2. Insurance Corporation and Licensing Activities/Transactions

3. Company Licensing and Registration Topics: CL&R Background Company Data Licensing Process Corporate Transactions …Including market exit plans, license cancellation, and dissolutions Statutory Deposits Updates Q&A

4. Company Licensing and Registration Company Licensing and Registration Division is part of the Financial Program within the Texas Department of Insurance.The Division’s main goal is to incorporate and admit into the Texas insurance market insurers that have the management capability and financial wherewithal to successfully operate and meet the needs of the public.

5. CL&R Background Administrative function: –Accurate company detail information. –Company (corporate and licensing) history. –Officers/directors. –Open records. Technical Function: –Reviewing forms/ documents for compliance. –Reviewing business plans and financial projections. –Coordination within TDI, the industry, other insurance departments, and other state/federal agencies.

6. CL&R Background Company licensing, registration, and related corporate transactions, processes and reviews are a combination of compliance verification and risk assessment. Compliance with statute/rules is more objective (administrative function.) Risk assessment in consideration of hazardous financial conditions is more subjective (technical function). Understanding where CL&R stands on subjective matters is key!

7. Company Data Articles of incorporation. By-laws. Certificate of authority. Company history.

8. Company Data Company detail information: –Mailing addresses –Phone, fax,. e-mails –Officers/directors Open records request. Certification of license and other related documents.

9. DANGER! Regulator Scrutiny Including but not limited too: Business plan lacks sufficient detail. Lack of clear explanation of assumptions.

10. Regulator Scrutiny Lack of sufficient detail of a marketing plan or distribution networks. Insufficient explanations of proposed use of TPA service or other outsourced functions. Insufficient evidence of adequate funds to support projections. Incomplete explanation of how any reinsurance treaties function and the financial effects of the treaties. Lack of disclosure of any dividends, interest payments, or expectations of the capital provider reflected in the business plan and projections.

11. Regulator Scrutiny Reinsurance arrangements w/ risk limiting features Does not demonstrate adequate expense controls. Managers with criminal histories. Managers with past or current involvement with financially hazardous entities.

12. Regulator Scrutiny Managers with past or current involvement with entities fined, license revocations, or other regulatory interventions Managers with lack of demonstrated experience in the area of proposed duties and positions. Managers with revoked professional licenses

13. Licensing Process Uniform Certificate of Authority Application (UCAA): –Primary application for new start –up entities. –Expansion application for Insurers seeking admission into the Texas market. –See: –http://www.naic.org/industry_ucaa.htmhttp://www.naic.org/industry_ucaa.htm

14. Corporate Transactions/Market Exit Plans

15. Corporate Transactions More Administrative More Technical name changes home office changes redomestications capital increase mergers assumption reinsurance withdrawal plans

16. Corporate Transactions Regulator Scrutiny: Conflicting company names. Redomesticating in search of preferential regulatory treatment.

17. Corporate Transactions Regulator Scrutiny: Mergers/ assumption reinsurance transactions whereby insurance obligations are transferred to troubled companies or those with lesser financial capacity. Market exit plans that lack details, lack realistic time frames, or are under- reserved.

18. Market Exit Plans Texas Insurance Code(“TIC”) Ch. 827 and Texas Administrative Code (“TAC”), Title 28, 7.1801 – 7.1808 Withdrawal plan filing is not a license cancellation filing nor dissolution filing. Better described as a market exit plan. A withdrawal plan is required when an insurer or HMO, of its own initiative, takes action that will result in a substantial exit from all business or a line of business (line of business defined in TAC 7.1803).

19. Market Exit Plans The event is triggered by a 75% reduction, statewide, in annual written premium. No new business does not necessarily trigger a withdrawal action, as long as the carrier continues to renew policies.

20. Market Exit Plans What if the Company has just stopped writing new business? A withdrawal plan is not typically required; however, for lines like credit life and credit A&H a plan is needed. The products cannot be non- renewed; thus market restrictions are the only way out.

21. Market Exit Plans My Reinsurer has canceled coverage;is a withdrawal plan filing required? A withdrawal plan is needed if the company non-renews policies or another action to trigger the 75% reductions in annual premium.

22. Market Exit Plans Independent agents have already moved the business? A withdrawal plan is needed if the company non-renews policies or another action to trigger the 75% reductions in annual premium.

23. Market Exit Plans The Company will non-renew its business, but another company is offering replacement coverage? A withdrawal plan is required for review.

24. Market Exit Plans The Company will non-renew its business, but an affiliated company is offering replacement coverage? Further inquiry is necessary in determining if transfer among affiliates is seamless. Chances are a withdrawal plan is needed as the non-renewal event is not typically seamless and triggers re-underwriting.

25. Market Exit Plans The Company is assumptively reinsuring the business it is exiting with another licensed carrier, is a withdrawal plan needed? No withdrawal plan is needed, please file the assumption reinsurance.

26. Market Exit Plans TIC 827.005 (b) - Modify, restrict, or limit a withdrawal plan. TIC 827.005 (c)- 60 day deemer. TIC 827.009 – Deposit of Securities held in Trust. TIC 827.010 – Moratorium.

27. Market Exit Plans In regards to withdrawal plans, the major focus is: Market impact. Real reason the company is exiting the market. Adequate reserves. Policyholders/agents receive notice in a timely manner and in compliance with statute/rule. Detailed knowledge of number of affected policyholders and relevant demographics

28. License cancellation/dissolution X amount policyholder obligation Approved withdrawal plan. 0 End of withdrawal period. No policyholders, diminshing claims exposure Zero policyholder obligations & assuming zero contingent liabilities, cancel license. Number of years

29. Corporate Transactions UCAA Corporate Amendments See http://www.naic.org/industry_ucaa.htm

30. Statutory Deposits

31. TIC CH. 481 – Voluntary Deposits TIC 406 Deposits – If any of the following reflect conditions hazardous to policyholders, enrollees, creditors, or the general public: Insurers financial or operating condition. Relationship with affiliates. Investments. Contingent liabilities. Guaranty or performance agreements/arrangements.

32. Statutory Deposits See: http://www.tdi.state.tx.us/licensing/company/documents/clrindex secdep.doc

33. Updates New minimum Capital and Surplus standards for STIPs: HB 2570 Capital $200K. Surplus $75K. 10 year phase- in

34. Updates Summary Denial of License Applications: TDI may deny a license application w/o a prior hearing. Applicant has 30 days to request a hearing to contest the denial Order.

35. HMO’s, PPO’s, EPO’s CMS and HHSC HMO’s and Insurers withdrawing from CMS products (Medicare) need only submit to TDI what it files with CMS. HMO’s seeking authority to write CMS products in Texas will be licensed as such, only to write CMS products in Texas. HMO’s cannot contract with PPO’s. EPO’s are for CHIP (HHSC) services. Insurers may apply for EPO authority.

36. Company Licensing and Registration Questions/Comments??????