ADMINISTRATIVE SUPERVISION AND HAZARDOUS FINANCIAL CONDITIONS OF INSURITIES

M.G.L. pt. Part I, tit. Title XXII, ch. c. 175J

in effect

M.G.L. c. 175J, § 1 Definitions

c. 175J, § 1. Definitions Section 1. As used in this chapter the following words shall, unless the context clearly requires otherwise, have the following meanings:— ''Insurer'', includes every entity or person licensed, authorized or permitted by the commissioner to transact the business of insurance in the commonwealth, and for which the commissioner is granted authority to conduct an examination into its affairs; provided, however, that nonprofit hospital and medical service corporations under chapters one hundred and seventy-six A and one hundred and seventy-six B, medical service corporations under chapter one hundred and seventy-six C, dental service corporations under chapter one hundred and seventy-six E, optometric service corporations under chapter one hundred and seventy-six F, health maintenance organizations under chapter one hundred and seventy-six G, and preferred provider organizations under chapter one hundred and seventy-six I, shall not be construed to be ''insurers'' except for the limited purpose of administrative supervision under the provisions of chapter one hundred and seventy-five J. ''Exceeded its powers'', one or more of the following conditions: (1) the insurer has refused to permit examination of its books, papers, accounts, records or affairs by the commissioner, his deputies, employees or duly commissioned examiners; (2) a domestic insurer has unlawfully removed from the commonwealth books, papers, accounts or records necessary for an examination of the insurer; (3) the insurer has failed to promptly comply with the applicable financial reporting statutes or regulations and lawful division requests relating thereto; (4) the insurer has neglected or refused to observe an order of the commissioner to make good, within the time prescribed by law, any prohibited deficiency in its capital, capital stock or surplus; (5) the insurer is continuing to transact insurance or write business after its license has been revoked or suspended by the commissioner; (6) the insurer, by contract or otherwise, has unlawfully or has in violation of an order of the commissioner or has without first having obtained written approval of the commissioner if approval is required by law: (i) totally reinsured its entire outstanding business; or (ii) merged or consolidated substantially its entire property or business with another insurer; (7) the insurer engaged in any transaction in which it is not authorized or permitted to engage under the laws of this chapter, chapter one hundred and seventy-five, chapter one hundred and seventy-six D or any other applicable provision of the General Laws; or (8) the insurer refused to comply with a lawful order of the commissioner. ''Consent'', an agreement to administrative supervision by the insurer.

M.G.L. c. 175J, § 2 Applicability

c. 175J, § 2. Applicability Section 2. The provisions of this chapter shall apply to all domestic insurers, and any other insurer doing business in the commonwealth whose state of domicile has requested in writing for the commissioner to apply the provisions of this chapter as regards such insurer.

M.G.L. c. 175J, § 3 Administrative supervision by commissioner

c. 175J, § 3. Administrative supervision by commissioner Section 3. (A) An insurer may be subject to administrative supervision by the commissioner, without a prior hearing, if upon examination or at any other time the commissioner determines that: (1) the insurer's condition renders the continuance of its business hazardous as defined in subsection (C) to its policyholders or the general public; (2) the insurer gives its consent; or (3) the business of the insurer is being conducted fraudulently. (B) An insurer may be subject to administrative supervision by the commissioner if upon examination or at any other time the commissioner determines, after notice and hearing, that: (1) the insurer has exceeded its powers, as defined in section one; or (2) the insurer has engaged in a deliberate pattern or practice constituting a failure to comply with the applicable provisions of chapter one hundred and fifty-two, one hundred and seventy-five, one hundred and seventy-six, one hundred and seventy-six A, one hundred and seventy-six B, one hundred and seventy-six C, one hundred and seventy-six D, one hundred and seventy-six E, one hundred and seventy-six F, one hundred and seventy-six G, one hundred and seventy-six H, one hundred and seventy-six I, or one hundred and seventy-eight A. (C) Any one or more of the following standards may be considered by the commissioner to determine whether the condition of any insurer renders the continuance of its business hazardous to its policyholders or the general public: (1) material adverse findings concerning the insurer's financial condition defined in subsection (D) reported in financial condition and market conduct examination reports; (2) the National Association of Insurance Commissioners Insurance Regulatory Information System and its related reports; (3) the ratios of commission expense, general insurance expense, policy benefits and reserve increases to annual premium and net investment income which could lead to an impairment of capital and surplus; (4) the insurer's asset portfolio when viewed in light of current economic conditions is not of sufficient value, liquidity, or diversity to assure the company's ability to meet its outstanding obligations as they mature; (5) the recoverability of ceded reinsurance for which credit has been taken in the annual statement and whether the insurer's reinsurance program provides sufficient protection for the company's remaining surplus after taking into account the insurer's cash flow and the classes of business written; (6) the insurer's operating loss in the last twelve month period or any shorter period of time, including but not limited to net capital gain or loss, change in non-admitted assets, and cash dividends paid to shareholders, is greater than fifty percent of such insurer's remaining surplus as regards policyholders in excess of the minimum required; (7) whether the insolvency, threatened insolvency or delinquency in payment of a monetary or other obligation of a parent, affiliate, subsidiary or reinsurer may materially adversely affect the solvency of the insurer; (8) contingent liabilities, pledges or guaranties which either individually or collectively involve a total amount which the commissioner determines may materially adversely affect the solvency of the insurer; (9) whether any controlling person of any insurer is delinquent in the transmitting, or payment of, net premiums to such insurer; (10) the age and collectibility of receivables involve a total amount which the commissioner determines adversely affects the solvency of the insurer; (11) whether the management of an insurer, including officers, directors, or any other person who directly or indirectly controls the operation of such insurer, fails to possess and demonstrate the competence, fitness and reputation deemed necessary to serve the insurer in such position; (12) whether management of an insurer has failed to respond to inquires relative to the condition of the insurer or has knowingly furnished false and misleading information concerning an inquiry; (13) whether management of an insurer either knowingly has filed any false or misleading sworn financial statement, or knowingly has released false or misleading financial statements to lending institutions or to the general public, or knowingly has made a false or misleading entry, or knowingly has omitted an entry of material amount in the books of the insurer; (14) whether the insurer has grown so rapidly and to such an extent that it lacks adequate financial and administrative capacity to meet its obligations in a timely manner; or (15) whether the company has experienced or will experience in the foreseeable future cash flow or liquidity problems. (D) For the purpose of making a determination of an insurer's financial condition in clause (1) of subsection (C), the commissioner may: (1) disregard any credit or amount receivable resulting from transactions with a reinsurer which is insolvent, impaired or otherwise subject to a delinquency proceeding; (2) make appropriate adjustments to asset values attributable to investments in or transactions with parents, subsidiaries, or affiliates; (3) refuse to recognize the stated value of accounts receivable if the ability to collect receivables is highly speculative in view of the age of the account or the financial condition of the debtor; or (4) increase the insurer's liability in an amount equal to any contingent liability, pledge, or guarantee not otherwise included if there is a substantial risk that the insurer will be called upon to meet the obligation undertaken within the next twelve month period. (E) If the commissioner determines that any of the conditions set forth in subsection (A) or (B) exist, the commissioner may issue an order which shall provide: (1) notice to the insurer of this determination, and the grounds for this determination; (2) a written list to the insurer of the requirements to abate this determination within the time period established pursuant to section five; and (3) notice to the insurer that it is under the supervision of the commissioner and that the commissioner is applying and effectuating the provisions of this chapter. (F) The commissioner may employ staff personnel and outside counsel and other consultants as may be necessary for the proper conduct of the administrative supervision. All reasonable costs of such outside counsel and other consultants, including the costs attributable to the use of staff personnel, shall be borne by the insurer under administrative supervision.

M.G.L. c. 175J, § 4 Authority of administrative supervisor

c. 175J, § 4. Authority of administrative supervisor Section 4. (A) During the period of supervision, the commissioner or the commissioner's designee shall serve as the administrative supervisor. The administrative supervisor may impose operating restrictions or requirements on the insurer during the period of administrative supervision which are deemed necessary for the protection of policyholders or the general public. The administrative supervisor may order the insurer to: (1) reduce the total amount of present and potential liability for policy benefits by reinsurance; (2) reduce, suspend or limit the volume of business being accepted or renewed; (3) reduce general insurance and commission expenses by specified methods; (4) increase the insurer's capital and surplus; (5) suspend or limit the declaration and payment of dividends by an insurer to its stockholders or to its policyholders; (6) file reports in a form acceptable to the commissioner concerning the market value of an insurer's assets; (7) limit or withdraw from certain investments or discontinue certain investment practices to the extent the commissioner deems necessary; (8) document the adequacy of premium rates in relation to the risks insured; (9) file, in addition to regular annual statements, interim financial reports on the form adopted by the National Association of Insurance Commissioners or on such format as promulgated by the commissioner; or (10) cease from engaging in certain business practices which are illegal or which the administrative supervisor deems harmful to policyholders or the general public. (B) In addition to the provisions of subsection (A), the administrative supervisor may provide that the insurer may not do any of the following things during the period of supervision without the prior approval of the administrative supervisor: (1) dispose of, convey or encumber any of its assets or its business in force; (2) withdraw any funds from its bank accounts; (3) lend any of its funds; (4) invest any of its property; (5) transfer any of its property; (6) incur any debt, obligation or liability; (7) merge or consolidate with any company; (8) approve new premiums or renew any policies; (9) enter into any new reinsurance contract or treaty; (10) terminate, surrender, forfeit, convert, or lapse any insurance policy, certificate or contract, except for nonpayment of premiums due; (11) release, pay or refund premium deposits, accrued cash or loan values, unearned premiums, or other reserves on any insurance policy, certificate or contract; (12) make any material change in management; or (13) increase salaries and benefits of officers or directors or the preferential payment of bonuses, dividends or other payments deemed preferential. (C) If the insurer is a foreign insurer the administrative supervisor's order may be limited to the extent provided by statute.

M.G.L. c. 175J, § 5 Extension or release from supervision

c. 175J, § 5. Extension or release from supervision Section 5. (A) If placed under administrative supervision by an order issued pursuant to subsection (E) of section three, the insurer shall have sixty days, or another period of time as designated by the commissioner, to comply with the requirements of the commissioner. (B) If it is determined after notice and hearing that the conditions giving rise to the supervision still exist at the end of the supervision period specified above, the commissioner may extend such period. (C) If it is determined that none of the conditions giving rise to the supervision exist, the commissioner shall release the insurer from supervision.

M.G.L. c. 175J, § 6 Confidentiality of proceedings and records

c. 175J, § 6. Confidentiality of proceedings and records Section 6. (A) Except as provided in this section, and notwithstanding any other provision of the General Laws, including clause Twenty-sixth of section seven of chapter four and chapter sixty-six, all administrative and judicial proceedings arising under this chapter shall be held privately unless a public hearing is requested by the insurer, and all proceedings, hearings, notices, correspondence, reports, records and other information in the possession of the commissioner relating to the supervision of any insurer are confidential. (B) All records of the insurer and all records of the commissioner concerning the insurer, so far as they pertain to or are a part of the record of the proceedings under this chapter, shall be and remain confidential, and shall not be subject to disclosure under clause Twenty-sixth of section seven of chapter four and chapter sixty-six or any other applicable provision of the General Laws, unless the insurer requests otherwise. Such records shall not be subject to subpoena by third parties, unless the insurer and the commissioner consent to such disclosure or release under subpoena. (C) The personnel of the division shall have access to these proceedings, hearings, notices, correspondence, reports, records or information as permitted by the commissioner. The commissioner may open the proceedings or hearings or disclose the notices, correspondence, reports, records or information to a department, agency or instrumentality of this or any other state of the United States if the commissioner determines that the disclosure is necessary or proper for the enforcement of the laws of this or any other state of the United States. (D) The commissioner may open the proceedings or hearings or make public the notices, correspondence, reports, records or other information if the commissioner deems that it is in the best interest of the public or in the best interest of the insurer, its insureds, creditors or the general public. (E) The provisions of this section shall not apply to proceedings held pursuant to section one hundred and eighty B or one hundred and eighty C or chapter one hundred and seventy-five.

M.G.L. c. 175J, § 7 Judicial review

c. 175J, § 7. Judicial review Section 7. An insurer placed under administrative supervision by the commissioner may contest the order, or any part of such order, at any time during the supervision by requesting review of the order by the supreme judicial court for Suffolk county. The insurer must demonstrate that the action taken or proposed to be taken by the terms of the order will not result in improving the condition of the insurer, or result in the protection of the insureds or the public in general. Said supreme judicial court for Suffolk county shall review the action complained of in a closed hearing and render its decision at the earliest possible date thereafter. The court may stay the implementation of any such order of the commissioner, pending its review of such order. Notwithstanding the foregoing, filing of a petition for review of such order shall not automatically stay the implementation of the order, or any of its provisions. Review of such order by said supreme judicial court for Suffolk county shall not be considered initiation of judicial proceedings for the purpose of section six of chapter one hundred and seventy-five.

M.G.L. c. 175J, § 8 Rehabilitation or liquidation proceedings

c. 175J, § 8. Rehabilitation or liquidation proceedings Section 8. Nothing contained in this chapter shall preclude the commissioner from initiating judicial proceedings to place an insurer in rehabilitation or liquidation proceedings or other delinquency proceedings, however designated under the General Laws, regardless of whether the commissioner has previously initiated administrative supervision proceedings against the insurer.

M.G.L. c. 175J, § 9 Rules and regulations

c. 175J, § 9. Rules and regulations Section 9. The commissioner may, in accordance with the provisions of chapter thirty A, adopt and promulgate reasonable rules and regulations necessary for the implementation of this chapter.

M.G.L. c. 175J, § 10 Meetings of commissioner and supervisor

c. 175J, § 10. Meetings of commissioner and supervisor Section 10. Notwithstanding any other provision of the General Laws, the commissioner may meet with a supervisor appointed under subsection (A) of section four, and with the attorney or other representative of the supervisor, without the presence of any other person, at the time of any proceeding or during the pendency of any proceeding held under authority of this chapter to carry out the commissioner's duties under this chapter or for the supervisor to carry out the supervisor's duties under this chapter.

Source: Massachusetts General Court (malegislature.gov)URL: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter175JFetched: 10/20/2026