Pennsylvania Statutes Title 40 P.S. Insurance § 991.1402. Acquisition of control of or merger or consolidation with domestic insurer

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(a)(1) No person other than the issuer shall make a tender offer for or a request or invitation for tenders of, or enter into any agreement to exchange securities or seek to acquire or acquire in the open market or otherwise, any voting security of a domestic insurer if, after the consummation thereof, such person would directly or indirectly or by conversion or by exercise of any right to acquire, be in control of such insurer, and no person shall enter into an agreement to merge or consolidate with or otherwise to acquire control of a domestic insurer or any person controlling a domestic insurer unless, at the time any such offer, request or invitation is made or any such agreement is entered into or prior to the acquisition of such securities if no offer or agreement is involved, such person has filed with the department and has sent to such insurer a statement containing the information required by this section and such offer, request, invitation, agreement or acquisition has been approved by the department in the manner hereinafter prescribed.

(2) For purposes of this section:

(i) “Domestic insurer” includes a person controlling a domestic insurer unless the department determines that the person is primarily engaged in business other than the business of insurance either directly or through its affiliates.

(ii) “Person” does not include a securities broker who holds, in the usual and customary manner, less than twenty per centum (20%) of the voting securities of an insurer or of a person that controls an insurer.

(3) A controlling person of a domestic insurer seeking to divest its controlling interest in the insurer in any manner shall file with the department, with a copy to the insurer, a notice of the proposed divestiture at least thirty (30) days prior to the cessation of control except that notice under this paragraph is not required if a statement is filed under paragraph (1).  The notice must contain information sufficient for the department to determine if the proposed divestiture requires filing and approval under paragraph (1).  Information obtained by or disclosed to the department under this paragraph shall be given confidential treatment as provided under section 1407.  1

(4) The acquiring person for transactions subject to this section must file a preacquisition notification as required under section 1403(c)  2 or be subject to a penalty as provided under section 1403(e)(3).

(5) A person seeking to rebut the presumption of control under this article shall file with the department, with a copy to the insurer, a rebuttal filing containing information sufficient for the department to determine whether control exists in fact.  The filing is not effective unless the department finds that control does not exist or accepts a disclaimer of control.  Information obtained by or disclosed to the department under this subsection must be given confidential treatment as provided under section 1407.

(b) The statement to be filed with the department under this section shall be made under oath or affirmation and shall contain the following information:

(1) The name and address of each person by whom or on whose behalf the merger, consolidation or other acquisition of control referred to in subsection (a) is to be effected, hereinafter called “acquiring party,” and

(i) if such person is an individual, his principal occupation and all offices and positions held during the past five (5) years, and any conviction of crimes other than minor traffic violations during the past ten (10) years;  or

(ii) if such person is not an individual, a report of the nature of its business operations during the past five (5) years or for such lesser period as the person and any predecessors thereof shall have been in existence;  an informative description of the business intended to be done by the person and the person's subsidiaries;  and a list of all individuals who are or who have been selected to become directors or executive officers of the person, or who perform or will perform functions appropriate to those positions.  This list shall include for each individual the information required by subparagraph (i).

(2) The source, nature and amount of the consideration used or to be used in effecting the merger, consolidation or other acquisition of control, a description of any transaction wherein funds were or are to be obtained for any such purpose, including any pledge of the insurer's stock or the stock of any of its subsidiaries or controlling affiliates, and the identity of persons furnishing such consideration, provided, however, that where a source of such consideration is a loan made in the lender's ordinary course of business, the identity of the lender shall remain confidential if the person filing such statement so requests.

(3) Fully audited financial information as to the earnings and financial condition of each acquiring party for the preceding five (5) fiscal years of each such acquiring party, or for such lesser period as such acquiring party and any predecessors thereof shall have been in existence, and similar unaudited information as of a date not earlier than ninety (90) days prior to the filing of the statement.

(4) Any plans or proposals which each acquiring party may have to liquidate such insurer, to sell its assets or merge or consolidate it with any person or to make any other material change in its business or corporate structure or management.

(5) The number of shares of any security referred to in subsection (a) which each acquiring party proposes to acquire, and the terms of the offer, request, invitation, agreement or acquisition referred to in subsection (a), and a statement as to the method by which the fairness of the proposal was arrived.

(6) The amount of each class of any security referred to in subsection (a) which is beneficially owned or concerning which there is a right to acquire beneficial ownership by each acquiring party.

(7) A full description of any contracts, arrangements or understandings with respect to any security referred to in subsection (a) in which any acquiring party is involved, including, but not limited to, 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.  Such description shall identify the persons with whom such contracts, arrangements or understandings have been entered into.

(8) A description of the purchase of any security referred to in subsection (a) during the twelve calendar months preceding the filing of the statement, by any acquiring party, including the dates of purchase, names of the purchasers and consideration paid or agreed to be paid therefor.

(9) A description of any recommendations to purchase any security referred to in subsection (a) made during the twelve calendar months preceding the filing of the statement, by any acquiring party, or by anyone based upon interviews or at the suggestion of such acquiring party.

(10) Copies of all tender offers for, requests or invitations for tenders of, exchange offers for and agreements to acquire or exchange any securities referred to in subsection (a) and, if distributed, of additional soliciting material relating thereto.

(11) The term of any agreement, contract or understanding made with or proposed to be made with any broker-dealer as to solicitation of securities referred to in subsection (a) for tender and the amount of any fees, commissions or other compensation to be paid to broker-dealers with regard thereto.

(11.1) An agreement by the person required to file the statement referred to in subsection (a) that it will provide the annual enterprise risk report specified in section 1404(k.1)  3 as long as control exists.

(11.2) An acknowledgment by the person required to file the statement referred to in subsection (a) that the person and the subsidiaries within its control in the insurance holding company system will provide information to the commissioner upon request as necessary to evaluate enterprise risk to the insurer.

(12) Such additional information as the department may by regulation prescribe as necessary or appropriate for the protection of policyholders of the insurer or in the public interest.

(c) If the person required to file the statement referred to in subsection (a) is a partnership, limited partnership, syndicate or other group, the department may require that the information called for by subsection (b)(1) through (12) shall be given with respect to each partner of such partnership or limited partnership, each member of such syndicate or group and each person who controls such partner or member.  If any such partner, member or person is a corporation or the person required to file the statement referred to in subsection (a) is a corporation, the department may require that the information called for by subsection (b)(1) through (12) shall be given with respect to such corporation, each officer and director of such corporation and each person who is directly or indirectly the beneficial owner of more than ten per centum (10%) of the outstanding voting securities of such corporation.

(d) If any material change occurs in the facts set forth in the statement filed with the department and sent to such insurer pursuant to this section, an amendment setting forth such change, together with copies of all documents and other material relevant to such change, shall be filed with the department and sent to such insurer within two (2) business days after the person learns of such change.

(e) If any offer, request, invitation, agreement or acquisition referred to in subsection (a) is proposed to be made by means of a registration statement under the Securities Act of 1933 (48 Stat. 74, 15 U.S.C. § 77a et seq.), or in circumstances requiring the disclosure of similar information under the Securities Exchange Act of 1934 (48 Stat. 881, 15 U.S.C. § 78a et seq.), or under a State law requiring similar registration or disclosure, the person required to file the statement referred to in subsection (a) may utilize such documents in furnishing the information called for by that statement.

(f)(1) The department shall approve any merger, consolidation or other acquisition of control referred to in subsection (a) unless it finds any of the following:

(i) After the merger, consolidation or other acquisition of control, the domestic insurer referred to in subsection (a) would not be able to satisfy the requirements for the issuance of a license to write the line or lines of insurance for which it is presently licensed.

(ii) The effect of the merger, consolidation or other acquisition of control would be to substantially lessen competition in insurance in this Commonwealth or tend to create a monopoly therein.  In applying the competitive standard in this subparagraph:

(A) the informational requirements of section 1403(c)(2) and the standards of section 1403(d)(2) shall apply;

(B) the merger, consolidation or other acquisition of control shall not be disapproved if the department finds that any of the situations meeting the criteria provided by section 1403(d)(3) exist;  and

(C) the department may condition the approval of the merger, consolidation or other acquisition of control on the removal of the basis of disapproval within a specified period of time.

(iii) The financial condition of any acquiring party is such as might jeopardize the financial stability of the insurer or prejudice the interest of its policyholders.

(iv) The plans or proposals which the acquiring party has to liquidate the insurer, sell its assets or consolidate or merge it with any person, or to make any other material change in its business or corporate structure or management, are unfair and unreasonable and fail to confer benefit on policyholders of the insurer and are not in the public interest.

(v) The competence, experience and integrity of those persons who would control the operation of the insurer are such that it would not be in the interest of policyholders of the insurer and of the public to permit the merger, consolidation or other acquisition of control.

(vi) The merger, consolidation or other acquisition of control is likely to be hazardous or prejudicial to the insurance buying public.

(vii) The merger, consolidation or other acquisition of control is not in compliance with the laws of this Commonwealth, including Article VIII-A.   4

(2) If the merger, consolidation or other acquisition of control is approved, the department shall so notify the person filing the statement and the insurer that is proposed to be acquired, and such a determination is hereafter referred to as an approving determination.  Notice shall also be given by the department of any determination which is not an approving determination.  If an approving determination is made by the department and not otherwise, the proposed offer and acquisition may thereafter be made and consummated on the terms and conditions and in the manner described in the statement and subject to such conditions as may be prescribed by the department as hereinafter provided.  An approving determination by the department shall be deemed to extend to offers or acquisitions made pursuant thereto within one year following the date of determination.  The department may, as a condition of its approving determination, require the inclusion in any offer of provisions requiring the offer to remain open a specified minimum length of time, permitting withdrawal of shares deposited prior to the time the offeror becomes bound to consummate the acquisition and requiring pro rata acceptance of any shares deposited pursuant to the offer.  The department shall hold a hearing before making the determination required by this subsection if, within ten (10) days following the filing with the department of the statement, written request for the holding of such hearing is made either by the person proposing to make the acquisition, by the insurer that is proposed to be acquired or, if the issuer of stock proposed to be acquired is not an insurer, by the insurer controlled by such issuer.  Otherwise, the department shall determine in its discretion whether such a hearing shall be held.  Thirty (30) days' notice of any such hearing shall be given to the person proposing to make the acquisition, to the issuer whose stock is proposed to be acquired and, if such issuer is not an insurer, to the insurance company controlled by such issuer.  Notice of any such hearing shall also be given to such other persons, if any, as the department may determine.

(2.1) If the proposed acquisition of control requires the approval of more than one chief insurance regulatory official, the public hearing under paragraph (2) may be held on a consolidated basis upon request of the person filing the statement under subsection (a).  He shall file the statement under subsection (a) with the NAIC within five (5) days of making the request for a public hearing.  A chief insurance regulatory official may opt out of a consolidated hearing and shall provide notice to the applicant of the decision to opt out within ten (10) days of the receipt of the statement under subsection (a).  A hearing conducted on a consolidated basis must be public and held in the United States before the chief insurance regulatory officials of the states in which the insurers are domiciled.  The chief insurance regulatory officials shall hear and receive evidence.  A chief insurance regulatory official may attend the hearing in person or participate using telecommunication.

(3) The department may retain at the acquiring party's expense any attorneys, actuaries, accountants and other experts not otherwise a part of the department's staff as may be reasonably necessary to assist the department in reviewing the proposed acquisition of control.

(g) The provisions of this section shall not apply to any offer, request, invitation, agreement or acquisition which the department by order shall exempt therefrom as:

(1) not having been made or entered into for the purpose and not having the effect of changing or influencing the control of a domestic insurer;  or

(2) as otherwise not comprehended within the purposes of this section.

(h) The following shall constitute a violation of this section:

(1) the failure to file any statement, amendment or other material required to be filed pursuant to subsection (a) or (b);

(2) the effectuation or any attempt to effectuate an acquisition of control of or divestiture of or merger or consolidation with a domestic insurer unless the department has given its approval thereto;  or

(3) a violation of section 819-A.  5

(i) The department shall, within seventy-two (72) hours of receiving a statement filed under this section, provide notification to the Office of Attorney General that the filing was received.

(j) (Reserved).

1  40 P.S. § 991.1407.
2  40 P.S. § 991.1403.
3  40 P.S. § 991.1404.
4  40 P.S. § 911-A et seq.
5  40 P.S. § 929-A.

Cite this article: FindLaw.com - Pennsylvania Statutes Title 40 P.S. Insurance § 991.1402. Acquisition of control of or merger or consolidation with domestic insurer - last updated January 01, 2019 | https://codes.findlaw.com/pa/title-40-ps-insurance/pa-st-sect-40-991-1402/


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