KRS 304.37-130: Acquisition of control or merger of domestic insurers.

(1) The following definitions shall apply for the purposes of this section only:

(a) "Acquisition" means any agreement, arrangement, or activity the

consummation of which results in a person acquiring directly or indirectly the

control of another person, such as the acquisition of voting securities, the

acquisition of assets, bulk reinsurance, and mergers; and

(b) An "involved insurer" includes an insurer which either acquires or is acquired,

is affiliated with an acquirer or acquired, or is the result of a merger.

(2) (a) This section applies to any acquisition in which there is a change of control of

an insurer authorized to do business in Kentucky, except as set forth in

paragraph (b) of this subsection.

(b) This section shall not apply to the following:

1. An acquisition subject to approval or disapproval of the commissioner

pursuant to KRS 304.37-120;

2. A purchase of securities solely for the investment purposes so long as

the securities are not used by voting or otherwise to cause or attempt to

cause the substantial lessening of competition in any insurance market in

Kentucky. If a purchase of securities results in a presumption of control

under KRS 304.37 -010(3), it is not solely for investment purposes

unless the insurance regulatory official of the insur er's state of domicile

accepts a disclaimer of control, or affirmatively finds that control does

not exist, and the disclaimer action or affirmative finding is

communicated by the domiciliary insurance regulatory official to the

commissioners;

3. If the ac quisition of a person by another person when both persons are

neither directly nor through affiliates primarily engaged in the business

of insurance, if preacquisition notification is filed with the commissioner

in accordance with subsection (3)(a) of this section thirty (30) days prior

to the proposed effective date of the acquisition. However, the

acquisition notification shall not be required for exclusion from this

section if the acquisition would otherwise be excluded from this section

by any other subparagraph of this paragraph;

4. The acquisition of already affiliated persons;

5. An acquisition if, as an immediate result of the acquisition:

a. The combined market share of the involved insurers would not

exceed five percent (5%) of the total market;

b. There would be no increase in any market share; or

c. The combined market share of the involved insurers would not

exceed twelve percent (12%) of the total market; and the market

share would not increase by more than two percent (2%) of the

total market.

For the purpose of this subparagraph (b)5., a market means direct

written insurance premium in Kentucky for a line of business as

contained in the annual statement required to be filed by insurers

authorized to do business in Kentucky;

6. An acquisition for which a preacquisition notification would be required

pursuant to this section due solely to the resulting effect on the ocean

marine insurance line of business; and

7. An acquisition of an insurer whose domiciliary insurance regulatory

official affirmatively finds that the insurer is in failing condition, there is

lack of feasible alternative to improving the condition, the public

benefits of improving the insurer's condition through the acquisition

exceed the public benefits that would arise from not l essening

competition, and the findings are communicated by the domiciliary

insurance regulatory official to the commissioner.

(3) An acquisition covered by subsection (2) of this section may be subject to an order

pursuant to subsection (5) of this section or KRS 304.37 -010 unless the acquiring

person files a preacquisition notification and the waiting period has expired. The

acquired person may file a preacquisition notification. The commissioner shall give

confidential treatment to information submitted u nder this subsection in the same

manner as provided in KRS 304.37-050.

(a) The preacquisition notification shall be in the form and contain the

information prescribed by the National Association of Insurance

Commissioners relating to those markets which, u nder subsection (2)(b)5. of

this section, cause the acquisition not to be exempted from the provisions of

this section. The commissioner may require additional material and

information the commissioner deems necessary to determine whether the

proposed acquisition, if consummated, would violate the competitive standard

of subsection (4) of this section. The required information may include an

opinion of an economist as to the competitive impact of the acquisition in

Kentucky accompanied by a summary of the e ducation and experience of the

economist indicating his or her ability to render an informed opinion.

(b) The waiting period required shall begin on the date of receipt by the

commissioner of a preacquisition notification and shall end on the earlier of

the thirtieth day after the date of receipt, or termination of the waiting period

by the commissioner. Prior to the end of the waiting period, the commissioner

may, on a one -time basis, require the submission of additional needed

information relevant to the proposed acquisition; if the submission is required,

the waiting period shall end on the earlier of the thirtieth day after receipt of

the additional information by the commissioner or termination of the waiting

period by the commissioner.

(4) (a) The commissioner may enter an order under subsection (5)(a) of this section

with respect to an acquisition if there is substantial evidence that the effect of

the acquisition may be to lessen substantially competition in any line of

insurance in Kentucky or tend t o create a monopoly, or if the insurer fails to

file adequate information in compliance with subsection (3) of this section.

(b) In determining whether a proposed acquisition would violate the competitive

standard of paragraph (a) of this subsection, the c ommissioner shall consider

the following:

1. Any acquisition covered under subsection (2) of this section involving

two (2) or more insurers competing in the same market is prima facie

evidence of violation of the competitive standards:

a. If the market is highly concentrated and the involved insurers

possess the following shares of the market:

Insurer A Insurer B

4% 4% or more

10% 2% or more

15% 1% or more;

or

b. If the market is not highly concentrated and the involved insurers

possess the following shares of the market:

Insurer A Insurer B

5% 5% or more

10% 4% or more

15% 3% or more

19% 1% or more.

A highly concentrated market means one in which the share of the four

(4) largest insurers is seventy -five percent (75%) or more of the market.

Percentages not shown in the tables are interpolated proportionately to

the percentages that are shown. If more than two (2) insurers are

involved, exceeding the total of the two (2) columns in the table is prima

facie evidence of vi olation of the competitive standard in paragraph (a)

of this subsection. For the purpose of this subparagraph, the insurer with

the largest share of the market shall be deemed to be insurer A;

2. There is a significant trend toward increased concentration when the

aggregate market share of any grouping of the largest insurers in the

market, from the two (2) largest to the eight (8) largest, has increased by

seven percent (7%) or more of the market over a period of time

extending from any base year five (5) to ten (10) years prior to the

acquisition up to the time of the acquisition. Any acquisition or merger

covered under subsection (2) of this section involving two (2) or more

insurers competing in the same market is prima facie evidence of

violation of the competitive standard in paragraph (a) of this subsection

if:

a. There is a significant trend toward increased concentration in the

market;

b. One of the insurers involved is one of the insurers i n a grouping of

the large insurers showing the requisite increase in the market

share; and

c. Another involved insurer's market is two percent (2%) or more;

3. For the purposes of subsection (4)(b) of this section:

a. The term "insurer" includes any compan y or group of companies

under common management, ownership or control;

b. The term "market" means the relevant product and geographical

markets. In determining the relevant product and geographical

markets, the commissioner shall give due consideration to factors

such as the definitions or guidelines, if any, promulgated by the

National Association of Insurance Commissioners and to

information, if any, submitted by parties to the acquisition. In the

absence of sufficient information to the contrary, the rel evant

product market is assumed to be the direct written insurance

premium for a line of business, the line being that used in the

annual statement required to be filed by insurers doing business in

Kentucky, and the relevant geographical market is assumed to be

Kentucky; and

c. The burden of showing prima facie evidence of violation of the

competitive standard rests upon the commissioner; and

4. Even though an acquisition is not prima facie violative of the

competitive standard under paragraph (b) of this subsection, the

commissioner may establish the requisite anticompetitive effect based

upon other substantial evidence. Even though an acquisition is prima

facie violative of the competitive standard under paragraph (b) of this

subsection, a party may estab lish the absence of the requisite

anticompetitive effect based upon other substantial evidence. Relevant

factors in making this determination shall be such factors as market

shares, volatility of ranking of market leaders, number of competitors,

concentration, trend of concentration in the industry, and ease of entry

into and exit from the market.

(c) An order shall not be entered under subsection (5)(a) of this section if:

1. The acquisition will yield substantial economies of scale or economies

in resource utilization that cannot be feasibly achieved in any other way,

and the public benefits which would arise from the economies exceed

the public benefits which would arise from not lessening competition; or

2. The acquisition will substantially increase the availability of insurance,

and the public benefits of the increase exceed the public benefits which

would arise from not lessening competition.

(5) (a) If an acquisition violates the standards of this section, the commissioner may

enter an order:

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

Kentucky with respect to the line or lines of insurance involved in the

violation; or

2. Denying the application of an acquired or acquiring insurer for a

certificate of authority to do business in Kentucky.

(b) The order referred to in paragraph (a) of this subsection shall be entered

pursuant to a hearing held under Subtitle 2 of this chapter.