CAPITAL STOCK REQUIREMENTS FOR CERTAIN LINES OF INSURANCE BUSINESS

INSURANCE ‑- STOCK ‑- CAPITAL STOCK REQUIREMENTS FOR CERTAIN LINES OF INSURANCE BUSINESS

Determination of the amount of paid-in capital stock necessary in order to allow a certain domestic stock insurer to transact disability insurance along with its existing life insurance line.

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                                                                     July 9, 1975

Honorable Karl Herrmann
Insurance Commissioner
Insurance Building
Olympia, Washington 98504                                                                                                               Cite as:  AGLO 1975 No. 61

Dear Sir:

            By letter previously acknowledged you have described to us the situation of a domestic stock insurer which was issued a certificate of authority to transact life insurance business in this state on May 4, 1966.  The insurer continued to hold that certificate of authority as of June 8, 1967, the effective date of chapter 150, Laws of 1967, to which reference will be made below.  Now, however, the insurer desires to add "disability" insurance to its line of business.  Accordingly, you have asked for our opinion on the following question:

            "How much paid-in capital stock must such insurer possess to become authorized to transact disability insurance along with its existing life insurance line?"

            We answer this question in the manner set forth in our analysis.

                                                                     ANALYSIS

            RCW 48.05.030 provides that:

            "(1) No person shall act as an insurer and no insurer shall transact insurance in this state other than as authorized by a certificate of authority issued to it by the commissioner and then in force; except, as to such transactions as are expressly otherwise provided for in this code.

            "(2) Every certificate of authority shall specify the name of the insurer, the location of its principal office, the name and location of the principal office of its attorney in fact if a reciprocal insurer, and the kind or kinds of insurance it is authorized to transact in this state.

             [[Orig. Op. Page 2]] "(3) The investigation and adjustment of any claim in this state arising under an insurance contract issued by an unauthorized insurer, shall not be deemed to constitute the transacting of insurance in this state."

            Also to be preliminarily noted is RCW 48.06.030(1) which states that:

            "(1) No person forming or proposing to form in this state an insurer, or insurance holding corporation, or stock corporation to finance an insurer or insurance production therefor, or corporation to manage an insurer, or corporation to be attorney in fact for a reciprocal insurer, or a syndicate for any of such purposes, shall advertise, or solicit or receive any funds, agreement, stock subscription, or membership on account thereof unless he has applied for and has received from the commissioner a solicitation permit.

            "(2) Any person violating this section shall be subject to a fine of not more than ten thousand dollars or imprisonment for not more than ten years, or by both fine and imprisonment."

            You have informed us that the domestic stock insurer1/  [[Orig. Op. Page 3]] involved in your request obtained such a solicitation permit on July 14, 1965.  Thereafter, on May 4, 1966, it was granted a certificate of authority to transact life insurance business in this state and it continued to hold that certificate as of June 8, 1967.

            On that date the statute which is determinative of your question became effective; namely, § 5, chapter 150, Laws of 1967, now codified as RCW 48.05.340, amending the earlier provisions of § 7, chapter 195, Laws of 1963.  Set forth in bill form for ease of understanding, with deleted language lined out in double parentheses and new language underscored, this enactment reads in part as follows:

            "Section 7, chapter 195, Laws of 1963 and RCW 48.05.340 are each amended to read as follows:

            "(1) Subject to RCW 48.05.350 and 48.05.360 to qualify for authority to transact any one kind of insurance as defined in chapter 48.11 RCW or combination of kinds of insurance as shown below, a foreign or alien insurer, whether stock, mutual, or a reciprocal, or a domestic stock insurer hereafter formed shall possess and thereafter maintain unimpaired paid-in capital stock, if a stock insurer, or unimpaired basic surplus if a foreign mutual insurer or foreign reciprocal insurer, and shall possess when first so authorized additional funds in surplus as follows:

"Kind or
kinds of                        Paid-in capital                           Additional
insurance            stock or basic surplus                         surplus

"Life................
                                    $((200,000))    400,000           $((100,000))    400,000

"Disability..........
                                     ((200,000))     400,000           ((100,000))     400,000

"Life and disability.
                                     ((300,000))     500,000           ((150,000))     500,000

"Property............
                                     ((200,000))     400,000           ((100,000))     400,000

"Marine & transportation.................
                                     ((250,000))     450,000           ((150,000))     450,000

"General casualty....
                                     ((300,000))     500,000           ((150,000))     500,000

"Vehicle.............
                                     ((200,000))     400,000           ((100,000))     400,000

"Surety..............
                                     ((300,000))     500,000           ((150,000))     500,000

             [[Orig. Op. Page 4]] "Any two of the following kinds of insurance: Property, marine & transportation, general casualty, vehicle, surety, disability............. ((350,000)) 550,000 ((175,000)) 550,000

            "Multiple lines (all insurances except life and title insurance((450,000))650,000 ((250,000)) 650,000

            "Title (in accordance with the provisions of chapter 48.29 RCW)

            "(2) Capital and surplus requirements are based upon all the kinds of insurance transacted by the insurer wherever it may operate or propose to operate, whether or not only a portion of such kinds are to be transacted in this state.

            "(3) An insurer holding a certificate of authority to transact insurance in this state immediately prior to ((June 13, 1963)) the effective date of this act may continue to be authorized to transact the same kinds of insurance as long as it is otherwise qualified for such authority and thereafter maintains unimpaired the amount of paid-in capital stock, if a stock insurer, or basic surplus, if a mutual or reciprocal insurer, and special surplus as required of it under laws in force immediately prior to such effective date;and any proposed domestic insurer which is in process of formation or financing under a solicitation permit which is outstanding immediately prior to the effective date of this act shall, if otherwise qualified therefor, be authorized to transact any kind or kinds of insurance upon the basis of the capital and surplus requirements of such an insurer under the laws in force immediately prior to such effective date.

            "(4) As to suplus required for qualification to transact one or more kinds of insurance and thereafter to be maintained, domestic mutual insurers are governed by chapter 48.09 RCW, and reciprocal insurers are governed by chapter 48.10 RCW."

             [[Orig. Op. Page 5]]   Now, the insurer in question proposes to add "disability" insurance to its line of business and thus (repeated for ease of reference) you have asked:

            "How much paid-in capital stock must such insurer possess to become authorized to transact disability insurance along with its existing life insurance line?"

            Our direct answer to this question is $500,000; i.e., the amount specified in RCW 48.05.340,supra, as amended, for the transaction of life and disability insurance.

            In so responding to your inquiry we have carefully considered several arguments in support of a different answer which have been submitted by legal counsel for the insurer involved.  We have not, however, found any of those arguments to be persuasive.

            First, emphasizing the phrase "hereafter formed" as contained in subsection (1) of RCW 48.05.340, counsel has argued that the increased monetary requirements of the statute, as amended by the 1967 legislature, should only be applicable to those insurers formed after June 8, 1967, when the amendments took effect.  Unfortunately, this argument overlooks the fact that the emphasized phrase was not a part of the 1967 amendments but, instead, was language carried over from the original text of the 1963 enactment, § 7, chapter 195, Laws of 1963, from which RCW 48.05.340 originated.  Thus, in reality, the phrase "hereafter formed" was and is a reference to insurers formed after the effective date of the 1963 statute, June 13, 1963,2/ and not merely those formed after the 1967 amendments.

            Secondly, it has been argued that there is no reasonable basis for a differentiation in the treatment to be given to an already authorized domestic insurer ‑ as against one which was merely in the process of formation pursuant to a solicitation permit upon the effective date of the 1967 amendments.  The assumption upon which this argument is made, apparently, is that under the second clause of RCW 48.05.340(3), which was added to the statute in 1967, an insurer in the process of formation under a solicitation permit would be able, at any time after obtaining its original  [[Orig. Op. Page 6]] certificate of authority, to add additional lines of insurance also on the basis of the earlier (1963) paid-in capital stock requirements of the statute.  We do not, however, so read that amendatory clause.

            Under RCW 48.06.040, a person forming or proposing to form in this state as an insurer is required to specify the particular line or lines of insurance in which he proposes to engage in his application for a solicitation permit.3/   Then, at some later point in time after he has succeeded in putting his operation together, he is to be issued a certificate of authority which will specify the line or lines of insurance which the insurer in question is authorized to provide.  Accord, RCW 48.05.030,supra.

            Our reading of the second clause of RCW 48.05.340(3) is simply that where an insurer was in the process of formation as of June 8, 1967, when the 1967 amendments took effect, that insurer could continue to base its formation  [[Orig. Op. Page 7]] plans and activities upon the pre‑1967 paid-in capital stock requirements of the statute.  However, once such an insurer has obtained its initial certificate of authority on that basis, it will thereafter be governed by the more stringent, 1967, financial reporting requirements of the statute insofar as any later additions of other lines of insurance are concerned.  This will be the case in precisely the same manner as it is under the first clause of RCW 48.05.340(3)4/ with respect to an insurer which had already obtained its initial certificate of authority prior to the effective date of the 1967 amendments ‑ and thus the two clauses of the statute are in full harmony in support of our answer rather than being potentially in conflict with each other from a policy standpoint.

            Finally, it has been urged that it would be unduly burdensome to require, in effect, a $300,000 increase in paid-in capital stock in order for the insurer in question to expand its activities in the instant case.  This argument is based upon the fact that under both the original, 1963, version of the subject statute, and the current, 1967, version, there was and is only a $100,000 difference between the paid-in capital stock requirements for life insurance alone and for life and disability insurance.  This, however, is a policy argument properly to be presented to the legislature and not to us in the preparation of an attorney general's opinion.  For whatever reasons it may have had, the 1967 legislature, in its wisdom, did increase the paid-in capital stock requirements for a previously certificated insurer engaging in life insurance alone from $200,000 to $500,000 in the event that such insurer later desired to add disability insurance to its authorized lines of business.