An Act concerning insurance; relating to risk-based capital requirements; amending K.S.A. 1995 Supp. 40-2c01, 40-2c03, 40-2c05, 40-2c11, 40-2c13, 40-2c15, 40-2c18, 40-2c20 and 40-2c24 and repealing the existing sections.

Be it enacted by the Legislature of the State of Kansas:

Section 1. K.S.A. 1995 Supp. 40-2c01 is hereby amended to read as follows: 40-2c01. As used in this act:

(a) ``Adjusted RBC report'' means an RBC report which has been adjusted by the commissioner in accordance with K.S.A. 1995 Supp. 40- 2c04, and amendments thereto.

(b) ``Corrective order'' means an order issued by the commissioner specifying corrective actions which the commissioner has determined are required to address a RBC level event.

(c) ``Domestic insurer'' means any life insurance company or risk re- tention group which is licensed and organized in this state pursuant to K.S.A. 40-401 and amendments thereto.

(d) ``Foreign insurer'' means any life insurance company or risk re- tention group not domiciled in this state which is licensed or registered to do business in this state pursuant to article 41 of chapter 40 of the Kansas Statutes Annotated or K.S.A. 40-209, and amendments thereto.

(e) ``NAIC'' means the national association of insurance commission- ers.

(f) ``Life and health insurer'' means any insurance company licensed under article 4 or 5 of chapter 40 of the Kansas Statutes Annotated or a licensed property and casualty insurer writing only accident and health insurance.

(g) ``Property and casualty insurer'' means any insurance company licensed under articles 9, 10, 11, 12, 12a, 15 or 16 of chapter 40 of the Kansas Statutes Annotated, but shall not include monoline mortgage guar- anty insurers, financial guaranty insurers and title insurers.

(f) (h) ``Negative trend'' means, with respect to a life and health in- surer, a negative trend over a period of time, as determined in accordance with the ``trend test calculation'' included in the RBC instructions defined in subsection (h) (j).

(g) (i) ``RBC'' means risk-based capital.

(h) (j) ``RBC instructions'' means mean the RBC report including risk-based capital instructions promulgated by the NAIC, which are in effect on July 1, 1996, and adopted as rules and regulations by the com- missioner.

(i) (k) ``RBC level'' means an insurer's company action level RBC, regulatory action level RBC, authorized control level RBC, or mandatory control level RBC where:

(1) ``Company action level RBC'' means, with respect to any insurer, the product of 2.0 and its authorized control level RBC;

(2) ``regulatory action level RBC'' means the product of 1.5 and its authorized control level RBC;

(3) ``authorized control level RBC'' means the number determined under the risk-based capital formula in accordance with the RBC instruc- tions; and

(4) ``mandatory control level RBC'' means the product of .70 and the authorized control level RBC.

(j) (l) ``RBC plan'' means a comprehensive financial plan containing the elements specified in K.S.A. 1995 Supp. 40-2c06, and amendments thereto. If the commissioner rejects the RBC plan, and it is revised by the insurer, with or without the commissioner's recommendation, the plan shall be called the ``revised RBC plan.''

(k) (m) ``RBC report'' means the report required by K.S.A. 1995 Supp. 40-2c02, and amendments thereto.

(l) (n) ``Total adjusted capital'' means the sum of:

(1) An insurer's capital and surplus or surplus only if a mutual insurer; and

(2) such other items, if any, as the RBC instructions may provide.

(m) (o) ``Commissioner'' means the commissioner of insurance.

Sec. 2. K.S.A. 1995 Supp. 40-2c03 is hereby amended to read as follows: 40-2c03. An (a) A life and health insurer's RBC shall be deter- mined in accordance with the formula set forth in the RBC instructions. The formula shall take into account and may adjust for the covariance between:

(a) (1) The risk with respect to the insurer's assets;

(b) (2) the risk of adverse insurance experience with respect to the insurer's liabilities and obligations;

(c) (3) the interest rate risk with respect to the insurer's business; and

(d) (4) all other business risks and such other relevant risks as are set forth in the RBC instructions; determined in each case by applying the factors in the manner set forth in the RBC instructions.

(b) A property and casualty insurer's RBC shall be determined in accordance with the formula set forth in the RBC instructions. The for- mula shall take into account and may adjust for the covariance between:

(1) Asset risk;

(2) credit risk;

(3) underwriting risk; and

(4) all other business risks and such other relevant risks as are set forth in the RBC instructions; determined in each case by applying the factors in the manner set forth in the RBC instructions.

(c) An excess of capital over the amount produced by the risk-based capital requirements contained in this act and the formulas, schedules and instructions referenced in this act is desirable in the business of insurance. Accordingly, insurers should seek to maintain capital above the RBC lev- els required by this act. Additional capital is used and useful in the in- surance business and helps to secure an insurer against various risks in- herent in, or affecting, the business of insurance and not accounted for or only partially measured by the risk-based capital requirements contained

in this act.

Sec. 3. K.S.A. 1995 Supp. 40-2c05 is hereby amended to read as follows: 40-2c05. ``Company action level event'' means any of the follow- ing events:

(a) The filing of an RBC report by an insurer which indicates that:

(1) The insurer's total adjusted capital is greater than or equal to its regulatory action level RBC but less than its company action level RBC; or

(2) the if a life and health insurer has total adjusted capital which is greater than or equal to its company action level RBC but less than the product of its authorized control level RBC and 2.5 and also has a negative trend.

(b) The notification by the commissioner to the insurer of an adjusted RBC report that indicates the event described in subsection (a)(1) or (2), unless the insurer challenges the adjusted RBC report pursuant to K.S.A. 1995 Supp. 40-2c19, and amendments thereto, and such challenge has not been rejected by the commissioner.

Sec. 4. K.S.A. 1995 Supp. 40-2c11 is hereby amended to read as follows: 40-2c11. ``Regulatory action level event'' means, with respect to any insurer, any of the following events:

(a) The filing of an RBC report by the insurer which indicates that the insurer's total adjusted capital is greater than or equal to its authorized control level RBC but less than its regulatory action level RBC;

(b) the notification by the commissioner to an insurer of an adjusted RBC report that indicates the result described in subsection (a) if the insurer does not challenge the adjusted RBC report pursuant to K.S.A. 1995 Supp. 40-2c19, and amendments thereto;

(c) the filing of an adjusted RBC report that indicates the result de- scribed in subsection (a) if the commissioner has rejected the insurer's challenge after a hearing held pursuant to K.S.A. 1995 Supp. 40-2c19, and amendments thereto;

(d) the failure of the insurer to file an RBC report by the filing date, unless the insurer has provided an explanation for such failure which is satisfactory to the commissioner and has cured the failure within 10 days after the filing date;

(e) the failure of the insurer to submit an RBC plan to the commis- sioner within the time period set forth in K.S.A. 1995 Supp. 40-2c07, and amendments thereto;

(f) notification by the commissioner to the insurer that:

(1) The RBC plan or revised RBC plan submitted by the insurer is, in the judgment of the commissioner, unsatisfactory; and

(2) (A) the insurer has not challenged the determination pursuant to K.S.A. 1995 Supp. 40-2c19, and amendments thereto; or

(B) the commissioner has rejected such challenge.

(g) Notification by the commissioner to the insurer that the insurer has failed to adhere to its RBC plan or revised RBC plan, but only if such failure has a substantial adverse effect on the ability of the insurer to eliminate the regulatory company action level event in accordance with its RBC plan or revised RBC plan and the commissioner has so stated in the notification, if:

(1) The insurer has not challenged such determination pursuant to K.S.A. 1995 Supp. 40-2c19, and amendments thereto; or

(2) the commissioner has rejected such challenge.

Sec. 5. K.S.A. 1995 Supp. 40-2c13 is hereby amended to read as follows: 40-2c13. In determining corrective actions, the commissioner may take into account such factors as are deemed relevant with respect to the insurer based upon the commissioner's examination or analysis of the assets, liabilities and operations of the insurer, including, but not limited to, the results of any sensitivity tests undertaken pursuant to the RBC instructions. The RBC plan or revised RBC plan shall be submitted:

(a) Within 45 days after the occurrence of the regulatory action level event;

(b) within 45 days after the notification to the insurer that the com- missioner has rejected the insurer's challenge to an adjusted RBC report pursuant to K.S.A. 1995 Supp. 40-2c19, and amendments thereto; or

(c) within 45 days after notification to the insurer that the commis- sioner has rejected the insurer's challenge to a revised RBC plan pursuant to K.S.A. 1995 Supp 40-2c19, and amendments thereto.

Sec. 6. K.S.A. 1995 Supp. 40-2c15 is hereby amended to read as follows: 40-2c15. ``Authorized control level event'' means any of the fol- lowing events:

(a) The filing of an RBC report by the insurer which indicates that the insurer's total adjusted capital is greater than or equal to its mandatory control level RBC but less than its authorized control level RBC;

(b) the notification by the commissioner to the insurer of an adjusted RBC report that indicates the event described in subsection (a) if:

(1) The insurer does not challenge the adjusted RBC report pursuant to K.S.A. 1995 Supp. 40-2c19, and amendments thereto; or

(2) the commissioner has rejected such challenge;

(c) the failure of the insurer to respond, in a manner satisfactory to the commissioner, to a corrective order if the insurer has not challenged the corrective order under K.S.A. 1995 Supp. 40-2c19, and amendments thereto; or

(d) if the commissioner has rejected the challenge to the corrective order or modified the corrective order pursuant to K.S.A. 1995 Supp. 40- 2c19, and amendments thereto, the failure of the insurer to respond, in a manner satisfactory to the commissioner, to the corrective order subse- quent to rejection or modification by the commissioner.

Sec. 7. K.S.A. 1995 Supp. 40-2c18 is hereby amended to read as follows: 40-2c18. In the event of a mandatory control level event with respect to: (a) A life and health insurer, the commissioner shall take ac- tions as are necessary to cause the insurer to be placed under regulatory control under K.S.A. 40-3605 et seq. and amendments thereto. In that event, the mandatory control level event shall be deemed sufficient grounds for the commissioner to take action under K.S.A. 40-3605 et seq. and amendments thereto, and the commissioner shall have the rights, powers, and duties with respect to the insurer as are set forth in K.S.A. 40-3605 et seq. and amendments thereto. In the event the commissioner takes actions pursuant to an adjusted RBC report, the insurer shall be entitled to such protections as are afforded to insurers under the provi- sions of K.S.A. 77-601 et seq. and amendments thereto, pertaining to summary proceedings. Notwithstanding any of the foregoing, the com- missioner may forego action for up to 90 days after the mandatory control level event if there is a reasonable expectation that the mandatory control level event may be eliminated within the 90-day period.;

(b) A property and casualty insurer, the commissioner shall take such actions as are necessary to place the insurer under regulatory control under K.S.A. 40-3605 et seq. and amendments thereto, or, in the case of an insurer which is writing no business and which is running-off its ex- isting business, may allow the insurer to continue its run-off under the supervision of the commissioner. In either event, the mandatory control level event shall be deemed sufficient grounds for the commissioner to take action under K.S.A. 40-3605 et seq. and amendments thereto and the commissioner shall have the rights, powers and duties with respect to the insurer as are set forth in K.S.A. 40-3605 et seq. and amendments thereto. If the commissioner takes actions pursuant to an adjusted RBC report, the insurer shall be entitled to such protections as are afforded to insurers under the provisions of K.S.A. 77-601 et seq., and amendments thereto, pertaining to summary proceedings. Notwithstanding any of the forego- ing, the commissioner may forego action for up to 90 days after the man- datory control level event if there is a reasonable expectation that the mandatory control level event may be eliminated with the 90-day period.

Sec. 8. K.S.A. 1995 Supp. 40-2c20 is hereby amended to read as follows: 40-2c20. (a) All RBC reports, RBC plans and any corrective or- ders, including the working papers and the results of any analysis of an insurer performed under this act shall be kept confidential by the com- missioner. This information shall not be made public or subject to sub- poena, other than by the commissioner and then only for the purpose of enforcement actions taken by the commissioner pursuant to this act or any other provision of the insurance laws of this state.

(b) RBC instructions, RBC reports, adjusted RBC reports, RBC plans and revised RBC plans are intended solely for use by the commissioner in monitoring the solvency of insurers and the need for possible corrective action with respect to insurers and shall not be used by the commissioner for ratemaking nor considered or introduced as evidence in any rate pro- ceeding nor used by the commissioner to calculate or derive any elements of an appropriate premium level or rate of return for any line of insurance which an insurer or any affiliate is authorized to write.

Sec. 9. K.S.A. 1995 Supp. 40-2c24 is hereby amended to read as follows: 40-2c24. In the event of a company action level event, regulatory action level event or authorized control level event with respect to any foreign insurer as determined under the RBC statute applicable in the state of domicile of the insurer or, if no RBC provision is in force in that state, under the provisions of this act, if the insurance commissioner of the state of domicile of the foreign insurer fails to require the foreign insurer to file an RBC plan in the manner specified under the RBC statute or, if there are no RBC provisions in force in the state, under K.S.A. 1995 Supp. 40-2c05, 40-2c06, 40-2c07, 40-2c08, 40-2c09 and 40-2c10, and amendments thereto, the commissioner may require the foreign insurer to file an RBC plan with the commissioner. In such event, the failure of the foreign insurer to file an RBC plan with the commissioner shall be grounds to order the insurer to cease and desist from writing new insur- ance business in this state.

New Sec. 10. The commissioner may exempt from the application of K.S.A. 1995 Supp. 40-2c01 through 40-2c27, and amendments thereto, any domestic property and casualty insurer which:

(a) Writes direct business only in this state;

(b) writes direct annual premiums of $2,000,000 or less; and

(c) assumes no reinsurance in excess of 5% of direct premiums writ- ten.

Sec. 11. K.S.A. 1995 Supp. 40-2c01, 40-2c03, 40-2c05, 40-2c11, 40- 2c13, 40-2c15, 40-2c18, 40-2c20 and 40-2c24 are hereby repealed.

Sec./007006/This act shall take effect and be in force from and after its publication in the statute book.

Approved April 4, 1996.