Chapter 318 Oregon Laws 2001

AN ACT

SB 267

Relating to insurance financial regulation; creating new provisions; amending ORS 731.508, 731.509, 731.510, 731.554, 731.562, 731.566, 731.752, 731.754, 733.010, 733.020, 733.090, 733.100, 733.160, 733.165, 743.186, 750.045 and 750.321; and repealing ORS 731.568 and 733.660.

Be It Enacted by the People of the State of Oregon:

SECTION 1. ORS 731.554 is amended to read:

731.554. (1) Except as provided in subsections (2) to (6) of this section and ORS 731.562 and 731.566, to qualify for authority to transact insurance in this state an insurer shall possess and thereafter maintain capital or surplus, or any combination thereof, of not less than [$1] $2.5 million.

(2) An insurer transacting any workers’ compensation insurance business shall possess and thereafter maintain capital or surplus, or any combination thereof, of not less than [$3] $5 million.

(3) An insurer transacting mortgage insurance shall possess and thereafter maintain capital or surplus, or any combination thereof, of not less than $4 million.

(4) A home protection insurer shall possess and thereafter maintain capital or surplus, or any combination thereof, of not less than 10 percent of the aggregate of premiums charged on its policies currently in force, but the required amount shall not be less than [$40,000] $250,000 or more than $1 million.

(5) A domestic insurer applying for its original certificate of authority in this state shall possess, when first so authorized, additional capital or surplus, or any combination thereof, of not less than $500,000. However, the additional amount in the case of a home protection insurer shall be not less than $10,000.

(6) For the protection of the public, the Director of the Department of Consumer and Business Services may require an insurer to possess and maintain capital or surplus, or any combination thereof, in excess of the amount otherwise required under this section, ORS 731.562 or 731.566, owing to the type, volume and nature of insurance business transacted by the insurer, if the director determines that the greater amount is necessary for maintaining the insurer’s solvency according to standards established by rule. In developing such standards, the director shall consider model standards adopted by the National Association of Insurance Commissioners. For the purpose of determining the reasonableness and adequacy of an insurer’s capital and surplus, the director must consider at least the following factors, as applicable:

(a) The size of the insurer, as measured by its assets, capital and surplus, reserves, premium writings, insurance in force and other appropriate criteria.

(b) The extent to which the business of the insurer is diversified among the several lines of insurance.

(c) The number and size of risks insured in each line of business.

(d) The extent of the geographical dispersion of the insured risks of the insurer.

(e) The nature and extent of the reinsurance program of the insurer.

(f) The quality, diversification and liquidity of the investment portfolio of the insurer.

(g) The recent past and projected future trend in the size of the investment portfolio of the insurer.

(h) The combined capital and surplus maintained by other comparable insurers.

(i) The adequacy of the reserves of the insurer.

(j) The quality and liquidity of investments in affiliates. The director may treat any such investment as a disallowed asset for purposes of determining the adequacy of combined capital and surplus whenever in the judgment of the director the investment so warrants.

(k) The quality of the earnings of the insurer and the extent to which the reported earnings include extraordinary items.

SECTION 2. ORS 731.562 is amended to read:

731.562. To qualify for authority to transact title insurance in this state, an insurer shall possess and thereafter maintain capital or surplus, or any combination thereof, of not less than [$500,000] $2.5 million.

SECTION 3. ORS 731.566 is amended to read:

731.566. To qualify for authority to transact insurance in this state, a reciprocal insurer shall possess and thereafter maintain a surplus of not less than [$1] $2.5 million, and any reciprocal insurer that exchanges policies of insurance covering workers’ compensation insurance shall possess and thereafter maintain a surplus of not less than [$3] $5 million.

SECTION 4. ORS 731.568 is repealed.

SECTION 5. (1) To qualify for authority to transact insurance in this state on and after the effective date of this 2001 Act, an insurer that is not authorized to transact insurance in this state on the day before the effective date of this 2001 Act must possess and thereafter maintain the applicable capital and surplus required by ORS 731.554, 731.562 and 731.566, as amended by sections 1 to 3 of this 2001 Act.

(2) To qualify for authority to transact health care services in this state on and after the effective date of this 2001 Act, a health care service contractor that is not authorized to transact health care services in this state on the day before the effective date of this 2001 Act must possess and thereafter maintain the applicable capital and surplus required by ORS 750.045, as amended by section 6 of this 2001 Act.

(3) An insurer that is authorized to transact insurance in this state on the day before the effective date of this 2001 Act and that possesses on that date the applicable capital and surplus required under ORS 731.554, 731.562 and 731.566, as amended by sections 1 to 3 of this 2001 Act, must thereafter maintain that capital and surplus.

(4) A health care service contractor that is authorized to transact health care services in this state on the day before the effective date of this 2001 Act and that possesses on that date the applicable capital and surplus required under ORS 750.045, as amended by section 6 of this 2001 Act, must thereafter maintain that capital and surplus.

(5) Notwithstanding the effective date of this 2001 Act, an insurer that is authorized to transact insurance in this state on the day before the effective date of this 2001 Act and that does not possess on the effective date of this 2001 Act the applicable capital and surplus required under ORS 731.554 (1) and (2), 731.562 and 731.566, as amended by sections 1 to 3 of this 2001 Act, must possess and maintain at least the amounts of capital and surplus as follows:

(a) For insurers other than insurers transacting workers’ compensation insurance:

(A) $1,300,000, not later than December 31, 2002.

(B) $1,600,000, not later than December 31, 2003.

(C) $1,900,000, not later than December 31, 2004.

(D) $2,200,000, not later than December 31, 2005.

(E) $2,500,000, not later than December 31, 2006.

(b) For insurers transacting workers’ compensation insurance:

(A) $3,400,000, not later than December 31, 2002.

(B) $3,800,000, not later than December 31, 2003.

(C) $4,200,000, not later than December 31, 2004.

(D) $4,600,000, not later than December 31, 2005.

(E) $5,000,000, not later than December 31, 2006.

(6) Notwithstanding the effective date of this 2001 Act, a health care service contractor that is authorized to transact health care services in this state on the day before the effective date of this 2001 Act and that does not possess on the effective date of this 2001 Act the applicable capital and surplus required under ORS 750.045, as amended by section 6 of this 2001 Act, must possess and maintain at least the amounts of capital and surplus as follows:

(a) As of each date specified in this paragraph, a health care service contractor other than one to which ORS 750.045 (3) applies shall possess and maintain capital or surplus, or any combination thereof, of not less than the minimum amount specified in connection with the date or an amount equal to 50 percent of the average claims as defined in ORS 750.005 (5) for the preceding 12-month period, whichever is greater. The required amount of capital and surplus for each date, however, shall not be more than the maximum amount specified in connection with that date. The dates and minimum and maximum required amounts of capital and surplus are as follows:

(A) As of December 31, 2002, not less than $650,000 and not more than $1,300,000.

(B) As of December 31, 2003, not less than $800,000 and not more than $1,600,000.

(C) As of December 31, 2004, not less than $950,000 and not more than $1,900,000.

(D) As of December 31, 2005, not less than $1,100,000 and not more than $2,200,000.

(E) As of December 31, 2006, not less than $2,500,000.

(b) As of each date specified in this paragraph, a health care service contractor to which ORS 750.045 (3) applies shall possess and maintain capital or surplus, or any combination thereof, of not less than the minimum amount specified in connection with the date or an amount equal to 50 percent of the average claims as defined in ORS 750.005 (5) for the preceding 12-month period, whichever is greater. The required amount of capital and surplus for each date, however, shall not be more than the maximum amount specified in connection with that date. The dates and minimum and maximum required amounts of capital and surplus are as follows:

(A) As of December 31, 2002, not less than $300,000 and not more than $600,000.

(B) As of December 31, 2003, not less than $350,000 and not more than $700,000.

(C) As of December 31, 2004, not less than $400,000 and not more than $800,000.

(D) As of December 31, 2005, not less than $450,000 and not more than $900,000.

(E) As of December 31, 2006, not less than $1 million.

(7) An insurer authorized to transact insurance in this state on the day before the effective date of this 2001 Act shall not be granted authority to transact any other or additional class of insurance until the insurer complies with the applicable provisions of ORS 731.554, 731.562 or 731.566, as amended by sections 1 to 3 of this 2001 Act.

(8) An insurer or health care service contractor authorized to transact insurance or health care services in this state on the day before the effective date of this 2001 Act that reapplies for a certificate of authority after having a certificate of authority revoked for any cause shall not be granted authority to transact any insurance or health care services until the insurer or health care service contractor complies with the applicable provisions of ORS 731.554, 731.562, 731.566 or 750.045, as amended by sections 1 to 3 and 6 of this 2001 Act.

(9) If an insurer to which subsection (5) of this section applies or a health care service contractor to which subsection (6) of this section applies does not possess and maintain the minimum amount of capital and surplus required by ORS 731.554 (1) and (2), 731.562, 731.566 and 750.045, as amended by sections 1 to 3 and 6 of this 2001 Act, on or before December 31, 2006, the insurer or health care service contractor may apply to the Director of the Department of Consumer and Business Services for an extension of time within which to attain the amount. The application must state the reasons for the failure to attain the required minimum amount, the date by which the amount is expected to be attained and the means and likelihood of attaining the amount by that date. The director may grant the extension if the director determines that the extension is reasonable and appropriate in the circumstances, taking into account factors that include but are not limited to the following:

(a) Whether the insurer or health care service contractor has made reasonable progress toward attaining the required minimum amount during the time periods specified in this section; and

(b) Whether the insurer or health care service contractor is likely to attain the required minimum amount by the date proposed by the insurer or health care service contractor.

SECTION 6. ORS 750.045 is amended to read:

750.045. (1) A health care service contractor [which] that is a for-profit or not-for-profit corporation shall possess and thereafter maintain capital or surplus, or any combination thereof, of not less than [$250,000 or an amount equal to 50 percent of the average claims as defined in ORS 750.005 (5) for the preceding 12-month period, whichever is greater, but in no case shall the required amount be more than $500,000] $2.5 million.

(2) A health care service contractor [which] that is a for-profit or not-for-profit corporation shall file a surety bond or such other bond or securities in the sum of $250,000 as are authorized by the Insurance Code as a guarantee of the due execution of the policies to be entered into by such contractor in accordance with ORS 750.005 to 750.095. In lieu of such bond or securities, a health care service contractor may file an irrevocable letter of credit issued by an insured institution as defined in ORS 706.008 in the sum of $250,000. This subsection does not apply to a health care service contractor that has at least 75 percent of its assets invested in health care service facilities pursuant to ORS 733.700.

(3) Subsections (1) and (2) of this section do not apply to [emergency medical service,] a health care service contractor furnishing only dental service or optometrical service operated on a for-profit or not-for-profit basis if:

(a) The services referred to in this subsection maintain capital or surplus, or any combination thereof, of not less than [$50,000 or an amount equal to 50 percent of the average claims as defined in ORS 750.005 (5) for the preceding 12-month period whichever is greater, but in no case shall the required amount be more than $500,000] $1 million.

(b) The services referred to in this subsection file a surety bond or other such bond or securities in the sum of $50,000 as are authorized by the Insurance Code as a guarantee of the due execution of the policies to be entered into by such contractor in accordance with ORS 750.005 to 750.095.

(4) A health care service contractor that is a for-profit or not-for-profit corporation applying for its original certificate of authority in this state shall possess, when first so authorized, additional capital or surplus, or any combination thereof, of not less than $500,000.

(5) For the protection of the public, the Director of the Department of Consumer and Business Services may require a health care service contractor to possess and maintain capital or surplus, or any combination thereof, in excess of the amount otherwise required under this section owing to the type, volume and nature of insurance business transacted by the health care service contractor, if the director determines that the greater amount is necessary for maintaining the health care service contractor’s solvency according to standards established by rule. In developing such standards, the director shall consider model standards adopted by the National Association of Insurance Commissioners or its successor organization. For the purpose of determining the reasonableness and adequacy of a health care service contractor’s capital and surplus, the director must consider at least the following factors, as applicable:

(a) The size of the health care service contractor, as measured by its assets, capital and surplus, reserves, premium writings, insurance in force and other appropriate criteria.

(b) The number of lives insured.

(c) The extent of the geographical dispersion of the lives insured by the health care service contractor.

(d) The nature and extent of the reinsurance program of the health care service contractor.

(e) The quality, diversification and liquidity of the investment portfolio of the health care service contractor.

(f) The recent past and projected future trend in the size of the investment portfolio of the health care service contractor.

(g) The combined capital and surplus maintained by comparable health care service contractors.

(h) The adequacy of the reserves of the health care service contractor.

(i) The quality and liquidity of investments in affiliates. The director may treat any such investment as a disallowed asset for purposes of determining the adequacy of combined capital and surplus whenever in the judgment of the director the investment so warrants.

(j) The quality of the earnings of the health care service contractor and the extent to which the reported earnings include extraordinary items.

SECTION 7. ORS 733.010 is amended to read:

733.010. In any determination of the financial condition of an insurer, there shall be allowed as assets only such assets as are owned by the insurer and which consist of:

(1) Cash in the possession or control of the insurer, including the true balance of any deposit in a solvent bank or trust company.

(2) Investments held in accordance with the Insurance Code, and due or accrued income items in connection therewith to the extent considered by the Director of the Department of Consumer and Business Services to be collectible.

(3) Premium notes, policy loans, liens and other like policy assets on life insurance policies and accrued interest thereon, in an amount not exceeding the loan value of the policy.

(4) Due premiums, deferred premiums, installment premiums, and written obligations taken for premiums, to the extent allowed by the director.

(5) The amount recoverable from a reinsurer if credit for reinsurance may be allowed to the insurer under ORS 731.509 or 731.510 and amounts receivable on assumed reinsurance representing funds withheld by a solvent ceding insurer under a reinsurance treaty.

(6) Deposits or equities recoverable from underwriting associations, syndicates and reinsurance funds, or from any suspended banking institution, to the extent deemed by the director to be available for the payment of losses and claims.

[(7) The unaccrued portion of taxes paid prior to the due date on real property.]

[(8)] (7) Other assets considered by the director to be available for the payment of losses and claims, at values determined by the director.

SECTION 8. ORS 733.020 is amended to read:

733.020. In addition to assets impliedly excluded by ORS 733.010, the following expressly shall not be allowed as assets in any determination of the financial condition of an insurer:

[(1) Good will, trade names and other like intangible assets.]

[(2)] (1) Advances to officers, other than policy loans, whether secured or not, and advances to employees, agents and other persons on personal security only.

[(3)] (2) Stock of such insurer owned by it, or any material equity therein or loans secured thereby, or any material proportionate interest in such stock acquired or held through the ownership by such insurer of an interest in another firm, corporation or business unit.

[(4)] (3) Tangible personal property, except such property as the insurer is otherwise permitted to acquire and retain as an investment under the Insurance Code and which is deemed by the Director of the Department of Consumer and Business Services to be available for the payment of losses and claims or which is otherwise expressly allowable, in whole or in part, as an asset.

[(5)] (4) The amount, if any, by which the book value of any investment as carried in the ledger assets of the insurer exceeds the value thereof as determined under the Insurance Code.

SECTION 9. ORS 733.090 is amended to read:

733.090. (1) Each title insurer shall maintain a reserve for unearned premiums on its policies in force, which shall be charged as a liability in any determination of its financial condition. Such unearned premium liability shall be separate from and in addition to the insurer’s liability for incurred but unpaid losses and loss expenses.

(2) The amount of the unearned premium reserve shall be determined [as follows:] according to accounting procedures approved or required by the Director of the Department of Consumer and Business Services.

[(a) For each domestic title insurer, the reserve shall equal three percent of all gross premiums on title insurance policies issued by it during the preceding 15 years.]

[(b) For each foreign or alien title insurer, the reserve relating to its policies insuring titles to real property in this state shall equal three percent of all gross premiums on such policies issued by it during the preceding 15 years. The portion of the unearned premium reserve of a foreign insurer relating to its policies insuring real property located elsewhere shall be as prescribed or permitted by the laws of the insurer’s domicile, unless found by the Director of the Department of Consumer and Business Services to be inadequate for the reasonable protection of the insurer’s policyholders in this state. In the event of such a finding, the insurer shall maintain unearned premium reserves upon such business thereafter written in an amount not less than the reserves required on its business in this state.]

(3) A separate and distinct fund, known as the Title Insurance Unearned Premium Reserve Fund, shall be maintained by each title insurer in its treasury, as additional security to holders of its title insurance policies. The amount of the fund shall at least equal the amount of the unearned premium reserve liability determined in accordance with subsection (2) of this section. This fund shall be in addition to the insurer’s deposit with the Department of Consumer and Business Services and deposits required to be maintained with officials of other jurisdictions. The fund, to the extent of the unearned premium reserve on business in this state, shall be invested as provided for funds of a domestic insurer, except that ORS 733.630, 733.670 and 733.690 shall not be applicable to investment of the fund. The remainder of the fund may be similarly invested, or may be invested as permitted by the laws of the insurer’s domicile. The insurer shall keep a separate record of the cash and investments of the fund, giving complete identification of the assets belonging to the fund and showing full particulars as to withdrawals and additions. No title insurance policies shall be issued by an insurer during a period when its unearned premium reserve fund is below the required amount.

SECTION 10. ORS 733.100 is amended to read:

733.100. A mortgage insurer shall establish a contingency reserve liability for the protection of policyholders against the effect of adverse economic cycles according to accounting procedures approved or required by the Director of the Department of Consumer and Business Services. [The contingency reserve shall be maintained out of net premiums received (gross premiums less premiums returned to policyholders) less the unearned premium reserve applicable thereto. The amount of the contingency reserve shall equal 50 percent of all such net earned premiums on policies of mortgage insurance issued by the insurer during the preceding 10 years.]

SECTION 11. ORS 733.160 is amended to read:

733.160. (1) Each bond or other evidence of debt having a fixed term and rate of interest may be valued as follows, if amply secured and not in default as to principal or interest:

(a) If purchased at par, at the par value.

(b) If purchased above or below par, [according to either of the following methods:]

[(A) On the basis of the purchase price adjusted so as to bring the value to par at maturity and so as to yield in the meantime the effective rate of interest at which the purchase was made; or]

[(B)] according to an accepted method of valuation approved by the Director of the Department of Consumer and Business Services.

(2) For the purpose of subsection (1) of this section, the purchase price shall not be a higher amount than the actual market value at the time of purchase, plus actual brokerage, transfer, postage or express charges paid in the acquisition of such bond or other evidence of debt.

(3) For purposes of subsections (1) and (2) of this section, the director may determine the method of calculating values. The method or valuation may not be inconsistent with any applicable method or valuation used by insurers in general or any such method or valuation then currently formulated or approved by the National Association of Insurance Commissioners or its successor organization.

(4) Real property shall be valued as follows:

(a) Real property acquired pursuant to a mortgage loan or contract of sale shall be valued at an amount not greater than the unpaid principal of the defaulted loan or contract at the date of such acquisition, together with any taxes and expenses paid or incurred in connection with such acquisition, and the cost of improvements thereafter made by the insurer and any amounts thereafter paid by the insurer on assessments levied for improvements in connection with the property.

(b) Other real property held by an insurer shall be valued at an amount not in excess of the cost of the acquired property and the cost of improvements thereafter made by the insurer, less a reasonable allowance for depreciation.

(5) Purchase money mortgages on real property referred to in subsection (4)(a) of this section shall be valued in an amount not exceeding the acquisition cost of the real property covered thereby or 90 percent of the fair value of such real property, whichever is less.

(6) Other assets, other than securities, shall be valued at cost of acquisition less any repaid portion thereof, unless the director determines that another value is proper.

SECTION 12. ORS 743.186 is amended to read:

743.186. (1) A life insurance policy shall contain a provision that after three full years’ premiums have been paid and after the policy has a cash surrender value and while no premium is in default beyond the grace period for payment, the insurer will advance, on proper assignment or pledge of the policy and on the sole security thereof, an amount equal to or, at the option of the party entitled thereto, less than the loan value of the policy, at a rate of interest not exceeding the maximum rate permitted by the policy loan provision. The interest rate provision shall comply with ORS 743.187. The loan value of the policy shall be equal to the cash surrender value at the end of the then current policy year, less any existing indebtedness not already deducted in determining such cash surrender value including any interest then accrued but not due, any unpaid balance of the premium for the current policy year, and interest on the loan to the end of the current policy year. The policy may also provide that:

(a) [If] Interest on any indebtedness [is not paid when due it] that is 90 or more days past due shall be added to the existing indebtedness and shall bear interest at the rate applicable to the existing indebtedness; and

(b) Except as provided in ORS 743.187, if the total indebtedness on the policy, including interest due or accrued, equals or exceeds the amount of the loan value of the policy, the policy shall terminate and become void upon 30 days’ notice by the insurer mailed to the last-known address of the insured or other policy owner and of any assignee of record at the home office of the insurer.

(2) The policy shall reserve to the insurer the right to defer the granting of a loan, other than for the payment of any premium to the insurer, for six months after application therefor.

(3) The policy, at the insurer’s option, may provide for automatic premium loan.

(4) This section does not apply to term insurance policies or term insurance benefits provided by rider or supplemental policy provisions, or to industrial life insurance policies.

SECTION 13. ORS 733.660 is repealed.

SECTION 14. ORS 731.508 is amended to read:

731.508. (1) An insurer may accept reinsurance only of such risks, and retain risk thereon within such limits, as it is otherwise authorized to insure.

(2) Except as provided in ORS 731.512, 732.517 to 732.546 or 742.150 to 742.162, an insurer may reinsure risks with an insurer authorized to transact such insurance in this state, or in any other solvent insurer approved or accepted by the Director of the Department of Consumer and Business Services for the purpose of such reinsurance. The director shall not approve or accept any such reinsurance by a ceding domestic insurer in an unauthorized insurer which the director finds for good cause would be contrary to the interests of the policyholders or stockholders of such domestic insurer.

(3) Credit shall not be allowed, as an asset or as a deduction from liability, to any ceding insurer for reinsurance unless the reinsurance [is payable by the assuming insurer according to the following conditions:] contract provides, in substance, that in the event of the insolvency of the ceding insurer, the reinsurance shall be payable under a contract or contracts reinsured by the assuming insurer on the basis of reported claims allowed by the court hearing the liquidation proceeding, 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:

(a) When the contract or other written agreement specifically provides another payee of the reinsurance in the event of the insolvency of the ceding insurer; or

(b) When the assuming insurer, with the consent of the direct insured or insureds, has assumed the 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.

(4) For the purposes of subsection (3) of this section, the reinsurance agreement may provide that the domiciliary liquidator of an insolvent ceding insurer shall, within a reasonable time after the claim is filed in the liquidation proceeding, give written notice to the assuming insurer of the pendency of a claim against the ceding insurer on the contract reinsured. During the pendency of the claim, an assuming insurer may investigate the claim and interpose, at its own expense, in the proceeding in which the claim is to be adjudicated any defenses that the assuming insurer determines to be available to the ceding insurer or its liquidator. The expense may be filed as a claim against the insolvent ceding insurer to the extent of a proportionate share of the benefit that may accrue to the ceding insurer solely as a result of the defense undertaken by the assuming insurer. When two or more assuming insurers are involved in the same claim and a majority in interest elect to interpose one or more defenses to the claim, the expense shall be apportioned in accordance with the terms of the reinsurance agreement as though the expense had been incurred by the ceding insurer.

[(a) The reinsurance must be payable on the basis of the liability of the ceding insurer under the contracts reinsured without diminution because of the insolvency of the ceding insurer.]

[(b) The reinsurance must be payable only to the ceding insurer or to the statutory successor or receiver of the ceding insurer.]

[(4) Notwithstanding subsection (3)(b) of this section, when a reinsurance agreement contains a provision for issuance of an indorsement allowing payment to a payee other than a ceding insurer or the statutory successor or receiver, credit shall be allowed as an asset or as a deduction from liability to a ceding insurer with respect to policies for which such an indorsement has not been issued. With respect to policies for which such an indorsement has been issued, credit shall not be allowed for losses and loss adjustment expenses but shall be allowed for unearned premium reserves.]

[(5) An insurer must show compliance with the following requirements for policies with respect to which an indorsement described in subsection (4) of this section has been issued:]

[(a) The indorsement for payment to the other payee must be for the purpose of covering only property losses on real property or covering only losses owing to failure of performance, including fidelity of persons, guaranteed by a surety.]

[(b) The indorsement must be indicated on the declarations page of each policy or attached to each policy and must be made a part of the policy. If an indorsement is issued after issuance of the policy, the indorsement must be provided to the policyholder.]

[(c) The ceding insurer must have submitted its procedure for issuing and accounting for the indorsement form to the director and the procedure must have received the approval of the director.]

[(6)] (5) The director may disallow credit that would otherwise be allowed if the director determines that allowing credit would be contrary to accurate financial reporting or proper financial management, or may be hazardous to policyholders of the insurer or the insurance-buying public generally. The director may make such a determination only according to standards established by the director by rule. This subsection applies only to insurers who transact life insurance or health insurance, or both.

[(7)] (6) Upon request of the director, a ceding insurer promptly shall inform the director in writing of the cancellation or any other material change of any of its reinsurance treaties or arrangements.

[(8)] (7) This section does not apply to wet marine and transportation insurance.

SECTION 15. ORS 731.509 is amended to read:

731.509. (1) The purpose of ORS 731.509, 731.510, 731.511, 731.512 and 731.516 is to protect the interests of insureds, claimants, ceding insurers, assuming insurers and the public generally. The Legislative Assembly declares that its intent is to ensure adequate regulation of insurers and reinsurers and adequate protection for those to whom they owe obligations. In furtherance of that state interest, the Legislative Assembly mandates that upon the insolvency of an alien insurer or reinsurer that provides security to fund its United States obligations in accordance with ORS 731.509, 731.510, 731.511, 731.512 and 731.516, the assets representing the security shall be maintained in the United States and claims shall be filed with and valued by the state insurance commissioner with regulatory oversight, and the assets shall be distributed in accordance with the insurance laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic United States insurers. The Legislative Assembly declares that the laws contained in ORS 731.509, 731.510, 731.511, 731.512 and 731.516 are fundamental to the business of insurance in accordance with 15 U.S.C. 1011 and 1012.

[(1)] (2) The Director of the Department of Consumer and Business Services shall not allow credit for reinsurance to a domestic ceding insurer as either an asset or a reduction from liability on account of reinsurance ceded unless credit is allowed as provided under ORS 731.508 and unless the reinsurer meets the requirements of:

(a) Subsection [(2)] (3) of this section;

(b) Subsection [(3)] (4) of this section;

(c) Subsections [(4)] (5) and [(7)] (8) of this section;

(d) Subsections [(5)] (6) and [(7)] (8) of this section; or

(e) Subsection [(6)] (7) of this section.

[(2)] (3) Credit shall be allowed when the reinsurance is ceded to an authorized assuming insurer that accepts reinsurance of risks, and retains risk thereon within such limits, as the assuming insurer is otherwise authorized to insure in this state as provided in ORS 731.508.

[(3)] (4) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is accredited as a reinsurer in this state as provided in ORS 731.511. The director shall not allow credit to a domestic ceding insurer if the accreditation of the assuming insurer has been revoked by the director after notice and opportunity for hearing.

[(4)] (5) Credit shall be allowed when the reinsurance is ceded to a foreign assuming insurer or a United States branch of an alien assuming insurer meeting all of the following requirements:

(a) The foreign assuming insurer must be domiciled in [and licensed or authorized by] a state employing standards regarding credit for reinsurance that equal or exceed the standards applicable under this section. The United States branch of an alien assuming insurer must be entered through a state employing such standards.

(b) The foreign assuming insurer or United States branch of an alien assuming insurer must maintain a combined capital and surplus in an amount not less than $20,000,000. The requirement of this paragraph does not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system.

(c) The foreign assuming insurer or United States branch of an alien assuming insurer must submit to the authority of the director to examine its books and records.

[(5)] (6) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that maintains a trust fund meeting the requirements of this subsection and additionally complies with other requirements of this subsection. The trust fund must be maintained in a qualified United States financial institution, as defined in ORS 731.510 (1), for the payment of the valid claims of its United States policyholders and ceding insurers and their assigns and successors in interest. The assuming insurer must report annually to the director information substantially the same as that required to be reported on the annual statement form by ORS 731.574 by authorized insurers, in order to enable the director to determine the sufficiency of the trust fund. The following requirements apply to such a trust fund:

(a) In the case of a single assuming insurer, the trust fund must consist of [a trusteed account representing the assuming liabilities of the insurer attributable to business written in the United States] funds in trust in an amount not less than the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers. In addition, [such an] the assuming insurer must maintain a trusteed surplus of not less than $20,000,000.

[(b) In the case of a group that includes incorporated and individual unincorporated underwriters, the trust must consist of a trusteed account representing the liabilities of the group attributable to business written in the United States. In addition, the group must maintain a trusteed surplus of which $100,000,000 must be held jointly for the benefit of United States ceding insurers of any member of the group. The incorporated members of the 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 regulators as are the unincorporated members. The group shall make available to the director an annual certification of the solvency of each underwriter by the domiciliary regulator of the group and its independent certified public accountant.]

(b) In the case of a group including incorporated and individual unincorporated underwriters:

(A) For reinsurance ceded under reinsurance agreements with an inception, amendment or renewal date on or after August 1, 1995, the trust shall consist of a trusteed account in an amount not less than the group’s several liabilities attributable to business ceded by United States domiciled ceding insurers to any member of the group.

(B) For reinsurance ceded under reinsurance agreements with an inception date on or before July 31, 1995, and not amended or renewed after that date, notwithstanding the other provisions of ORS 731.509, 731.510, 731.511, 731.512 and 731.516, the trust shall consist of a trusteed account in an amount not less than the group’s several insurance and reinsurance liabilities attributable to business written in the United States.

(C) In addition to the trusts described in subparagraphs (A) and (B) of this paragraph, the group shall maintain in trust a trusteed surplus of which $100,000,000 shall be held jointly for the benefit of the United States domiciled ceding insurers of any member of the group for all years of account.

(D) The incorporated members of the 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 regulation and solvency control by the group’s domiciliary regulator as are the unincorporated members.

(E) Within 90 days after the group’s financial statements are due to be filed with the group’s domiciliary regulator, the group shall provide to the director an annual certification by the group’s domiciliary regulator of the solvency of each underwriter member or, if certification is unavailable, financial statements of each underwriter member of the group prepared by independent certified public accountants.

(c) In the case of a group of incorporated insurers described in this paragraph, the trust must be in an amount equal to 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. This paragraph applies to a group of incorporated insurers under common administration that complies with the annual reporting requirements contained in this subsection and that has continuously transacted an insurance business outside the United States for at least three years immediately prior to making application for accreditation. Such a group must have an aggregate policyholders’ surplus of $10,000,000,000 and must submit to the authority of this state to examine its books and records and bear the expense of the examination. The group shall also maintain a joint trusteed surplus of which $100,000,000 must be held jointly for the benefit of United States ceding insurers of any member of the group as additional security for any such liabilities. Each member of the group shall make available to the director an annual certification of the member’s solvency by the member’s domiciliary regulator and its independent certified public accountant.

(d) [The trust must be established in a form approved by the director.] The form of the trust and any amendment to the trust shall have been approved by the insurance commissioner of the state in which the trust is domiciled or by the insurance commissioner of another state who, pursuant to the terms of the trust instrument, has accepted principal regulatory oversight of the trust.

(e) The form of the trust and any trust amendments also shall be filed with the insurance commissioner of every state in which the ceding insurer beneficiaries of the trust are domiciled. The trust instrument must 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 must vest legal title to its assets in [the] its trustees [of the trust for its] for the benefit of the assuming insurer’s United States [policyholders and] ceding insurers and their assigns and successors in interest. [The assets of the trust must be authorized as provided by ORS 733.510 and are subject to valuation requirements of ORS 733.160 and 733.165.] The trust and the assuming insurer are subject to examination as determined by the director. The trust must remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust.

[(e)] (f) Not later than March 1 of each year, the trustees of each trust shall report to the director in writing[, stating] the balance of the trust and listing the trust’s investments at the preceding [calendar] year end, and shall certify the date of termination of the trust, if so planned, or certify that the trust will not expire prior to the [next] following December 31.

[(6)] (7) Credit shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of subsection [(2),] (3), (4), [or] (5) or (6) of this section, but only [with respect] as to the insurance of risks located in jurisdictions in which the reinsurance is required by applicable law or regulation of that jurisdiction.

[(7)] (8) If the assuming insurer is not authorized to transact insurance in this state or accredited as a reinsurer in this state, the director shall not allow the credit permitted by subsections [(4) and] (5) and (6) of this section unless the assuming insurer agrees in the reinsurance agreement to the provisions stated in this subsection. This subsection is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if such an obligation is created in the agreement. The assuming insurer must agree in the reinsurance agreement:

(a) 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, will comply with all requirements necessary to give the court jurisdiction and will abide by the final decision of the court or of any appellate court in the event of an appeal; and

(b) To designate the director or a designated attorney as its true and lawful attorney upon whom any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding company may be served.

(9) If the assuming insurer does not meet the requirements of subsection (3), (4) or (5) of this section, the credit permitted by subsection (6) of this section shall not be allowed unless the assuming insurer agrees in the trust agreements to the following conditions:

(a) Notwithstanding any other provisions in the trust instrument, if the trust fund is inadequate because it contains an amount less than the applicable amount required by subsection (6)(a), (b) or (c) of this section, or if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation or similar proceedings under the laws of the grantor’s state or country of domicile, the trustee shall comply with an order of the insurance commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the insurance commissioner with regulatory oversight all the assets of the trust fund.

(b) The assets shall be distributed by and claims shall be filed with and valued by the insurance 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.

(c) If the insurance 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 insurance commissioner according to the laws of that state and according to the terms of the trust agreement not inconsistent with the laws of that state.

(d) The grantor shall waive any right otherwise available to it under United States law that is inconsistent with this subsection.

SECTION 16. ORS 731.510 is amended to read:

731.510. (1) Subject to the provisions of ORS 731.508 relating to allowance of credit for reinsurance, the Director of the Department of Consumer and Business Services shall allow a reduction from liability for the reinsurance ceded by a domestic insurer to a reinsurer not meeting the requirements of ORS 731.509 in an amount not exceeding the liabilities carried by the ceding insurer, as provided in this section. The reduction [must not be greater than] 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 contract with the reinsurer as security for the payment of obligations thereunder, if the security:

(a) Is held in the United States subject to withdrawal solely by and under the exclusive control of the ceding insurer; or

(b) In the case of a trust, is held in a qualified United States financial institution. For purposes of this paragraph, a qualified United States financial institution is an institution that:

(A) Is organized, or, in the case of a United States branch or agency office of a foreign banking organization, is licensed, under the laws of the United States or any state thereof and has been granted authority to operate with fiduciary powers; and

(B) Is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies.

(2) The security for purposes of subsection (1) of this section may be in any of the following forms:

(a) Cash.

(b) Securities listed by the Securities Valuation Office of the National Association of Insurance Commissioners and qualifying as allowed assets.

(c) Clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified United States financial institution, [as defined in this paragraph,] effective not later than December 31 of the year for which filing is being made, and in the possession of, or in trust for, the ceding company on or before the filing date of its annual statement. Letters of credit issued or confirmed by an institution meeting applicable standards of issuer acceptability as of the dates of their issuance or confirmation shall continue to be acceptable as security, notwithstanding the subsequent failure of the issuing or confirming institution to meet applicable standards of issuer acceptability, until their expiration, extension, renewal, modification or amendment, whichever occurs first. For purposes of this paragraph, a qualified United States financial institution is an institution that:

(A) Is organized or, in the case of a United States office of a foreign banking organization, is licensed, under the laws of the United States or any state thereof;

(B) Is regulated, supervised and examined by United States federal or state authorities having regulatory authority over banks and trust companies; and

(C) Has been determined by the director to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the director. For the purpose of making a determination under this subparagraph, the director shall consider and may accept determinations made by the Securities Valuation Office of the National Association of Insurance Commissioners as to whether a financial institution meets its standards of financial conditions and standing.

(d) Any other form of security acceptable to the director.

SECTION 17. ORS 733.165 is amended to read:

733.165. (1) Securities held by an insurer, other than bonds or other evidences of debt to which ORS 733.160 applies, must be valued in the discretion of the Director of the Department of Consumer and Business Services at their market value, at their appraised value or at prices determined by the director as representing their fair market value.

(2) Preferred or guaranteed stocks or shares while paying full dividends may be carried at a fixed value instead of market value, at the discretion of the director and in accordance with any method of valuation approved by the director.

(3) Stock of a subsidiary corporation of an insurer must not be valued at an amount in excess of the net value thereof as based upon the assets only of the subsidiary that would be eligible under ORS [733.630 and 733.635] 733.510 to 733.780 for investment of the funds of the insurer directly.

(4) The director may determine the method of calculating values as provided in this section, but the method or valuation may not be inconsistent with any applicable method or valuation used by insurers in general or any such method of valuation then currently formulated or approved by the National Association of Insurance Commissioners or its successor organization.

SECTION 18. ORS 750.321 is amended to read:

750.321. (1) Benefit plans issued by a trust must provide for a charge or deposit payable in cash and, except as provided in this section, for an assessment against member employers for purposes of subsection (2) of this section at least equal to one month’s contribution by the employer. The assessment may be prefunded. A member employer may not be liable under this subsection for an amount greater than the charge or deposit required in the plan.

(2) If at any time the [minimum reserves] capital and surplus of the trust are less than the requirement of ORS [750.315] 750.309, the trust must immediately collect from member employers upon each plan a sufficient proportionate part of the amount assessable under subsection (1) of this section to restore the [reserves. However,] amount of capital and surplus required. An assessment of an employer under this subsection may not exceed the amount provided in the plan for an assessment for purposes of this subsection.

(3) In addition to assessments that may be collected under subsection (2) of this section, in the event of liquidation of a multiple employer welfare arrangement trust, the Director of the Department of Consumer and Business Services, acting in the capacity of receiver, may assess member employers an amount necessary to pay outstanding claims and costs necessary to administer the liquidation proceedings. An assessment of an employer under this subsection may not exceed the amount of one month’s contribution by the employer.

(4) A member employer of [the] an association or group shall not be liable for any part of [the] an assessment imposed under subsection (2) or (3) of this section in excess of the amount demanded within one year after the termination of the member employer’s participation in the plan.

SECTION 19. ORS 731.752 is amended to read:

731.752. (1) A report filed with the Director of the Department of Consumer and Business Services according to requirements established by rule for the purpose of determining the amount of capital or surplus, or any combination thereof, that should be possessed and maintained by an insurer under ORS 731.554 or by a health care service contractor under ORS 750.045, or under the laws of another state establishing similar requirements, shall be confidential and shall not be disclosed except as considered necessary by the director in administration of the Insurance Code.

(2) A financial plan of action stating corrective actions to be taken by an insurer or health care service contractor in response to a determination of inadequate capital or surplus, or any combination thereof, that is filed by the insurer or health care service contractor with the director according to requirements established by rule shall be confidential and shall not be disclosed except as considered necessary by the director in administration of the Insurance Code.

(3) The results or report of any examination or analysis of an insurer or health care service contractor performed by the director in connection with a financial plan described in subsection (2) of this section and any corrective order issued by the director pursuant to such an examination or analysis shall be confidential and shall not be disclosed except as considered necessary by the director in administration of the Insurance Code.

(4) Documents described in subsections (1) to (3) of this section are not subject to subpoena and shall not be used in any action or proceeding except to the extent considered necessary by the director in the administration of the Insurance Code.

(5) Information contained in documents described in subsections (1) to (3) of this section that is also contained in financial statements of insurers or health care service contractors filed under ORS 731.574 or in final examination reports filed under ORS 731.312 is not confidential under this section.

SECTION 20. ORS 731.754 is amended to read:

731.754. (1) The Director of the Department of Consumer and Business Services may use the following only for the purpose of monitoring the solvency of insurers and health care service contractors and the need for possible corrective action with respect to insurers and health care service contractors:

(a) Reports and financial plans of action that are made confidential under ORS 731.752; and

(b) Instructions adopted and amended by the National Association of Insurance Commissioners for use by insurers and health care service contractors in preparing reports and financial plans of action referred to in paragraph (a) of this subsection.

(2) The director may not use reports, financial plans of action and instructions referred to in subsection (1) of this section for ratemaking, for reviewing rate filings or in a rate proceeding related thereto, or to calculate or derive any elements of an appropriate premium level or rate of return for any line of insurance that an insurer, a health care service contractor or an affiliate is authorized to transact. Such reports and financial plans of action also shall not be introduced as evidence in a rate proceeding.

(3) This section does not restrict the authority of the director to use information included in reports, financial plans or instructions referred to in subsection (1) of this section that is available from other sources.

Approved by the Governor June 5, 2001

Filed in the office of Secretary of State June 5, 2001

Effective date January 1, 2002

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