REPORT TITLE:
Insurance


DESCRIPTION:
Codifies various sections of the Hawaii administrative rules
relating to insurance.  Requires that motor vehicle insurance
identification cards be issued for a minimum six-month period.
(SD1)

 
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                                                        2473
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 2000                                S.D. 1
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO INSURANCE.


BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The purpose of this Act is to place certain
 
 2 provisions adopted as Hawaii administrative rules regarding
 
 3 insurance into the Hawaii Revised Statutes.  Currently,
 
 4 provisions governing insurance are found both within the Hawaii
 
 5 Revised Statutes and the Hawaii administrative rules.
 
 6      This Act places portions of current insurance administrative
 
 7 rules properly within the Hawaii Revised Statutes.  This Act
 
 8 streamlines insurance administration within the State by
 
 9 consolidating certain regulatory provisions into one location.
 
10      The affected administrative rules include:  fifteen sections
 
11 of chapter 16-1 (Proxies, Consents, and Authorizations of
 
12 Domestic Stock Insurers); two sections of chapter 16-5 (Mass
 
13 Merchandising of Motor Vehicle Insurance); three sections of
 
14 chapter 16-14 (Insurance Holding Company System); and thirteen
 
15 sections of chapter 16-23 (Motor Vehicle Insurance Law).
 
16      SECTION 2.  Chapter 431, Hawaii Revised Statutes, is amended
 
17 by adding a new part to article 4 to be appropriately designated
 
18 and to read as follows:
 
19   "PART   . PROXIES, CONSENTS, AND AUTHORIZATIONS OF DOMESTIC
 
20                          STOCK INSURERS
 

 
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 1      431:4-A  Applicability.  This part is applicable to all
 
 2 domestic stock insurers having one hundred or more stockholders;
 
 3 provided that this part shall not apply to any insurer if ninety-
 
 4 five per cent or more of its stock is owned or controlled by a
 
 5 parent or an affiliated insurer and the remaining shares are held
 
 6 by less than five hundred stockholders.  A domestic stock insurer
 
 7 that files with the Securities and Exchange Commission forms of
 
 8 proxies, consents, and authorizations complying with the
 
 9 requirements of the Securities Exchange Act of 1934 (title 15
 
10 United States Code section 78a), the Securities and Exchange Acts
 
11 Amendments of 1964 (P.L. 88-467), and Regulation X-14 of the
 
12 Securities and Exchange Commission adopted thereunder shall be
 
13 exempt from this part.
 
14      §431:4-B  Schedule A:  information required in a proxy
 
15 statement.(a)  When applicable, information in schedule A shall
 
16 include, among other things:
 
17      (1)  Whether or not the person giving the proxy has the
 
18           power to revoke it;
 
19      (2)  A brief outline of the rights of appraisal of
 
20           dissenting stockholders;
 
21      (3)  A statement as to who is making the solicitation;
 
22      (4)  A description of the interest of persons in the matters
 
23           to be acted upon;
 

 
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 1      (5)  A statement as to the class of voting stock to be voted
 
 2           at the meeting, the number of shares outstanding, and
 
 3           the number of votes to which each class is entitled;
 
 4      (6)  Detailed information of nominees for directors;
 
 5      (7)  A statement on remuneration and other transactions with
 
 6           management and others;
 
 7      (8)  Information on the insurer's bonus, profit sharing, and
 
 8           other remuneration plans;
 
 9      (9)  Information on the insurer's pension or retirement
 
10           plan;
 
11     (10)  Information on the options, warrants, or rights to
 
12           purchase stock of the insurer;
 
13     (11)  Information of the title, amount, and description of
 
14           stock to be authorized or issued;
 
15     (12)  Detailed information on mergers, consolidations,
 
16           acquisitions, and other similar matters; and
 
17     (13)  Detailed information on any asset, capital, or surplus
 
18           of the insurer.
 
19      (b)  If action is to be taken with respect to any matter
 
20 that is not required to be submitted to a vote of stockholders,
 
21 the schedule shall state the nature of the matter, the reason for
 
22 the matter being submitted to a vote of the stockholders, and the
 
23 action intended to be taken by the management in the event of a
 

 
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 1 negative vote on the matter by the stockholders.
 
 2      (c)  If action is to be taken with respect to any amendment
 
 3 of the insurer's charter, by-laws, or other such documents as to
 
 4 which information is not required, the schedule shall briefly
 
 5 state the reasons for and the general effect of the amendment and
 
 6 the vote needed for its approval.
 
 7      §431:4-C  Schedule B:  information to be included in
 
 8 statements filed by or on behalf of a participant other than an
 
 9 insurer in a proxy solicitation in an election contest.
 
10 Information in schedule B shall include, among other things:
 
11      (1)  The name and address of the insurer;
 
12      (2)  Detailed information about the participant;
 
13      (3)  The participant's interest in the stock of the insurer;
 
14      (4)  A description of the time and circumstances in which
 
15           the participant became involved with the solicitation
 
16           and the nature and extent of the activities or proposed
 
17           activities of the participant; and
 
18      (5)  The date and signature of the participant.
 
19      §431:4-D  Proxies, consents, and authorizations.  No
 
20 domestic stock insurer, or any director, officer, or employee of
 
21 the insurer, or any other person, shall solicit, or permit the
 
22 use of the person's name to solicit, by mail or otherwise, any
 
23 proxy, consent, or authorization with respect to any stock of the
 

 
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 1 insurer in contravention of this part or schedule A in section
 
 2 431:4-B and schedule B in 431:4-C.
 
 3      §431:4-E  Schedules and exhibits.  Reporting of the
 
 4 information required in schedule A under section 431:4-B and in
 
 5 schedule B under section 431:4-C, and the exhibit entitled
 
 6 "stockholders information supplement-financial reporting to
 
 7 stockholder" shall be made on forms or in a format approved by
 
 8 the commissioner.
 
 9      §431:4-F  Disclosure of equivalent information.  Unless
 
10 proxies, consents, or authorizations with respect to a stock of a
 
11 domestic insurer, subject to section 431:4-A, are solicited by or
 
12 on behalf of the management of the insurer from the holders of
 
13 record of stock of the insurer in accordance with this part and
 
14 the schedules thereunder prior to any annual or other meeting,
 
15 the insurer shall file with the insurance commissioner and
 
16 transmit to all stockholders of record information substantially
 
17 equivalent to the information that would be required to be
 
18 transmitted if a solicitation were made.
 
19      §431:4-G  Definitions.  As used in this part:
 
20      "Solicit" or "solicitation" includes:
 
21      (1)  Any request for a proxy, whether or not accompanied by
 
22           or included in a form of proxy;
 
23      (2)  Any request to execute or not to execute, or to revoke
 

 
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 1           a proxy; or
 
 2      (3)  The furnishing of a proxy or other communication to
 
 3           stockholders under circumstances reasonably calculated
 
 4           to result in the procurement, withholding, or
 
 5           revocation of a proxy.
 
 6      "Solicit" or "solicitation" does not include:
 
 7      (1)  Any solicitation by a person in respect to stock of
 
 8           which the person is the beneficial owner;
 
 9      (2)  Action by a broker or other person in respect to stock
 
10           carried in the person's name;
 
11      (3)  Action in the name of the nominee in forwarding to the
 
12           beneficial owner of the stock soliciting material
 
13           received from the company;
 
14      (4)  Impartially instructing the beneficial owner to forward
 
15           a proxy to the person, if any, to whom the beneficial
 
16           owner desires to give a proxy;
 
17      (5)  Impartially requesting instructions from the beneficial
 
18           owner with respect to the authority to be conferred by
 
19           the proxy and stating that a proxy will be given if the
 
20           instructions are received by a certain date; or
 
21      (6)  The furnishing of a form of proxy to a stockholder upon
 
22           the unsolicited request of the stockholder, or the
 
23           performance by any person of ministerial acts on behalf
 

 
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 1           of a person soliciting a proxy.
 
 2      "Participant" or "participant in a solicitation" includes:
 
 3      (1)  The insurer;
 
 4      (2)  Any director of the insurer and any proxy for a nominee
 
 5           for whom an election as a director is solicited; or
 
 6      (3)  Any other person acting alone or with one or more other
 
 7           persons, committees, or groups in organizing,
 
 8           directing, or financing the solicitation.
 
 9      "Participant" or "participant in a solicitation" does not
 
10 include:
 
11      (1)  A bank, broker, or dealer who, in the ordinary course
 
12           of business, lends money or executes orders for the
 
13           purchase or sale of stock and who is not otherwise a
 
14           participant;
 
15      (2)  Any person or organization retained or employed by a
 
16           participant to solicit stockholders or any person who
 
17           merely transmits proxy soliciting material or performs
 
18           ministerial or clerical duties;
 
19      (3)  Any person employed in the capacity of attorney,
 
20           accountant, or advertising, public relations, or
 
21           financial advisor, and whose activities are limited to
 
22           the performance of the person's duties in the course of
 
23           the employment of the insurer or any of its
 

 
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 1           subsidiaries or affiliates who is not otherwise a
 
 2           participant;
 
 3      (4)  Any person regularly employed as an officer or employee
 
 4           of the insurer or any of its subsidiaries or affiliates
 
 5           who is not otherwise a participant; or
 
 6      (5)  Any officer, director, or person regularly employed by
 
 7           any other participant, if the officer, director, or
 
 8           employee is not otherwise a participant.
 
 9      §431:4-H  Information to be furnished to stockholders.(a)
 
10 No solicitation shall be made unless the person solicited is
 
11 concurrently furnished or has previously been furnished with a
 
12 written proxy statement containing the information required under
 
13 schedule A pursuant to section 431:4-B.
 
14      (b)  If the solicitation is made on behalf of the management
 
15 of the insurer and relates to an annual meeting of stockholders
 
16 at which directors are to be elected, each proxy statement
 
17 furnished pursuant to subsection (a) shall be accompanied or
 
18 preceded by an annual report (in preliminary or final form) to
 
19 the stockholders containing the financial statements for the last
 
20 fiscal year as are included in the exhibit entitled "stockholders
 
21 information supplement-financial reporting to stockholder".
 
22 Subject to these requirements with respect to financial
 
23 statements, the annual report to stockholders may be in any form
 

 
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 1 deemed suitable by the management.
 
 2      (c)  Two copies of each annual report sent to the
 
 3 stockholders pursuant to this part shall be mailed to the
 
 4 commissioner not later than the date on which the annual report
 
 5 is first sent or given to stockholders or the date on which
 
 6 preliminary copies of solicitation are filed with the
 
 7 commissioner, pursuant to section 431:4-J(a), whichever date is
 
 8 later.
 
 9      §431:4-I  Requirements as to proxy.  (a)  The form of proxy
 
10 shall:
 
11      (1)  Indicate in boldface type whether or not the proxy is
 
12           solicited on behalf of the management;
 
13      (2)  Provide a specifically designated blank space for
 
14           dating the proxy; and
 
15      (3)  Identify clearly and impartially each matter or group
 
16           of related matters intended to be acted upon, whether
 
17           proposed by the management or stockholders.  No
 
18           reference need be made to proposals for which
 
19           discretionary authority is conferred pursuant to
 
20           subsection (c).
 
21      (b)  The proxy shall provide a means by which the person
 
22 solicited may specify by ballot a choice between approval or
 
23 disapproval of each matter or group of related matters referred
 

 
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 1 to therein, other than elections to office.  A proxy may confer
 
 2 discretionary authority with respect to matters for which no
 
 3 choice is specified if the form of proxy states in boldface type
 
 4 how it is intended to vote the shares or authorization
 
 5 represented by the proxy in each case.
 
 6      (c)  A proxy may confer discretionary authority with respect
 
 7 to other matters which may come before the meeting; provided that
 
 8 the persons on whose behalf the solicitation is made are not
 
 9 aware a reasonable time prior to the time the solicitation is
 
10 made that any other matters are to be presented for action at the
 
11 meeting and; provided that a specific statement to that effect is
 
12 made in the proxy statement or in the form of a proxy.
 
13      (d)  No proxy shall confer authority to:
 
14      (1)  Vote for the election of any person to office for which
 
15           a bona fide nominee is not named in the proxy
 
16           statement; or
 
17      (2)  Vote at any annual meeting other than the next annual
 
18           meeting (or any adjournment thereof) to be held after
 
19           the date on which the proxy statement and form of proxy
 
20           are first sent or given to stockholders.
 
21      (e)  The proxy statement or form of proxy shall provide,
 
22 subject to reasonable specified conditions, that the proxy will
 
23 be voted and that where the person solicited specifies, by means
 

 
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 1 of a ballot provided pursuant to subsection (b), a choice with
 
 2 respect to any matter to be acted upon, the vote will be in
 
 3 accordance with the specification so made.
 
 4      (f)  The information included in the proxy statement shall
 
 5 be clearly presented and the statement made shall be divided into
 
 6 groups according to subject matter, with appropriate headings.
 
 7 All printed proxy statements shall be clearly and legibly
 
 8 presented.
 
 9      §431:4-J  Material required to be filed.  (a)  Two
 
10 preliminary copies of the proxy statement and form of proxy and
 
11 any other soliciting material to be furnished to stockholders
 
12 concurrently therewith shall be filed with the commissioner at
 
13 least ten days prior to the date final form copies of the
 
14 material are first sent or given to stockholders, or a shorter
 
15 period prior to that date as the commissioner may authorize upon
 
16 a showing of good cause.
 
17      (b)  Two preliminary copies of any additional soliciting
 
18 material relating to the same meeting or subject matter to be
 
19 furnished to stockholders subsequent to the proxy statements
 
20 shall be filed with the commissioner at least two days (exclusive
 
21 of Saturdays, Sundays, or legal state holidays) prior to the date
 
22 copies of this material are first sent or given to stockholders
 
23 or a shorter period prior to the date that the commissioner may
 

 
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 1 authorize upon a showing of good cause.
 
 2      (c)  Two definitive copies of the proxy statement, final
 
 3 form of proxy, and all other soliciting material, in the form in
 
 4 which the material is furnished to stockholders, shall be filed
 
 5 with, or mailed for filing to, the commissioner not later than
 
 6 the date the material is first sent or given to the stockholders.
 
 7      (d)  Where any proxy statement, form of proxy, or other
 
 8 material filed pursuant to this chapter is amended or revised,
 
 9 two of the copies shall be marked to clearly show the changes.
 
10      (e)  Copies of replies to inquiries from stockholders
 
11 requesting further information and copies of communications that
 
12 only request that forms of proxy theretofore solicited be signed
 
13 and returned need not be filed pursuant to this part.
 
14      (f)  Notwithstanding subsections (a) and (b), and section
 
15 431:4-O, copies of soliciting material in the form of speeches,
 
16 press releases, and radio or television scripts may be filed with
 
17 the commissioner prior to use or publication.  Final form copies,
 
18 however, shall be filed with or mailed for filing to the
 
19 commissioner as required by subsection (c) not later than the
 
20 date the material is used or published.  Subsections (a) and (b)
 
21 and section 431:4-O shall apply to any reprints or reproductions
 
22 of all or any part of the material.
 
23      §431:4-K  False or misleading statements.  No solicitation
 

 
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 1 subject to this part shall be made by means of any proxy
 
 2 statement, form of proxy, notice of meeting, or other
 
 3 communication, written or oral, containing any statement which at
 
 4 the time and in the light of the circumstances under which it is
 
 5 made, is false or misleading with respect to any material fact,
 
 6 or which omits any material fact necessary in order to make the
 
 7 statements not false or misleading or necessary to correct any
 
 8 statement in any earlier communication with respect to the
 
 9 solicitation of a proxy for the same meeting or subject matter
 
10 which has become false or misleading.
 
11      §431:4-L  Prohibition of certain solicitations.  No person
 
12 making a solicitation shall solicit any undated or postdated
 
13 proxy or any proxy which provides that it shall be deemed to be
 
14 dated as of any date subsequent to the date on which it is signed
 
15 by the stockholder.
 
16      §431:4-M  Election contests; applicability.  This part shall
 
17 apply to any solicitation by any person or group for the purpose
 
18 of opposing a solicitation by any person or group with respect to
 
19 the election or removal of directors at any annual or special
 
20 meeting of stockholders.
 
21      §431:4-N  Filing of information required by schedule B.(a)
 
22 No solicitation shall be made by any person, other than the
 
23 management of an insurer unless at least five business days prior
 

 
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 1 thereto or a shorter period as the commissioner may authorize
 
 2 upon a showing of good cause, there has been filed, with the
 
 3 commissioner, by or on behalf of each participant in the
 
 4 solicitation, a statement in duplicate containing the information
 
 5 specified in schedule B pursuant to section 431:4-C and a copy of
 
 6 any material proposed to be distributed to stockholders in
 
 7 furtherance of the solicitation.  Where preliminary copies of any
 
 8 materials are filed, distribution to stockholders shall be
 
 9 deferred until the commissioner's comments have been received and
 
10 complied with.
 
11      (b)  Within five business days after a solicitation is made
 
12 by the management of an insurer, or a longer period as the
 
13 commissioner may authorize upon a showing of good cause, there
 
14 shall be filed with the commissioner by or on behalf of each
 
15 participant in the solicitation, other than the insurer and by or
 
16 on behalf of each management nominee or director, a statement in
 
17 duplicate containing the information specified by schedule B
 
18 under section 431:4-C.
 
19      (c)  If any solicitation on behalf of the management or any
 
20 other person has been made, or if proxy material is ready for
 
21 distribution, prior to a solicitation in opposition thereto, a
 
22 statement in duplicate containing the information specified in
 
23 schedule B shall be filed with the commissioner, by or on behalf
 

 
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 1 of each participant in the prior solicitation, other than the
 
 2 insurer, as soon as reasonably practicable after the commencement
 
 3 of the solicitation in opposition thereto.
 
 4      (d)  If, subsequent to the filing of the statements required
 
 5 by subsections (a), (b), and (c), additional persons become
 
 6 participants in a solicitation, there shall be filed with the
 
 7 commissioner, by or on behalf of each person, a statement in
 
 8 duplicate containing the information specified in schedule B
 
 9 under section 431:4-C, within three business days after the
 
10 person becomes a participant, or longer period as the
 
11 commissioner may authorize upon a showing of good cause.
 
12      (e)  If any material change occurs in the facts reported in
 
13 any statement filed by or on behalf of any participant, an
 
14 appropriate amendment to the statement shall be filed within
 
15 three business days by or on behalf of each respective
 
16 participant with the commissioner.
 
17      (f)  Each statement and amendment thereto filed pursuant to
 
18 this section shall be part of the public files of the
 
19 commissioner.
 
20      §431:4-O  Solicitations prior to furnishing required written
 
21 proxy statement.  Notwithstanding section 431:4-H(a), a
 
22 solicitation subject to this part may be made prior to furnishing
 
23 stockholders a written proxy statement containing the information
 

 
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 1 specified in schedule A under section 431:4-B with respect to the
 
 2 solicitation, provided that:
 
 3      (1)  The statements required by section 431:4-N are filed by
 
 4           or on behalf of each participant in the solicitation;
 
 5      (2)  No form of proxy is furnished to stockholders prior to
 
 6           the time the proxy statement required by
 
 7           section 431:4-H(a) is furnished to such persons.  This
 
 8           paragraph shall not apply where a proxy statement then
 
 9           meeting the requirements of schedule A under
 
10           section 431:4-B has been furnished to stockholders;
 
11      (3)  At the minimum, the information specified in paragraphs
 
12           (2) and (3) of the statements required by schedule B
 
13           under section 431:4-C to be filed by each participant,
 
14           or an appropriate summary thereof, is included in each
 
15           communication sent or given to stockholders in
 
16           connection with the solicitation; and
 
17      (4)  A written proxy statement containing the information
 
18           specified in schedule A pursuant to section 431:4-B
 
19           with respect to a solicitation is sent or given to
 
20           stockholders at the earliest practicable date.
 
21      §431:4-P  Solicitation prior to furnishing required written
 
22 proxy statement; filing requirements.  Two copies of any
 
23 soliciting material proposed to be sent or given to stockholders
 

 
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 1 prior to the furnishing of the written proxy statement required
 
 2 by section 431:4-H(a) shall be filed with the commissioner in
 
 3 preliminary form at least five business days prior to the date
 
 4 final form copies of the material are first sent or given to the
 
 5 stockholders, or a shorter period as the commissioner may
 
 6 authorize upon a showing of good cause therefor.
 
 7      §431:4-Q  Application of this part to annual report.
 
 8 Notwithstanding section 431:4-H(b) and (c), two copies of any
 
 9 portion of the annual report referred to in section 431:4-H(b),
 
10 that comments upon or refers to any solicitation subject to this
 
11 section or to any participant in any solicitation, other than the
 
12 solicitation by the management, shall be filed with the
 
13 commissioner as proxy material subject to this part.  The portion
 
14 of the annual report shall be filed with the commissioner in
 
15 preliminary form at least five business days prior to the date
 
16 copies of the annual report are first sent or given to
 
17 stockholders."
 
18      SECTION 3.  Chapter 431, Hawaii Revised Statutes, is amended
 
19 by adding eight new sections to article 10C to be appropriately
 
20 designated and to read as follows:
 
21      "§431:10C-A  Agreement.  The applicant shall execute and
 
22 file with the commissioner an agreement in a form prescribed by
 
23 the commissioner, that if certified as a self-insurer the
 

 
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 1 applicant shall:
 
 2      (1)  Permit the commissioner or an authorized representative
 
 3           to inspect and copy records and provide them copies of
 
 4           records pertaining to the self-insurer's financial
 
 5           condition, processing and payment of claims, and any
 
 6           other matters pertinent to the administration and
 
 7           enforcement of this article; and
 
 8      (2)  Provide all mandatory benefits required under this
 
 9           article and comply with all requirements of articles
 
10           10C and 13, and with the rules and directives of the
 
11           commissioner, including, but not limited to, those
 
12           relating to processing and payment of assessments and
 
13           fees.
 
14      §431:10C-B  Surety bond, deposit of security, or proof of
 
15 financial ability.  An applicant for self-insurance shall:
 
16      (1) (A)   File with the commissioner and maintain a bond of
 
17                a surety company authorized to do business in the
 
18                State, conditioned for the payment of benefits and
 
19                amounts that would be payable if the applicant
 
20                were insured under a motor vehicle insurance
 
21                policy as prescribed in this article.  The bond
 
22                shall be in the form and penal sum acceptable to
 
23                the commissioner, but in no event shall be less
 

 
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 1                than $300,000, and shall provide that the bond may
 
 2                not be canceled or otherwise terminated until two
 
 3                years have elapsed from the last day the applicant
 
 4                was self-insured, unless the commissioner has
 
 5                given prior written consent.  It shall be
 
 6                undertaken and may be enforced in the name of
 
 7                "Commissioner of Insurance, State of Hawaii".  The
 
 8                surety company may not cancel the bond for the
 
 9                period of certification; or
 
10           (B)  Deposit with the commissioner cash or those
 
11                securities as may be legally purchased for
 
12                investment by insurance companies under this
 
13                chapter and evidence satisfactory to the
 
14                commissioner that there are no unsatisfied
 
15                judgments against the applicant.  As used in this
 
16                paragraph,, "cash" includes an irrevocable letter
 
17                of credit issued by a federally insured financial
 
18                institution whose principal office is located in
 
19                this State.  Prior to the issuance of a
 
20                certificate of self-insurance the securities and
 
21                cash, if appropriate, shall be registered in the
 
22                name of the "Commissioner of Insurance, State of
 
23                Hawaii".  The deposit shall be held to satisfy
 

 
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 1                claims for personal injury protection benefits and
 
 2                liability coverage as prescribed in this article.
 
 3                The commissioner shall deposit the cash or
 
 4                securities with the director of finance.  The
 
 5                applicant shall execute an agreement satisfactory
 
 6                in form to the commissioner with respect to the
 
 7                deposit.  The cash or market value of the
 
 8                securities deposited shall be in an amount
 
 9                determined by the commissioner to afford security
 
10                substantially equivalent to that afforded under a
 
11                motor vehicle insurance policy, but in no event
 
12                less than $300,000 and shall provide that the cash
 
13                or securities shall not be withdrawn until two
 
14                years have elapsed from the last day the applicant
 
15                was self-insured, unless the commissioner has
 
16                given prior written consent; and
 
17      (2)  Furnish the commissioner satisfactory proof of the
 
18           applicant's solvency and financial ability to timely
 
19           pay benefits and amounts that would be payable if the
 
20           applicant were insured under this article.  The
 
21           commissioner shall consider the assets, liabilities,
 
22           profit, loss records, and liquidity of the applicant,
 
23           the number of vehicles involved, the exposure, and
 

 
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 1           other factors appropriate to determining whether the
 
 2           applicant qualifies as a self-insurer.
 
 3      §431:10C-C  Proof of ability to process and pay claims
 
 4 promptly.  An applicant for self-insurance shall submit proof
 
 5 satisfactory to the commissioner that the applicant has retained
 
 6 an adjuster licensed under this chapter to provide a complete
 
 7 claims service to process and promptly pay claims in accordance
 
 8 with this article and article 13.  During the period that the
 
 9 applicant is self-insured, the applicant shall immediately refer
 
10 all claims to the adjuster for processing. From time to time, the
 
11 commissioner may require a self-insurer to show that the self-
 
12 insurer is continuing to maintain an effective claims service.
 
13      §431:10C-D  Issuance of certificate of self-insurance.  The
 
14 commissioner shall issue a certificate of self-insurance if:
 
15      (1)  The applicant has provided the bond, cash, or
 
16           securities and proof of qualification as a self-
 
17           insurer affording security substantially equivalent to
 
18           that afforded under a motor vehicle insurance policy;
 
19           and
 
20      (2)  The commissioner is satisfied that in case of injury,
 
21           death, or property damage, any claimant would have the
 
22           same rights against the self-insurer as the claimant
 
23           would have had if a motor vehicle insurance policy was
 

 
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 1           applicable.
 
 2      §431:10C-E  Duty to notify commissioner.  A self-insurer
 
 3 shall notify the commissioner in writing of any change in status
 
 4 of any motor vehicle which is self-insured, such as a transfer,
 
 5 sale, removal from the State, or any additional motor vehicle
 
 6 which the self-insurer desires to self-insure within ten working
 
 7 days after the change is effected.
 
 8      §431:10C-F  Duration of certification.  A certificate of
 
 9 self-insurance is valid for a period of one year from the date of
 
10 issuance and may be renewed annually.
 
11      §431:10C-G  Revocation of certificate of self-insurance.
 
12 The commissioner may revoke a certificate of self-insurance for
 
13 good cause at any time after providing notice and the opportunity
 
14 for a hearing in accordance with chapter 91. Failure to comply
 
15 with this article, rules, orders, or directives of the
 
16 commissioner, or to pay any lawful fee or assessment is cause for
 
17 revocation.  Upon revocation, the owner of any self-insured motor
 
18 vehicle shall not operate or permit operation of the vehicle in
 
19 the State until the owner has obtained insurance or has received
 
20 a new certificate of self-insurance from the commissioner.
 
21      §431:10C-H  Termination of self-insurer status and
 
22 withdrawal of security deposit.  (a)  A person who terminates the
 
23 person's status as a self-insurer or whose certificate of self-
 

 
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 1 insurance has been revoked and who obtains a motor vehicle
 
 2 insurance policy for any formerly self-insured motor vehicle or
 
 3 shows that the person does not own any motor vehicle, may apply
 
 4 to the commissioner for the return of the person's security
 
 5 deposit or cancellation of the surety bond.
 
 6      (b)  After a lapse of twenty-four months from termination or
 
 7 revocation of self-insurer status and proof satisfactory to the
 
 8 commissioner that all claims have been fully adjudicated and
 
 9 paid, that all allotments and assessments have been paid, and
 
10 that the owner has complied with the applicable provisions of
 
11 this article, rules, orders, and directives of the commissioner,
 
12 and provisions of the self-insurer's agreement, the commissioner
 
13 may release the securities deposited or permit the cancellation
 
14 of the bond."
 
15      SECTION 4.  Section 431:10C-103, Hawaii Revised Statutes, is
 
16 amended by adding three new definitions to be appropriately
 
17 inserted and to read as follows:
 
18      ""Alternative care provider" means any person providing
 
19 medical or rehabilitative services in section 431:10C-302(a)(10)
 
20 to a claimant covered by a motor vehicle insurance policy.
 
21      "Anesthetist" means a registered nurse-anesthetist who
 
22 performs anesthesia services under the supervision of a licensed
 
23 physician.
 

 
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 1      "Medical fee schedule" refers to the Medicare Resource Based
 
 2 Relative Value Scale System applicable to Hawaii, entitled
 
 3 "Workers' Compensation Supplemental Medical Fee Schedule"."
 
 4      SECTION 5.  Section 431:10C-105, Hawaii Revised Statutes, is
 
 5 amended to read as follows:
 
 6      "§431:10C-105  Self-insurance.  (a)  The motor vehicle
 
 7 insurance required by section 431:10C-104 may be satisfied by any
 
 8 owner of a motor vehicle if:
 
 9      (1)  [Such] The owner provides a surety bond, proof of
 
10           qualifications as a self-insurer, or other securities
 
11           affording security substantially equivalent to that
 
12           afforded under a motor vehicle insurance policy,
 
13           providing coverage at all times for the entire motor
 
14           vehicle registration period, as determined and approved
 
15           by the commissioner under [regulations;] rules; and
 
16      (2)  The commissioner is satisfied that in case of injury,
 
17           death, or property damage, any claimant would have the
 
18           same rights against [such] the owner as the claimant
 
19           would have had if a motor vehicle insurance policy had
 
20           been applicable to [such] the vehicle.
 
21      (b)  A person desiring to qualify as a self-insurer shall
 
22 apply to the commissioner on a form or in a format approved by
 
23 the commissioner pursuant to rules."
 

 
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 1      SECTION 6.  Section 431:10C-107, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "431:10C-107  Verification of insurance:  motor vehicles.
 
 4 (a)  Every insurer shall issue to its insureds a motor vehicle
 
 5 insurance identification card for each motor vehicle for which
 
 6 the basic motor vehicle insurance coverage is written.  The
 
 7 identification card shall contain the following:
 
 8      (1)  Name of make and factory or serial number of the motor
 
 9           vehicle; provided that insurers of five or more motor
 
10           vehicles which are under common registered ownership
 
11           and used in the regular course of business shall not be
 
12           required to indicate the name of make and the factory
 
13           or serial number of each motor vehicle;
 
14      (2)  Policy number;
 
15      (3)  Names of the insured and the insurer; and
 
16      (4)  Effective dates of coverage including the expiration
 
17           date.
 
18      (b)  The identification card shall be in the insured motor
 
19 vehicle at all times and shall be exhibited to a law enforcement
 
20 officer upon demand.
 
21      (c)  The identification card shall be resistant to forgery
 
22 by whatever means appropriate.  The commissioner shall approve
 
23 the construction, form, and design of the identification card to
 

 
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 1 ensure that the card is forgery resistant.
 
 2      (d)  The commissioner shall issue a certificate of self-
 
 3 insurance periodically, as necessary, for use in each motor
 
 4 vehicle insured under section 431:10C-105.
 
 5      (e)  The identification card issued by an insurer shall not
 
 6 be issued for a period exceeding the period for which premiums
 
 7 have been paid or earned; provided that an identification card
 
 8 shall be issued for a minimum six-month period, notwithstanding
 
 9 that premiums are paid by the insured on a monthly basis; and
 
10 provided further that this subsection shall apply only to the
 
11 first application of a person for a motor vehicle insurance
 
12 policy and shall not apply to applications for commercial and
 
13 fleet vehicles."
 
14      SECTION 7.  Section 431:10C-115, Hawaii Revised Statutes, is
 
15 amended to read as follows:
 
16      "§431:10C-115  Drivers education fund underwriters fee.
 
17 (a)   The commissioner shall assess and levy upon each insurer,
 
18 and self-insurer, a drivers education fund underwriters fee of $2
 
19 a year on each motor vehicle insured by each insurer or self-
 
20 insurer.  This fee is due and payable on an annual basis by means
 
21 and at a time to be determined by the commissioner.
 
22      (b)  The commissioner shall deposit the fees into a special
 
23 drivers education fund account.
 

 
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 1      (c)  The commissioner shall allocate the fees deposited for
 
 2 each fiscal year in the following manner:
 
 3      (1)  Fifty per cent to the commissioner to be expended for
 
 4           the operation of the drivers education program provided
 
 5           in section [[]286-128(d)[]]; and
 
 6      (2)  Fifty per cent to the director of commerce and consumer
 
 7           affairs for:
 
 8           (A)  The drivers education program administered by the
 
 9                department of education for high school students;
 
10                and
 
11           (B)  The traffic safety education program established
 
12                and administered by the department of education
 
13                pursuant to section 302A-417.
 
14      (d)  Motor vehicles insured under the joint underwriting
 
15 plan shall be excluded from the drivers education fund
 
16 assessment.
 
17      [(d)] (e)  The commissioner shall adopt rules in accordance
 
18 with chapter 91 for the execution of this section and the
 
19 distribution of this fund."
 
20      SECTION 8.  Section 431:11-102, Hawaii Revised Statutes, is
 
21 amended by adding three new definitions to be appropriately
 
22 inserted and to read as follows:
 
23      ""Executive officer" means chief executive officer, chief
 

 
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 1 operating officer, chief financial officer, treasurer, secretary,
 
 2 controller, or any other individual performing functions
 
 3 corresponding to those performed by the foregoing officers under
 
 4 whatever title.
 
 5      "Statement" means information required to be filed with the
 
 6 commissioner pursuant to sections 431:11-104, 431:11-105, and
 
 7 431:11-106, and guidelines set forth on a form or in a format
 
 8 approved by the commissioner.
 
 9      "Ultimate controlling person" means a person who is not
 
10 controlled by any other person."
 
11      SECTION 9.  Section 431:11-103, Hawaii Revised Statutes, is
 
12 amended by amending subsection (b) to read as follows:
 
13      "(b)  In addition to investments in common stock, preferred
 
14 stock, debt obligations, and other securities permitted [under
 
15 article 6,] in this chapter, a domestic insurer may also:
 
16      (1)  Invest in common stock, preferred stock, debt
 
17           obligations, and other securities of one or more
 
18           subsidiaries, amounts which do not exceed the lesser of
 
19           ten per cent of the insurer's assets or fifty per cent
 
20           of the insurer's surplus as regards policyholders;
 
21           provided that after the investments, the insurer's
 
22           surplus as regards policyholders will be reasonable in
 
23           relation to the insurer's outstanding liabilities and
 

 
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 1           adequate to its financial needs.  In calculating the
 
 2           amount of the investments, investments in domestic or
 
 3           foreign insurance subsidiaries shall be excluded, and
 
 4           there shall be included:
 
 5           (A)  Total net moneys or other consideration expended
 
 6                and obligations assumed in the acquisition or
 
 7                formation of a subsidiary, including all
 
 8                organizational expenses and contributions to
 
 9                capital and surplus of the subsidiary whether or
 
10                not represented by the purchase of capital stock
 
11                or issuance of other securities[,]; and
 
12           (B)  All amounts expended in acquiring additional
 
13                common stock, preferred stock, debt obligations,
 
14                and other securities and all contributions to the
 
15                capital or surplus of a subsidiary subsequent to
 
16                its acquisition or formation;
 
17      (2)  Invest any amount in common stock, preferred stock,
 
18           debt obligations, and other securities of one or more
 
19           subsidiaries engaged or organized to engage exclusively
 
20           in the ownership and management of assets authorized as
 
21           investments for the insurer; provided that each
 
22           subsidiary agrees to limit its investments in any asset
 
23           so that the investments will not cause the amount of
 

 
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 1           the total investment of the insurer to exceed any of
 
 2           the investment limitations specified in [item]
 
 3           paragraph (1) or in [article 6.] this chapter.  For the
 
 4           purpose of this subsection, the total investment of the
 
 5           insurer shall include:
 
 6           (A)  Any direct investment by the insurer in an
 
 7                asset[,]; and
 
 8           (B)  The insurer's proportionate share of any
 
 9                investment in an asset by any subsidiary of the
 
10                insurer, which shall be calculated by multiplying
 
11                the amount of the subsidiary's investment by the
 
12                percentage of the ownership of the subsidiary; and
 
13      (3)  With the approval of the commissioner, invest any
 
14           greater amount in common stock, preferred stock, debt
 
15           obligations, or other securities of one or more
 
16           subsidiaries; provided that after the investment, the
 
17           insurer's surplus as regards policyholders will be
 
18           reasonable in relation to the insurer's outstanding
 
19           liabilities and adequate to its financial needs."
 
20      SECTION 10.  Section 431:11-106, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "431:11-106  Standards and management of an insurer within a
 
23 holding company system.
 

 
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 1      (a) (1)   Transactions within a holding company system to
 
 2                which an insurer subject to registration is a
 
 3                party shall be subject to the following standards:
 
 4                (A)  The terms shall be fair and reasonable;
 
 5                (B)  Charges or fees for services performed shall
 
 6                     be reasonable;
 
 7                (C)  Expenses incurred and payment received shall
 
 8                     be allocated to the insurer in conformity
 
 9                     with customary insurance accounting practices
 
10                     consistently applied;
 
11                (D)  The books, accounts, and records of each
 
12                     party to all transactions shall be [so]
 
13                     maintained so as to clearly and accurately
 
14                     disclose the nature and details of the
 
15                     transactions including the accounting
 
16                     information [as is] necessary to support the
 
17                     reasonableness of the charges or fees to the
 
18                     respective parties; and
 
19                (E)  The insurer's surplus as regards
 
20                     policyholders following any dividends or
 
21                     distributions to shareholder affiliates shall
 
22                     be reasonable in relation to the insurer's
 
23                     outstanding liabilities and adequate to its
 

 
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 1                     financial needs.
 
 2      (2)  The following transactions involving a domestic insurer
 
 3           and any person in its holding company system may not be
 
 4           entered into unless the insurer has notified the
 
 5           commissioner in writing of its intention to enter into
 
 6           the transaction at least thirty days prior thereto, or
 
 7           a shorter period as the commissioner may permit, and
 
 8           the commissioner has not disapproved it within that
 
 9           period:
 
10           (A)  Sales, purchases, exchanges, loans, or extensions
 
11                of credit, guarantees, or investments; provided
 
12                that the transactions are equal to or exceed:
 
13                (i)  With respect to nonlife insurers, the lesser
 
14                     of three per cent of the insurer's admitted
 
15                     assets or twenty-five per cent of surplus as
 
16                     regards policyholders each as of the thirty-
 
17                     first day of December next preceding; or
 
18               (ii)  With respect to life insurers, three per cent
 
19                     of the insurer's admitted assets as of the
 
20                     thirty-first day of December next preceding;
 
21           (B)  Loans or extensions of credit to any person who is
 
22                not an affiliate, where the insurer makes the
 
23                loans or extensions of credit with the agreement
 

 
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 1                or understanding that the proceeds of the
 
 2                transactions, in whole or in substantial part, are
 
 3                to be used to make loans or extensions of credit
 
 4                to, to purchase assets of, or to make investments
 
 5                in, any affiliate of the insurer making the loans
 
 6                or extensions of credit provided the transactions
 
 7                are equal to or exceed:
 
 8                (i)  With respect to nonlife insurers, the lesser
 
 9                     of three per cent of the insurer's admitted
 
10                     assets or twenty-five per cent of surplus as
 
11                     regards policyholders each as of the thirty-
 
12                     first day of December next preceding; or
 
13               (ii)  With respect to life insurers, three per cent
 
14                     of the insurer's admitted assets as of the
 
15                     thirty-first day of December next preceding;
 
16           (C)  Reinsurance agreements or modifications thereto in
 
17                which the reinsurance premium or a change in the
 
18                insurer's liabilities equals or exceeds five per
 
19                cent of the insurer's surplus as regards
 
20                policyholders, as of the thirty-first day of
 
21                December next preceding, including those
 
22                agreements which may require as consideration the
 
23                transfer of assets from an insurer to a
 

 
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 1                nonaffiliate, if an agreement or understanding
 
 2                exists between the insurer and nonaffiliate that
 
 3                any portion of the assets will be transferred to
 
 4                one or more affiliates of the insurer;
 
 5           (D)  All management agreements, service contracts, and
 
 6                all cost-sharing arrangements; and
 
 7           (E)  Any material transactions, specified by
 
 8                [regulation,] rule, which the commissioner
 
 9                determines may adversely affect the interests of
 
10                the insurer's policyholders.
 
11           Nothing in this section shall be deemed to authorize or
 
12           permit any transactions which, in the case of an
 
13           insurer not a member of the same holding company
 
14           system, would be otherwise contrary to law.
 
15      (3)  A domestic insurer may not enter into transactions,
 
16           which are part of a plan or series of like transactions
 
17           with persons within the holding company system, if the
 
18           purpose of those separate transactions is to avoid the
 
19           statutory threshold amount and thus avoid the review
 
20           that would otherwise occur.  If the commissioner
 
21           determines that the separate transactions were entered
 
22           into over any twelve-month period for that purpose, the
 
23           commissioner may exercise the commissioner's authority
 

 
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 1           under section 431:11-111.
 
 2      (4)  The commissioner, in reviewing transactions pursuant to
 
 3           subsection (a)(2), shall consider whether the
 
 4           transactions comply with the standards set forth in
 
 5           subsection (a)(1) and whether they may adversely affect
 
 6           the interests of policyholders.
 
 7      (5)  The commissioner shall be notified within thirty days
 
 8           of any investment of the domestic insurer in any one
 
 9           corporation if the total investment in the corporation
 
10           by the insurance holding company system exceeds ten per
 
11           cent of the corporation's voting securities.
 
12      (b)  (1) No domestic insurer shall pay any extraordinary
 
13           dividend or make any other extraordinary distribution
 
14           to its shareholders until:
 
15           (A)  Thirty days after the commissioner has received
 
16                notice of the declaration thereof and has not
 
17                within the period disapproved the payment; or
 
18           (B)  The commissioner [shall have] has approved the
 
19                payment within the thirty-day period.
 
20      (2)  For purposes of this section, an extraordinary dividend
 
21           or distribution includes any dividend or distribution
 
22           of cash or other property, whose fair market value
 
23           together with that of other dividends or distributions
 

 
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 1           made within the preceding twelve months exceeds the
 
 2           [[]lesser[]] of:
 
 3           (A)  Ten per cent of [such] the insurer's surplus as
 
 4                regards policyholders as of the thirty-first day
 
 5                of December next preceding; or
 
 6           (B)  The net gain from operations of a life insurer, or
 
 7                the net income, if the insurer is not a life
 
 8                insurer, not including realized capital gains, for
 
 9                the twelve-month period ending the thirty-first
 
10                day of December next preceding.
 
11           Extraordinary dividend or distribution shall not
 
12           include pro rata distributions of any class of the
 
13           insurer's own securities.
 
14                In determining whether a dividend or distribution
 
15           is extraordinary, an insurer other than a life insurer
 
16           may carry forward income from the previous two calendar
 
17           years that has not already been paid out as dividends.
 
18           This carry-forward shall be computed by taking the net
 
19           income from the second and third preceding calendar
 
20           years, not including realized capital gains, less
 
21           dividends paid in the second and immediate preceding
 
22           calendar years.
 
23                Notwithstanding any other provisions of law, an
 

 
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 1           insurer may declare an extraordinary dividend or
 
 2           distribution that is conditional upon the
 
 3           commissioner's approval thereof, and the declaration
 
 4           shall confer no rights upon shareholders until the
 
 5           commissioner has either approved the payment of the
 
 6           dividend or distribution or has not disapproved the
 
 7           payment within the thirty-day period referred to above.
 
 8      (c)  (1) Notwithstanding the control of a domestic insurer
 
 9           by any person, the officers and directors of the
 
10           insurer shall not thereby be relieved of any obligation
 
11           or liability which they would otherwise be subject to
 
12           by law.  The insurer shall be managed so as to assure
 
13           its separate operating identity consistent with this
 
14           article.
 
15      (2)  Nothing herein shall preclude a domestic insurer from
 
16           having or sharing a common management or cooperative or
 
17           joint use of personnel, property, or services with one
 
18           or more other persons under arrangements meeting the
 
19           standards of subsection (a)(1).
 
20      (d)  For purposes of this article, in determining whether an
 
21 insurer's surplus as regards policyholders is reasonable in
 
22 relation to the insurer's outstanding liabilities and adequate to
 
23 its financial needs, the following factors, among others, shall
 

 
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 1 be considered:
 
 2      (1)  The size of the insurer as measured by its assets,
 
 3           capital and surplus, reserves, premium writings,
 
 4           insurance in force, and other appropriate criteria;
 
 5      (2)  The extent to which the insurer's business is
 
 6           diversified among the several lines of insurance;
 
 7      (3)  The number and size of risks insured in each line of
 
 8           business;
 
 9      (4)  The extent of the geographical dispersion of the
 
10           insurer's insured risks;
 
11      (5)  The nature and extent of the insurer's reinsurance
 
12           program;
 
13      (6)  The quality, diversification, and liquidity of the
 
14           insurer's investment portfolio;
 
15      (7)  The recent past and projected future trend in the size
 
16           of the insurer's investment portfolio;
 
17      (8)  The surplus as regards policyholders maintained by
 
18           other comparable insurers;
 
19      (9)  The adequacy of the insurer's reserves; and
 
20     (10)  The quality and liquidity of investments in affiliates.
 
21           The commissioner may treat any investment as a
 
22           disallowed asset for purposes of determining the
 
23           adequacy of surplus as regards policyholders whenever
 

 
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 1           in the commissioner's judgment the investment so
 
 2           warrants.
 
 3      (e)  In determining the adequacy and reasonableness of an
 
 4 insurer's surplus, no single factor is necessarily controlling,
 
 5 and the commissioner shall:
 
 6      (1)  Consider the net effect of all of the factors, along
 
 7           with other factors bearing on the financial condition
 
 8           of the insurer;
 
 9      (2)  In comparing the surplus maintained by other insurers,
 
10           consider the extent to which each of these factors
 
11           varies among insurers; and
 
12      (3)  In determining the quality and liquidity of investments
 
13           in subsidiaries, consider the individual subsidiary and
 
14           discount or disallow its valuation to the extent
 
15           warranted by individual investments."
 
16      SECTION 11.  Section 431:12-105, Hawaii Revised Statutes, is
 
17 amended to read as follows:
 
18      "§431:12-105  Mass merchandising requirements.  Mass
 
19 merchandising of insurance and every mass merchandising plan
 
20 shall be subject to the following conditions:
 
21      (1)  The insurance offered shall be open to participation by
 
22           or be available to every employee of the employer who
 
23           meets the underwriting requirements of the insurer.
 

 
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 1      (2)  The insurance shall be offered without discrimination
 
 2           against any employee as to rates, forms, or coverages.
 
 3           Nothing herein shall preclude the establishment of
 
 4           different classes of risks.
 
 5      (3)  Upon the termination of employment or upon the
 
 6           termination of the mass merchandising agreement, an
 
 7           insured employee shall have the option of continuing
 
 8           the employee's participation in a group policy or the
 
 9           employee's individual policy then in force for a period
 
10           of one year upon payment of the applicable premium;
 
11           provided that the employee shall exercise the
 
12           employee's option within thirty days following the date
 
13           of [such] the termination.  The terms, conditions, and
 
14           coverages for the one-year period are those that were
 
15           effective on the date of termination and shall not be
 
16           more restrictive than those contained in the mass
 
17           merchandising agreement, the group policy, or the
 
18           individual policy in force immediately prior to the
 
19           date of termination.
 
20      (4)  The insurer shall issue a certificate or other evidence
 
21           of participation to every member covered under a group
 
22           policy and a policy of insurance to every member
 
23           insured under an individual policy.
 

 
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 1      (5)  The insurance offered shall not be contingent upon the
 
 2           purchase of any other insurance, product, or service;
 
 3           nor shall the purchase of any other insurance, product,
 
 4           or service be contingent upon the purchase of the motor
 
 5           vehicle, property, and casualty insurance offered."
 
 6      SECTION 12.  Section 431:12-115, Hawaii Revised Statutes, is
 
 7 amended to read as follows:
 
 8      "§431:12-115  Establishment and maintenance of office.  (a)
 
 9 Every insurer selling insurance on a mass merchandising basis
 
10 shall establish and maintain at all times an office in the State
 
11 to conduct the administration of its business and handle claims.
 
12      (b)  Establishment and maintenance of an office by any
 
13 licensed general agent of an insurer shall meet the requirements
 
14 of this section."
 
15      SECTION 13.  In codifying the new sections added to chapter
 
16 431, Hawaii Revised Statutes, by sections 2 and 3 of this Act,
 
17 the revisor of statutes shall substitute appropriate section
 
18 numbers for the letters used in the designations of these new
 
19 sections in this Act.
 
20      SECTION 14.  Statutory material to be repealed is bracketed.
 
21 New statutory material is underscored.
 
22      SECTION 15.  This Act shall take effect upon its approval. 
 

 
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