20-481.25. Acquisitions involving insurers not otherwise covered; anticompetitive considerations; civil penalty; definitions

A. Except as provided in subsection B of this section, this section applies to any acquisition in which there is a change in control of an insurer authorized to do business in this state.

B. This section does not apply to the following, except as provided under subsections C and D of this section:

1. A purchase of securities solely for investment purposes as long as the securities are not used by voting or otherwise to cause or attempt to cause the substantial lessening of competition in any insurance market in this state. If a purchase of securities results in a presumption of control as defined in section 20-481, the purchase of securities is not solely for investment purposes unless the director of insurance 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 director to the director of insurance of this state.

2. The acquisition of a person by another person if both persons are neither directly nor through affiliates primarily engaged in the business of insurance and if preacquisition notification is filed with the director pursuant to subsection C of this section thirty days before the proposed effective date of the acquisition. Preacquisition notification is not required if the acquisition would otherwise be excluded from this section by any other provision of this subsection.

3. The acquisition of already affiliated persons.

4. If, as an immediate result of an acquisition, the combined market share of the involved insurers in any market would not exceed five per cent of the total market, there would not be an increase in any market share or the combined market share of the involved insurers in any market would not exceed twelve per cent of the total market and the market share increases by more than two per cent of the total market. For the purposes of this paragraph, " market" means direct written insurance premiums in this state for a line of business as contained in the annual statement required to be filed by insurers licensed to do business in this state.

5. An acquisition for which a preacquisition notification is required pursuant to this section because of the resulting effect on the ocean marine insurance line of business.

6. An acquisition of an insurer whose domiciliary director of insurance finds that the insurer is failing, that there is no feasible alternative to improve the insurer's condition and that the public benefits that would result from improving the insurer's condition through the acquisition exceed the public benefits that would result from not lessening competition and the domiciliary director of insurance communicates these findings to the director of insurance of this state.

C. An acquisition under subsection B of this section may be subject to an order pursuant to subsection F of this section unless the acquiring person files a preacquisition notification and the waiting period has expired. The acquired person may file a preacquisition notification. Information submitted under this subsection is confidential. The preacquisition notification shall be in a form and contain the information that is prescribed by the national association of insurance commissioners relating to those markets that are not exempt from the provisions of this section. The director may require additional material and information that the director deems necessary in order to determine if the proposed acquisition, if consummated, would lessen competition or tend to create a monopoly. The information may include an economist's opinion on the competitive impact of the acquisition in this state and a summary of the economist's education and experience that indicates the economist's ability to render an informed opinion. The waiting period begins on the date the director receives a preacquisition notification and ends thirty days after the date of receipt or on termination of the waiting period by the director, whichever is earlier. Before the waiting period ends, the director on a one-time basis may require the submission of additional information that is relevant to the proposed acquisition. The waiting period shall end thirty days after the director receives the additional information or terminates the waiting period, whichever is earlier.

D. No acquisition subject to the provisions of this section shall substantially lessen competition in any line of insurance in this state or tend to create a monopoly. The director may enter a cease and desist order under subsection F of this section if there is substantial evidence that the effect of the acquisition may be to substantially lessen competition in any line of insurance in this state or may tend to create a monopoly or if the insurer fails to file adequate information pursuant to subsection C of this section. The director has the burden of showing prima facie evidence of a violation of this subsection. In determining if a proposed acquisition would lessen competition or tend to create a monopoly, the director shall consider the following:

1. An acquisition covered under subsection B of this section that involves two or more insurers competing in the same market is prima facie evidence of a violation of this subsection if:

(a) The market is highly concentrated and the involved insurers possess the following market shares:

Insurer A Insurer B

(i) four per cent four per cent or more

(ii) ten per cent two per cent or more

(iii) fifteen per cent one per cent or more

(b) The market is not highly concentrated and the involved insurers possess the following market shares:

Insurer A Insurer B

(i) five per cent five per cent or more

(ii) ten per cent four per cent or more

(iii) fifteen per cent three per cent or more

(iv) nineteen per cent one per cent or more

A highly concentrated market is a market in which the share of the four largest insurers is seventy-five per cent or more of the market. Percentages not shown in the tables are interpolated proportionately to the percentages that are shown. If more than two insurers are involved, exceeding the total of the two columns in the table is prima facie evidence of a violation of this subsection. For the purposes of this paragraph, the insurer with the largest market share is deemed to be insurer A.

2. A significant trend toward increased concentration exists if the aggregate market share of any grouping of the largest insurers in the market, from the two largest to the eight largest, has increased by seven per cent or more of the market over a period of time that extends from a base year five to ten years before the acquisition up to the time of the acquisition. Any acquisition or merger under subsection B of this section that involves two or more insurers competing in the same market is prima facie evidence of a violation of this subsection if:

(a) There is a significant trend toward increased concentration in the market.

(b) One of the insurers involved is one of the insurers in a grouping of large insurers whose market share has increased by seven per cent or more.

(c) Another involved insurer's market is two per cent or more.

E. If an acquisition is not prima facie evidence of a violation of subsection D of this section, the director may establish the requisite anticompetitive effect based on other substantial evidence. If an acquisition is prima facie evidence of a violation of subsection D of this section, a party may establish the absence of the requisite anticompetitive effect based on other substantial evidence. Relevant factors in making a determination under this subsection include market shares, volatility of ranking of market leaders, number of competitors, concentration, trend of concentration in the industry and ease of entry into and exit from the market.

F. If an acquisition violates this section, the director may enter an order:

1. Requiring an involved insurer to cease and desist from doing business in this state 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 state.

G. The director shall not enter an order pursuant to subsection F of this section unless a hearing is held and notice of the hearing is issued before the end of the waiting period prescribed in subsection C of this section and not less than fifteen days before the hearing. The hearing shall be concluded and the order shall be issued no later than sixty days after the end of the waiting period. The director shall include with each order a written decision setting forth the director's findings of fact and conclusions of law. The order does not become final earlier than thirty days after it is issued. Before the order becomes final the involved insurer may submit a plan to remedy within a reasonable time the anticompetitive impact of the acquisition. Based on the submitted plan or other information, the director shall specify the conditions, if any, that would remedy the aspects of the acquisition causing the violation and shall vacate or modify the order. An order does not apply if the acquisition is not consummated.

H. An order shall not be entered under subsection F of this section if:

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

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

I. The director, after notice and a hearing, may impose one or more of the following civil penalties against a person who violates a cease and desist order that is in effect:

1. Up to and including ten thousand dollars for every day of violation.

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

J. An insurer or other person who fails to make a filing required by this section and who fails to demonstrate a good faith effort to comply with the filing requirement is subject to a civil penalty of not more than fifty thousand dollars.

K. For the purposes of subsection D of this section:

1. " Insurer" means a company or group of companies under common management, ownership or control.

2. " Market" means the relevant product and geographical markets. In determining the relevant product and geographical markets, the director shall consider the definitions or guidelines adopted by the national association of insurance commissioners and to information submitted by the parties to the acquisition. In the absence of sufficient information to the contrary, the relevant product market is assumed to be the direct written insurance premium for a line of business that is used in the annual statement required to be filed by insurers doing business in this state. The relevant geographical market is this state.

L. For the purposes of this section:

1. " Acquisition" means any agreement, arrangement or activity that results in a person acquiring directly or indirectly the control of another person, including the acquisition of voting securities, assets, bulk reinsurance and mergers.

2. " Involved insurer" means an insurer that acquires or is acquired, is affiliated with an acquirer or acquired or is the result of a merger.