GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1997

H	1 

HOUSE BILL 1590

Short Title:  Amend Insurance Finance/Fees.	(Public)

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Sponsors: Representatives Dockham; and Hardaway.

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Referred to:  Insurance, if favorable, Finance.

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May 28, 1998

A BILL TO BE ENTITLED
AN ACT TO REPEAL POLICY FORM FILING FEES AND HEALTH MAINTENANCE ORGANIZATION ANNUAL REPORT FEES; TO INCREASE CERTAIN COMPANY LICENSE RENEWAL FEES COLLECTED BY THE DEPARTMENT OF INSURANCE; AND TO MAKE NECESSARY CHANGES IN INSURER FINANCE LAWS.
The General Assembly of North Carolina enacts:
Section 1.  G.S. 58-6-5 reads as rewritten:
"§ 58-6-5.  Schedule of fees and charges.
(a)	The Commissioner shall collect and pay into the State treasury fees and charges as follows:
(1)	For filing and examining an insurance company application for licensing or for filing and examining a workers' compensation self-insurer's application for licensing, a fee of two hundred fifty dollars ($250.00), to be submitted with the filing.
(2)	Repealed by Session Laws 1977, c. 376, s. 2.
(3)	For a copy of any record or paper in the Commissioner's office, a charge of fifty cents (50¢) per sheet.
(4)	All other fees and charges due and payable into the General Fund by any company, association, order, or individual under this Chapter.
	””(6)	One hundred dollars ($100.00) per day late charge for any company that fails to file the financial statements required by G.S. 58-2-165 by the required filing date or that fails to make those filings within any extended filing period approved by the Commissioner.
(7)	One hundred dollars ($100.00) for filing and examining an application for a third-party administrator license issuance or renewal under G.S. 58-47-215, to be submitted with the filing.
(b)	All fees and charges collected by the Commissioner under this Chapter are nonrefundable."
Section 2.  G.S. 58-6-7 reads as rewritten:
"§ 58-6-7.  Annual license fees for insurance companies.
(a)	In order to do business in this State, an insurance company shall apply for and obtain a license from the Commissioner by March 1 of each year. The license shall become effective the following July 1 and shall remain in effect for one year. Except as provided in subsection (b) of this section, the insurance company shall pay an annual fee for the license as follows: 
For each domestic farmer's mutual assessment fire
     insurance company 	$ 25.00
For each fraternal order 	100.00
For each of all other insurance companies, except
     mutual burial associations taxed under G.S.
     105-121.1 	1,500
The fees levied in this subsection are in addition to those specified in G.S. 58-6-5.
(b)	When the paid-in capital stock or surplus, or both of an insurance company, other than a farmer's mutual assessment company or a fraternal order, does not exceed one hundred thousand dollars ($100,000), the fee levied in this section shall be one-half the amount specified.
	(d)	Any rating bureau established by action of the General Assembly of North Carolina shall be exempt from the fees levied in this section."
Section 3.  G.S. 58-22-70 reads as rewritten:
"§ 58-22-70.  Registration and renewal fees.
Every risk retention group and purchasing group that registers with the Commissioner under this Article shall pay the following fees:
Risk retention group registration	 $250.00
Purchasing group registration	 50.00
Risk retention group renewal	1,500
Purchasing group renewal	50.00
Registration fees shall not be prorated and must be submitted with the application for registration.  Renewal fees shall not be prorated and shall be paid on or before January 1 of each year."
Section 4.  G.S. 58-27-10 reads as rewritten:
"§ 58-27-10.  Licenses.
Any domestic land mortgage company, or title insurance company, wishing to do business under the provisions of this Article upon making written application and submitting proof satisfactory to the Commissioner that its business, capital and other qualifications comply with the provisions of this Article, upon paying to the Commissioner, the sum of five hundred dollars ($500.00) as a license fee and all other fees assessed against the company may be licensed to do business in this State under the provisions of this Article until the first day of the following July, and may have its license renewed for each year thereafter so long as it complies with the provisions of this Article and rules adopted by the Commissioner.  For each renewal, the company shall pay to the Commissioner the sum of one thousand five hundred dollars ($1,500) and all other fees assessed against the company and the renewal shall continue in force and effect until a new license is issued or specifically refused, unless revoked for good cause.  The Commissioner, or any person appointed by the Commissioner, may adopt rules and regulations and examinations not inconsistent with the provisions of this Article that are necessary or proper to enforce the provisions of this Article and to secure compliance with the terms of this Article.  For any examination made hereunder the Commissioner shall charge the land mortgage companies or title insurance companies examined with the actual expense of the examination."
Section 5.  G.S. 58-65-55 reads as rewritten:
"§ 58-65-55.  Issuance of certificate.
Before issuing any license or certificate, the Commissioner may conduct any examination or investigation as the Commissioner deems expedient.  The Commissioner shall issue a certificate of authority or license upon the payment of an annual fee of one thousand five hundred dollars ($1,500) and upon being satisfied that:
(1)	The applicant is established as a bona fide nonprofit hospital service corporation as defined by this Article and Article 66 of this Chapter.
(2)	The rates charged and benefits to be provided are fair and reasonable.
(3)	The amounts provided as working capital of the corporation are repayable only out of earned income in excess of amounts paid and payable for operating expenses and for hospital, medical, and dental expenses and any reserve the Department deems adequate, as provided hereinafter.
(4)	That the amount of money actually available for working capital is sufficient to carry all acquisition costs and operating expenses for a reasonable period of time from the date of the issuance of the certificate."
Section 6.  G.S. 58-64-30(b) reads as rewritten:
"(b)	The annual disclosure statement required to be filed with the Commissioner under this section shall be accompanied by an annual filing fee of one hundred seventy-five dollars ($175.00)."
Section 7.  G.S. 58-67-160 reads as rewritten:
"§ 58-67-160.  Fees.
Every health maintenance organization subject to this Article shall pay to the Commissioner a fee of two hundred fifty dollars ($250.00) for filing an application for a license and a fee of one thousand five hundred dollars ($1,500) for each license renewal.
		)."
Section 8.  G.S. 58-7-130 reads as rewritten:
"§ 58-7-130.  Dividends and distributions to stockholders.
(a)	Each domestic insurance company in North Carolina shall be restricted by the Commissioner from the payment of any dividends or other distributions to its stockholders whenever the Commissioner determines from examination of the company's financial condition that the payment of future dividends or other distributions would cause a hazardous financial condition, impair the financial soundness of the company, or be detrimental to its policyholders.  Those restrictions shall continue in force until the Commissioner permits the payment of dividends or other distributions to stockholders by the company through a written authorization.  
(b)	No domestic stock insurance company shall declare dividends to its stockholders except from the unassigned surplus of the company as reflected in the company's most recent financial statement filed with the Commissioner under G.S. 58-2-165.
(c)	The Commissioner shall permit a transfer out of paid-in and contributed surplus to common or preferred capital stock when the Commissioner determines that the transfer is necessary.  A transfer shall not be made without the Commissioner's prior approval.
(d)	Nothing in this section and no action taken by the Commissioner pursuant to this section or otherwise shall restrict the liabilities of stockholders under G.S. 58-7-125.
(e)	Dividends and other distributions paid to stockholders are subject to the requirements and limitations of G.S. 58-19-25(d) and G.S. 58-19-30(c)."
Section 9.  G.S. 58-7-170(c) reads as rewritten:
"(c)	
The cost of investments made by an insurer in mortgage loans authorized by G.S. 58-7-179 with any one person, or in mortgage pass-through securities and derivatives of mortgage pass-through securities authorized by G.S. 58-7-173(1), (2), (8), or (17), and backed by a single collateral package, shall not exceed three percent (3%) of the insurer's admitted assets.  An insurer shall not invest in additional mortgage loans or mortgage pass-through securities and derivatives of mortgage pass-through securities without the Commissioner's consent if the admitted value of all those investments held by the insurer exceeds an aggregate of sixty percent (60%) of the admitted assets of the insurer.  Within the aggregate sixty percent (60%) limitation, the admitted value of all mortgage pass-through securities and derivatives of mortgage pass-through securities permitted by G.S. 58-7-173(17) shall not exceed thirty-five percent (35%) of the admitted assets of the insurer.  The admitted value of other mortgage loans permitted by G.S. 58-7-179 shall not exceed forty percent (40%) of the admitted assets of the insurer.  Mortgage pass-through securities authorized by G.S. 58-7-173(1), (2), or (8) shall only be subject to the single collateral package limitation and the sixty percent (60%) aggregate limitation.  No later than January 31, 1999, an insurer that has mortgage investments that exceed the limitations specified in this subsection shall submit to the Commissioner a plan to bring the amount of mortgage investments into compliance with the specified limitations by January 1, 2004."
Section 10.  G.S. 58-7-185(a)(3) is repealed.
Section 11.  G.S. 58-7-187(c) reads as rewritten:
"(c)	An insurer may acquire, improve, develop, manage, lease, mortgage, and dispose of real estate situated in any state of the United States or province of Canada subject to the following limitations and conditions:
(1)	The amount shall not exceed in the aggregate the lesser of five percent (5%) of the insurer's admitted assets or fifteen percent (15%) of the insurer's capital and surplus.
(2)	The amount in any one property shall not exceed one percent (1%) of the insurer's admitted assets.
(3)	The amount in unimproved land shall not exceed one-half of one percent (0.5%) of the insurer's admitted assets.
(4)	There shall be no time limit for the disposal of investment real estate.
An insurer may acquire, improve, develop, manage, lease, mortgage, or dispose of real estate pursuant to this section either directly or indirectly through limited partnership interests, general partnership interests where all other partners in the general partnership are subsidiaries of the insurer, limited liability companies, joint ventures, stock of an investment subsidiary, trust certificates, or other similar instruments. The real estate shall be income-producing or to be improved or developed for investment purposes under an existing program, in which case the property shall be deemed to be income-producing.  The real estate may be subject to mortgages, liens, or other encumbrances and, to the extent that the obligations secured by the mortgages, liens, or encumbrances are without recourse to the insurer, the amount thereof shall be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with this subsection and G.S. 58-7-187(d). As used in this subsection, ‘investment subsidiary' means a subsidiary of an insurer engaged or organized to engage exclusively in real estate investments authorized in this subsection.  This subsection does not apply to real estate to be used primarily for mining or development of oil or mineral resources."
Section 12.  G.S. 58-7-200(c) reads as rewritten:
"(c)	Insurers shall not directly or indirectly invest in or lend funds to any of its directors, officers, stockholders, or any other person in which an officer, director, or stockholder is interested substantially. Directors, officers, and stockholders of insurers shall not directly or indirectly accept funds from insurers."
Section 13.  G.S. 58-8-10 reads as rewritten:
"§ 58-8-10. Policyholders are members of mutual companies. 
Every person insured by a mutual insurance company is a member while that person's policy is in force, entitled to one vote for each policy that person holds, and must be notified of the time and place of holding the company's meetings by a written notice or by an imprint upon the back of each policy, receipt, or certificate of renewal, as follows:
The insured is hereby notified that by virtue of this policy the insured is a member of the .......... insurance company, and that the annual meetings of the company are held at its home office on the ........ day of .........., in each year, at ........ o'clock.
The blanks shall be duly filled in print and are a sufficient notice. A corporation that becomes a member of a mutual insurance company may authorize any person to represent the corporation; and this representative has all the rights of an individual member. A person holding property in trust may insure it in a mutual insurance company, and as trustee assume the liability and be entitled to the rights of a member; but is not personally liable upon the contract of insurance. Members may vote by proxies, dated and executed within three months after receipt, and returned and recorded on the books of the company three days or more before the meeting at which they are to be used."
Section 14.  Article 10 of Chapter 58 of the General Statutes is amended by adding a new section to read:
"§ 58-10-10.  Conversion to stock insurer.
(a)	A domestic mutual insurer may convert to a domestic stock insurer under a plan that is approved in advance by the Commissioner.
(b)	The Commissioner shall not approve the plan unless:
(1)	It is fair and equitable to the insurer's policyholders.
(2)	It is adopted by the insurer's board of directors in accordance with the insurer's bylaws and approved by a vote of not less than two-thirds of the insurer's members voting on it in person, by proxy, or by mail at a meeting called for the purpose of voting on the plan, pursuant to reasonable notice and procedure as approved by the Commissioner.  If the company is a life insurer, the right to vote may be limited, as its bylaws provide, to members whose policies are other than term or group policies and have been in effect for more than one year.
(3)	Each policyholder's equity in the insurer is determinable under a fair and reasonable formula approved by the Commissioner.  The equity shall be based upon the insurer's entire statutory surplus after deducting certificates of contribution, guaranty capital certificates, and similar evidences of indebtedness included in an insurer's statutory surplus.
(4)	The policyholders entitled to vote on the plan and participate in the purchase of stock or distribution of assets include all policyholders on the date the plan was adopted by the insurer's board of directors.
(5)	The plan provides that each policyholder specified in subdivision (4) of this subsection receives a preemptive right (i) to acquire a proportionate part of all of the proposed capital stock of the insurer or of all of the stock of a corporation affiliated with the insurer within a designated reasonable period as the part is determinable under the plan of conversion; and (ii) to apply toward the purchase of the stock the amount of the policyholder's equity in the insurer under subdivision (3) of this subsection.  The plan shall provide for an equitable distribution of fractional interests.
(6)	The plan provides for payment to each policyholder of the policyholder's entire equity in the insurer.  The payment shall be applied toward the purchase of stock to which the policyholder is entitled preemptively or to be made in cash, or both.  The cash payment shall not exceed fifty percent (50%) of each policyholder's equity.  The stock purchased, together with the cash payment, if any, shall constitute full payment and discharge of the policyholder's equity as an owner of the mutual insurer.
(7)	Shares are to be offered to policyholders at a price not greater than that of shares to be subsequently offered to others.
(8)	The Commissioner finds that the insurer's management has not sought, through reduction of volume of new business written, through policy cancellations, or through any other means, (i) to reduce, limit, or affect the number or identity of the insurer's members entitled to participate in the plan or (ii) to secure for the individuals constituting management any unfair advantage through the plan.
(9)	The plan, when completed, provides that the insurer's capital and surplus are not less than the minimum required of a domestic stock insurer transacting the same kinds of insurance, are reasonable in relation to the insurer's outstanding liabilities, and are adequate to meet its financial needs.
(c)	With respect to an insurer with a guaranty capital, the conversion plan shall be approved by a vote of not less than two-thirds of the insurer's guaranty capital shareholders and policyholders as provided for in subdivision (b)(2) of this section.  The plan may provide for the issuance of stock in exchange for outstanding guaranty capital shares at their redemption value subject to the conditions in subsection (b) of this section.
(d)	The Commissioner may schedule a public hearing on the proposed conversion plan.
(e)	At the mutual insurer's expense, the Commissioner may retain attorneys, actuaries, economists, accountants, and other experts who are not otherwise a part of the Commissioner's staff and who are reasonably necessary to assist the Commissioner in reviewing proposed conversion plans.
(f)	The corporate existence of the mutual company continues in the stock company created under this section.  All assets, rights, franchises, and interests of the former mutual insurer in and to real or personal property are deemed to be transferred to, and vested in, the stock insurer, without any other deed or transfer.  The stock insurer simultaneously assumes all of the obligations and liabilities of the former mutual insurer.
(g)	No director, officer, or employee of the insurer shall receive:
(1)	Any fee, commission, compensation, or other valuable consideration for aiding, promoting, or assisting in the conversion of the mutual insurer to a domestic stock insurer, other than compensation paid to any director, officer, or employee of the insurer in the ordinary course of business; or
(2)	Any distribution of the assets, surplus, or capital of the insurer as part of a conversion.
(h)	The Commissioner may adopt rules to carry out the provisions of this section."
Section 15.  G.S. 58-65-95 reads as rewritten:
"§ 58-65-95. Investments and reserves.
(a)	Except as provided in subsection (e) of this section, no corporation subject to this Article shall invest in any securities other than securities permitted by Article 7 of this Chapter for the investment of assets.
(b)	Every corporation subject to this Article shall accumulate and maintain, in addition to proper reserves for current administrative liabilities and whatever reserves are deemed to be adequate and proper by the Commissioner for unpaid hospital, medical, or dental bills, and unearned membership dues, a special contingent surplus or reserve at the following rates annually of its gross annual collections from membership dues, exclusive of receipts from cost plus plans, until the reserve equals an amount that is three times its average monthly expenditures for claims and administrative and selling expenses:
(1)	First $200,000	4%
(2)	Next $200,000	2%
(3)	All above $400,000	1%
(c)	Any corporation subject to this Article may accumulate and maintain a contingent reserve in excess of the reserve required in subsection (b) of this section, not to exceed an amount equal to six times the average monthly expenditures for claims and administrative and selling expenses.
(d)	If the Commissioner finds that special conditions exist warranting an increase or decrease in the reserves or schedule of reserves in subsection (b) of this section, the Commissioner may modify them accordingly. Provided, however, when special conditions exist warranting an increase in the schedule of reserves, the schedule shall not be increased by the Commissioner until a reasonable length of time has elapsed after notice of the increase.
(e)	The cost of investments made by service corporations in mortgage loans authorized by G.S. 58-7-179, with any one person, shall not exceed the lesser of five percent (5%) of the service corporation's admitted assets of ten percent (10%) of the service corporation's capital and surplus.  A service corporation shall not invest in additional mortgage loans without the Commissioner's consent if the admitted value of all additional mortgage loans held by the service corporation exceeds an aggregate of sixty percent (60%) of the admitted assets of the service corporation, if:
(1)	The admitted value of all mortgage pass-through securities permitted by G.S. 58-7-173(17) does not exceed twenty-five percent (25%) of the admitted assets of the service corporation; and
(2)	The admitted value of other mortgage loans permitted by G.S. 58-7-179 does not exceed forty percent (40%) of the admitted assets of the service corporation.
No later than January 31, 1999, a service corporation that has mortgage investments that exceed the aggregate limitation specified in this subsection as of October 1, 1998, shall submit to the Commissioner a plan to bring the amount of mortgage investments into compliance with the limitations by January 1, 2002."
Section 16.  This act becomes effective October 1, 1998, and applies to fees due and payable, reports required, and actions taken on or after that date.