Pennsylvania Insurance Department’s Proposed Insurance Holding Company Regulations – Significant Changes Ahead

by Saul Ewing Arnstein & Lehr LLP


Pennsylvania insurers should be aware that proposed changes to Pennsylvania’s Insurance Holding Company regulations impose significant new requirements – especially for management agreements, service contracts, tax allocation agreements, guarantees and cost-sharing arrangements with affiliates.

The long-awaited proposed changes to Pennsylvania’s Insurance Holding Company regulations were published in the October 12, 2013 Pennsylvania Bulletin. These changes are necessary to implement revisions to Pennsylvania’s Insurance Holding Company Act enacted in 2012 (2012 IHCA).

The proposed regulations include a number of changes that merely re-state provisions in the 2012 IHCA. However, they also add new requirements -- the most significant of which apply to management agreements, service contracts, tax allocation agreements, guarantees and cost-sharing arrangements. The proposed regulations:

  • Clarify the Department’s position that all amendments to existing agreements must be filed on a Form D (whether or not previously filed on a Form D) – with only two minor exceptions.
  • Set forth a list of 12 required provisions for all new and amended agreements (the Department has advised that, when a Form D is filed for an amendment to an existing agreement, it will expect that the required provisions be added if not already in the agreement).
  • Indicate the specific information that must be included in all Form D filings for new and amended agreements – with the required information differing by type of agreement.

Pennsylvania insurers should prepare for implementing these requirements – for both new and existing agreements. (Although not specified in the 2012 IHCA or the proposed regulations, the Department has advised that the list of agreements is not exhaustive and the Department applies these requirements to all “similar” agreements, including affiliate lease agreements.)

Other changes in the proposed regulations that are not set forth in the 2012 IHCA include:

  • Form F – Enterprise Risk Report: While the 2012 IHCA indicates that the first Report must be filed by the ultimate controlling person (UCP) in an insurance holding company system no later than March 31, 2014, the proposed regulations include the form, required content and “rules” for the Report.
  • Form A – Acquisition Statement: The proposed Form A removes the “de minimis” affiliate exemption for the required organization chart (all affiliates are now relevant to regulators – regardless of size – and must be disclosed). It also indicates that the Department may require 3rd party background checks in addition to biographical affidavits for directors, executive officers and controlling shareholders of the applicant
  • Form B – Registration Statement: Similar to the proposed Form A, the Form B removes the “de minimis” affiliate exemption for the required organization chart. It also provides clarification on the acceptable form of required UCP financial statements (NAIC form/format, SEC fiilings, or audited GAAP statements).
  • Form D – Prior Notice of a Transaction: In addition to the revisions set forth above for management agreements et al., the proposed regulations require that all Form D filings include a statement of how the transaction meets the “fair and reasonable” standard of the IHCA.

The Department is accepting comments and questions on the proposed regulations for a period of 30 days following the October 12 publication in the Pennsylvania Bulletin.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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