Section 1701. Authority to invest in subsidiaries; businesses of subsidiaries. 1702. Meaning of "subsidiary" and "parent corporation"; certain types of subsidiaries defined. 1703. Standard of care for investments in subsidiaries. 1704. Exemptions applicable to subsidiaries; limitations generally. 1705. Quantitative limitations. 1706. Exemptions applicable to parent corporation. 1707. Regulations to restrict pyramiding. 1708. Information reports. 1709. Confidentiality of information reports. 1710. Superintendent`s power to order disposition of subsidiaries. 1711. Subsidiary`s name not to mislead. 1712. Relationships and transactions between parent corporation and subsidiary. 1713. Prohibitions on investments of subsidiaries. 1714. Authority to conduct certain business directly instead of through subsidiary. 1715. Valuation of shares of subsidiaries. 1716. Regulations. S 1701. Authority to invest in subsidiaries; businesses of subsidiaries. Subject to the provisions of section one thousand two hundred eighteen of this chapter: (a) A domestic life insurance company may, subject to the provisions of subsection (d) of section one thousand four hundred five of this chapter, invest in, or otherwise acquire, subsidiaries engaged or organized to engage in any business lawful under the laws of the jurisdictions in which such subsidiaries are organized; (b) A domestic corporation subject to article forty-three of this chapter may invest in, or otherwise acquire, subsidiaries of the types described in subsection (b) of section one thousand seven hundred four of this article and subsidiaries engaged or organized to engage in (i) activities that such corporation could engage in directly, (ii) management or information services reasonably related to the provision of health insurance, (iii) the delivery or financing of health care, or (iv) any other business directly related to providing administration or sales of any employer provided or arranged employee health and welfare benefits, provided that notice of any such acquisition or investment shall be given to the superintendent within five days thereafter; and (c) A domestic retirement system subject to article forty-six of this chapter may invest in, or otherwise acquire, subsidiaries of the types described in subsection (b) of section one thousand seven hundred four of this article and subsidiaries of the type authorized by article forty-six of this chapter. S 1702. Meaning of "subsidiary" and "parent corporation"; certain types of subsidiaries defined. As used in this article, "subsidiary" (i) means subsidiaries of the types described in subsection (b) of section one thousand seven hundred four of this article and subsidiaries acquired or held under this article, section one thousand four hundred five or section four thousand two hundred forty of this chapter, but (ii) does not include a subsidiary acquired or held under section one thousand four hundred four of this chapter or a subsidiary acquired or held by an insurer authorized to make investments by subsection (c) of section one thousand four hundred three of this chapter; and "parent corporation" means a parent corporation of a type described in subsection (a), (b) or (c) of section one thousand seven hundred one of this article; "holding company operating subsidiary" means a subsidiary (other than a separate account subsidiary) engaged or organized to engage in either or both of the following activities (i) the ownership and management of other subsidiaries, and (ii) the raising of capital (debt or equity) which could be loaned to, or invested in, other subsidiaries or loaned to the parent corporation, provided that any such subsidiary may in addition engage in the ownership and management of assets authorized as investments for the parent corporation; "investment subsidiary" means a subsidiary (other than a separate account subsidiary) engaged or organized to engage exclusively in the ownership and management of assets (other than equity securities of subsidiaries) authorized as investments for the parent corporation and of other investment subsidiaries; and "separate account subsidiary" means a subsidiary acquired or held under section four thousand two hundred forty of this chapter. S 1703. Standard of care for investments in subsidiaries. In addition to other requirements of law (statutory or otherwise) that affect the standard of care of directors and officers of corporations, directors and officers shall perform their duties in connection with investments in, or other acquisitions of, subsidiaries in good faith and with that degree of care that an ordinarily prudent individual in a like position would use under similar circumstances. S 1704. Exemptions applicable to subsidiaries; limitations generally. (a) Investments in separate account subsidiaries and in investment subsidiaries are exempt from the provisions of subsection (a) of section one thousand seven hundred five of this article and separate account subsidiaries and investment subsidiaries are exempt from the provisions of item (ii) of section one thousand seven hundred ten of this article. Investments by the parent corporation in holding company operating subsidiaries are exempt from the provisions of paragraph two of subsection (a) of section one thousand seven hundred five of this article. (b) Subsidiaries that become such as a result of (i) the acquisition of securities received as permitted by subsection (e) of section one thousand four hundred three of this chapter or (ii) the temporary assumption of control by the owners of securities upon the happening of a contingency are exempt from the provisions of section one thousand seven hundred eight and item (ii) of section one thousand seven hundred ten of this article for one year, and from the provisions of subsection (a) of section one thousand seven hundred five of this article for five years, after becoming subsidiaries. (c) Investments in subsidiaries engaged or organized to engage in any kind of insurance business in which the parent corporation may engage, and investments in subsidiaries engaged or organized to engage exclusively in the ownership and management of such subsidiaries, are exempt from the provisions of subsection (a) of section one thousand seven hundred five of this article. (d) Investments made or acquired by investment subsidiaries shall be deemed, for the purposes of this chapter, to be made or acquired directly by the parent corporation (pro rata, in the case of a subsidiary less than all of whose voting securities are owned by the parent corporation, in accordance with the parent corporation`s investment in such subsidiary), and shall (to such extent) be subject to all the provisions and limitations (including quantitative limits) on the making thereof specified in this chapter with respect to investments by the parent corporation. S 1705. Quantitative limitations. * (a)(1) Unless the superintendent shall have given prior written approval, a parent corporation shall not make an investment for its own account in any subsidiary (not at the time exempt from the provisions of this section) if, after giving effect to such investment, the aggregate investment value of all subsidiaries then directly invested in by the parent corporation (excluding investments in subsidiaries at the time exempted from this subsection) would be in excess of thirty percent (but not more than twenty percent with respect to subsidiaries not having their principal operations in this state, and, in the case of a parent corporation of the type described in subsection (b) of section one thousand seven hundred one of this article, not more than ten percent) of the parent corporation`s admitted assets. (2) Unless the superintendent shall have given prior written approval, neither the parent corporation nor any subsidiary (other than a separate account subsidiary or any subsidiary referred to in subsection (c) of section one thousand seven hundred four of this article) may make any investment in any subsidiary (not at the time exempt from this paragraph), if, after giving effect to such investment, the investment value of such subsidiary would aggregate more than fifteen percent (but not more than two percent in the case of a parent corporation of the type described in subsection (b) of section one thousand seven hundred one of this article) of the parent corporation`s admitted assets. * NB See other subS (a) (Sep. amended - cannot be put together) * (a)(1) Unless the superintendent shall have given prior written approval, a parent corporation shall not make an investment for its own account in any subsidiary (not at the time exempt from the provisions of this section) if, after giving effect to such investment, the aggregate investment value of all subsidiaries then directly invested in by the parent corporation (excluding investments in subsidiaries at the time exempted from this subsection) would be in excess of thirty percent (but not more than twenty percent with respect to subsidiaries not having their principal operations in this state and, in the case of a parent corporation of the type described in subsection (b) of section one thousand seven hundred one of this article, not more than ten percent) of the parent corporation`s admitted assets. (2) Unless the superintendent shall have given prior written approval, neither the parent corporation nor any subsidiary (other than a separate account subsidiary or any subsidiary referred to in subsection (c) of section one thousand seven hundred four of this article) may make any investment in any subsidiary (not at the time exempt from this paragraph), if, after giving effect to such investment, the investment value of such subsidiary would aggregate more than fifteen percent (but not more than two percent in the case of the parent corporation of the type described in subsection (b) of section one thousand seven hundred one of this article) of the parent corporation`s admitted assets. * NB See other subS (a) (Sep. amended - cannot be put together) (b) "Admitted assets," for the purposes of this section, has the meaning ascribed to it by subparagraph (B) of paragraph one of subsection (b) of section one thousand four hundred five of this chapter. (c) (1) For the purposes of computations under paragraph one of subsection (a) of this section, the aggregate investment value of all subsidiaries at any time directly invested in by the parent corporation (excluding investments in subsidiaries at the time exempted from subsection (a) of this section) shall mean the sum of (i) the minimum value of each such subsidiary of which equity securities (including partnership interests) are directly held by the parent corporation, (ii) indebtedness of such subsidiaries then outstanding to the extent guaranteed by the parent corporation, and (iii) the unpaid principal amount of loans and advances to such subsidiaries by the parent corporation or by any investment subsidiary of the parent corporation then outstanding (including the unpaid principal amount of bonds, notes or other evidences of indebtedness of such subsidiaries held by the parent corporation or by any such investment subsidiary). The minimum value of a subsidiary as of any date shall be the greater of (i) the net cost of the equity investment in such subsidiary by the parent corporation or (ii) the pro rata interest of the parent corporation in the net worth of such subsidiary. (2) For purposes of computations under paragraph two of subsection (a) of this section, the investment value of a subsidiary at any time shall be an amount equal to the sum of (i) the minimum value of such subsidiary, (ii) indebtedness of such subsidiary then outstanding to the extent guaranteed by the parent corporation, and (iii) the unpaid principal amount of loans and advances to the subsidiary by the parent corporation or by any investment subsidiary of the parent corporation then outstanding (including the unpaid principal amount of bonds, notes or other evidences of indebtedness of the subsidiary held by the parent corporation or by any such investment subsidiary). The minimum value of a subsidiary as of any date shall be the greater of (i) the net cost of the equity investment in such subsidiary by the parent corporation and its subsidiaries or (ii) the pro rata interest of the parent corporation and its subsidiaries in the net worth of such subsidiary.
(3) For purposes of this subsection, the "net cost of the equity investment" by any person in a subsidiary at any time shall mean the aggregate amount of contributions to and purchases of equity securities (including partnership interests) and other equity interests of such subsidiary (less repurchases of such equity securities and other equity interests) by such person at such time and the "net worth" of a subsidiary shall mean the net worth of the subsidiary determined in accordance with generally accepted accounting principles, as of the end of its most recent fiscal year. In determining the minimum value of a holding company operating subsidiary, there shall be taken into account the greater of the net cost of the equity investment of the holding company operating subsidiary in each subsidiary or the pro rata interest of the holding company operating subsidiary in the net worth of such subsidiary. The superintendent may require, by regulation, that parent corporations submit reports annually to the superintendent as to the aggregate investment value of all subsidiaries held by the parent corporation determined in accordance with paragraph one of this subsection or the investment value of any particular subsidiary or class of subsidiaries held by the parent corporation determined in accordance with paragraph two of this subsection, which values may be required to be audited by an independent public accountant in accordance with generally accepted auditing standards. S 1706. Exemptions applicable to parent corporation. Except as provided in subsection (d) of section one thousand four hundred five of this chapter and except for investments deemed to be made or acquired directly by the parent corporation (as provided in subsection (d) of section one thousand seven hundred four of this article), investments by parent corporations in subsidiaries are not subject to the limitations on the making of investments provided for in section one thousand four hundred three, section one thousand four hundred four (in the case of insurers making investments under section one thousand four hundred four) or section one thousand four hundred five (in the case of insurers making investments under section one thousand four hundred five) of this chapter. S 1707. Regulations to restrict pyramiding. The superintendent may adopt regulations designed to prevent an insurer from pyramiding subsidiaries to a degree that, in the judgment of the superintendent, would be materially adverse to the interests of policyholders, subscribers or the people of this state. S 1708. Information reports. Every parent corporation that has acquired one or more subsidiaries shall (except to the extent exempted by section one thousand seven hundred four of this article) file an information report on or before May first of each year or on or before such other date as the superintendent may permit. The information report shall provide (i) a description of the activities of the subsidiary, (ii) a description of all material transactions between the subsidiary and such parent corporation and affiliates of such subsidiary, and (iii) such other information as the superintendent may by regulation prescribe. S 1709. Confidentiality of information reports. The contents of each information report filed hereunder and information pertaining thereto shall be kept confidential, shall not be subject to subpoena and shall not be made public unless, after notice and opportunity to be heard, the superintendent determines that the interests of policyholders, subscribers, stockholders or the public will be served by the publication thereof. The provisions of this section shall not be applicable to any information report filed hereunder and any information pertaining thereto, if the parent corporation is a corporation subject to article forty-three of this chapter. S 1710. Superintendent`s power to order disposition of subsidiaries. In addition to the powers granted to the superintendent elsewhere in this chapter (including, without limitation, sections one hundred nine and three hundred twenty-seven of this chapter), the superintendent may, at any time, order a parent corporation to dispose of any subsidiary, if the superintendent finds, after notice and an opportunity to be heard, either (i) that its acquisition or continued retention is or was not permitted by the provisions of this article or (ii) except in the case of a subsidiary then exempted by the provisions of subsection (a) or (b) of section one thousand seven hundred four of this article, that its continued retention is materially adverse to the interests of the parent corporation`s policyholders or subscribers. S 1711. Subsidiary`s name not to mislead. The name of any subsidiary shall not be such as to mislead or deceive the public. S 1712. Relationships and transactions between parent corporation and subsidiary. The business operations, corporate proceedings and fiscal and accounting records of subsidiaries shall be conducted or maintained so as to assure the separate legal and operating identities of the parent corporation and subsidiary, but nothing herein shall preclude arrangements for common management or the cooperative or joint use of personnel, property, or services, otherwise consistent with this chapter. All transactions between the parent corporation and its subsidiaries shall be fair and equitable, charges or fees for services performed shall be reasonable and all expenses incurred and payments received shall be allocated to the parent corporation on an equitable basis in conformity with customary insurance accounting practices consistently applied. The books, accounts and records of each party to all such transactions shall be so maintained as to disclose clearly and accurately the nature and details of the transactions, including such accounting information as is necessary to support the reasonableness of the charges or fees to the respective parties. S 1713. Prohibitions on investments of subsidiaries. No subsidiary shall make any investment (i) in obligations, shares or other securities issued by a corporation, other than an insurance corporation, if a majority of the shares having voting powers of such issuing corporation is owned directly or indirectly by or for the benefit of one or more officers or directors of the insurer or (ii) found by the superintendent to be against public policy or designed to evade any prohibition of this chapter or (iii) in the case of a subsidiary that is a property/casualty insurance company (other than an alien insurer), in any foreign investment that would be prohibited under paragraph seven of subsection (a) of section one thousand four hundred seven of this chapter. S 1714. Authority to conduct certain business directly instead of through subsidiary. (a) A domestic life insurance company may, if it maintains books and records that separately account for such business, engage directly in (i) any business, to the extent necessarily or properly incidental to the insurer`s business, including rendering investment advice, investment management services and services related to the functions involved in the operation of an insurance business, and (ii) any other business to the extent approved by the superintendent. (b) In the case of approval pursuant to item (ii) of subsection (a) of this section, the superintendent may prescribe limitations for the protection of the interests of the policyholders of such company after taking into account the effect of such business on such company`s existing insurance business and its surplus, the proposed allocation of the estimated cost of such business and the risks inherent in such business as well as the relative advantages to such company and its policyholders of conducting such business directly instead of through a subsidiary. S 1715. Valuation of shares of subsidiaries. In determining the financial condition of a parent corporation, all stock of its subsidiaries (except subsidiaries acquired or held under section four thousand two hundred forty of this chapter) shall be valued in accordance with subsections (c), (f) and (g) of section one thousand four hundred fourteen of this chapter. Stock of subsidiaries acquired or held under section four thousand two hundred forty of this chapter shall be valued as required by section four thousand two hundred forty of this chapter. S 1716. Regulations. In addition to the powers expressly given by this article, the superintendent shall have the power to promulgate, from time to time, such regulations, not inconsistent with the provisions of this chapter, as may be appropriate to carry out the provisions of this article and, insofar as applicable to this article, other provisions of this chapter.