Request By:
The Honorable Bert Combs
Wyatt, Tarrant & Combs
2600 Citizens Plaza
Louisville, Kentucky 40202
Opinion
Opinion By: Steven L. Beshear, Attorney General; Joseph R. Johnson, Assistant Attorney General
You have requested an opinion of this office whether your clients, John Alden Life Insurance Company and John Alden Insurance Company, are in compliance with KRS 304.3-080(1) which states as follows:
No certificate of authority or license to transact any kind of insurance business in this state shall be issued, renewed or continued in effect to any domestic, foreign, or alien insurance company or other insurance entity which is owned, or financially controlled in whole or in part by any state of the United States, or by a foreign government or by any political subdivision of either, or which is an agency of such state, government or political subdivision, unless such company or entity was so owned, controlled or constituted prior to January 1, 1957, and was authorized to do business in this state on or prior to January 1, 1957.
The facts as you have set them out to this office are as follows:
The Minnesota Insurance Division has approved a change in ownership of Aristar, Inc. ("Aristar"), a Delaware corporation that, among other things, is the sole shareholder of John Alden Life Insurance Company ("JALIC") and John Alden Insurance Company ("JAIC"), both of which are Minnesota corporations. In the transaction, all of the outstanding stock of Aristar is to be acquired by CanWest Financial Services (U.S.), Inc. ("CanWest U.S."), a Delaware corporation. Both JAIC and JALIC are admitted to do business in the Commonwealth of Kentucky.
Through an eight-link chain of U.S. and Canadian private corporations ending with Canada Development Corporation ("CDC"), the Government of Canada may be said to have an economic interest in JALIC and JAIC. That is, through ownership of stock of CDC, the Government has a percentage economic interest in CDC, which in turn has a percentage interest in the next link, and so on. Traced through the entire chain and assuming a 100% flow-through of economic benefits from each link to the next, it may be said that the Government will have a 7.8% economic interest in JALIC and JAIC.
Although the statute does not define the term, "owned, or financially controlled," the facts of this case do not persuade us that the economic interest of the government of Canada in JALIC and JAIC constitutes a violation of the above-quoted statute.
First, we note the absence of the usual incidents of ownership on the part of the government of Canada in the two (2) insurance companies. CDC has no role in the selection of directors or the operation of CanWest subsidiaries which includes JALIC and JAIC. CDC is a publicly held corporation and the Canadian government does not exercise control over CDC.
Secondly, one (1) clue as to a definition of financial control can be found in 806 KAR 24:020 (1) and (2) which states as follows:
Section 1. The acquisition by or for the benefit of any person of fifteen (15) percent or more of the outstanding voting capital stock of a domestic insurer shall be presumed to be for the purpose, but not necessarily to the exclusion of other purposes, of changing the control of such insurer, and shall subject such person to the requirement of first making written application to the commissioner for approval thereof.
Section 2. Whenever there has been an acquisition of stock, by or for the benefit of any person of less than fifteen (15) percent of the outstanding voting capital stock of a domestic insurer, and current circumstances indicate to the commissioner that there is a genuine question as to whether the stock acquired was controlling stock, then the commissioner may enter an order forbidding any further steps to implement the taking of control until such question is determined. If, after a hearing, the commissioner determines that the acquisition does constitute control or potential control, he may then proceed under KRS 304.24-410.
A similar provision was enacted by the 1980 General Assembly and states as follows:
KRS 304.24-410(3) If after acquisition the person would directly or indirectly be a record or beneficial owner of fifteen percent (15%) or more of any class of the outstanding equity securities of a domestic stock insurer such acquisition shall be presumed to be for the purpose, but not necessarily to the exclusion of other purposes, of changing the control of such insurer, and failure to first apply to the commissioner shall be deemed a violation of this section. An acquisition of such equity securities which, when completed, would make such person the direct or indirect record or beneficial owner of less than fifteen percent (15%) of any class of the outstanding equity securities of a domestic stock insurer shall be presumed to be for a purpose other than the changing of control of such insurer and no application shall be required, and the acquisition of such equity securities and the failure to first apply to the commissioner shall not be a violation of this section. If, however, the commissioner has reasonable grounds to believe that any such lesser percentage could be used by such person to effectively control such domestic stock insurer, the commissioner may enter an order forbidding the acquisition of any additional equity securities or the taking of any other steps to acquire or exercise control of such insurer until an application is filed and approved pursuant to the other provisions of this section.
Even though the above-quoted provisions relate to control of the stock of a domestic insurer, it does provide us with a useful guideline as to the state's interpretation of what constitutes significant financial control by one (1) insurer of another insurer. The government of Canada's financial interest in JALIC and JAIC is considerably less than the fifteen percent (15%) statutory presumption. Therefore, it is the opinion of this office that there is no violation of KRS 304.3-080(1) within the statute's meaning.