Introduced on June 4, 2013, Ohio S.B. 140 proposes to make some of the most significant changes to Ohio’s insurance laws since perhaps the Ohio Healthcare Simplification Act (H.B. 125) in 2008. If passed, the bill will impact everything from insurer’s filing and disclosure obligations, reinsurance options, online and other automated transactions, risk management programs and intra-holding company system transactions. The bill will also significantly expand the authority of the Superintendent of the Ohio Department of Insurance (“ODI”) to examine and obtain books and records of not only insurers but affiliates as well. As a result, unregulated affiliates, such as hospitals and other health care providers, within an insurance holding company system will be subject to a new level of oversight and regulation to which they may not be currently accustomed.
S.B. 140 follows the revised Insurance Holding Company System Regulatory Act approved by the National Association of Insurance Commissioners (“NAIC”) in couple of years ago and closely tracks laws passed in a number of states and pending legislation in other states.
Among the changes proposed in S.B. 140, the following is only a partial list:
- Form A Statement: The process for the Form A Statement (Mergers and Acquisitions of Domestic Insurers) will include a new divestiture notice requirement for controlling persons, and new items will be added to the Form A Statement itself.
- Form B Registration: The Form B Registration Statement will be changed to include at least one new attestation related to corporate governance and internal controls procedures and possibly additional changes by rule or regulation. Further, upon request by ODI, financial statements for not only the holding company system but affiliates must also be provided. This requirement may pose issues for affiliates within the holding company system that do not currently prepare financial statements given their nature or size of business.
- Enterprise Risk Report: One of the center pieces of the legislation is the establishment of a new filing of an “Enterprise Risk Report.” As discussed by the NAIC, this filing is part of efforts to respond to the crisis in 2008 resulting from the American International Group’s (“AIG”) financial problems. This report will allow ODI to oversee not only the “enterprise risk” to insurers by the holding company system and affiliates but also material risks that “could be” enterprise risk. If Ohio remains consistent with the NAIC model act, this will likely be a new “Form F.”
- Transaction Standards: Currently, only “material” transactions within a holding company system are subject to the transaction standards in ORC 3901.34 but the word “material” has been omitted in the revised language in the bill. This change suggests that all transactions within a holding company system will be subject to these standards. The impact of this proposed change on insurance holding company systems, which include unregulated entities such as hospitals and other health care providers, would potentially be significant. Other changes for these standards are set out in the bill, including new accounting information standards, and other changes will be made through rule making by ODI.
- Form D Statement: Under the bill, if an affiliate agreement that is subject to the Form D prior review requirements is amended or modified, not only is an insurer expressly required to obtain prior approval but it must also include the reason for the change and the financial impact in the Form D filing. “Informal” notice of the termination of any affiliate agreement that was approved through a Form D review will also be required.
- Examinations by Superintendent. The scope and authority of the Superintendent will be greatly expanded. Under the new law, there would appear to be perhaps no room to challenge the legal authority of the Superintendent to access and examine any affiliate within an insurance holding company system. In the case of a compliance review (as discussed in the bill) where the insurer fails to provide an affiliate’s books and records, the insurer may face a fine of $10,000 per day or suspension/revocation of its license.
- Risk Management Framework; Own Risk and Solvency Assessment. Insurers will also be subject to new requirements establishing a risk management framework, which will include a filing of a summary report of an assessment process referred to as an “Own Risk and Solvency Assessment.”
- Alternative Investment Law. An alternative investment law will allow certain insurers to invest according to an alternative set of requirements from existing law. An application must be submitted to ODI. Limits and oversight of the alternative investments are set forth in the proposed law.
This bill is still in the Insurance & Financial Institutions committee , meaning that it is likely to be subject to revisions and clarifications as well as comments from healthcare and insurance industry stakeholders.