On January 4, 2016, the New Jersey Department of Banking and Insurance (Department) proposed new rules to be codified at N.J.A.C. 11:1-35.13 and 11:1-35 Appendix Exhibit F, as well as amendments to N.J.A.C. 11:1-35.1 through 35.5, 35.7, 35.9, 35.10 and 11:1-35 Appendix A through E (Holding Company Regulations). The proposal is linked here.
The proposed new rules and rule changes are intended to conform New Jersey’s Insurance Holding Company Systems Act, N.J.S.A.17:27A-1 et seq. (Holding Company Act) with the National Association of Insurance Commissioners’ (NAIC) Model Insurance Holding Company Systems Act adopted by the NAIC in 2010 and required in order for the Department to maintain NAIC accreditation. The proposed rules and the amendments codify the December 26, 2014 changes adopted by New Jersey to the Holding Company Act and ensure that the Department’s regulation of New Jersey insurance holding company systems is consistent with NAIC standards. A summary of the proposal, by Form, is set forth below.
Form A Statement Regarding Acquisition of Control
The proposal amends existing rules pertaining to Form A/Change in Control hearings to allow electronic filings and hearings on a consolidated basis pursuant to N.J.S.A. 17:27A-2.d(3). The Form A Statement must be filed in electronic form with both the New Jersey Commissioner and the NAIC.
The regulations implementing the disclaimer of affiliation statute at N.J.S.A. 17:27A-3.j also are proposed for amendment to clarify that the 30-day deemer timeframe only begins to run upon receipt of a complete disclaimer request. A hearing can be requested if the disclaimer is disallowed, by written request to the Department within 20 days after issuance of the notification of disallowance.
The Form A Statement also is proposed for amendment. Item 12 will require submission of three-year financial projections of the insurer as part of the financial statement. Item 13 is proposed to be added to the Form A Statement to reflect that the applicant agrees to provide information required by Exhibit F relating to the enterprise risk reporting. Item 14 is proposed to be added to the Form A Statement to reflect the applicant’s acknowledgment that it will provide the annual enterprise risk report so long as it remains in control.
Form B Annual Registration Statement
The Form B Registration Statement is proposed for amendment at Item 4 to delineate the information required if the ultimate controlling person is a corporation, organization, limited liability company or other legal entity. The proposal also addresses information to be disclosed when the ultimate controlling person is an individual. The proposal provides guidance regarding the type of financial statements required when a person is a corporation or other legal entity as opposed to an individual and to require that upon the request of the Department, financial statements of any and all affiliates within the holding company system of the registered insurer be provided pursuant to N.J.S.A. 17:27A-3.b(5).
Information must also be included in the Form B regarding corporate governance pursuant to N.J.S.A. 17:27A-3.b(7). A new Item 10 is proposed to confirm that the registrant has procedures in place to assure strong corporate governance, internal controls, and enterprise risk analysis pursuant to N.J.S.A. 17:27A-3.b(7) and 3.k.
Form C Changes to Registration Statement
The title of the Form C summary has been amended to reflect that it is a summary of changes to the prior year’s annual Registration Statement.
Form D Prior Notice of A Transaction
The terms of affiliated agreements and the Form D exhibit to accompany such agreements and other material transactions submitted for review and approval by the Department has been proposed for amendment to include specific requirements for cost-sharing and management services, including a method to allocate costs. Those requirements track the NAIC Model Holding Company Act.
Item 2(c) to the Form D is proposed to be added to require that the description of the proposed transaction with affiliates provide a statement of how the transaction meets the “fair and reasonable” standard as required by N.J.S.A. 17:27A-4.a(1)(a). Exhibit D, Item 6 is proposed to be amended to disclose additional information for management agreements, service agreements, and cost-sharing agreements, including tax allocation agreements, between affiliates.
Items 7 and 8 of the Form D are proposed to address prior notice and non-disapproval of affiliated transactions related to guarantees made by a domestic insurer and direct or indirect acquisitions or investments in a person who controls the insurer or affiliate.
Form E Pre-Acquisition Notice Regarding Potential Competitive Impact
Form E currently requires disclosure of relevant markets in which the applicant conducts business and market share information on both the target and the applicant in each such market. The proposal further requires the filing party to provide a determination of whether the proposed acquisition or merger, if consummated, would violate New Jersey’s competitive standards as set forth at N.J.S.A. 17:27A-4.1. If the transaction would violate the competitive standards, the filing party must provide justification as to why the proposed acquisition or merger would not substantially lessen competition or create a monopoly in the State.
Form F Enterprise Risk Report
The proposed amendments and new rules address enterprise risk reporting, adopt the NAIC Model Form F (Exhibit F in the Appendix to New Jersey’s Holding Company Regulations) and require domestic companies and certain other regulated entities subject to Holding Company Act reporting to file an enterprise risk report on or before April 1 of each calendar year pursuant to N.J.S.A. 17:27A-3.k. The proposal requires that the ultimate controlling person of every insurer subject to registration with the Department file an enterprise risk report with its lead state pursuant to N.J.S.A. 17:27A-3.k. If New Jersey is not the lead state, the Department may request copies of lead state filings.
Comments to the proposal may be submitted to the Department in writing on or before March 4, 2016.