68th OREGON LEGISLATIVE ASSEMBLY--1995 Regular Session
Enrolled
House Bill 2034
Ordered printed by the Speaker pursuant to House Rule 12.00A (5).
Presession filed (at the request of Department of Consumer and
Business Services)
CHAPTER ................
AN ACT
Relating to assumption reinsurance; creating new provisions; and
amending ORS 731.508, 731.512, 734.150, 748.603 and 750.055.
Be It Enacted by the People of the State of Oregon:
SECTION 1. { + Sections 2 to 8 of this Act are added to and
made a part of ORS chapter 742. + }
SECTION 2. { + (1) A domestic insurer shall not enter a
transaction in which the domestic insurer assumes or transfers
obligations or risks on policies under an assumption reinsurance
agreement as defined in this section, unless the Director of the
Department of Consumer and Business Services first approves the
transaction. A domestic insurer must submit with its request for
approval a proposed notice of transfer required in section 5 of
this 1995 Act.
(2) A domestic insurer shall not assume obligations or risks on
policies issued to or owned by policyholders residing in any
other state unless it is authorized or licensed in the other
state to transact insurance or unless the insurance regulatory
official of that state has approved the assumption.
(3) An authorized insurer shall not transfer obligations or
risks on policies issued to or owned by residents of this state
to any unauthorized insurer.
(4) If each authorized foreign insurer entering an assumption
reinsurance agreement that transfers the obligations or risks on
policies issued to or owned by residents of this state is
domiciled in a state that imposes requirements on an assumption
reinsurance agreement that are substantially similar to
requirements of this state, then when each such insurer enters
the agreement, the insurer shall file or cause to be filed with
the director the following:
(a) The assumption certificate.
(b) A copy of the notice of transfer required to be sent to
policyholders.
(c) An affidavit that the transaction is subject to
substantially similar requirements in the state or states of
domicile of both the transferring and assuming insurers.
(5) If any authorized foreign insurer entering an assumption
reinsurance agreement that transfers the obligations or risks on
policies issued to or owned by residents of this state is
domiciled in a state that does not impose requirements on an
assumption reinsurance agreement that are substantially similar
to requirements of this state, each insurer entering into the
agreement shall obtain prior approval of the director and is
otherwise subject to all other requirements of sections 5 and 6
of this 1995 Act with respect to residents of this state.
(6) For purposes of this section, 'assumption reinsurance
agreement' means a contract that both:
(a) Transfers insurance obligations or risks of existing or
in-force policies from a transferring insurer to an assuming
insurer that acquires the obligations or risks from the
transferring insurer; and
(b) Is intended to effect a novation of the transferred
policies with the result that the assuming insurer becomes
directly liable to the policyholders of the transferring insurer
and the insurance obligations and risks of the transferring
insurer under the policies are extinguished. + }
SECTION 3. { + Section 2 of this 1995 Act does not apply to
any of the following:
(1) A reinsurance agreement or transaction in which the ceding
insurer remains directly liable for its insurance obligations or
risks under the policies that are subject to the reinsurance
agreement.
(2) The substitution of one insurer for another upon the
expiration of insurance coverage pursuant to statutory or
contractual requirements and the issuance of a new policy by
another insurer.
(3) The transfer of policies pursuant to a merger or
consolidation of two or more insurers to the extent that the
merger or consolidation is regulated by statute.
(4) An insurer that is subject to a judicial order of
liquidation or rehabilitation.
(5) Any reinsurance agreement or transaction to which a state
insurance guaranty association is a party, but only if
policyholders do not lose any rights or claims afforded under
their original policies pursuant to ORS 734.510 to 734.710 or
734.750 to 734.890.
(6) The transfer of liabilities from one insurer to another
under a single group policy upon the request of the group
policyholder. + }
SECTION 4. { + The Director of the Department of Consumer and
Business Services shall consider the following factors, along
with other factors that the director determines to be
appropriate, in reviewing a request for approval of an assumption
reinsurance agreement to which section 2 of this 1995 Act
applies:
(1) The financial condition of the transferring and assuming
insurers and the effect the transaction will have on the
financial condition of each insurer.
(2) The competence, experience and integrity of the persons
controlling the operation of the assuming insurer.
(3) The plans or proposals of the assuming party with respect
to the administration of the policies subject to the proposed
transfer.
(4) Whether the transfer is fair and reasonable to the
policyholders of both insurers.
(5) Whether the notice of transfer to be provided by the
insurer under section 5 of this 1995 Act is fair, adequate and
not misleading. + }
SECTION 5. { + (1) The transferring insurer in an assumption
reinsurance agreement to which section 2 of this 1995 Act applies
shall provide or cause to be provided a notice of transfer
meeting the requirements established under this section to the
following persons:
Enrolled House Bill 2034 Page 2
(a) Each policyholder who has the right to terminate or
otherwise alter the terms of a policy.
(b) Each certificate holder whose certificate is in force on
the proposed effective date of the assumption if the certificate
holder has the right to keep the certificate in force without
change in benefit following termination of the group policy. The
right to keep the certificate in force does not include the right
to elect individual coverage under the Consolidated Omnibus
Budget Reconciliation Act, section 601 et seq., of the Employee
Retirement Income Security Act of 1974, as amended (29 U.S.C.
1161 et seq.).
(c) The transferring insurer's agents of record on the affected
policies.
(2) The Director of the Department of Consumer and Business
Services shall prescribe the contents of the notice of transfer,
methods by which insurers must give notice of the transfer and
notice of opportunity to accept or reject the assumption and
methods of response by the policyholders and certificate
holders. + }
SECTION 6. { + (1) A policyholder or certificate holder
described in section 5 of this 1995 Act may reject the transfer
and novation of the policy under an assumption reinsurance
agreement to which section 2 of this 1995 Act applies. A
policyholder or certificate holder electing to reject the
assumption transaction must give notice of rejection according to
the manner of response established by rule.
(2) If the premium notice sent by an assuming insurer to a
policyholder or a certificate holder described in section 5 of
this 1995 Act satisfies the requirements of this subsection,
payment of any premium to the assuming insurer during the
12-month period after the notice is received constitutes the
policyholder's acceptance of the transfer to the assuming
insurer. Upon such a payment, a novation is effected. The premium
notice must state that payment of the premium to the assuming
insurer constitutes acceptance of the transfer and must provide a
method for the policyholder to pay the premium while reserving
the right to reject the transfer. This subsection does not apply
to a policy for which premiums are collected on a weekly or
monthly basis by an agent of the insurer nor to any other
insurance not using premium notices.
(3) After not less than 12 months from the mailing of the first
notice of transfer required under section 5 of this 1995 Act, if
the transferring insurer has not received the consent to or
rejection of the transfer and assumption from a policyholder or
consent by the policyholder has not occurred under subsection (2)
of this section, the transferring insurer shall send to the
policyholder a second and final notice of transfer. The notice
must conform to the requirements established under section 5 of
this 1995 Act and must also state that the policyholder must
accept or reject the transfer not later than the 30th day after
the postmark date. Failure by the policyholder to accept or
reject the transfer during that period constitutes consent by the
policyholder and novation of the contract will be effected. For a
policy for which premiums are collected on a weekly or monthly
basis by an agent of the insurer or for any other insurance not
using premium notices, the 12-month period and the 30-day period
shall be measured from the date of delivery of the notice of
transfer provided under section 5 of this 1995 Act.
(4) If a policyholder responds to the notice of transfer by
mail, receipt of the response by the transferring insurer occurs
Enrolled House Bill 2034 Page 3
on the date the response is postmarked. If a policyholder
responds to the notice of transfer by facsimile or other
electronic transmission or by registered mail, express delivery
or courier service, receipt of the response by the transferring
insurer occurs on the date of actual receipt by the transferring
insurer.
(5) If the notice of transfer for a policy for which premiums
are collected on a weekly or monthly basis by an agent of the
insurer or for any other insurance not using premium notices
satisfies the requirements of this subsection, payment of any
premium to the assuming insurer during the 12-month period after
the notice is received constitutes the policyholder's acceptance
of the transfer to the assuming insurer. Upon such a payment, a
novation is effected. The notice of transfer must state that
payment of the premium to the assuming insurer constitutes
acceptance of the transfer and must provide a method for the
policyholder to pay the premium while reserving the right to
reject the transfer. + }
SECTION 7. { + If a policyholder consents to a transfer as
provided in section 6 of this 1995 Act, or if a transfer is
effected under section 8 of this 1995 Act, the effect of the
novation of the policy subject to the assumption reinsurance
agreement is that the transferring insurer is relieved of all
insurance obligations or risks transferred under the assumption
reinsurance agreement and the assuming insurer becomes directly
and solely liable to the policyholder for those insurance
obligations and risks. + }
SECTION 8. { + (1) A transfer and novation effected as
provided in this section is not an assumption reinsurance
agreement to which section 2 of this 1995 Act applies.
(2) The Director of the Department of Consumer and Business
Services may effect a transfer and novation of the policies
issued by a domestic insurer if the director determines that the
insurer is in hazardous financial condition according to
standards established under ORS 731.385, if a rehabilitation or
liquidation proceeding has been instituted against the insurer or
if an administrative supervision proceeding has been instituted
against the insurer, and if the director determines that the
transfer of the policies is in the best interest of the
policyholders. The director may give notice of such a transfer to
policyholders that the director determines to be adequate under
the circumstances.
(3) The director may accept a transfer and novation of policies
issued by a foreign insurer that insure residents of this state
when the transfer and novation are effected by the insurance
regulatory official of the domiciliary state of the foreign
insurer if the director determines that the domiciliary state has
a substantially similar law and if the official has determined
that the transfer of the policies is in the best interest of the
policyholders and:
(a) The official has determined that the insurer is in
hazardous financial condition;
(b) A rehabilitation or liquidation proceeding has been
instituted against the insurer; or
(c) An administrative proceeding has been instituted against
the insurer for the purpose of supervising, reorganizing or
conserving the insurer. + }
SECTION 9. ORS 731.508 is amended to read:
Enrolled House Bill 2034 Page 4
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 or 732.517 to 732.546
{ + or sections 2 to 8 of this 1995 Act + }, 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:
(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) 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.
(7) 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.
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(8) This section does not apply to wet marine and
transportation insurance.
SECTION 10. ORS 731.512 is amended to read:
731.512. (1) No insurer shall withdraw from this state until
its direct liability to its policyholders and obligees under all
its insurance policies then in force in this state has been
assumed by another authorized insurer under an agreement approved
by the Director { + of the Department of Consumer and Business
Services + }. In the case of a life insurer, its liability
pursuant to policies issued in this state in settlement of
proceeds under its policies shall likewise be so assumed.
(2) The director may waive this requirement if the director
finds upon examination that a withdrawing insurer then is fully
solvent and that the protection to be given its policyholders in
this state will not be impaired by the waiver.
(3) The assuming insurer within a reasonable time shall replace
the assumed insurance policies with its own, or by indorsement
thereon acknowledge its liability thereunder.
(4) This section is in addition to the requirements of ORS
732.517 to 732.546 { + and sections 2 to 8 of this 1995 Act + }.
SECTION 11. ORS 734.150 is amended to read:
734.150. The Director { + of the Department of Consumer and
Business Services + } may apply for an order directing the
director to rehabilitate a domestic insurer on one or more of the
following grounds:
(1) The insurer is impaired.
(2) The insurer has failed to submit its books, papers,
accounts or affairs to the reasonable inspection and examination
of the director.
(3) Without first obtaining the written consent of the
director, the insurer has by contract of reinsurance, or
otherwise, transferred or attempted to transfer substantially its
entire property or business, or has entered into any transaction
the effect of which is to merge, consolidate or reinsure
substantially its entire property or business in or with the
property or business of any other person, without first having
complied with ORS 732.517 to 732.546 { + and sections 2 to 8 of
this 1995 Act + }.
(4) The insurer is in such condition that its further
transaction of business would be hazardous to its policyholders,
creditors, stockholders or the public.
(5) The insurer has violated its articles of incorporation, its
bylaws, any law of this state or any order of the director.
(6) Any person who in fact has executive authority in the
insurer, whether an officer, manager, general agent, director or
trustee, employee or other person, has refused to be examined
under oath by the director concerning its affairs, whether in
this state or elsewhere, and after reasonable notice of the fact,
the insurer has not promptly and effectively terminated the
employment and status of the person and all influence of the
person on management.
(7) The insurer or its property has been or is the subject of
an application for the appointment of a receiver, trustee,
custodian, conservator or sequestrator or similar fiduciary of
the insurer or of its property other than as authorized under the
Insurance Code, and the appointment has been made or is imminent,
and the appointment might deprive the courts of this state of
jurisdiction or might prejudice orderly delinquency proceedings.
(8) The insurer has consented to such an order through a
majority of its directors, stockholders, members or subscribers.
Enrolled House Bill 2034 Page 6
(9) The insurer has failed to pay any obligation to any state
or any subdivision thereof or any final judgment rendered against
it in any state within 60 days after the judgment became final or
within 60 days after time for taking an appeal has expired, or
within 60 days after dismissal of an appeal before final
determination, whichever date is the later, if the court in which
the judgment was entered had jurisdiction over the subject
matter.
(10) The insurer has had its certificate of authority to
transact insurance in this state revoked.
(11) There is reasonable cause to believe that there has been
embezzlement from the insurer, wrongful sequestration or
diversion of the insurer's assets, forgery or fraud affecting the
insurer or other illegal conduct in, by or with respect to the
insurer that if established would endanger assets in an amount
threatening the solvency of the insurer.
(12) The insurer has failed to remove any person who in fact
has executive authority in the insurer, whether an officer,
manager, general agent, director or trustee, employee or other
person, if the person has been found by the director to be
dishonest or untrustworthy in a way affecting the insurer's
business.
(13) Control of the insurer, whether by stock ownership or
otherwise, and whether direct or indirect, is in a person or
persons found to be untrustworthy.
(14) The insurer has failed to file its annual report or other
financial report required by statute within the time allowed by
law or within any additional time allowed by the director.
SECTION 12. ORS 748.603 is amended to read:
748.603. (1) Societies shall be governed by this chapter and
shall be exempt from all other provisions of the insurance laws
of this state unless expressly designated therein, or unless
specifically made applicable by this chapter.
(2) ORS 731.004 to 731.026, 731.032 to 731.136, 731.146 to
731.156, 731.162, 731.166, 731.170, 731.216 to 731.268, 731.296,
731.324, 731.328, 731.354, 731.356, 731.358, 731.378, 731.380,
731.381, 731.382, 731.385, 731.386, 731.390, 731.394, 731.396,
731.398, 731.402, 731.406, 731.410, 731.422 to 731.434, 731.446
to 731.454, 731.488, 731.504, 731.508, 731.509, 731.510, 731.511,
731.512, 731.730, 731.731, 731.735, 731.737, 731.804, 731.844 to
731.992, 732.245, 732.250, 732.320, 732.325, 733.010 to 733.050,
733.080, 733.140 to 733.210, 733.220, 733.510, 733.652 to
733.658, 733.730 to 733.750, 735.600 to 735.650, 742.001,
742.003, 742.005, 742.007, 742.009, 742.013 to 742.021, 742.028,
742.038, 742.041, 742.046, 742.051 and 744.700 to 744.740 and ORS
chapters 734 and 743 { + and sections 2 to 8 of this 1995
Act + } shall apply to fraternal benefit societies to the extent
so applicable and not inconsistent with the express provisions of
this chapter.
(3) For the purposes of this subsection and subsection (2) of
this section, fraternal benefit societies shall be deemed
insurers, and benefit certificates issued by fraternal benefit
societies shall be deemed policies.
(4) Every society authorized to do business in this state shall
be subject to the provisions of ORS chapter 746 relating to
unfair trade practices. However, nothing in ORS chapter 746 shall
be construed as applying to or affecting the right of any society
to determine its eligibility requirements for membership, or be
construed as applying to or affecting the offering of benefits
exclusively to members or persons eligible for membership in the
Enrolled House Bill 2034 Page 7
society by a subsidiary corporation or affiliated organization of
the society.
SECTION 13. ORS 750.055 is amended to read:
750.055. (1) The following provisions of the Insurance Code
shall apply to health care service contractors to the extent so
applicable and not inconsistent with the express provisions of
ORS 750.005 to 750.095:
(a) ORS 731.004 to 731.150, 731.162, 731.216 to 731.362,
731.382, 731.385, 731.386, 731.390, 731.398 to 731.430, 731.450,
731.454, 731.488, 731.504, 731.508, 731.509, 731.510, 731.511,
731.512, 731.574 to 731.620, 731.640 to 731.652, 731.730,
731.731, 731.735, 731.737, 731.804 and 731.844 to 731.992.
(b) ORS 732.215, 732.220, 732.230, 732.245, 732.250, 732.320,
732.325 and 732.517 to 732.592, not including ORS 732.549 and
732.574 to 732.592.
(c)(A) ORS 733.010 to 733.050, 733.080, 733.140 to 733.170,
733.210, 733.510 to 733.620, 733.635 to 733.680 and 733.695 to
733.780 apply to not-for-profit health care service contractors.
(B) ORS chapter 733, not including ORS 733.630, applies to
for-profit health care service contractors.
(d) ORS chapter 734.
(e) ORS 742.001 to 742.009, 742.013, 742.061, 742.065, 742.400,
742.520 to 742.540, 743.010, 743.013, 743.018 to 743.030,
743.050, 743.055, 743.100 to 743.109, 743.402, 743.412, 743.472,
743.492, 743.495, 743.498, 743.523 to 743.527, 743.529, 743.549
to 743.555, 743.556, 743.560, 743.600 to 743.622, 743.650 to
743.656, 743.701, 743.704, 743.706 to 743.712, 743.721, 743.722,
743.727, 743.728 and 743.729 { + and sections 2 to 8 of this
1995 Act + }.
(f) ORS 743.522 and 743.528, except that individual policies
may be issued to the persons or families insured in lieu of
issuance of a single group policy as referred to in ORS 743.522.
An individual policy issued under this paragraph shall be
considered the statement of the essential features of the
insurance coverage required under ORS 743.528 (2).
(g) The provisions of ORS chapter 744 relating to the
regulation of agents.
(h) ORS 746.005 to 746.140, 746.160, 746.180, 746.220 to
746.370 and 746.600 to 746.690.
(i) ORS 743.714, except in the case of group practice health
maintenance organizations that are federally qualified pursuant
to Title XIII of the Public Health Service Act unless the patient
is referred by a physician associated with a group practice
health maintenance organization.
(j) ORS 735.600 to 735.650.
(k) ORS 743.680 to 743.689.
(L) ORS 744.700 to 744.740.
(m) ORS 743.730 to 743.745.
(n) ORS 731.485, except in the case of a group practice health
maintenance organization that is federally qualified pursuant to
Title XIII of the Public Health Service Act and that wholly owns
and operates an in-house drug outlet.
(2) For the purposes of this section only, health care service
contractors shall be deemed insurers.
(3) Any for-profit health care service contractor organized
under the laws of any other state which is not governed by the
insurance laws of such state, will be subject to all requirements
of ORS chapter 732.
(4) The Director { + of the Department of Consumer and
Business Services + } may, after notice and hearing, adopt
Enrolled House Bill 2034 Page 8
reasonable rules not inconsistent with this section and ORS
750.003, 750.005, 750.025 and 750.045 that are deemed necessary
for the proper administration of these provisions.
SECTION 14. { + Sections 2 to 8 of this Act and ORS 731.508,
731.512, 734.150, 748.603 and 750.055 as amended by sections 9 to
13 of this Act apply to assumption reinsurance agreements as
described in section 2 of this Act entered into on or after March
1, 1996. + }
SECTION 15. { + The Director of the Department of Consumer and
Business Services may take any action before the operative date
of sections 2 to 13 of this Act that is necessary to enable the
director to exercise, on and after the operative date of sections
2 to 13 of this Act, all the duties, functions and powers
conferred on the director by those sections. + }
SECTION 16. { + Sections 2 to 8 of this Act and ORS 731.508,
731.512, 734.150, 748.603 and 750.055 as amended by sections 9 to
13 of this Act become operative March 1, 1996. + }
----------
Enrolled House Bill 2034 Page 9
Passed by House February 16, 1995
...........................................................
Chief Clerk of House
...........................................................
Speaker of House
Passed by Senate March 9 1995
...........................................................
President of Senate
Enrolled House Bill 2034 Page 10
Received by Governor:
......M.,............., 1995
Approved:
......M.,............., 1995
...........................................................
Governor
Filed by Office of Secretary of State:
......M.,............., 1995
...........................................................
Secretary of State
Enrolled House Bill 2034 Page 11