Section 50. Acquisitions involving insurers not otherwise covered

A. An acquisition covered by § 38.2-1323 B of the Act may be subject to orders pursuant to § 38.2-1323 B and C of the Act unless the acquiring party files a pre-acquisition notification or an acquisition statement in the format prescribed by Form E. The person being acquired may file the statement. If a nondomiciliary insurer licensed to do business in this Commonwealth is proposing a merger or acquisition pursuant to § 38.2-1323 A of the Act, that person shall file a pre-acquisition notification form, Form E. No pre-acquisition notification form need be filed if the acquisition is beyond the scope of § 38.2-1323 A as set forth in subdivision B 2 of this section.

In addition to the information required by Form E, the commission may wish to require an expert opinion as to the competitive impact of the proposed acquisition.

B. 1. Except as exempted in subdivision 2 of this subsection, this section applies to any acquisition in which there is a change in control of an insurer authorized to do business in this Commonwealth.

2. This section shall not apply to the following:

a. A purchase of securities solely for investment purposes so long as the securities are not used to cause or attempt to cause the substantial lessening of competition in any insurance market in this Commonwealth. If a purchase of securities results in a presumption of control, as defined in § 38.2-1322 of the Act, it is not solely for investment purposes unless the commissioner of the insurer's state of domicile accepts a disclaimer of control or affirmatively finds that control does not exist and the disclaimer action or affirmative finding is communicated by the domiciliary insurance commissioner, director, or superintendent to the commission;

b. The acquisition of a person by another person when both persons are neither directly nor through affiliates primarily engaged in the business of insurance, if pre-acquisition notification is filed with the commission in accordance with subdivision C 1 of this section 30 days prior to the proposed effective date of the acquisition. However, such pre-acquisition notification is not required for exclusion from this section if the acquisition would otherwise be excluded from this section by any other provision in this subdivision B 2;

c. The acquisition of already affiliated persons; or

d. An acquisition if, as an immediate result of the acquisition:

(1) In no market would the combined market share of the involved insurers exceed 5.0% of the total market;

(2) There would be no increase in any market share; or

(3) In no market would the combined market share of the involved insurers exceed 12% of the total market, and the market share increase by more than 2.0% of the total market.

For the purpose of this subdivision, a market means direct written insurance premium in this Commonwealth for a line of business as contained in the annual statement required to be filed by insurers licensed to do business in this Commonwealth.

C. An acquisition covered by subsection B of this section may be subject to an order pursuant to subsection E of this section unless the acquiring person files a pre-acquisition notification and the waiting period has expired. The acquired person may file a pre-acquisition notification. The commission shall give confidential treatment to information submitted under this subsection in the same manner as provided in § 38.2-1333 of the Act.

1. The pre-acquisition notification shall be in such form and contain such information as prescribed by the NAIC relating to those markets that, under subdivision B 2 d of this section, cause the acquisition not to be exempted from the provisions of this section. The commission may require such additional material and information as deemed necessary to determine whether the proposed acquisition, if consummated, would violate the competitive standard of subsection D of this section. The required information may include an opinion of an economist as to the competitive impact of the acquisition in this Commonwealth accompanied by a summary of the education and experience of the economist indicating his ability to render an informed opinion.

2. The waiting period required shall begin on the date of receipt by the commission of a pre-acquisition notification and shall end on the earlier of the 30th day after the date of receipt or termination of the waiting period by the commission. Prior to the end of the waiting period, the commission may require the submission of additional needed information relevant to the proposed acquisition, in which event the waiting period shall end on the earlier of the 30th day after receipt of the additional information by the commission or termination of the waiting period by the commission.

D. 1. The commission may enter an order under subdivision E 1 of this section with respect to an acquisition if there is substantial evidence that the effect of the acquisition may be substantially to lessen competition in any line of insurance in this Commonwealth or tend to create a monopoly or if the insurer fails to file adequate information in compliance with subsection C of this section.

2. In determining whether competition may be negatively impacted, the commission may consider, among other things, whether applicable competitive standards promulgated by the NAIC have or may be violated as a consequence of the acquisition. The standards may include any indicators of competition identified or enumerated by the NAIC in any model laws or portions of practice and procedure or instructional manuals developed to provide guidance in regulatory oversight of holding company systems, mergers and acquisitions, or competitive practices within the marketplace. The standards include the definitions, guidelines, or standards embodied in any model holding company act or model holding company regulation adopted by the NAIC. In addition, the commission may request and consider the opinion of an economist as to the competitive impact of the acquisition whenever pre-acquisition notification is submitted pursuant to § 38.2-1323 B of the Act.

E. 1. a. If an acquisition violates the standards of this section, the commission may enter an order:

(1) Requiring an involved insurer to cease and desist from doing business in this Commonwealth with respect to the line or lines of insurance involved in the violation.

(2) Denying the application of an acquired or acquiring insurer for a license to do business in this Commonwealth.

(3) Suspending the license of an insurer involved in an acquisition if there is substantial evidence that the effect of the acquisition may be substantially to lessen competition in any line of insurance in this Commonwealth or tend to create a monopoly therein, and is detrimental to policyholders or the public in general.

(4) Suspending the license if the insurer fails to file adequate information sufficient to rebut a reasonable belief that the merger or acquisition causes or tends to cause a substantial lessening of competition in any line of insurance, and also is detrimental to policyholders or the public.

b. An order suspending the license shall not be entered under § 38.2-1323 B of the Act unless the involved insurer has received 10 days' notice and an opportunity to be heard. The notice of hearing shall be accompanied by a request for information as required by § 38.2-1324 of the Act; it may include also a request for an opinion of an economist as to the competitive impact of the acquisition.

(1) Requested information shall be filed as an acquisition statement in the format of Form E.

(2) If the commission determines that the acquisition or merger causes or tends to cause a substantial lessening of competition in any line of insurance, the commission may request the insurer to furnish the additional information required by § 38.2-1324, in order to rebut the reasonable belief that the lessening of competition is detrimental to policyholders or the public in general.

c. An order suspending the license shall not be entered under § 38.2-1323 B of the Act and this section if:

(1) The acquisition will yield substantial economies of scale or economies in resource utilization that cannot be feasibly achieved in any other way, and the public benefits which would arise from the economies exceed the public benefits which would arise from not lessening competition; or

(2) The acquisition will substantially increase the availability of insurance, and the public benefits of the increase exceed the public benefits which would arise from not lessening competition.

d. The commission's order suspending the license entered under this section shall not become final earlier than 21 days after it is issued, during which time the involved insurer may submit a plan to remedy the anticompetitive impact of the acquisition within a reasonable time. Based upon the plan or other information, the commission shall specify the conditions, if any, under the time period during which the aspects of the acquisition causing a violation of the applicable competitive standards announced by the commission would be remedied and the order vacated or modified.

e. An order pursuant to this subsection shall not apply if the acquisition is not consummated.

2. Any person who violates a cease and desist order of the commission under subdivision 1 of this subsection and while the order is in effect may, after notice and hearing and upon order of the commission, be subject at the discretion of the commission to one or more of the following:

a. A monetary penalty pursuant to § 38.2-218 of the Code of Virginia; or

b. Suspension or revocation of the person's license.

3. Any insurer or other person who fails to make any filing required by this section, and who also fails to demonstrate a good faith effort to comply with any filing requirement, shall be subject to a monetary penalty pursuant to § 38.2-218.

F. Any hearing held pursuant to the provisions of this section shall begin, unless waived by the insurer, within 40 days of the date of receipt by the commission of all material required by § 38.2-1323 of the Act.

G. For the purposes of this section and § 38.2-1323 B of the Act, "acquisition" means any agreement, arrangement, or activity the consummation of which results in a person acquiring directly or indirectly control of another person, and includes but is not limited to the acquisition of voting securities, the acquisition of assets, bulk reinsurance, and mergers. "Involved insurer" includes an insurer that either acquires or is acquired, is affiliated with an acquirer or acquired, or is the result of a merger.

H. Section 38.2-1334.1 A and C and Chapter 15 (§ 38.2-1500 et seq.) of Title 38.2 of the Code of Virginia do not apply to acquisitions covered under subsection B of this section.

Historical Notes

Derived from Regulation 14, Case No. 20159, § 5, eff. January 1, 1980; amended, Case No. INS940114, Volume 11, Issue 07, eff. January 1, 1995; Volume 23, Issue 02, eff. October 2, 2006; Volume 31, Issue 09, eff. January 1, 2015.

Statutory Authority

§§ 12.1-13 and 38.2-223 of the Code of Virginia.