January 16, 2014

Insurers Take Note: Indiana Updates Holding Company Regulations

Effective January 17, 2014, Indiana takes the final step in adopting the recent changes to the NAIC Model Holding Company laws by adopting certain amendments to its Holding Company Regulations, set forth in 760 IAC 1-15.1. Amended Rule 15.1 formalizes certain regulatory standards put into practice with the amendment of Indiana Code 27-1-23 in 2012 and adds new requirements applicable to Indiana domestic companies and their ultimate controlling persons. While the amendments to Rule 15.1 did not produce any surprises, insurers operating in Indiana should review the amended rule and understand its implications.

The most notable change found in Amended Rule 15.1 is the adoption of the Form F Statement as the format for the required annual Enterprise Risk Report (ERR). Pursuant to Indiana Code 27-1-23-3(l), the ultimate controlling person of the domestic insurer must file an ERR annually with the "lead state" of the domestic insurer's holding company system. In completing the ERR, the ultimate controlling person must identify the material risks within the domestic insurer's holding company system that "could pose enterprise risk to the insurer." The Form F Statement sets forth the information to be disclosed and provides the format in which the information is to be submitted to the regulator. Unlike its NAIC Model counterpart, an exemption from the ERR requirement is available under Amended Rule 15.1 for holding company systems that fall below certain combined annual premium amounts so long as certain conditions are present.

Another significant change resulting from the amendment of Rule 15.1 is the list of specific provisions that must be included in an insurer's cost-sharing and management service agreements with other members of its holding company system, as applicable. The provisions mandated by the amended rule include, for example, indemnification provisions, a definition of books and records, and certain termination rights. As insurers make prior notice filings, as well as notice filings for amendments to existing service agreements, these requirements will no doubt be enforced.

Amended Rule 15.1 also formally adopts regulatory requirements and standards that have — for all practical purposes — been in place for some time now. For example, amended Rule 15.1 adopts the NAIC Model Form E as the format for pre-acquisition notifications of a proposed merger or acquisition, as required under Indiana Code 27-1-23-2.5. In addition, the amended Form A expressly requires acquiring parties to provide three-year financial projections and third-party background checks.

Other changes new to Indiana:

  • The Form D has been amended to require specific disclosures for cost-sharing arrangements.
  • The amended Form B clarifies the financial reporting requirements of ultimate controlling persons (including individuals) and reduces the threshold for reporting material transactions to one half of one percent (0.5 percent) of an insurer's prior year admitted assets (the threshold was formerly 1 percent).
  • The holding company system organizational chart required in connection with both Form A and Form B must now include every affiliate member of the holding company system. There is no longer an exception for affiliates with total assets of less than 1 percent of the ultimate controlling person's total assets.
As states continue to adopt the NAIC Model Holding Company laws, there will be significant provisions that are specific to a particular state. Please contact a member of our insurance group if you need help navigating Indiana's amended Rule 15.1 or amendments to other state Holding Company laws.

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