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The Oregon Administrative Rules contain OARs filed through July 15, 2014
 
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DEPARTMENT OF CONSUMER AND BUSINESS SERVICES,
INSURANCE DIVISION

 

DIVISION 27

DOMESTIC INSURERS; ORGANIZATION;
CORPORATE PROCEDURES

Holding Company Systems

836-027-0001

Statutory Authority and Purpose of OAR 836-027-0005 to 836-027-0180

OAR 836-027-0005 to 836-027-0180 are adopted pursuant to authority in ORS 732.572. They are adopted to carry out 732.517 to 732.592. The information required by OAR 836-027-0005 to 836-027-0180 is declared to be necessary and appropriate in the public interest and for the protection of the policyholders in this state.

Stat. Auth.: ORS 732.572
Stats. Implemented: ORS 732.517 - ORS 732.592
Hist.: IC 68, f. & ef. 6-22-76; ID 8-1993, f. & cert. ef. 9-23-93; ID 15-1996, f. & cert. ef. 11-12-96

836-027-0005

Definitions

(1) Unless the context otherwise requires, as used in OAR 836-027-0005 to 836-027-0180:

(a) "Executive officer" means chief executive officer, chief operating officer, chief financial officer, treasurer, secretary, controller and any other individual performing functions corresponding to those performed by the foregoing officers under whatever title.

(b) "Foreign insurer" includes an alien insurer except where specifically noted otherwise.

(c) "Form A" means the form prescribed by OAR 836-027-0100, Exhibit 1, Form A.

(d) "Form B" means the form prescribed by OAR 836-027-0010, Exhibit 2, Form B.

(e) "Form C" means the form prescribed by OAR 836-027-0012, Exhibit 3, Form C.

(f) "Form D" means the form prescribed by OAR 836-027-0160, Exhibit 4, Form D.

(g) "Form E" means the form prescribed by OAR 836-027-0125, Exhibit 5, Form E.

(h) "Form F" means the form prescribed by OAR 836-027-0140, Exhibit 6, Form F.

(i) "Ultimate controlling person" means the person who is not controlled by any other person.

(2) Unless the context requires otherwise, other terms used in OAR 836-027-0005 to 836-027-0180 are used as defined in ORS 732.548.

[ED. NOTE: Exhibits referenced are available from the agency.]

Stat. Auth.: ORS 732.572
Stats. Implemented: ORS 732.517 - 732.592
Hist.: IC 68, f. & ef. 6-22-76; ID 8-1993, f. & cert. ef. 9-23-93; ID 15-1996, f. & cert. ef. 11-12-96; ID 7-2013, f. 12-26-13, cert. ef. 1-1-14; ID 1-2014, f. & cert. ef. 1-8-14

Registration

836-027-0010

Registration of Insurers — Statement Filing

An insurer required to file an annual registration statement pursuant to ORS 732.517 to 732.592 shall:

(1) Furnish the required information on Form B, which is incorporated in and made a part of this rule as Exhibit 2.

(2) Include a statement that the insurer’s board of directors oversees corporate governance and internal controls.

[ED. NOTE: Exhibit 2, Form B, referenced in this rule are not printed in the OAR Compilation. Copies are available from the agency.]

[ED. NOTE: Exhibits referenced are available from the agency.]

Stat. Auth.: ORS 732.572
Stats. Implemented: ORS 732.517 - 732.592
Hist.: IC 68, f. & ef. 6-22-76; ID 8-1993, f. & cert. ef. 9-23-93; ID 13-1993, f. & cert. ef. 12-1-93; ID 15-1996, f. & cert. ef. 11-12-96; ID 7-2013, f. 12-26-13, cert. ef. 1-1-14; ID 1-2014, f. & cert. ef. 1-8-14

 

836-027-0012

Summary of Registration — Statement Filing.

An insurer required to file an annual registration statement pursuant to ORS 732.517 to 732.592 is also required to furnish information required on Form C, which is incorporated in and made a part of this rule as Exhibit 3. An insurer shall file a copy of Form C in each state in which the insurer is authorized to do business, if requested by the Insurance Commissioner of that state.

[ED. NOTE: Exhibit 3, Form C, referenced in this rule is not printed in the OAR Compilation. Copies are available from the agency.]

Stat. Auth.: ORS 732.572
Stats. Implemented: ORS 732.517 - ORS 732.592
Hist.: ID 8-1993, f. & cert. ef. 9-23-93; ID 15-1996, f. & cert. ef. 11-12-96

836-027-0020

Alternative and Consolidated Registrations

(1) An authorized insurer may file a registration statement, Form B, on behalf of an affiliated insurer or insurers that are required to register under ORS 732.551. A registration statement may include information not required by 732.517 to 732.592 regarding any insurer in the insurance holding company system even if the insurer is not an authorized insurer. In lieu of filing a registration statement on Form B, the authorized insurer may file a copy of the registration statement or similar report that it is required to file in its state of domicile, if:

(a) The statement or report contains information substantially similar to that required to be furnished on Form B; and

(b) The filing insurer is the principal insurer in the insurance holding company system.

(2) The question of whether the filing insurer is the principal insurer in the insurance holding company system is a question of fact, and an insurer filing a registration statement or report in lieu of Form B on behalf of an affiliated insurer shall set forth a brief statement of facts that will substantiate the filing insurer's claim that it, in fact, is the principal insurer in the insurance holding company system.

(3) With the prior approval of the Director, an unauthorized insurer may follow any of the procedures that could be followed by an authorized insurer under section (1) of this rule.

(4) An insurer may take advantage of the provisions of ORS 732.562 and 732.564 without obtaining the prior approval of the Director. The Director reserves the right, however, to require individual filings if the Director considers such filings necessary in the interest of clarity, ease of administration or the public good.

[ED. NOTE: The Form(s) referenced in this rule is not printed in the OAR Compilation. Copies are available from the agency.]

Stat. Auth.: ORS 732.705
Stats. Implemented: ORS 732.517 - ORS 732.592 & ORS 732.551
Hist.: IC 68, f. & ef. 6-22-76; ID 8-1993, f. & cert. ef. 9-23-93; ID 15-1996, f. & cert. ef. 11-12-96

836-027-0025

Disclaimers and Termination of Registration

(1) A disclaimer of affiliation or a request for termination of registration claiming that a person does not, or will not upon the taking of some proposed action, control another person (referred to as the "subject" in this section) shall contain:

(a) The number of authorized, issued and outstanding voting securities of the subject;

(b) With respect to the person whose control is denied and all affiliates of such person, the number and percentage of shares of the subject's voting securities that are held of record or known to be beneficially owned, and the number of such shares concerning which there is a right to acquire, directly or indirectly;

(c) All material relationships and bases for affiliation between the subject and the person whose control is denied and all affiliates of such person; and

(d) A statement explaining why such person should not be considered to control the subject.

(2) A request for termination of registration shall be considered granted unless the Director, within ten days after the Director receives the request, notifies the registrant otherwise.

Stat. Auth.: ORS 731 & ORS 732.705
Stats. Implemented: ORS 732.558 & ORS 732.568
Hist.: IC 68, f. & ef. 6-22-76; ID 8-1993, f. & cert. ef. 9-23-93

Forms Generally

836-027-0030

Forms; General Requirements

(1) Forms A, B, C, D, E and F are intended to be guides in the preparation of the statements required by ORS 732.517 to 732.592, including but not limited to the registration provisions thereof. The forms are not intended to be blank forms that are to be filled in. The statements filed shall contain the numbers and captions of all items, but the text of the items may be omitted if the answers to the items are prepared so as to indicate clearly the scope and coverage of the items. All instructions, whether appearing under the items of the form or elsewhere, are to be omitted. Unless expressly provided otherwise, if any item is inapplicable or the answer to any item is in the negative, an appropriate statement to that effect shall be made.

(2) One complete copy of each statement, including exhibits and all other papers and documents filed as a part of the statement, shall be filed with the Director of the Department of Consumer and Business Services by personal delivery or mail. A copy of Form C shall be filed in each state in which an insurer is authorized to do business if the Commissioner of that state has notified the insurer of its request in writing. An insurer who has been so notified shall file the form not later than the 30th day after the date of receipt of the notice. At least one of the copies shall be manually signed and certified in the manner prescribed on the form. Unsigned copies shall be conformed. If the signature of any person is affixed pursuant to a power of attorney or other similar authority, a copy of such power of attorney or other authority shall also be filed with the statement.

(3) If an applicant requests a hearing on a consolidated basis under section 4, chapter 370, Oregon Laws 2013, in addition to filing the Form A with the director, the applicant must file electronically a copy of Form A with the National Association of Insurance Commissioners.

(4) Statements must be prepared on paper 8-1/2" X 11" or 8-1/2" X 13" in size and bound at the top or the top left-hand corner. Exhibits and financial statements, unless specifically prepared for the filing, may be submitted in their original size. All copies of any statement, financial statements or exhibits shall be clear, easily readable, and suitable for photocopying. Debits in credit categories and credits in debit categories shall be designated so as to be clearly distinguishable as such on photocopies. Statements shall be in the English language and monetary values shall be stated in United States currency. If any exhibit or other paper or document filed with the statement is in a foreign language, it shall be accompanied by a translation into the English language and any monetary value shown in a foreign currency shall be converted into United States currency.

[ED. NOTE: Forms referenced are available from the agency.]

Stat. Auth.: ORS 732.572
Stats. Implemented: ORS 732.517 - 732.592
Hist.: IC 68, f. & ef. 6-22-76; ID 8-1993, f. & cert. ef. 9-23-93; ID 15-1996, f. & cert. ef. 11-12-96; ID 19-2006, f. & cert. ef. 9-26-06; ID 7-2013, f. 12-26-13, cert. ef. 1-1-14; ID 1-2014, f. & cert. ef. 1-8-14

836-027-0035

Forms; Incorporation by Reference, Summaries, and Omissions

(1) Information required by any item of Form A, B, D, E or F may be incorporated by reference in answer or partial answer to any other item. Information contained in any financial statement, annual report, proxy statement, statement filed with a governmental authority or any other document may be incorporated by reference in answer or partial answer to any item of Form A, B, D, E or F if the document or paper is filed as an exhibit to the statement. Excerpts of documents may be attached as exhibits if the documents are extensive. Documents currently on file with the Director that were filed within three years need not be filed as exhibits. References to information contained in exhibits or in documents already on file shall clearly identify the material and shall specifically indicate that such material is to be incorporated by reference in answer to the item. Matter shall not be incorporated by reference in any case in which the incorporation would render the statement incomplete, unclear, or confusing.

(2) If an item requires a summary or outline of the provisions of any document, only a brief statement of the pertinent provisions of the document shall be made. The summary or outline may in addition incorporate by reference particular parts of any exhibit or document currently on file with the Director that was filed within three years and may be qualified in its entirety by such reference. If two or more documents required to be filed as exhibits are substantially identical in all material respects except as to the parties thereto, the dates of execution or other details, a copy of only one of such documents need be filed, but it shall have attached a schedule identifying the omitted documents and setting forth the material details in which such documents differ from the documents of which a copy is filed.

Stat. Auth.: ORS 731 & 732.705
Stats. Implemented: ORS 732.523, 732.552 & 732.574
Hist.: IC 68, f. & ef. 6-22-76; ID 8-1993, f. & cert. ef. 9-23-93; ID 7-2013, f. 12-26-13, cert. ef. 1-1-14; ID 1-2014, f. & cert. ef. 1-8-14

836-027-0040

Forms; Information Unknown or Unavailable and Extension of Time to Furnish

(1) Required information need be given only insofar as it is known or reasonably available to the person filing the statement. If any required information is unknown and not reasonably available to the person filing, either because obtaining it would involve unreasonable effort or expense, or because it rests peculiarly within the knowledge of another person not affiliated with the person filing, the information may be omitted. However, the person filing shall:

(a) Give such information on the subject as the person possesses or can acquire without unreasonable effort or expense, together with the sources thereof; and

(b) Include a statement either showing that unreasonable effort or expense would be involved or indicating the absence of any affiliation with the person within whose knowledge the information rests and stating the result of a request made to such person for the information.

(2) If it is impractical to furnish any required information, document, or report at the time it is required to be filed, an application may be filed with the Director:

(a) Identifying the information, document, or report in question;

(b) Stating why the filing thereof at the time required is impractical; and

(c) Requesting an extension of time for filing the information, document, or report to a specified date.

(3) An application submitted under section (2) of this rule shall be considered granted unless the Director, within 30 days after receipt thereof, enters an order denying the application.

Stat. Auth.: ORS 731 & ORS 732.705
Stats. Implemented: ORS 732.523, ORS 732.552 & ORS 732.574
Hist.: IC 68, f. & ef. 6-22-76; ID 8-1993, f. & cert. ef. 9-23-93

836-027-0045

Forms; Additional Information and Exhibits

In addition to the information expressly required to be included in Forms A, B, C, D, E and F there shall be included further material information, if any, as may be necessary to make the information contained in the form not misleading. The person filing may also file exhibits in addition to those expressly required by the statement. Such exhibits shall be marked to indicate clearly the subject matters to which they refer.

Stat. Auth.: ORS 731 & 732.705
Stats. Implemented: ORS 732.523, 732.552, 732.553 & 732.574
Hist.: IC 68, f. & ef. 6-22-76; ID 8-1993, f. & cert. ef. 9-23-93; ID 7-2013, f. 12-26-13, cert. ef. 1-1-14; ID 1-2014, f. & cert. ef. 1-8-14

836-027-0050

Instructions; Amendments

A change to Form A, B, C, D, E and F shall include on the top of the cover page the phrase: "Change No. _____ to" and shall indicate the date of the change and not the date of the original filing.

Stat. Auth.: ORS 731 & 732.705
Stats. Implemented: ORS 732.523, 732.552, 732.554 & 732.574
Hist.: IC 68, f. & ef. 6-22-76; ID 8-1993, f. & cert. ef. 9-24-93; ID 7-2013, f. 12-26-13, cert. ef. 1-1-14; ID 1-2014, f. & cert. ef. 1-8-14

Subsidiaries of Domestic Insurers

836-027-0070

Subsidiaries of Domestic Insurers

The authority to invest in subsidiaries under ORS 733.630 is in addition to any authority to invest in subsidiaries that may be contained in any other provision of the Insurance Code.

Stat. Auth.: ORS 732.705
Stats. Implemented: ORS 733.510 & ORS 733.630
Hist.: ID 8-1993, f. & cert. ef. 9-23-93

Acquisitions and Mergers

836-027-0100

Acquisition of Control — Statement Filing

A person required to file a statement pursuant to ORS 732.517 to 732.592 shall furnish the required information on Form A, which is incorporated in and made a part of this rule as Exhibit 1. The person also shall furnish the required information on Form E, which is incorporated in and made a part of this rule as Exhibit 5 and described in OAR 836-027-0125.

[ED. NOTE: Exhibits referenced are available from the agency.]

Stat. Auth.: ORS 732.705
Stats. Implemented: ORS 732.517 - 732.592
Hist.: ID 8-1993, f. & cert. ef. 9-23-93; ID 15-1996, f. & cert. ef. 11-12-96; ID 7-2013, f. 12-26-13, cert. ef. 1-1-14; ID 1-2014, f. & cert. ef. 1-8-14

836-027-0110

Amendments to Form A

An applicant who has filed a statement pursuant to ORS 732.517 to 732.592 shall promptly advise the Director of any changes in the information so furnished on Form A arising subsequent to the date upon which the information was furnished but prior to disposition of the application by the Director.

Stat. Auth.: ORS 732.705
Stats. Implemented: ORS 732.517 - ORS 732.592
Hist.: ID 8-1993, f. & cert. ef. 9-23-93; ID 15-1996, f. & cert. ef. 11-12-96

836-027-0120

Acquisition of Certain Persons Considered to Be Insurers

(1) If the person being acquired is considered to be a "domestic insurer" solely because of the definition of "domestic insurer" in ORS 732.518, the name of the domestic insurer on the cover page shall be indicated as follows: "ABC Insurance Company, a subsidiary of XYZ Holding Company."

(2) When a person who is considered to be a "domestic insurer" solely because of the definition of "domestic insurer" in ORS 732.518, is being acquired, references to "the insurer" contained in Form A shall refer to both the domestic subsidiary insurer and the person being acquired.

Stat. Auth.: ORS 732.705
Stats. Implemented: ORS 732.517 - ORS 732.592
Hist.: ID 8-1993, f. & cert. ef. 9-23-93; ID 15-1996, f. & cert. ef. 11-12-96

836-027-0125

Pre-Acquisition Notification

(1) If a domestic insurer, including any person controlling a domestic insurer, is proposing a merger or acquisition under ORS 732.523, the person must file a pre-acquisition notification form, Form E, as required under section 6, chapter 370, Oregon Laws 2013.

(2) If a non-domiciliary insurer licensed to do business in this state is proposing a merger or acquisition pursuant to sections 4 to 8, chapter 370, Oregon Laws 2013, that person shall file a pre-acquisition notification form, Form E. A pre acquisition notification form need not be filed if the acquisition is beyond the scope of sections 5 to 8, chapter 370, Oregon Laws 2013.

(3) In addition to the information required by Form E, the director may require an opinion from an economist as to the competitive impact of the proposed acquisition.

Stat. Auth.: ORS 732.705
Stats. Implemented: ORS 732.517 - 732.592
Hist.: ID 7-2013, f. 12-26-13, cert. ef. 1-1-14; ID 1-2014, f. & cert. ef. 1-8-14

836-027-0130

Information to Be Included in Statement Required by ORS 732.517 to 732.592

The statement to be filed with the Director pursuant to ORS 732.517 to 732.592 shall include the following information, to be set forth in Form A:

(1) If any acquiring party required to file a statement is an individual, the principal occupation of the person 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; and

(2) If any acquiring party required to file a statement is not an individual, a report of the nature of its business operations during the past five years or for such lesser period as the acquiring party and any predecessors of the acquiring party have been in existence, an informative description of the business intended to be done by the acquiring party and its subsidiaries, and a list of all individuals who are or who have been selected to become directors or executive officers of the acquiring party or who perform or will perform functions appropriate to the positions. The list shall include for each individual the information required by section (1) of this rule.

(3) The number of shares of any security that each acquiring party required to file a statement proposes to acquire in connection with the acquisition, the terms of any proposed offer or agreement relating to the acquisition and a statement as to the method by which the fairness of the proposal was determined.

(4) The amount of each class of any security of the type to be acquired in connection with the acquisition that is beneficially owned or concerning which there is a right to acquire beneficial ownership by any acquiring party.

(5) A full description of any contracts, arrangements or understandings with respect to any security of the type to be acquired in connection with the acquisition in which any acquiring party required to file a statement is involved, including, without limitation, those involving transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or guarantees of profits, division of losses or profits or the giving or withholding of proxies. The description shall identify the persons with whom the contracts, arrangements or understandings have been entered.

(6) A description of the purchase of any security of the type to be acquired in connection with the acquisition during the 12 calendar months preceding the filing of the statement, by any acquiring party required to file a statement, including the dates of purchase, names of the purchasers and consideration paid or agreed to be paid for the security.

(7) A description of any recommendation to purchase any security of the type to be acquired in connection with the acquisition made by any acquiring party required to file a statement, or by anyone based upon interviews or at the suggestion of any acquiring party required to file a statement, during the 12 calendar months preceding the filing of the statement.

(8) Copies of all tender offers for, requests or invitations for tenders of, exchange offers for and agreements to acquire or exchange any securities of the type to be acquired in connection with the acquisition and, if distributed, copies of additional soliciting material relating thereto.

(9) A description of the terms of any agreement, contract or understanding made with or proposed to be made with any broker-dealer as to solicitation for tender of securities of the type to be acquired in connection with the acquisition, including the amount of any fees, commissions or other compensation to be paid to any broker-dealer in connection with the agreement, contract or understanding.

Stat. Auth.: ORS 732.523 & ORS 732.572
Stats. Implemented: ORS 732.574 & ORS 732.517 - ORS 732.592
Hist.: ID 8-1993, f. & cert. ef. 9-23-93; ID 15-1996, f. & cert. ef. 11-12-96

836-027-0140

Enterprise Risk Report

The ultimate controlling person of an insurer required to file an enterprise risk report under section 10, chapter 370, Oregon Laws 2013shall furnish the required information on Form F, which is incorporated in and made a part of this rule as Exhibit 6.

[ED. NOTE: Exhibits referenced are available from the agency.]

Stat. Auth.: ORS 732.705
Stats. Implemented: ORS 732.517 - 732.592
Hist.: ID 7-2013, f. 12-26-13, cert. ef. 1-1-14; ID 1-2014, f. & cert. ef. 1-8-14

Internal Transactions and Extraordinary Dividends

836-027-0160

Transactions Subject to Prior Notice -- Notice Filing

An insurer required to give notice of a proposed transaction pursuant to ORS 732.574 shall furnish the required information on Form D, which is incorporated in and made a part of this rule as Exhibit 4.

[ED. NOTE: Exhibit 4, Form D, referenced in this rule are not printed in the OAR Compilation. Copies are available from the agency.]

Stat. Auth.: ORS 732.572
Stats. Implemented: ORS 732.517 - ORS 732.592
Hist.: ID 8-1993, f. & cert. ef. 9-23-93; ID 15-1996, f. & cert. ef. 11-12-96

836-027-0170

Extraordinary Dividends and Other Distributions

(1) Requests for approval of extraordinary dividends or any other extraordinary distribution to shareholders shall include the following:

(a) The amount of the proposed dividend;

(b) The date established for payment of the dividend;

(c) A statement as to whether the dividend is to be in cash or other property and, if in property, a description thereof, its cost, and its fair market value together with an explanation of the basis for valuation;

(d) A copy of the calculations determining that the proposed dividend is extraordinary. The work paper must include the following information:

(A) The amounts, dates and form of payment of all dividends or distributions, including regular dividends but excluding distributions of the insurer's own securities, paid within the period of 12 consecutive months ending on the date fixed for payment of the proposed dividend for which approval is sought and commencing on the day after the same day of the same month in the last preceding year;

(B) Total capital and surplus as of the 31st day of December immediately preceding;

(C) If the insurer transacts life insurance, the net gain from operations of the insurer after dividends to policyholders and federal income taxes and before realized capital gains or losses, for the 12-month period ending the 31st day of December immediately preceding;

(D) If the insurer does not transact life insurance, the net income for the 12-month period ending the 31st day of December immediately preceding and the two preceding 12-months periods; and

(E) If the insurer does not transact life insurance, the dividends paid to stockholders excluding distributions of the insurer's own securities in the preceding two calendar years.

(e) A balance sheet and statement of income for the period intervening from the last annual statement filed with the Director and the end of the month preceding the month in which the request for dividend approval is submitted; and

(f) A brief statement as to the effect of the proposed dividend upon the insurer's capital and surplus and the reasonableness of combined capital and surplus in relation to the insurer's outstanding liabilities and the adequacy of surplus relative to the insurer's financial needs.

(2) Subject to ORS 732.576, each registered insurer shall report to the Director all dividends and other distributions to shareholders within five business days following the declaration thereof, including the same information required by section (1)(d)(A) to (E) of this rule.

Stat. Auth.: ORS 732.572
Stats. Implemented: ORS 732.517 - ORS 732.592
Hist.: ID 8-1993, f. & cert. ef. 9-23-93; ID 15-1996, f. & cert. ef. 11-12-96

836-027-0180

Adequacy of Surplus

The factors set forth in ORS 731.554, as referred to in 732.582, for the purpose of determining the reasonableness and adequacy of the insurer's capital and surplus, are not intended to be an exhaustive list. In determining the adequacy and reasonableness of an insurer's capital and surplus, no single factor is necessarily controlling. Instead, the Director shall consider the net effect of all of such factors and also other factors bearing on the financial condition of the insurer. In comparing the capital and surplus maintained by other insurers, the Director shall consider the extent to which each of such factors varies from insurer to insurer. In determining the quality and liquidity of investments in subsidiaries, the Director shall consider the individual subsidiary and may discount or disallow its valuation to the extent that the individual investments so warrant.

Stat. Auth.: ORS 732.572
Stats. Implemented: ORS 731.554, 732.517 - 732.592
Hist.: ID 8-1993, f. & cert. ef. 9-23-93; ID 15-1996, f. & cert. ef. 11-12-96

Corporate Procedures Generally

836-027-0200

Custodial Arrangements

(1) This rule is adopted pursuant to the rulemaking authority in ORS 731.244 and 732.245 for the purpose of implementing 732.245.

(2) As used in this rule:

(a) "Agent" means:

(A) A national bank;

(B) A state bank; or

(C) A trust company with an account in a clearing corporation or a member of the Federal Reserve System.

(b) "Bank" has the meaning given that term in ORS 706.008;

(c) "Clearing corporation" means a corporation as defined in Article 8 of the Uniform Commercial Code (published by the American Law Institute and the National Conference of Commissioners on Uniform State Laws, 2003), that is organized for the purpose of effecting transactions in securities by computerized book-entry, except those securities issued under the laws of a foreign country;

(d) "Custodian" means a bank or trust company licensed by the United States or by any state thereof and regularly examined by its licensing authority;

(e) "National bank" has the meaning given that term in ORS 706.008;

(f) "Securities" has the meaning given "security" in ORS 59.015;

(g) "Securities depository" means a company that provides securities clearance or settlement services for member banks and other member institutions and that is regulated by the Securities and Exchange Commission, a Federal Reserve Bank and the appropriate banking authorities in its state of domicile;

(h) "State bank" has the meaning given that term in ORS 706.008; and

(i) "Trust company" means a trust company as that term is defined in ORS 706.008 or a company that is authorized under the laws of a state other than Oregon to transact trust business, and includes the trust department of a bank.

(3) A domestic insurer may enter into a custodial or safekeeping arrangement with a custodian for the purpose of holding securities owned by the insurer, either in or outside this state, as provided in this section and section (4) of this rule. Such an arrangement must be made by written agreement between the domestic insurer and the custodian, must meet the requirements and standards of section (4) of this rule and must provide that the securities be held by the custodian or its agent.

(4) A custodial or safekeeping arrangement to which section (3) of this rule applies must account for and safeguard the securities of the domestic insurer, must facilitate examination of the insurer and the records of the insurer's custody account maintained by the custodian and must be in accordance with the following standards established in the Examiners Handbook, published by the National Association of Insurance Commissioners:

(a) The custodian must agree to indemnify the insurer for any loss of the insurer's securities as a result of the negligence or dishonesty of the officers or employees of the custodian, or burglary, robbery, holdup, theft or mysterious disappearance, including loss by damage or destruction;

(b) The custodian must agree that, in the event of a loss of the insurer's securities for which the custodian is obligated to indemnify the insurer, the custodian shall promptly replace the securities or the value of any loss of rights or privileges resulting from the loss of the securities;

(c) The insurer's securities or a certified listing of the insurer's securities through a securities depository or a Federal Reserve book entry system shall be subject to inquiry and examination by the Director of the Department of Consumer and Business Services, either at the custodian's premises or elsewhere, as provided by ORS 731.296 and 731.308;

(d) The national bank, state bank or trust company as custodian shall not be liable for any failure to take any action required to be taken under this rule in the event and to the extent that the taking of such action is prevented or delayed by war (whether declared or not and including a war in progress), revolution, insurrection, riot, civil commotion, act of God, accident, fire, explosions, stoppage of labor, strikes or other differences with employees, laws, regulations, orders or other acts of any governmental authority, or any other cause whatever beyond its reasonable control;

(e) In the event that the custodian gains entry in a clearing corporation through an agent, there shall be a written agreement between the custodian and the agent that the agent shall be subjected to the same liability for loss of securities as the custodian. If the agent is governed by laws that differ from laws regulating the custodian, the Director may accept a standard of liability applicable to the agent that is different from the standard liability;

(f) The custodian must agree to provide written notification to the Director, within three business days of receipt by the custodian of the insurer's written notice of termination or withdrawal, if the custodial agreement has been terminated or if 100 percent of the account assets in any one custody account have been withdrawn;

(g) The custodian must agree that during regular business hours, and upon reasonable notice, an officer or employee of the insurer, an independent accountant selected by the insurer or a representative of an appropriate regulatory body, or any combination thereof, shall be entitled to examine, on the premises of the custodian, its records relating to securities, if the custodian is given written instructions to that effect from an authorized officer of the insurer;

(h) The custodian and its agents, upon reasonable request, must agree to send all reports that they receive from a clearing corporation or the Federal Reserve book-entry system that the clearing corporation or the Federal Reserve permits to be redistributed and reports prepared by the custodian's outside auditors, to the insurer on the custodian's or agent's respective systems of internal control;

(i) To the extent that certain information maintained by the custodian is relied upon by the insurer in preparation of its annual statement and supporting schedules, the custodian must agree to maintain records sufficient to determine and verify such information;

(j) The custodian must agree to provide, upon written request from a regulator or an authorized officer of the insurer, the appropriate affidavits, with respect to the insurer's securities held by the custodian;

(k) The custodian must agree to secure and maintain insurance protection in an adequate amount; and

(l) The custodian that is a foreign bank, or a U.S. custodian's foreign agent, or a foreign clearing corporation must agree to only hold foreign securities or securities required by the foreign country in order for the insurer to do business in that country. A U.S. custodian must hold all other securities.

(5) A domestic insurer may enter into a custodial or safekeeping arrangement directly with a securities depository for the purpose of holding securities owned by the insurer, either in or outside this state, as provided in this section. Such an arrangement must be made by written agreement between the domestic insurer and the securities depository and must provide that the securities be held by the securities depository.

(6) A domestic insurer must obtain the approval of the Director for any material change to a custodial or safekeeping arrangement established under ORS 732.245. A change is material for purposes of this section:

(a) When the arrangement is with a custodian, if the purpose or effect of the change is to revise or omit any standard set forth in section (4) of this rule;

(b) When the arrangement is with a securities depository, if the purpose or effect of the change is to reduce the safety of the securities.

Stat. Auth.: ORS 731.244 & 732.245
Stats. Implemented: ORS 732.245
Hist.: ID 18-1998, f. & cert. ef. 11-20-98; ID 3-2006, f. & cert. ef. 2-13-06

Securities Lending Transactions

836-027-0300

Statutory Authority; Purpose

(1) OAR 836-027-0300 to 836-027-0360 are adopted pursuant to the authority of ORS 731.244 and 733.510 for the purpose of implementing 733.510.

(2) OAR 836-027-0300 to 836-027-0360 establish requirements and limitations relating to securities lending transactions by domestic insurers.

Stat. Auth.: ORS 731.244 & ORS 733.510
Stats. Implemented: ORS 733.510
Hist.: ID 4-2000, f. & cert. ef. 5-11-00

836-027-0310

Definitions

As used in OAR 836-027-0300 to 836-027-0360:

(1) "Acceptable collateral" means, as to securities lending transactions, cash, cash equivalents, letters of credit, direct obligations of, or securities that are fully guaranteed as to principal and interest by the government of the United States or any agency of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. "Acceptable collateral" also means, with respect to lending foreign securities, sovereign debt rated 1 by the Securities Valuation Office of the National Association of Insurance Commissioners or any successor office established by the National Association of Insurance Commissioners.

(2) "Equivalent securities" means, in a securities lending transaction, securities that are identical to the loaned securities in all features including the amount of the loaned securities, except as to certificate number if held in physical form. In addition, for purposes of this definition, when a different security is exchanged for a loaned security by recapitalization, merger, consolidation or other corporate action, the different security is considered to be the loaned security.

(3) "Securities lending transaction" means a transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period of time or upon demand.

Stat. Auth.: ORS 731.244 & ORS 733.510
Stats. Implemented: ORS 733.510
Hist.: ID 4-2000, f. & cert. ef. 5-11-00

836-027-0320

Authorization by Board of Directors

Before a domestic insurer enters into a securities lending transaction, the board of directors of the domestic insurer must adopt a written plan that specifies the guidelines and objectives to be followed with respect to securities lending transactions, including the following:

(1) An assessment that securities lending transactions, including the guidelines relating thereto, are appropriate for the business conducted by the insurer and are consistent with ORS 733.510(4).

(2) An assessment of the insurer's technical investment and administrative capabilities and expertise to engage in securities lending transactions.

(3) A description of how cash received will be invested or used for general corporate purposes of the insurer.

(4) Operational procedures to manage securities lending transactions and borrower default risk and the use of acceptable collateral in a manner that reflects the liquidity needs of securities lending transactions.

(5) The extent to which the domestic insurer may engage in securities lending transactions.

Stat. Auth.: ORS 731.244 & ORS 733.510
Stats. Implemented: ORS 733.510
Hist.: ID 4-2000, f. & cert. ef. 5-11-00

836-027-0330

Agreement with Borrower

Except as provided in OAR 836-027-0340, a domestic insurer shall enter into a written agreement with each borrower in a securities lending transaction. The written agreement between the insurer and the borrower must contain the following provisions:

(1) All loans must terminate not more than one year from the date of origination or upon the earlier demand of the insurer. The insurer must have the right to terminate the loan in a maximum of the normal settlement time for the loaned security.

(2) At the termination of the loan, the borrower must be obligated to return equivalent securities.

(3) The insurer must be entitled to receive from the borrower all distributions made by the issuer of the loaned securities during the duration of the loan, including cash dividends, stock dividends, stock splits and interest distributions of any kind declared, granted or made by the issuer, or any affiliate thereof, and rights to purchase or subscribe for additional securities.

(4) At the inception of the loan, the borrower must provide acceptable collateral. If the acceptable collateral is in the form of cash or cash equivalents, it must be in an amount specified in this section. If the acceptable collateral is in the form of a letter of credit, it must be an irrevocable letter of credit drawn on a bank acceptable to the insurer and in an amount specified in this section. If the acceptable collateral is in the form of direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States or any agency of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation or in the form of sovereign debt rated 1 by the Securities Valuation Office of the National Association of Insurance Commissioners or any successor office established by the National Association of Insurance Commissioners, such securities must have a market value in an amount specified in this section. For purposes of this section:

(a) Except as provided in subsection (b) of this section, the amount or market value of the collateral must be determined as of the transaction date and must be at least equal to 102 percent of the market value of the loaned securities at that date; and

(b) In the event that foreign securities are loaned and the denomination of the currency of the collateral is other than the denomination of the currency of the loaned foreign securities, the amount or market value of the collateral must be at least equal to 105 percent of the market value of the loaned securities at that date.

(5) If the amount or market value of the collateral provided by the borrower at any time is less than the applicable amount or market value specified in section (4) of this rule, the borrower must immediately provide additional collateral as follows:

(a) If the amount or market value of the collateral to which section (4)(a) of this rule applies should become less than 100 percent of the market value of the loaned securities at the close of any business day, the borrower must immediately provide additional collateral to increase the amount or market value of the collateral up to an amount at least equal to 102 percent of the market value of the loaned securities;

(b) If the amount or market value of the collateral to which section (4)(b) of this rule applies should become less than 102 percent of the market value of the loaned securities at the close of any business day, the borrower must immediately provide additional collateral to increase the amount or market value of the collateral up to an amount at least equal to 105 percent of the market value of the loaned securities; and

(c) In any transaction in which the borrower and the insurer agree on a designated percentage that is greater than the applicable amount or market value specified in section (4) of this rule, if the amount or market value of the collateral provided by the borrower should become an amount less than such designated percentage of the market value of the loaned securities at the close of any business day, the borrower must immediately provide additional collateral to increase the amount or market value of the collateral up to an amount at least equal to the designated percentage of the market value of the loaned securities.

(6) If the collateral is an irrevocable letter of credit, a replacement letter of credit replacing the existing letter of credit must be in the possession of the insurer a minimum of the normal settlement time for the security loaned plus four business days before the expiration date of the existing letter of credit. If a replacement letter of credit is not in the possession of the insurer by the required time, the insurer must perfect its rights under the existing letter of credit. The release of a letter of credit by the insurer before its expiration date must be conditioned upon the actual return of the loaned securities to the insurer.

(7) The insurer must have and exercise the right to use the collateral to purchase securities of the same issue in the principal market where the securities are traded should the borrower fail to return the loaned securities as required or requested. The agreement between the insurer and the borrower must detail how to handle excess collateral, or a deficiency, after such purchase.

Stat. Auth.: ORS 731.244 & ORS 733.510
Stats. Implemented: ORS 733.510
Hist.: ID 4-2000, f. & cert. ef. 5-11-00

836-027-0340

Agreement with Agent as Alternative to Written Agreement

As an alternative to a written agreement between a domestic insurer and the borrower described in OAR 836-027-0330, the insurer may enter into an agreement with an agent acting on behalf of the insurer, if the agent is a qualified business entity and if the agreement:

(1) Requires the agent to enter into separate agreements with each borrower that are consistent with the requirements of OAR 836-027-0330; and

(2) Prohibits securities lending transactions pursuant to the agreement with the agent or its affiliates.

Stat. Auth.: ORS 731.244 & ORS 733.510
Stats. Implemented: ORS 733.510

836-027-0350

Limitation

A domestic insurer shall not enter into a securities lending transaction if, as a result of and after giving effect to the transaction:

(1) The aggregate amount of securities then loaned to any one borrower would exceed five percent of its admitted assets; or

(2) The aggregate amount of all securities then loaned to all borrowers would exceed 40 percent of its admitted assets.

Stat. Auth.: ORS 731.244 & ORS 733.510
Stats. Implemented: ORS 733.510
Hist.: ID 4-2000, f. & cert. ef. 5-11-00

836-027-0360

Type of Borrower, Investment of Collateral, Valuation and Reporting

In a securities lending transaction, a domestic insurer shall comply with the following requirements:

(1) The borrower must be a registered securities broker or a bank or trust company or registered as a primary dealer of government securities with the Federal Reserve System. For purposes of this rule:

(a) "Bank or trust company" means any bank or trust company that is organized under the laws of the United States or any state thereof and is regularly examined pursuant to such laws; and

(b) "Registered securities broker" means a securities broker registered under the federal Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.).

(2) For so long as a securities lending transaction remains outstanding, the insurer, its agent or custodian shall maintain, as to acceptable collateral received in the transaction, either physically or through the book entry systems of the Federal Reserve, Depository Trust Company, Participants Trust Company or other securities depositories approved by the Director:

(a) Possession of the acceptable collateral;

(b) A perfected security interest in the acceptable collateral; or

(c) In the case of a jurisdiction outside the United States, title to, or rights of a secured creditor to, the acceptable collateral.

(3) If the insurer has investment discretion concerning the collateral, the collateral may be invested only in assets with a maturity date no later than one year from date of purchase, and that, if held directly by the insurer, would qualified as admitted assets pursuant to ORS chapter 733.

(4) Each securities lending transaction and investment of the collateral must comply with ORS 733.730 and 733.740.

(5) The valuation procedures as prescribed in the "Valuations of Securities" manual of the National Association of Insurance Commissioners shall be used to value loaned securities in any financial statements filed by the insurer with the Director.

(6) In any financial statements filed by the insurer with the Director, the securities lending transaction shall be reported as designated by the Director in accordance with Statement of Statutory Accounting Principles No. 18. An insurer shall file with its annual statement a supporting schedule that reports such transactions as required by the annual statement filing instructions.

(7) In situations in which the securities are held outside the State of Oregon, the securities must be held by a bank or trust company in accordance with OAR 836-027-0200.

(8) The insurer shall maintain within this state original copies of all agreements to lend securities and any attachments, amendments or exhibits thereto. A current inventory of all loaned securities containing the identity of and location of all collateral shall be maintained within the State of Oregon. In addition, adequate records shall be maintained within the State of Oregon to verify the insurer's activities in loaned securities and the possession of the necessary collateral.

Stat. Auth.: ORS 731.244 & ORS 733.510
Stats. Implemented: ORS 733.510
Hist.: ID 4-2000, f. & cert. ef. 5-11-00

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