LAW
Writer®
Ohio Laws and Rules
(A) Purpose
The purpose of this rule is to facilitate the department of insurance’s surveillance of the financial condition of insurers by setting out standards which the superintendent may use for identifying insurers whose condition is such as to render the continuance of their business hazardous to the public or to holders of their policies or certificates of insurance. This rule shall not be interpreted to limit the powers granted the superintendent by any laws of this state.
(B) Authority
This rule is issued pursuant to the authority vested in the superintendent under sections 3901.041, 3903.09 and 3903.71 of the Revised Code.
(C) Standards
(1) The following standards, either singly or a combination of two or more, may be considered by the superintendent to determine whether the continued operation of any insurer might be deemed to be hazardous to the policyholders, contract holders or the general public. The superintendent may consider:
(a) Adverse findings reported in financial condition or market conduct examination reports, statutory audit reports, and actuarial opinions/reports;
(b) The National Association of Insurance Commissioners Insurance Regulatory Information System and its related reports;
(c) The ratios of commission expense, general insurance expense, policy benefits and reserve increases as to annual premium and net investment income which could lead to an impairment of capital and surplus;
(d) The insurer’s asset portfolio when viewed in light of current economic conditions not being of sufficient value, liquidity, or diversity to assure the company’s ability to meet its outstanding obligations as they mature;
(e) The ability of an assuming reinsurer to perform and whether the insurer’s reinsurance program provides sufficient protection for the company’s remaining surplus after taking into account the insurer’s cash flow and the classes of business written as well as the financial condition of the assuming reinsurer;
(f) The insurer’s operating loss in the last twelve month period or any shorter period of time, including but not limited to net capital gain or loss, change in nonadmitted assets, and the payment of cash dividends to shareholders which are greater than fifty percent of such insurer’s remaining surplus as regards policyholders in excess of the minimum required;
(g) Whether any affiliate, subsidiary or reinsurer is insolvent, threatened with insolvency, or delinquent in payment of its monetary or other obligation;
(h) Contingent liabilities, pledges or guarantees which either individually or collectively involve a total amount which in the opinion of the superintendent may affect the solvency of the insurer;
(i) Whether any person, exercising control of an insurer as defined in division (C) of section 3905.61 of the Revised Code is delinquent in the transmitting to, or payment of, net premiums to such insurer;
(j) The age and collectibility of receivables;
(k) Whether the management of an insurer, including officers, directors, or any other person who directly or indirectly controls the operation of such insurer, fails to possess and demonstrate the competence, fitness and reputation deemed necessary to serve the insurer in such position;
(l) Whether management of an insurer has failed to respond to inquiries relative to the condition of the insurer or has furnished false and misleading information concerning an inquiry;
(m) Whether management of an insurer has filed any false or misleading sworn financial statement, or has released false or misleading financial statements to lending institutions or to the general public, or has made a false or misleading entry, or has omitted an entry of material amount in the books of the insurer;
(n) Whether the insurer has grown so rapidly and to such an extent that it lacks adequate financial and administrative capacity to meet its obligations in a timely manner;
(o) Whether the company has experienced or will experience in the foreseeable future cash flow and/or liquidity problems;
(p) Whether a company has failed to comply with paragraph (J) of rule 3901-1-50 of the Administrative Code;
(q) Whether the insurer meets measures of capital adequacy adopted by statute or rule;
(r) Whether management has established reserves that do not comply with state insurance laws, regulations, statutory accounting standards, sound actuarial principles, and standards of practice;
(s) Whether management engages in reporting inadequate reserve levels that result in material adverse development;
(t) Whether a material change during the year to the insurer’s financial condition, including, but not limited to, changes in assets, liabilities, surplus, premium growth, mix of business, reinsurance, or operating performance that may adversely impact the result of the next year-end risk based capital calculation to a level that would require regulatory action.
(2) For the purposes of making a determination of an insurer’s financial condition under this rule the superintendent may:
(a) Disregard any credit or amount receivable resulting from transactions with a reinsurer which is insolvent, impaired or otherwise subject to a delinquency proceeding;
(b) Make appropriate adjustments to asset values attributable to investments in or transactions with parents, subsidiaries, or affiliates;
(c) Refuse to recognize the stated value of accounts receivable if the ability to collect receivables is highly speculative in view of the age of the account or the financial condition of the debtor;
(d) Refuse to recognize the stated value of assets pledged or in any way hypothecated to secure a liability to the extent that they are in excess of the specific recorded liability of the insurer;
(e) Increase the insurer’s liability in an amount equal to any contingent liability, pledge, or guarantee not otherwise included if there is a substantial risk that the insurer will be called upon to meet the obligation undertaken within the next twelve-month period.
(D) Severability
If any section, term or provision of this rule is adjudged invalid for any reason, such judgment shall not affect, impair or invalidate any other section, term or provision of this rule, but the remaining sections, terms and provisions shall be and continue in full force and effect.
Effective: 04/13/2006
R.C. 119.032 review dates: 12/21/2005 and 12/21/2010
Promulgated Under: 119.03
Statutory Authority: 3901.041
Rule Amplifies: 3903.09, 3903.71
Prior Effective Dates: 10/20/1991