Ch. 166             1997 Session Laws of Kansas             1161

An Act concerning insurance companies; regarding the reporting of material transactions;
concerning the analysis of acquisitions; regarding the change of control or ownership;
amending K.S.A. 40-3304 and K.S.A. 1996 Supp. 40-3302 and repealing the existing
sections; also repealing K.S.A. 40-3314 and K.S.A. 1996 Supp. 40-2,158.

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

New Section 1. (a) No nonrenewals, cancellations or revisions of
ceded reinsurance agreements need be reported pursuant to K.S.A. 1996
Supp. 40-2,156 and amendments thereto if the nonrenewals, cancellations
or revisions are not material. For purposes of this act, a material nonre-
newal, cancellation or revision is one that affects:

(1) As respects property and casualty business, including accident and
health business written by a property and casualty insurer:

(A) More than 50% of the insurer's total ceded written premium; or

(B) more than 50% of the insurer's total ceded indemnity and loss
adjustment reserves.

(2) As respects life, annuity and accident and health business: more
than 50% of the total reserve credit taken for business ceded, on an
annualized basis, as indicated in the insurer's most recent annual state-
ment.

(3) As respects either property and casualty or life, annuity, and ac-
cident and health business, either of the following events shall constitute
a material revision which must be reported:

(A) An authorized reinsurer representing more than 10% of a total
cession is replaced by one or more unauthorized reinsurers; or

(B) previously established collateral requirements have been reduced
or waived as respects one or more unauthorized reinsurers representing
collectively more than 10% of a total cession.

(b) No filing is required pursuant to subsection (a) if:

(1) As respects property and casualty business, including accident and
health business written by a property and casualty insurer, the insurer's
total ceded written premium represents, on an annualized basis, less than
10% of its total written premium for direct and assumed business; or

(2) as respects life, annuity and accident and health business: the total
reserve credit taken for business ceded represents, on an annualized basis,
less than 10% of the statutory reserve requirement prior to any cession.

(c) The following information is required to be disclosed in any report
of a material nonrenewal, cancellation or revision of ceded reinsurance
agreements:

(1) The effective date of the nonrenewal, cancellation or revision;

(2) the description of the transaction with an identification of the
initiator thereof;

(3) the purpose of, or reason for, the transaction; and

1162             1997 Session Laws of Kansas             Ch. 166

(4) the identity of the replacement reinsurers, if applicable.

(d) Insurers are required to report all material nonrenewals, cancel-
lations or revisions of ceded reinsurance agreements on a nonconsolidated
basis unless the insurer is part of a consolidated group of insurers which
utilizes a pooling arrangement or 100% reinsurance agreement that af-
fects the solvency and integrity of the insurer's reserves and the insurer
ceded substantially all of its direct and assumed business to the pool. An
insurer is deemed to have ceded substantially all of its direct and assumed
business to a pool if the insurer has less than $1,000,000 total direct plus
assumed written premiums during a calendar year that are not subject to
a pooling arrangement and the net income of the business not subject to
the pooling arrangement represents less than 5% of the insurer's capital
and surplus.

Sec. 2. K.S.A. 1996 Supp. 40-3302 is hereby amended to read as
follows: 40-3302. As used in this act, unless the context otherwise re-
quires:

(a) ``Affiliate'' of, or person ``affiliated'' with, a specific person, means
a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person
specified.

(b) ``Commissioner of insurance'' means the commissioner of insur-
ance, the commissioner's deputies, or the insurance department, as ap-
propriate.

(c) ``Control'' including the terms ``controlling,'' ``controlled by'' and
``under common control with'', means the possession, direct or indirect,
of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities,
by contract other than a commercial contract for goods or nonmanage-
ment services, or otherwise, unless the power is the result of an official
position with or corporate office held by the person. Control shall be
presumed to exist if any person, directly or indirectly, owns, controls,
holds with the power to vote, or holds proxies representing 10% or more
of the voting securities of any other person. This presumption may be
rebutted only for registration purposes pursuant to K.S.A. 40-3305 and
amendments thereto by a showing made in the manner provided by sub-
section (i) (k) of K.S.A. 40-3305 and amendments thereto, that control
does not exist in fact. The commissioner of insurance may determine,
after a hearing in accordance with the provisions of the Kansas adminis-
trative procedure act, that control exists in fact, notwithstanding the ab-
sence of a presumption to that effect.

(d) ``Insurance holding company system'' means two or more affili-
ated persons, one or more of which is an insurer.

(e) ``Insurer'' means any corporation, company, association, society,
fraternal benefit society, health maintenance organization, mutual non-

Ch. 166             1997 Session Laws of Kansas             1163

profit medical and hospital service corporation, nonprofit medical service
corporation, nonprofit dental service corporation, nonprofit optometric
service corporation, reciprocal exchange, person or partnership writing
contracts of insurance, indemnity or suretyship in this state upon any type
of risk or loss except lodges, societies, persons or associations transacting
business pursuant to the provisions of K.S.A. 40-202 and amendments
thereto.

(f) ``Person'' means an individual, corporation, a partnership, an as-
sociation, a joint stock company, a trust, an unincorporated organization,
any similar entity or any combination of the foregoing acting in concert.

(g) ``Securityholder'' of a specified person means one who owns any
security of such person, including common stock, preferred stock, debt
obligations, and any other security convertible into or evidencing the right
to acquire any of the foregoing.

(h) ``Subsidiary'' of a specified person means an affiliate controlled
by such person directly, or indirectly, through one or more intermediar-
ies.

(i) ``Voting security'' means any security convertible into or evidenc-
ing a right to acquire a voting security.

Sec. 3. K.S.A. 40-3304 is hereby amended to read as follows: 40-
3304. (a) No person other than the issuer shall make a tender offer for
or a request or invitation for tenders of, or enter into any agreement to
exchange securities or, seek to acquire, or acquire, in the open market or
otherwise, any voting security of a domestic insurer if, after the consum-
mation thereof, such person would, directly or indirectly (or by conversion
or by exercise of any right to acquire) be in control of such insurer, and
no person shall enter into an agreement to merge with or otherwise to
acquire control of a domestic insurer or any person controlling a domestic
insurer unless, at the time any such offer, request, or invitation is made
or any such agreement is entered into, or prior to the acquisition of such
securities if no offer or agreement is involved, such person has filed with
the commissioner of insurance and has sent to such insurer, a statement
containing the information required by this section and such offer, re-
quest, invitation, agreement or acquisition has been approved by the com-
missioner of insurance in the manner hereinafter prescribed. The
requirements of this section shall not apply to the merger or consolidation
of those companies subject to the requirements of K.S.A. 40-507 and 40-
1216 to 40-1225, inclusive, and amendments thereto.

For the purposes of this section a domestic insurer shall include any
person controlling a domestic insurer unless such person as determined
by the commissioner is either directly or through its affiliates primarily
engaged in business other than the business of insurance. However, such
person shall file a preacquisition notification with the commissioner con-
taining the information set forth in subsection (c)(1) of K.S.A. 40-3314

1164             1997 Session Laws of Kansas             Ch. 166

and amendments thereto 30 days prior to the proposed effective date of
the acquisition. Failure to file is subject to subsection (e)(3) of K.S.A. 40-
3314 and amendments thereto. For the purposes of this section, ``person''
shall not include any securities broker holding, in the usual and customary
broker's function, less than 20% of the voting securities of an insurance
company or of any person which controls an insurance company.

(b) The statement to be filed with the commissioner of insurance
hereunder shall be made under oath or affirmation, shall be accompanied
by a nonrefundable filing fee of $1,000 and shall contain the following
information:

(1) The name and address of each person by whom or on whose
behalf the merger or other acquisition of control referred to in subsection
(a) of this section is to be affected, hereinafter called ``acquiring party'',
and: (A) If such person is an individual, such individual's principal oc-
cupation and all offices and positions held during the past five years and
any conviction of crimes other than minor traffic violations during the
past 10 years; (B) if such person is not an individual, a report of the nature
of its business operations during the past five years or for such lesser
period as such person and any predecessors thereof shall have been in
existence; an informative description of the business intended to be done
by such person and such person's subsidiaries; and a list of all individuals
who are or who have been selected to become directors or executive
officers of such person, or who perform or will perform functions appro-
priate to such positions. Such list shall include for each such individual
the information required by subparagraph (A) of this subsection;

(2) the source, nature and amount of the consideration used or to be
used in effecting the merger or other acquisition of control, a description
of any transaction wherein funds were or are to be obtained for any such
purpose including any pledge of the insurer's stock, or the stock of any
of its subsidiaries or controlling affiliates, and the identity of persons fur-
nishing such consideration, except that where a source of such consid-
eration is a loan made in the lender's ordinary course of business, the
identity of the lender shall remain confidential, if the person filing such
statement so requests;

(3) fully audited financial information as to the earnings and financial
condition of each acquiring party for the preceding five fiscal years of
each such acquiring party or for such lesser period as such acquiring party
and any predecessors thereof shall have been in existence, and similar
unaudited information as of a date not earlier than 90 days prior to the
filing of the statement;

(4) any plans or proposals which each acquiring party may have to
liquidate such insurer, to sell its assets or merge or consolidate it with
any person or to make any other material change in its business or cor-
porate structure or management;

(5) the number of shares of any security referred to in subsection (a)

Ch. 166             1997 Session Laws of Kansas             1165

of this section which each acquiring party proposes to acquire and the
terms of the offer, request, invitation, agreement or acquisition referred
to in subsection (a) of this section, and a statement as to the method by
which the fairness of the proposal was arrived at;

(6) the amount of each class of any security referred to in subsection
(a) of this section which is beneficially owned or concerning which there
is a right to acquire beneficial ownership by each acquiring party;

(7) a full description of any contracts, arrangements or understand-
ings with respect to any security referred to in subsection (a) of this sec-
tion in which any acquiring party is involved, including but not limited to
transfer of any of the securities, joint ventures, loan or option arrange-
ments, puts or calls, guarantees of loans, guarantees against loss or guar-
antees of profits, division of losses or profits, or the giving or withholding
of proxies. Such description shall identify the persons with whom such
contracts, arrangements or understandings have been entered into;

(8) a description of the purchase of any security referred to in sub-
section (a) of this section during the 12 calendar months preceding the
filing of the statement, by any acquiring party, including the dates of
purchase, names of the purchasers, and consideration paid or agreed to
be paid therefor;

(9) a description of any recommendations to purchase any security
referred to in subsection (a) of this section made during the 12 calendar
months preceding the filing of the statement, by any acquiring party, or
by anyone based upon interviews or at the suggestion of such acquiring
party;

(10) copies of all tender offers for, requests or invitations for tenders
of, exchange offers for and agreements to acquire or exchange any se-
curities referred to in subsection (a) of this section, and, if distributed, of
additional soliciting material relating thereto;

(11) the terms of any agreement, contract or understanding made
with or proposed to be made with any broker-dealer as to solicitation of
securities referred to in subsection (a) of this section for tender, and the
amount of any fees, commissions or other compensation to be paid to
broker-dealers with regard thereto;

(12) such additional information as the commissioner of insurance
may by rule or regulation prescribe as necessary or appropriate for the
protection of policyholders of the insurer or in the public interest.

If the person required to file the statement referred to in subsection
(a) of this section is a partnership, limited partnership, syndicate or other
group, the commissioner of insurance may require that the information
called for by paragraphs (1) through (12) of subsection (b) of this section
shall be given with respect to each partner of such partnership or limited
partnership, each member of such syndicate or group, and each person
who controls such partner or member. If any such partner, member or
person is a corporation or the person required to file the statement re-

1166             1997 Session Laws of Kansas             Ch. 166

ferred to in subsection (a) of this section is a corporation, the commis-
sioner of insurance may require that the information called for by para-
graphs (1) through (12) of subsection (b) of this section shall be given
with respect to such corporation, each officer and director of such cor-
poration and each person who is directly or indirectly the beneficial owner
of more than 10% of the outstanding voting securities of such corporation.

If any material change occurs in the facts set forth in the statement
filed with the commissioner of insurance and sent to such insurer pur-
suant to this section, an amendment setting forth such change, together
with copies of all documents and other material relevant to such change,
shall be filed with the commissioner of insurance and sent to such insurer
within two business days after the person learns of such change.

(c) If any offer, request, invitation, agreement or acquisition referred
to in subsection (a) of this section is proposed to be made by means of a
registration statement under the securities act of 1933 or in circumstances
requiring the disclosure of similar information under the securities
exchange act of 1934, or under a state law requiring similar registration
or disclosure, the person required to file the statement referred to in
subsection (a) of this section may utilize such documents in furnishing
the information called for by that statement.

(d) (1) The commissioner of insurance shall approve any merger or
other acquisition of control referred to in subsection (a) of this section
unless, after a public hearing thereon conducted in accordance with the
provisions of the Kansas administrative procedure act, the commissioner
finds that:

(A) After the change of control the domestic insurer referred to in
subsection (a) of this section would not be able to satisfy the requirements
for the issuance of a license to write the line or lines of insurance for
which it is presently licensed;

(B) the effect of the merger or other acquisition of control would be
substantially to lessen competition in insurance in this state or tend to
create a monopoly therein. In applying the competitive standard in this
paragraph:

(i) The informational requirements of subsection (c)(1) of K.S.A.
40-3314 and amendments thereto and the standards of subsection (d)(2)
of K.S.A. 40-3314 and amendments thereto shall apply;

(ii) the merger or other acquisition shall not be disapproved if the
commissioner finds that any of the situations meeting the criteria pro-
vided by subsection (d)(3) of K.S.A. 40-3314 and amendments thereto
exist; and

(iii) the commissioner may condition the approval of the merger or
other acquisition on the removal of the basis of disapproval within a spec-
ified period of time.

Ch. 166             1997 Session Laws of Kansas             1167

(C) (B) the financial condition of any acquiring party is such as might
jeopardize the financial stability of the insurer or prejudice the interest
of its policyholders;

(D) (C) the plans or proposals which the acquiring party has to liq-
uidate the insurer, sell its assets or consolidate or merge it with any per-
son, or to make any other material change in its business or corporate
structure or management, are unfair and unreasonable to policyholders
of the insurer and not in the public interest; or

(E) (D) the competence, experience and integrity of those persons
who would control the operation of the insurer are such that it would not
be in the interest of policyholders of the insurer and of the public to
permit the merger or other acquisition of control; or

(F) (E) the acquisition is likely to be hazardous or prejudicial to the
insurance-buying public.

(2) The public hearing referred to in paragraph (1) of subsection (d)
of this section shall be held as soon as practical after the statement re-
quired by this subsection (a) of this section is filed, and at least 20 days'
notice thereof shall be given by the commissioner of insurance to the
person filing the statement. Not less than seven days' notice of such public
hearing shall be given by the person filing the statement to the insurer
and to such other persons as may be designated by the commissioner of
insurance. At such hearing, the person filing the statement, the insurer,
any person to whom notice of hearing was sent, and any other person
whose interests may be affected thereby shall have the right to present
evidence, examine and cross-examine witnesses, and offer oral and writ-
ten arguments in accordance with the Kansas administrative procedure
act. In the absence of intervention, such insurer or person shall have the
right to present oral or written statements in accordance with subsection
(c) of K.S.A. 77-523 and amendments thereto.

(3) The commissioner may retain at the acquiring person's expense
any attorneys, actuaries, accountants and other experts not otherwise a
part of the commissioner's staff as may be reasonably necessary to assist
the commissioner in reviewing the proposed acquisition of control.

(e) The provisions of this section shall not apply to:

Any offer, request, invitation, agreement or acquisition which the com-
missioner of insurance by order shall exempt therefrom as: (A) (1) Not
having been made or entered into for the purpose and not having the
effect of changing or influencing the control of a domestic insurer; or (B)
(2) as otherwise not comprehended within the purposes of this section.

(f) The following shall be violations of this section:

(1) The failure to file any statement, amendment or other material
required to be filed pursuant to subsection (a) or (b) of this section; or

(2) the effectuation or any attempt to effectuate an acquisition of
control of, or merger with, a domestic insurer unless the commissioner
of insurance has given the commissioner's approval thereto.

1168             1997 Session Laws of Kansas             Ch. 166

(g) The courts of this state are hereby vested with jurisdiction over
every securityholder of a domestic insurer and every person not resident,
domiciled or authorized to do business in this state who files a statement
with the commissioner of insurance under this section and over all actions
involving such person arising out of violations of this section. Each such
person shall be deemed to have performed acts equivalent to and con-
stituting an appointment by such a person of the commissioner of insur-
ance to be such person's true and lawful attorney upon whom may be
served all lawful process in any action, suit or proceeding arising out of
violations of this section. Copies of all such lawful process shall be served
on the commissioner of insurance and transmitted by registered or cer-
tified mail by the commissioner of insurance to such person at such per-
son's last known address.

Sec. 4. K.S.A. 40-3304, 40-3314 and K.S.A. 1996 Supp. 40-2,158 and
40-3302 are hereby repealed.

Sec. 5. This act shall take effect and be in force from and after its
publication in the statute book.

Approved May 9, 1997.