, is likely to exceed the limit set forth in
subpart i. of this subdivision.
b. A domestic ceding insurer shall notify the commissioner within thirty (30) days after:
i. Ceding to any single assuming insurer, or group of affiliated assuming insurers,
more than twenty percent (20%) of the ceding insurer's gross written premium in
the prior calendar year; or
ii. It has determined that the reinsurance ceded to any single assuming insurer, or
group of affiliated assuming insurers, is likely to exceed the limit set forth in
subpart i. of this subdivision.
c. The notification required by this subparagraph shall demonstrate that the exposure is
safely managed by the domestic ceding insurer.
(m) 1. In order to facilitate the prompt payment of claims, the commissioner may permit a certified
reinsurer to defer posting the security for catastrophic recoverables for a period of up to one (1)
year from the date of the first instance of a liability reserve entry by the ceding insurer as a result
of a loss from a catastrophic occurrence.
2. Upon notice by the ceding insurer to the commissioner that the certified reinsurer has failed to
pay claims owed under a reinsurance agreement in a timely manner, the commissioner shall
notify the certified reinsurer that it is no longer permitted to defer the posting of security for
catastrophic recoverables.
3. Reinsurance recoverables for only the following lines of business, as reported on the NAIC's
annual financial statement related specifically to the catastrophic occurrence, shall be included in
the deferral:
a. Fire;
b. Allied lines;
c. Farmowner's multiple peril;
d. Homeowner's multiple peril;
e. Commercial multiple peril;
f. Inland marine;
g. Earthquake; and
h. Auto physical damage.
4. The commissioner may promulgate administrative regulations to establish the process for a
certified reinsurer to seek a deferral of posting of security for catastrophic recoverables.
(4) An asset or a reduction from liability for the reinsurance ceded by an insurer to an assuming insurer not
meeting the requirements of subsections (2) and (3) of this section shall be allowed in an amount not
exceeding the liabilities carried by the ceding insurer and the reduction shall be in the amount of funds held by
or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance
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in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer, or,
in the case of a trust, held in a qualified United States financial institution. This security may be in the form of:
(a) Cash;
(b) Securities listed by the Securities Valuation Office of the NAIC and qualifying as admitted assets,
including those deemed exempt from filing, as defined by the Purposes and Procedures Manual of the
Securities Valuation Office, and qualifying as admitted assets;
(c) Clean, irrevocable, unconditional letters of credit issued or confirmed by a qualified United States
financial institution no later than December 31 in respect of the year for which filing is being made, and
in the possession of the ceding insurer on or before the filing date of its annual statement. Letters of
credit meeting applicable standards of issuer acceptability as of the dates of their issuance, or
confirmation, shall, notwithstanding the issuing, or confirming, institution's subsequent failure to meet
applicable standards of issuer acceptability, continue to be acceptable as security until their expiration,
extension, renewal, modification, or amendment, whichever first occurs; or
(d) Any other form of security acceptable to the commissioner.
(5) Cession of bulk reinsurance by a domestic insurer is subject to KRS 304.24-420.
(6) (a) Credit shall be allowed as an asset or as a deduction from liability, to any ceding insurer for reinsurance
ceded to an assuming insurer qualified therefor under subsection (2), (3), (4), or (5) of this section,
except that no such credit shall be allowed unless the reinsurance contract provides, in substance, that in
the event of the insolvency of the ceding insurer, the reinsurance shall be payable under a contract
reinsured by the assuming insurer on the basis of reported claims allowed by the liquidation court,
without diminution because of the insolvency of the ceding insurer. Such payments shall be made
directly to the ceding insurer or to its domiciliary liquidator except:
1. Where the contract or other written agreement specifically provides another payee of such
reinsurance in the event of the insolvency of the ceding insurer; or
2. Where the assuming insurer, with the consent of the direct insured, has assumed such policy
obligations of the ceding insurer as direct obligations of the assuming insurer to the payees under
such policies and in substitution for the obligations of the ceding insurer to such payees.
(b) The reinsurance agreement may provide that the domiciliary liquidator of an insolvent ceding insurer
shall give written notice to the assuming insurer of the pendency of a claim against such ceding insurer
on the contract reinsured within a reasonable time after such claim is filed in the liquidation proceeding.
During the pendency of such claim, any assuming insurer may investigate such claim and interpose, at
its own expense, in the proceeding where such claim is to be adjudicated, any defenses which it deems
available to the ceding insurer or its liquidator. Such expense may be filed as a claim against the
insolvent ceding insurer to the extent of a proportionate share of the benefit which may accrue to the
ceding insurer solely as a result of the defense undertaken by the assuming insurer. Where two (2) or
more assuming insurers are involved in the same claim and a majority in interest elect to interpose a
defense to such claim, the expense shall be apportioned in accordance with the terms of the reinsurance
agreement as though such expense had been incurred by the ceding insurer.
(7) Upon request of the commissioner an insurer shall promptly inform the commissioner in writing of the
cancellation or any other material change of any of its reinsurance treaties or arrangements.
(8) (a) The commissioner may promulgate administrative regulations to:
1. Implement the provisions of this section; and
2. Regulate any of the following reinsurance arrangements:
a. Life insurance policies with guaranteed nonlevel gross premium or guaranteed nonlevel
benefits;
b. Universal life insurance policies with provisions resulting in the ability of a policyholder
to keep a policy in force over a secondary guarantee period;
c. Variable annuities with guaranteed death or living benefits;
d. Long-term care insurance policies; or CHAPTER 133
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e. Such other life and health insurance and annuity products as to which the NAIC adopts
model regulatory requirements with respect to credit for reinsurance.
(b) An administrative regulation adopted pursuant to paragraph (a)2.a. or b. of this subsection may apply to
any treaty containing policies issued:
1. On or after January 1, 2015; or
2. Prior to January 1, 2015, if risk pertaining to these policies is ceded in connection with the treaty
in whole or in part, on or after January 1, 2015.
(c) An administrative regulation adopted pursuant to paragraph (a)2. of this subsection:
1. May require the ceding insurer, in calculating the amounts or forms of security required to be
held by the insurer pursuant to this section, to use the Valuation Manual adopted by the NAIC
under Section 11B(1) of the NAIC Standard Valuation Law, including all amendments adopted
by the NAIC and in effect on the date as of which the calculation is made, to the extent
applicable; and
2. Shall not apply to cessions to an assuming insurer that:
a. Meets the requirements set forth in subsection (3)(f) of this section;
b. Is certified in this state; or
c. Maintains at least two hundred fifty million dollars ($250,000,000) in capital and surplus
when determined in accordance with the NAIC Accounting Practices and Procedures
Manual, including all amendments thereto adopted by the NAIC, excluding the impact of
any permitted or prescribed practices, and is:
i. Licensed in at least twenty-six (26) states; or
ii. Licensed in at least ten (10) states, and licensed or accredited in a total of at least
thirty-five (35) states.
(d) The authority to promulgate administrative regulations pursuant to paragraph (a)2. of this subsection
shall not limit the commissioner's general authority to promulgate administrative regulations pursuant to
paragraph (a)1. of this subsection.
(9) Subsections (1) to (4) of this section shall apply to all cessions after July 14, 1992, under reinsurance
agreements which have had an inception, anniversary, or renewal date not less than six (6) months after July
14, 1992.
Section 5. KRS 304.6-134 is amended to read as follows:
(1) The commissioner may exempt specific product forms or product lines of a domestic company, that is licensed
and doing business only in Kentucky, from the requirements of KRS 304.6-143 if:
(a) The commissioner has issued an exemption in writing to the company and has not subsequently revoked
the exemption in writing; and
(b) The company computes reserves using assumptions and methods used prior to the operative date of the
valuation manual and any requirements established by the commissioner and promulgated by
administrative regulation.
(2) A domestic company that has less than three hundred million dollars ($300,000,000) of ordinary life premiums
or a company that is a member of a group of life insurers that has combined ordinary life premiums of less
than six hundred million dollars ($600,000,000) and that is licensed and doing business in Kentucky is exempt
from the requirements of KRS 304.6-143 and 304.6-151 if:
(a) [The company reported total adjusted capital of at least four hundred fifty percent (450%) of authorized
control level risk-based capital in the risk-based capital report for the prior calendar year;
(b) ]The appointed actuary has provided an unqualified opinion on the reserves in accordance with KRS
304.6-171 for the prior calendar year; and
(b)[(c)] The company has provided a certification by a qualified actuary that any universal life policy
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manual, meets the definition of a nonmaterial secondary guarantee universal life product as defined in
the valuation manual.
(3) For purposes of subsection (2) of this section, ordinary life premiums are measured as direct, plus reinsurance
assumed from an unaffiliated company, from the prior calendar year annual statement.
(4) A domestic company that meets the requirements of subsection (2) of this section shall file a statement with
the commissioner certifying that these requirements have been met for the current calendar year based on
premiums and other values from the prior calendar year's financial statements prior to July 1 of the current
calendar year.
(5) For a domestic company that files a statement under subsection (4) of this section, KRS 304.6-130, 304.6-132,
304.6-133, 304.6-140, 304.6-141, 304.6-145, 304.6-150, 304.6-155, 304.6-160, 304.6-170, 304.6-171, 304.6-
180, and 304.15-410 shall be applicable; however, any references to KRS 304.6-143 and 304.6-151 shall not
apply.
Section 6. KRS 304.17A-300 is amended to read as follows:
(1) (a) A provider-sponsored integrated health delivery network may be created before the effective date of
this Act by health care providers for the purpose of providing health care services.
(b) No person shall be eligible to obtain a certificate of filing under subsection (2) of this section on or
after the effective date of this Act.
(2) No person shall in this Commonwealth be, act as, or hold itself out as a provider-sponsored integrated health
delivery network unless it holds a certificate of filing from the commissioner. Each provider-sponsored
integrated health delivery network that seeks to offer services shall first be certified by the department.
(3) To qualify as a provider-sponsored integrated health delivery network, an applicant shall submit information
acceptable to the department to satisfactorily demonstrate that the provider-sponsored integrated health
delivery network:
(a) Is licensed and in good standing with the licensure boards for participating providers;
(b) Has demonstrated the capacity to administer the health plans it is offering;
(c) Has the ability, experience, and structure to arrange for the appropriate level and type of health care
services;
(d) Has the ability, policies, and procedures to conduct utilization management activities;
(e) Has the ability to achieve, monitor, and evaluate the quality and cost effectiveness of care provided by
its provider network;
(f) Is financially solvent;
(g) Has the ability to assure enrollees adequate access to providers, including geographic availability and
adequate numbers and types;
(h) Has the ability and procedures to monitor access to its provider network;
(i) Has a satisfactory grievance procedure and the ability to respond to enrollees' inquiries and complaints;
(j) Does not limit the participation of any health care provider in its provider network in another provider
network;
(k) Has the ability and policies that allow patients to receive care in the most appropriate, least restrictive
setting;
(l) Does not discriminate in enrolling members;
(m) Participates in coordination of benefits;
(n) Uses standardized electronic claims and billing processes and formats; and
(o) Discloses to the cooperative reimbursement arrangements with providers.
(4) Fees for the following services shall be paid to the commissioner by every provider-sponsored integrated
health delivery network, and the fees shall be the same as those for insurers as specified in Subtitle 4 of this
chapter: CHAPTER 133
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(a) For filing an application for a certificate of filing or amendment thereto;
(b) For filing an annual statement; and
(c) For other services deemed necessary by the commissioner.
(5) Provider-sponsored integrated health delivery networks shall be subject to the provisions of this subtitle, and to
the following provisions of this chapter, to the extent applicable and not in conflict with the expressed
provisions of this subtitle:
(a) Subtitle 1 -- Scope -- General Definitions and Provisions[of Code];
(b) Subtitle 2 --[ Commissioner of the Department of] Insurance Commissioner;
(c) Subtitle 3 -- Authorization of Insurers and General Requirements;
(d) Subtitle 4 -- Fees and Taxes;
(e) Subtitle 5 -- Kinds of Insurance--Limits of Risk--Reinsurance;
(f) Subtitle 6 -- Assets and Liabilities;
(g) Subtitle 7 -- Investments;
(h) Subtitle 8 -- Administration of Deposits;
(i) Subtitle 9 -- Agents, Consultants, Solicitors, and Adjusters;
(j) Subtitle 12 -- Trade Practices and Frauds;
(k) Subtitle 14 -- KRS 304.14-120 to 304.14-130 and 304.14-500 to 304.14-560;
(l) Subtitle 25 -- Continuity of Management;
(m) Subtitle 33 -- Insurers Rehabilitation and Liquidation;
(n) Subtitle 37 -- Insurance Holding Company Systems; and
(o) Subtitle 99 -- Penalties.
Section 7. KRS 304.37-010 is amended to read as follows:
As used in this subtitle, unless the context requires otherwise:
(1) "Affiliate" or person "affiliated" with a specific person means a person that directly, or indirectly through one
(1) or more intermediaries, controls, or is controlled by, or is under common control with, the person specified;
(2) "Commissioner" means:
(a) The commissioner of insurance of this state; or[ the Department of Insurance, as appropriate]
(b) When the context requires, the commissioner of insurance, or an equivalent official, of another state;
(3) (a) "Control," "controlling," "controlled by," and "under common control with" mean 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 loan contract or
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.
(b) 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 (10%) or more of the voting securities of any
other person. This presumption may be rebutted by a showing, made in the manner provided by KRS
304.37-020(13),[(12)] that control does not exist in fact. The commissioner may determine, after
forwarding 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;
(4) "Enterprise risk" means any activity, circumstance, event, or series of events involving one (1) or more
affiliates of an insurer that, if not remedied promptly:[,] ACTS OF THE GENERAL ASSEMBLY 18
(a) Is likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its
insurance holding company system as a whole, including but not limited to anything that would cause
the insurer's risk-based capital to fall into company action level as set forth in KRS 304.3-125 and
administrative regulations promulgated thereunder; or
(b) Would cause the insurer to be in hazardous financial condition in accordance with KRS 304.2-065;
(5) "Groupwide supervisor" means the regulatory official authorized to engage in conducting and coordinating
groupwide supervision activities in accordance with KRS 304.37-160;
(6) "Insurance holding company system" means two (2) or more affiliated persons, one (1) or more of which is an
insurer;
(7) "Insurer" has the same meaning as in KRS 304.1-040[includes every person engaged as principal and as
indemnitor, surety, or contractor in the business of entering into contracts of insurance], except 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;
(8) "Internationally active insurance group" means an insurance holding company system that:
(a) Includes an insurer registered under KRS 304.37-020; and
(b) Meets the following criteria:
1. Has premiums written in at least three (3) countries;
2. Has gross premiums written outside of the United States that are at least ten percent (10%) of the
system's total gross written premiums; and
3. Based on a three (3) year rolling average:
a. Has total assets that are at least fifty billion dollars ($50,000,000,000); or
b. Has total gross written premiums that are at least ten billion dollars ($10,000,000,000);[.]
(9) "NAIC" means the National Association of Insurance Commissioners;
(10) "Person":
(a) Means an individual, a corporation, a partnership, an association, a joint stock company, an
unincorporated organization, any similar entity, or any combination of the foregoing acting in concert;
and[, but ]
(b) Shall not include any:
1. Bank in its fiduciary capacity; or
2. Securities broker performing no more than the usual and customary broker's function;
(11)[(10)] "Subsidiary" of a specified person means an affiliate controlled by the person directly or indirectly
through one (1) or more intermediaries;
(12)[(11)] "Supervisory college" means a forum for cooperation and communication between the involved
supervisors established for the fundamental purpose of facilitating the effectiveness of supervision of entities
which belong to an insurance group and facilitating both the supervision of the group as a whole on a
groupwide basis and improving the legal entity supervision of the entities within the insurance group; and
(13)[(12)] "Voting security" includes any security convertible into or evidencing a right to acquire a voting
security.
Section 8. KRS 304.37-020 is amended to read as follows:
(1) As used in this section:
(a) "Group capital calculation instructions" means the group capital calculation instructions adopted or
amended by the NAIC in accordance with procedures adopted by the NAIC; and
(b) 1. "NAIC Liquidity Stress Test Framework" means a separate NAIC publication that includes:
a. A history of the NAIC's development of regulatory liquidity stress testing; and CHAPTER 133
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b. The following, as adopted or amended by the NAIC in accordance with procedures
adopted by the NAIC:
i. The scope criteria applicable for a specific data year, and
ii. The liquidity stress test instructions and reporting templates for a specific data
year.
2. As used in this paragraph, "scope criteria" means the designated exposure bases, along with
minimum magnitudes thereof for the specified data year, used to establish a preliminary list of
insurers considered scoped into the NAIC Liquidity Stress Test Framework for that data year.
(2) (a) Every insurer that[which] is authorized to do business in this state and[ which] is a member of an
insurance holding company system shall register with the commissioner, except a foreign or alien
insurer subject to disclosure requirements and standards adopted by statute or regulation in the
jurisdiction of its domicile that[which] are substantially similar to those contained in this section.
(b) For an alien insurer, the domiciliary state shall be deemed to be its state of entry.
(c) Any insurer that[which] is subject to registration under this section shall register[ within sixty (60) days
after June 16, 1972, or] fifteen (15) days after it becomes subject to registration[, whichever is later,]
and annually thereafter by April 1 of each year for the previous calendar year, unless the commissioner
for good cause shown extends the time for registration[,] and then, within the extended time.
(d) The commissioner may require any authorized insurer that[which] is a member of a holding company
system but[which] is not subject to registration under this section to furnish a copy of the registration
statement or other information filed by the insurer with the insurance regulatory authority of its
domiciliary jurisdiction.
(3)[(2)] Every insurer subject to registration shall file a registration statement on a form provided by the
commissioner, which shall contain current information about:
(a) The capital structure, general financial condition, ownership, and management of the insurer and any
person controlling the insurer;
(b) The identity of every member of the insurance holding company system;
(c) The following agreements in force, relationships subsisting, and transactions currently outstanding
between the[such] insurer and its affiliates:
1. Loans to, other investments in, or purchases, sales, or exchanges of securities of the affiliates by
the insurer or of the insurer by its affiliates;
2. Purchases, sales, or exchanges of assets;
3. Transactions not in the ordinary course of business;
4. Guarantees or undertakings for the benefit of an affiliate which result in an actual contingent
exposure of the insurer's assets to liability, other than insurance contracts entered in the ordinary
course of the insurer's business;
5. All management and service contracts and all cost-sharing arrangements;
6. All reinsurance agreements;
7. Dividend and other distributions to shareholders; and
8. Consolidated tax allocation agreements;
(d) Any pledge of the insurer's stock, including stock of any subsidiary or controlling affiliate for a loan
made to any member of the insurance holding company system;
(e) 1. If requested by the commissioner, financial statements of, or within, an insurance holding
company system, including all affiliates.
2. Financial statements may include but are not limited to annual audited financial statements filed
with the United States Securities and Exchange Commission, pursuant to the Securities Act of
1933, as amended, or the Securities Exchange Act of 1932, as amended. ACTS OF THE GENERAL ASSEMBLY 20
3. An insurer required to file financial statements pursuant to this paragraph may satisfy the request
by providing the commissioner with the most recently filed parent corporation financial
statements that have been filed with the United States Securities and Exchange Commission;
(f) Other matters concerning transactions between registered insurers and any affiliates as may be included
from time to time in any registration forms adopted or approved by the commissioner;
(g) Statements that the insurer's:
1. Board of directors oversees corporate governance and internal controls; and[ that the insurer's ]
2. Officers or senior management have approved, implemented, and continue to maintain and
monitor corporate governance and internal control procedures; and
(h) Any other information required by the commissioner through administrative regulations.
(4)[(3)] (a) It shall not be necessary to disclose information on the registration statement filed pursuant to
subsection (3)[(2)] of this section if the information is not material for the purposes of this section.
(b) Unless the commissioner by administrative regulation or order provides otherwise, sales, purchases,
exchanges, loans, or extensions of credit, or investments, involving one-half of one percent (0.5%) or
less of an insurer's admitted assets as of the thirty-first day of December next preceding shall not be
deemed material for purposes of this section.
(c) The materiality guidelines provided in this subsection shall not apply for purposes of the information
required under subsections (15) and (16) of this section.
(5)[(4)] Each registered insurer shall keep current the information required to be disclosed in its registration
statement by reporting all material changes or additions on amendment forms provided by the commissioner
within thirty (30) days after the end of the month in which the insurer[it] learns of each change or addition.
(6)[(5)] All registration statements shall contain a summary outlining all items in the current registration
statement representing changes from the prior registration statement.
(7)[(6)] Subject to KRS 304.37-030(5), each registered insurer shall report to the commissioner all dividends
and other distributions to shareholders within fifteen (15) business days following the dividend or distribution
declaration.
(8)[(7)] Any person within an insurance holding company system subject to registration shall be required to
provide complete and accurate information to an insurer, if the information is reasonably necessary to enable
the insurer to comply with the provisions of this subtitle.
(9)[(8)] The commissioner shall terminate the registration of any insurer which demonstrates that it no longer is
a member of an insurance holding company system.
(10)[(9)] The commissioner may require or allow two (2) or more affiliated insurers subject to registration to file
a consolidated registration statement or consolidated reports amending their consolidated registration
statement or their individual registration statements.
(11)[(10)] The commissioner may allow an insurer that[which] is authorized to do business in this state and which
is part of an insurance holding company system to:
(a) Register on behalf of any affiliated insurer that[which] is required to register under subsection (2) of
this section;[(1)] and[ to ]
(b) File all information and material required to be filed under this section.
(12)[(11)] The provisions of this section shall not apply to any insurer, information, or transaction if and to the
extent that the commissioner by administrative regulation or order exempts[shall exempt] it from the
provisions of this section.
(13)[(12)] (a) Any person may file with the commissioner a disclaimer of affiliation with any authorized
insurer or a disclaimer may be filed by the insurer or any member of an insurance holding company
system.
(b) The disclaimer shall fully disclose all material relationships and bases for affiliation between the
persons and the insurer as well as the basis for disclaiming the affiliation. CHAPTER 133
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(c) A disclaimer of affiliation shall be deemed to have been granted unless the commissioner, within thirty
(30) days following receipt of a complete disclaimer, notifies the filing party the disclaimer is
disallowed.
(d) In the event of disallowance, the disclaiming party may request an administrative hearing, which shall
be granted.
(e) The disclaiming party shall be relieved of its duty to register under this section if:
1. Approval of the disclaimer has been granted by the commissioner;[,] or [if ]
2. The disclaimer is deemed to have been approved.
(14)[(13)] (a) [On and after July 15, 2014, ]The ultimate controlling person of every insurer subject to
registration shall also file an annual enterprise risk report.
(b) The report shall:[, ]
1. To the best of the ultimate controlling person's knowledge and belief, identify the material risks
within the insurance holding company system that could pose enterprise risk to the insurer; and[.
The report shall ]
2. Be filed with the lead state commissioner of the insurance holding company system, as
determined by the procedures within the Financial Analysis Handbook adopted by the
NAIC[National Association of Insurance Commissioners].
(15) (a) Except as provided in this subsection, the ultimate controlling person of every insurer subject to
registration shall concurrently file with the registration an annual group capital calculation as
directed by the lead state commissioner.
(b) The report shall be:
1. Completed in accordance with the group capital calculation instructions, which may permit
the lead state commissioner to allow a controlling person that is not the ultimate controlling
person to file the group capital calculation; and
2. Filed with the lead state commissioner of the insurance holding company system as
determined by the commissioner in accordance with the procedures within the Financial
Analysis Handbook adopted by the NAIC.
(c) An insurance holding company system shall be exempt from filing the group capital calculation if:
1. The system:
a. Has only one (1) insurer within its holding company structure;
b. Only writes business in its domestic state; and
c. Assumes no business from any other insurer;
2. a. The system is required to perform a group capital calculation specified by the United
States Federal Reserve Board.
b. The lead state commissioner shall request the calculation from the Federal Reserve
Board under the terms of information sharing agreements in effect. If the Federal
Reserve Board cannot share the calculation with the lead state commissioner, the
insurance holding company system is not exempt from the group capital calculation
filing;
3. The system's non-United States groupwide supervisor is located within a reciprocal
jurisdiction, as defined in Section 4 of this Act, that recognizes the United States state
regulatory approach to group supervision and group capital; or
4. The system:
a. Provides information to the lead state that meets the requirements for accreditation
under the NAIC Financial Regulation Standards and Accreditation Program, either
directly or indirectly, through the groupwide supervisor, who has determined the ACTS OF THE GENERAL ASSEMBLY 22
information is satisfactory to allow the lead state to comply with the NAIC group
supervision approach, as detailed in the NAIC Financial Analysis Handbook; and
b. Has a non-United States groupwide supervisor, which is not in a reciprocal jurisdiction
as defined in Section 4 of this Act, that recognizes and accepts, as specified by the
commissioner in administrative regulation, the group capital calculation as the
worldwide group capital assessment for United States insurance groups who operate in
that jurisdiction.
(d) Notwithstanding the provisions of paragraphs (c)3. and (c)4. of this subsection, a lead state
commissioner shall require the group capital calculation for the United States operations of any
insurance holding company system not based in the United States where, after any necessary
consultation with other supervisors or officials, it is deemed appropriate by the lead state
commissioner for:
1. Prudential oversight and solvency monitoring purposes; or
2. Ensuring the competitiveness of the insurance marketplace.
(e) In addition to the exemptions established in paragraph (c) of this subsection, the lead state
commissioner may exempt the ultimate controlling person from filing the annual group capital
calculation or accept a limited group capital filing or report in accordance with criteria specified by
the commissioner in administrative regulation.
(f) If the lead state commissioner determines that an insurance holding company system no longer
meets one (1) or more of the requirements for an exemption from filing the group capital calculation
under this subsection, the system shall file the group capital calculation at the next annual filing date
unless given an extension by the lead state commissioner based on reasonable grounds shown.
(16) (a) The ultimate controlling person of every insurer subject to registration and also scoped into the
NAIC Liquidity Stress Test Framework shall file the results of a specific year's liquidity stress test.
(b) The filing shall be made to the lead state commissioner of the insurance holding company system, as
determined by the procedures within the Financial Analysis Handbook adopted by the NAIC.
(c) 1. The NAIC Liquidity Stress Test Framework shall include scope criteria:
a. Applicable to a specific data year; and
b. Reviewed at least annually by the NAIC's Financial Stability Task Force or its
successor.
2. Any change to the NAIC Liquidity Stress Test Framework or to the data year for which the
scope criteria are to be measured shall be effective on January 1 of the year following the
calendar year when the changes are adopted.
3. a. Insurers meeting at least one (1) threshold of the scope criteria shall be considered
scoped into the NAIC Liquidity Stress Test Framework for the specified data year
unless the lead state commissioner, in consultation with the NAIC Financial Stability
Task Force or its successor, determines the insurer should not be scoped into the
framework for that data year.
b. Insurers that do not trigger at least one (1) threshold of the scope criteria shall be
considered scoped out of the NAIC Liquidity Stress Test Framework for the specified
data year, unless the lead state commissioner, in consultation with the NAIC Financial
Stability Task Force or its successor, determines the insurer should be scoped into the
framework for that data year.
4. The lead state commissioner, in consultation with the NAIC Financial Stability Task Force or
its successor, shall assess concerns related to insurers being scoped in and out of the NAIC
Liquidity Stress Test Framework on a frequent basis as part of the scope criteria
determination for an insurer.
(d) The performance of, and the filing of the results from, a specified year's liquidity stress test shall
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1. The NAIC Liquidity Stress Test Framework's instructions and reporting templates for that
year; and
2. Any lead state commissioner determinations, made in consultation with the NAIC Financial
Stability Task Force or its successor, provided within the NAIC Liquidity Stress Test
Framework.
(17)[(14)] The failure to file a registration statement or any amendment thereto, a summary of the registration
statement,[ or ]an enterprise risk filing, or any other filing or report required by this section within the time
specified for the filing or report shall be a violation of this subtitle.
Section 9. KRS 304.37-050 is amended to read as follows:
(1) (a) Subject to paragraph (b) of this subsection and subsection (3) of this section, all documents, materials,
or other information in the possession or control of the department that are obtained by or disclosed to
the commissioner or any other person in the course of an examination, analysis, or investigation made
under KRS 304.37-040 and all information reported or provided to the department under KRS 304.37-
020, 304.37-030, and 304.37-160[,] shall:
1. Be confidential by law and privileged;[ and]
2. Not be subject to:
a. The Kentucky Open Records Act, KRS 61.872 to 61.884;
b Subpoena; or
c. Discovery or admission into evidence in any private civil action; and
3. Be recognized as being proprietary and containing trade secrets.
(b) The commissioner may use the documents, materials, or other information in the furtherance of any
regulatory or legal action brought as a part of the commissioner's official duties.
(c) The commissioner shall not otherwise make the documents, materials, or other information public
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 the commissioner may publish all or any part thereof in such manner
as the commissioner may deem appropriate.
(d) For purposes of the information reported and provided to the department pursuant to Section 8 of
this Act, KRS 304.37-030, 304.37-040, and 304.37-160, the commissioner shall maintain the
confidentiality of the:
1. Group capital calculation and the group capital ratio produced within the calculation and any
group capital information received from an insurance holding company supervised by the
Federal Reserve Board or any United States groupwide supervisor; and
2. Liquidity stress test results and supporting disclosures and any liquidity stress test information
received from an insurance holding company supervised by the Federal Reserve Board and
non-United States groupwide supervisors.
(2) Neither the commissioner nor any person who received documents, materials, or other information while
acting under the authority of the commissioner or with whom the[such] documents, materials, or other
information are shared, pursuant to this subtitle, shall be permitted or required to testify in any private civil
action concerning any confidential documents, materials, or other information subject to subsection (1) of this
section.
(3) The commissioner:
(a) May share documents, materials, or other information, including confidential and privileged documents,
materials, or other information subject to subsection (1) of this section, including documents and
materials containing trade secrets or proprietary information, with:
1. Other state, federal, and international regulatory agencies;[, ]
2. The NAIC;[National Association of Insurance Commissioners and its affiliates and subsidiaries,] ACTS OF THE GENERAL ASSEMBLY 24
3. Any third-party consultants designated by the commissioner; and[ with]
4. State, federal, and international law enforcement authorities, including members of any
supervisory college described in KRS 304.37-055;[,]
if the recipient agrees in writing to maintain the confidentiality and privileged status of the documents,
materials, or other information, and has verified in writing the legal authority to maintain
confidentiality;
(b) May only share confidential and privileged documents, materials, or other information reported
pursuant to KRS 304.37-020(14)[(13)], notwithstanding paragraph (a) of this subsection, with
commissioners of states having statutes or regulations substantially similar to subsection (1) of this
section, and who have agreed in writing not to disclose the[such] information;
(c) 1. May receive documents, materials, or other information, including confidential and privileged
documents, materials, or other information, including proprietary information or trade secrets,
from the NAIC[National Association of Insurance Commissioners] and its affiliates and
subsidiaries and from regulatory and law enforcement officials of other foreign or domestic
jurisdictions[jurisdiction]; and
2. Shall maintain as confidential or privileged any documents, materials, or other information
received with notice or the understanding that it is confidential or privileged under the laws of
the jurisdiction that is the source of the documents, materials, or other information; and
(d) Shall enter into written agreements with the NAIC and any third-party consultant designated by the
commissioner[National Association of Insurance Commissioners] governing sharing and use of
information provided pursuant to this subtitle[,] and consistent with this subsection that:
1. Specify procedures and protocols regarding the confidentiality and security of information shared
with the NAIC or a designated third-party consultant[National Association of Insurance
Commissioners and its affiliates and subsidiaries,] pursuant to this subtitle, including procedures
and protocols for sharing by the NAIC[National Association of Insurance Commissioners] with
other state, federal, or international regulators. The agreement shall provide that the recipient
agrees in writing to maintain the confidentiality and privileged status of the documents,
materials, or other information and has verified in writing the legal authority to maintain such
confidentiality;
2. Specify that ownership of information shared with the NAIC or a third-party
consultant[National Association of Insurance Commissioners and its affiliates and subsidiaries,]
pursuant to this subtitle[subsection,] remains with the commissioner, and the NAIC's or a
designated third-party consultant's[National Association of Insurance Commissioners'] use of
the information is subject to the direction of the commissioner;
3. Except for documents, material, or information reported pursuant to subsection (16) of
Section 8 of this Act, prohibit the NAIC or designated third-party consultant from storing the
information shared pursuant to this subtitle in a permanent database after the underlying
analysis is completed;
4. Require prompt notice be given to an insurer whose confidential information[,] in the possession
of the NAIC or a designated third-party consultant[National Association of Insurance
Commissioners,] pursuant to this subtitle[,] is subject to a request or subpoena to the NAIC or a
designated third-party consultant[National Association of Insurance Commissioners, pursuant
to this subtitle,] for disclosure or production;[ and]
5.[4.] Require the NAIC or a designated third-party consultant[National Association of Insurance
Commissioners and its affiliates and subsidiaries] to consent to intervention by an insurer in any
judicial or administrative action in which the NAIC or a designated third-party
consultant[National Association of Insurance Commissioners and its affiliates and subsidiaries]
may be required to disclose confidential information about the insurer shared with the NAIC or a
designated third-party consultant pursuant to this subtitle; and[National Association of
Insurance Commissioners and its affiliates and subsidiaries]
6. For documents, material, or information reporting pursuant to subsection (16) of Section 8 of
this Act, in the case of an agreement involving a third-party consultant, provide for
notification of the identity of the consultant to the applicable insurers. CHAPTER 133
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(4) The sharing of information by the commissioner shall not constitute a delegation of regulatory authority or
rulemaking, and the commissioner is solely responsible for administration, execution, and enforcement of this
subtitle.
(5) A waiver of any applicable privilege or claim of confidentiality in the documents, materials, or information
shall not occur as a result of disclosure to the commissioner under this section or as a result of sharing as
authorized in subsection (3) of this section.
(6) Documents, materials, or information in the possession or control of the NAIC or a third-party consultant
designated by the commissioner[National Association of Insurance Commissioners and its affiliates and
subsidiaries,] pursuant to this subtitle[,] shall:
(a) Be confidential by law and privileged; and
(b) Not be subject to:
1. The Kentucky Open Records Act, KRS 61.872 to 61.884;
2. Subpoena; or
3. Discovery or admission into evidence in any private civil action.
(7) (a) The group capital calculation and resulting group capital ratio, and the liquidity stress test along
with its results and supporting disclosures, required under Section 8 of this Act are regulatory tools
for assessing group risks and capital adequacy and group liquidity risks, respectively, and are not
intended as a means to rank insurers or insurance holding company systems generally.
(b) Except as permitted under paragraph (c) of this subsection or as may otherwise be required under
the provisions of this subtitle, no person shall make, publish, disseminate, circulate, or place before
the public, or cause directly or indirectly to be made, published, disseminated, circulated, or placed
before the public:
1. In a newspaper, magazine, or other publication;
2. In the form of a notice, circular, pamphlet, letter, or poster;
3. Over any radio or television station or any electronic means of communication available to the
public; or
4. In any other way as an advertisement, announcement, or statement;
containing a representation or statement with regard to the group capital calculation, group capital
ratio, the liquidity stress test results, or supporting disclosures for the liquidity stress test of any
insurer or insurer group or of any component derived in the calculation by any insurer, broker, or
other person engaged in any manner in the insurance business.
(c) If any materially false statement with respect to the:
1. Group capital calculation, resulting group capital ratio, an inappropriate comparison of any
amount to an insurer's or insurance group's group capital calculation or resulting group
capital ratio; or
2. Liquidity stress test result, supporting disclosures for the liquidity stress test, or an
inappropriate comparison of any amount to an insurer's or insurance group's liquidity stress
test result or supporting disclosures;
is published in any written publication and the insurer is able to demonstrate to the commissioner
with substantial proof the falsity of such statement or the inappropriateness, as the case may be, then
the insurer may publish announcements in a written publication if the sole purpose of the
announcement is to rebut the materially false statement.
Section 10. KRS 304.38-070 is amended to read as follows:
(1) Except as provided in subsection (5) of this section, the following[This subsection] applies to a corporation or
limited liability company applying for and holding a certificate of authority as a health maintenance
organization: ACTS OF THE GENERAL ASSEMBLY 26
(a) Except as provided in paragraph (b) of this subsection, to qualify for authority to act as a health
maintenance organization, a corporation or limited liability company shall possess and thereafter
maintain unimpaired paid-in capital stock of one million dollars ($1,000,000), and, when first so
authorized, shall possess initial free surplus of not less than two million dollars ($2,000,000);
(b) A corporation holding a valid certificate of authority to transact business as a health maintenance
organization in Kentucky immediately prior to July 15, 1986, may, if otherwise qualified therefor,
continue to be so authorized while meeting the requirements for protection against insolvency required
for that[such] authority immediately prior to July 15, 1986. [Notwithstanding the other provisions
hereof, ]The exception provided in this paragraph shall cease to apply to any[ such] health maintenance
organization from and after the date it has accumulated capital and surplus equal to or in excess of the
capital and surplus required by paragraph (a) of this subsection; and
(c) 1. Each corporation authorized as a health maintenance organization shall at all times:
a. Maintain bona fide additional surplus in the amount of two hundred fifty thousand dollars
($250,000); and[ shall at all times ]
b. Comply with the risk-based capital requirements as established in administrative
regulations promulgated by the commissioner.
2. A corporation holding a valid certificate of authority to transact business as a health maintenance
organization in Kentucky immediately prior to July 15, 1986, may, if otherwise qualified
therefor, continue to be so authorized while meeting the requirements for protection against
insolvency as required for that[such] authority immediately prior to July 15, 1986. The exception
provided in this paragraph shall cease to apply to any[ such] health maintenance organization
from and after the date upon which it has accumulated additional surplus equal to or in excess of
the additional surplus required by this subsection.
(2) The following[This subsection] applies to a partnership applying for or holding a certificate of authority as a
health maintenance organization:
(a) Except as provided in paragraph (b) of this subsection:[,]
1. To qualify for authority to act as a health maintenance organization, a partnership shall possess,
when first so authorized, a total of at least three million dollars ($3,000,000) in its capital
accounts; and[.]
2. Thereafter, a partnership authorized as a health maintenance organization shall:
a. Possess and maintain a total of at least one million two hundred fifty thousand dollars
($1,250,000) in its capital accounts; and[ shall ]
b. Comply at all times with the risk-based capital requirement established in administrative
regulations promulgated by the commissioner; and
(b) A partnership holding a valid certificate of authority to transact business as a health maintenance
organization in Kentucky immediately prior to July 15, 1986, may, if otherwise qualified therefor,
continue to be so authorized while meeting the requirements for protection against insolvency required
for that[such] authority immediately prior to July 15, 1986. The exception provided for in this
paragraph shall cease to apply to any such health maintenance organization from and after the date upon
which the total of the funds which it has accumulated in its capital accounts equal or exceed the total of
the funds in its capital accounts required by this subsection.
(3) A corporation, partnership, or limited liability company applying for and holding a certificate of authority as a
health maintenance organization which by contract manages care and processes health care claims solely for
Medicaid-eligible enrollees and the Kentucky Children's Health Insurance Program shall comply with risk-
based capital (RBC) requirements as follows:
(a) 1. For purposes of this subsection, risk-based capital shall be determined in accordance with the
risk-based capital requirements for health maintenance organizations established under this
subtitle and any administrative regulation promulgated pursuant to KRS Chapter 13A, except as
otherwise provided in this subsection.
2. The[A] corporation, partnership, or limited liability company[ applying for and holding a
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processes health care claims solely for Medicaid-eligible enrollees and the Kentucky Children's
Health Insurance Program] shall comply with the same risk-based capital requirements as other
health maintenance organizations, except that no additional phase-in or risk-based capital reports
shall be required for 2000 or 2001, and the risk-based capital levels shall be established in
accordance with paragraph (b) of this subsection;
(b) For the risk-based capital reports required to be filed by health maintenance organizations which
manage care and process health care claims solely for Medicaid-eligible enrollees and the Kentucky
Children's Health Insurance Program, the risk-based capital levels shall be defined as follows:
1. "Company Action Level RBC" means the product of two (2.0) and its Authorized Control Level
RBC;
2. "Regulatory Action Level RBC" means the product of one and five-tenths (1.5) and its
Authorized Control Level RBC;
3. "Authorized Control Level RBC" means the product of four-tenths (.40) and the risk-based
capital after covariance determined under the risk-based capital formula in accordance with the
RBC instruction; and
4. "Mandatory Control Level RBC" means the product of seven-tenths (.70) and the Authorized
Control Level RBC; and
(c) A corporation, partnership, or limited liability company applying for and holding a certificate of
authority as a health maintenance organization managing care, processing health care claims, or
providing health benefits to groups or individuals in addition to Medicaid-eligible and Kentucky
Children's Health Insurance Program enrollees shall comply with the risk-based capital requirements of
subsection (1) of this section and this subtitle, and shall not be eligible to calculate its risk-based capital
according to this subsection.
(4) As used in subsection (5) of this section:
(a) "MA organization" has the same meaning as in 42 C.F.R. sec. 422.2, as amended;
(b) 1. "Net worth" means the excess of total admitted assets over total admitted liabilities, but the
liabilities shall not include fully subordinated debt or surplus notes as approved by the
commissioner.
2. In determining net worth:
a. No debt shall be considered fully subordinated unless the debt is in a form approved by
the commissioner;
b. Any interest obligation relating to the repayment of any subordinated debt shall be
similarly subordinated; and
c. The interest expenses relating to the repayment of any fully subordinated debt shall be
considered covered expenses.
3. For purposes of calculating a health maintenance organization's net worth, "admitted assets"
includes the following, as may be subsequently modified by the commissioner:
a. Receivables due from persons that are not more than ninety (90) days past due;
b. Amounts due under reinsurance arrangements from insurance companies authorized to
do business in this state;
c. Undisputed tax refunds or other receivables due from the United States or this state;
d. Amounts on deposit under KRS 304.38-073; and
e. Investments determined as allowable by the commissioner under this chapter.
4. When determining liabilities for purposes of calculating a health maintenance organization's
net worth, the health maintenance organization shall include an amount estimated in the
aggregate to provide for:
a. Any unearned premium; ACTS OF THE GENERAL ASSEMBLY 28
b. The payment of all claims for health care expenditures:
i. That have been incurred, whether reported or unreported;
ii. That are unpaid; and
iii. For which the organization is or may be liable; and
c. The expense of adjustment or settlement of claims; and
(c) "Provider-sponsored integrated health delivery network" has the same meaning as in KRS 304.17A-
005.
(5) The following applies to a corporation or limited liability company applying for or holding, or a provider-
sponsored integrated health delivery network that elects to convert to and hold, a certificate of authority as
a health maintenance organization that solely operates as an MA organization that meets the requirements
of 42 C.F.R. sec. 422.400, as amended:
(a) The health maintenance organization shall possess, when first so authorized, an initial net worth of
one million five hundred thousand dollars ($1,500,000);
(b) Thereafter, the health maintenance organization shall possess and maintain a minimum net worth
equal to the greater of:
1. One million five hundred thousand dollars ($1,500,000); or
2. As reported on the most recent annual statement filed with the commissioner, an amount
totaling:
a. Four percent (4%) of the first one hundred fifty million dollars ($150,000,000) of
annual premium revenue; and
b. One and one-half percent (1.5%) of the annual premium revenue in excess of one
hundred fifty million dollars ($150,000,000);
(c) To the extent permitted under federal law, the health maintenance organization shall:
1. Comply with the same risk-based capital requirements as other health maintenance
organizations under subsection (1) of this section; and
2. Except as provided in paragraph (d) of this subsection, be subject to the provisions of this
subtitle relating to licensing and solvency and to the following provisions of this chapter, to the
extent applicable and not in conflict with the applicable provisions of this subtitle:
a. Subtitle 1 -- Scope -- General Definitions and Provisions;
b. Subtitle 2 -- Insurance Commissioner;
c. Subtitle 3 -- Authorization of Insurers and General Requirements;
d. Subtitle 4 -- Fees and Taxes;
e. Subtitle 5 -- Kinds of Insurance -- Limits of Risk – Reinsurance;
f. Subtitle 6 -- Assets and Liabilities;
g. Subtitle 7 -- Investments;
h. Subtitle 8 -- Administration of Deposits;
i. Subtitle 9 -- Agents, Consultants, Solicitors, and Adjusters;
j. Subtitle 12 -- Trade Practices and Frauds;
k. Subtitle 25 -- Continuity of Management;
l. Subtitle 33 -- Insurers Rehabilitation and Liquidation;
m. Subtitle 37 -- Insurance Holding Company Systems; and
n. Subtitle 99 -- Penalties; and
(d) For purposes of determining compliance with KRS 304.38-073, the commissioner shall: CHAPTER 133
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1. Take into account any and all deposits as may be held with other states; and
2. Coordinate with the other states to not require the health maintenance organization to have
total deposits in all states that are greater than the amount required in the state with the
highest deposit requirement.
SECTION 11. A NEW SECTION OF SUBTITLE 38 OF KRS CHAPTER 304 IS CREATED TO READ
AS FOLLOWS:
(1) As used in this section, "provided-sponsored integrated health delivery network" has the same meaning as
in KRS 304.17A-005.
(2) A provider-sponsored integrated health delivery network may elect to convert to a health maintenance
organization under subsection (5) of Section 10 of this Act by filing an election to convert with the
commissioner that contains a notification of the network's effective date of conversion.
(3) Within thirty (30) days of the date of an election filing under subsection (2) of this section, the
commissioner shall issue a certificate of authority as a health maintenance organization under subsection
(5) of Section 10 of this Act to the provider-sponsored integrated health delivery network unless the
commissioner:
(a) Finds that, at the time of the election, the provider-sponsored integrated health delivery network fails
to meet the net worth requirements of subsection (5)(b) of Section 10 of this Act; and
(b) Provides the provider-sponsored integrated health delivery network with a written notice of the
determination that contains a notice of the network's rights under KRS 304.2-310.
Section 12. KRS 304.38-200 is amended to read as follows:
Except as provided in subsection (5) of Section 10 of this Act, health maintenance organizations shall be subject to
the provisions of this subtitle, and to the following provisions of this chapter, to the extent applicable and not in
conflict with the expressed provisions of this subtitle:
(1) Subtitle 1 -- Scope -- General Definitions and Provisions;
(2) Subtitle 2 --[ Commissioner of the Department of ]Insurance Commissioner;
(3) Subtitle 3 -- Authorization of Insurers and General Requirements;
(4) Subtitle 4 -- Fees and Taxes;
(5) Subtitle 5 -- Kinds of Insurance -- Limits of Risk -- Reinsurance;
(6) Subtitle 6 -- Assets and Liabilities;
(7) Subtitle 7 -- Investments;
(8) Subtitle 8 -- Administration of Deposits;
(9) Subtitle 9 -- Agents, Consultants, Solicitors, and Adjusters;
(10) Subtitle 12 -- Trade Practices and Frauds;
(11) Subtitle 14 -- The Insurance Contract;
(12) Subtitle 17 -- Health Insurance Contracts;
(13) Subtitle 17A -- Health Benefit Plans;
(14) Subtitle 17B -- Kentucky Access;
(15) Subtitle 17C -- Limited Health Service Benefit Plans;
(16) Subtitle 18 -- Group and Blanket Health Insurance;
(17) Subtitle 24 -- Domestic Stock and Mutual Insurers;
(18) Subtitle 25 -- Continuity of Management;
(19) Subtitle 26 -- Insider Trading of Equity Securities;
(20) Subtitle 33 -- Insurers Rehabilitation and Liquidation; ACTS OF THE GENERAL ASSEMBLY 30
(21) Subtitle 37 -- Insurance Holding Company Systems;
(22) Subtitle 47 -- Insurance Fraud; and
(23) Subtitle 99 -- Penalties.
Section 13. KRS 304.99-152 is amended to read as follows:
(1) Any insurer failing, without just cause, to file any registration statement as required by Subtitle 37 of this
chapter, shall be required, after notice and hearing, to pay a civil penalty of ten thousand dollars ($10,000) for
each day's delay to the commissioner. The maximum civil penalty under this section shall be one hundred
thousand dollars ($100,000). The commissioner may reduce the civil penalty if the insurer demonstrates to the
commissioner that the imposition of the penalty would constitute a financial hardship to the insurer.
(2) Every director or officer of an insurance holding company system who knowingly violates, participates in,
assents to, or who knowingly permits any of the officers or agents of the insurer to engage in transactions or
make investments which have not been properly reported or submitted pursuant to KRS 304.37-020(2)[(1)],
304.37-030(2), or 304.37-030(5), or which violate Subtitle 37 of this chapter, shall pay, in their individual
capacities, a civil penalty of not more than five thousand dollars ($5,000) per violation, after notice and
hearing before the commissioner. In determining the amount of the civil penalty, the commissioner shall take
into account the appropriateness of the civil penalty with respect to the gravity of the violation, the history of
previous violations, and other matters justice may require.
(3) If it appears that any insurer subject to Subtitle 37 of this chapter, or any director, officer, employee, or agent
has engaged in any transaction or entered into any contract which is subject to KRS 304.37-030 and which
would not have been approved had approval been requested, the commissioner may order the insurer to cease
and desist immediately any further activity under that transaction or contract. After notice and hearing, the
commissioner may also order the insurer to void the contracts and restore the status quo if the action is in the
best interest of the policyholders, creditors, or the public.
(4) If it appears that any insurer or any director, officer, employee, or agent has committed a willful violation of
Subtitle 37 of this chapter, the commissioner may cause criminal proceedings to be instituted in the Circuit
Court for the county in which the principal office of the insurer is located, or if the insurer has no office in
Kentucky, in the Franklin Circuit Court against the insurer or the responsible director, officer, employee, or
agent. Any insurer which willfully violates Subtitle 37 of this chapter, may be fined not more than one hundred
thousand dollars ($100,000). Any individual who willfully violates Subtitle 37 of this chapter, may be fined in
his or her individual capacity not more than one thousand dollars ($1,000), be imprisoned for not more than
one (1) to three (3) years, or both.
(5) Any officer, director, or employee of an insurance holding company system who willfully and knowingly
subscribes to or makes or causes to be made any false statements or false reports or false filings with the intent
to deceive the commissioner in the performance of his or her duties under Subtitle 37 of this chapter, upon
conviction, shall be imprisoned for not more than one (1) year or more than five (5) years, or fined ten
thousand dollars ($10,000), or both. Any fines imposed shall be paid by the officer, director, or employee in
his or her individual capacity.
(6) If it appears to the commissioner that any person has committed a violation of KRS 304.37-120 which
prevents the full understanding of the enterprise risk to the insurer by affiliates or by the insurance holding
company system, the violation may serve as an independent basis for disapproving dividends or distributions
and for placing the insurer under an order of supervision in accordance with Subtitle 33 of this chapter.
Signed by Governor April 8, 2022.