Attorney General of Colorado — Opinion
March 20, 1980
RE: Guarantee fund minimums and their reporting requirements under C.R.S. 1973, 10-3-201 (Supp. 1979)
J.D. MacFARLANE, Attorney General
J. Richard Barnes, C.L.U Commissioner of Insurance 106 State Office Building Denver, CO 80202
Dear Commissioner Barnes:
This is an answer to your January 16, 1980 letter requesting an opinion concerning guarantee fund minimums and their reporting requirements under C.R.S. 1973, 10-3-201 (Supp. 1979).
QUESTIONS PRESENTED AND CONCLUSIONS
1. Whether mutual insurance companies must establish guaranty funds equivalent to the capital requirements of a stock company under the provisions of C.R.S. 1973, 10-3-201(1)(c) (Supp. 1979).
The answer to this question is “yes.”
2. Whether mutual insurers may use any funds or admissible securities required or permitted (in title 10, articles 7 and 53 of title 12 and article 14 of title 24) to be held as deposits for the benefit of policyholders to satisfy the minimum security deposit under 10-3-201(2)?
The answer to this question is “yes.”
ANALYSIS
The genesis of your questions is the legislative enactment of H.B. 1510 (1979) which raised capital and surplus requirements for Colorado domestic insurers. Some mutual insurance companies, faced with meeting increased guarantee fund requirements, have inquired whether certain joint deposit funds and securities, other than those presently held on joint deposit with the insurance commissioner as guarantee funds, may be used in meeting new minimum security deposit requirements.
Your questions also tangentially involve inquiry into the proper allocation of mutual insurer funds held on joint deposit for the benefit of policyholders as between guarantee fund and other accounts and how such allocations should be reported in the companies’ annual reports.
The answer to both questions is derived from an analysis of C.R.S. 1973, 10-3-201 (Supp. 1979). This section sets the minimum capital and surplus requirements for insurers to receive a certificate of authority to do business in Colorado under subsection 10-3-201(1)(c) (Supp. 1979). By its terms, the provisions of this section apply to both stock and mutual insurers. Stock companies must have minimum capitalization and mutual insurers must establish minimum guaranty funds. Both the term “capital” and the term “guaranty fund” are used interchangeably with respect to the minimum financial requirements imposed by this section. The appropriate designation of insurer funds held to secure policyholders and claimants depends on the organization of the insuring operation. But the statutory minimums with respect to capitalization, be they “capital” or “guaranty fund,” are the same depending on the type of risk underwritten, and not on the organizational structure of the company. Generally mutual insurance companies establish guarantee funds and stock insurers have capital accounts.
10-3-201(2) is commonly known as the security deposit requirement. It provides that insurers establish and maintain on joint deposit with the insurance commissioner cash or admissible securities in at least the minimum capital or guarantee fund amounts required by 10-3-201(1)(c).
It should also be noted that C.R.S. 1973, 10-3-109 requires all insurers doing business in this state to annually report their financial condition to the commissioner in such form and manner as the commissioner requires under C.R.S. 1973, 10-1-108.
SUMMARY
Your questions, in essence, ask whether funds, other than those denominated as guarantee funds, held on joint deposit for policyholder benefit by mutual insurers could be used for the purpose of meeting the minimum guarantee fund amounts now imposed under 10-3-201(1)(c). 10-3-201(2) provides in pertinent part:
(E)xcept that the guaranty fund of mutual companies shall be construed to include deposits held for the benefit of policyholders as provided in this title. . . .
(Emphasis added.)
Thus, under 10-3-201(1)(c) and 10-3-201(2), both stock and mutual insurers must allocate a fund amount to a capital or guaranty fund account and keep such on joint deposit with the insurance commissioner.
Very truly yours,
J.D. MacFARLANE Attorney General
INSURANCE
ADMINISTRATIVE LAW
C.R.S. 1973, 10-3-201 (Cum. Supp. 1979)
REGULATORY AGENCIES, DEPT.
Insurance, Div. of
C.R.S. 1973, 10-3-201(1)(c) as amended requires mutual insurance companies to maintain guaranty funds equal to the capital requirements of stock insurance companies. Mutual companies may use cash and certain securities held for benefit of policyholders to satisfy guaranty fund requirements of C.R.S. 10-3-201.