NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

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(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Public Regulation Commission ( PRC)

SUMMARY

Synopsis of SPAC Amendment

SB 274/aSPAC restores existing law regarding notice requirements since the intent of SB 274 is to change prior approval requirements.

Synopsis of Original Bill

SB 274 allows domestic in-state insurers to invest an additional 5 percent of their assets in subsidiaries without obtaining prior approval of the Superintendent of Insurance.

Significant Issues

Current law allows insurers to invest the lesser of 5 percent of assets or 50 percent of surplus in subsidiaries without obtaining the prior approval of the Superintendent of Insurance. SB 274 would change the five percent of assets restriction to ten percent of assets.

Out-of-state companies do not have this restriction. SB 274 allows in-state companies to compete under the same set of rules.

TECHNICAL ISSUES

The PRC has written that in the interests of consistency the following should not be deleted:

1. "The lesser of ten percent of insurer's assets or", page 9, lines 2 and 3.

2. "The lesser of three percent of the insurer's admitted assets or", page 13, lines 7,8,22 and 23.

The above sections are notice requirement as opposed to prior approval requirements. The industry agrees with the PRC and would support the above suggestions.

OTHER SUBSTANTIVE ISSUES

Since much of an insurer's assets secure obligations of the insurer to policy holders and claimants, the assets must be invested to provide a high level of security and proper liquidity. Investments in subsidiaries provide less liquidity.

On the other hand, increasing the possible level of investments in subsidiaries possible without prior approval provides additional flexibility to insurance company management and allows the subsidiaries to compete equally with out-of-state companies and grow to their full potential.

SB274 increases the approval amount but still requires reporting to the Superintendent of Insurance of all transactions.

DW/ar