ALJDEC

98A-190-INS · Department of Insurance · 1998-12-03

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: December 3, 1998.

APPEARANCES: The Petitioner, Associates First Capital Corporation, (herein called the “Petitioner) was represented by its attorney, Kirk A. Borchardt, Esq.

Kurt A. Regner, Senior Examiner and Analyst for the Arizona Department of Insurance (herein called the “Department”) was present as a witness.

ADMINISTRATIVE LAW JUDGE: Robert. I. Worth _____________________________________________________________________

Evidence and testimony were presented, and based upon the entire case record, the following Findings of Fact, Conclusions of Law and Recommended Order have been prepared and are hereby submitted by the undersigned Administrative Law Judge for review, consideration, approval and adoption by the Director of the Department (herein called the “Director”).

FINDINGS OF FACT

1. The Insurers, American Equity Insurance Company and Washington International Insurance Company, (herein called the “Insurers”) are domestic insurers in the State of Arizona as referred to in A.R.S. §20- 481.02.

2. The Insurers and the Petitioner expressly waived all applicable advance notice requirements imposed by statute or rule with respect to the convening of the instant hearing.

3. Both Insurers were shown to be wholly owned direct subsidiaries of Jupiter Holdings, Inc. which, in turn, was shown to be a wholly owned direct subsidiary of The Northland Company (herein called “Northland”).

4. Pursuant to an Agreement and Plan of Merger between Petitioner and Northland, Petitioner proposes to acquire control of Insurers. In furtherance of this proposed action, Petitioner has filed a statement as referred to in A.R.S. §§20-481.02 and 20-481.03, in the form required by Rule R20-6-1402, A.A.C., seeking the Department’s approval of its application for the acquisition of control of both Insurers and for approval of Petitioner as the controlling person of the Insurers.

5. The evidence of record, as presented at the hearing, sufficiently established, with respect to matters of compliance with the provisions of A.R.S. §20-481(A), that Petitioner’s acquisition of control of the Insurers: a. Is not contrary to law; b. Is not inequitable to the shareholders of either of the domestic insurers involved; c. Would not substantially reduce the security of and service to be rendered to the policyholders of either of the Insurers in this State or elsewhere; d. Would not substantially lessen competition in insurance in this state or tend to create a monopoly; and e. Is not likely to be hazardous or prejudicial to the insurance-buying public.

6. The evidence at the hearing further demonstrated that: a. After the change of control, both of the domestic Insurers would be able to satisfy the requirements for the reissuance of certificates of

authority to write the line or lines of insurance for which they are presently licensed; b. The financial stability of the Insurers and the interests of their respective policyholders would not be jeopardized or prejudiced by the financial condition of Petitioner, as the acquiring party; c. The plans or proposals, if any, that Petitioner, as the acquiring party has to liquidate the Insurers, to sell their assets, to consolidate or merge them with any person, or to make any other material changes in their respective businesses or corporate structures or management, are fair and reasonable to policyholders of the Insurers and are in the public interest; and d. The competence, experience and integrity of those persons who would control the operations of the Insurers are such that it would be in the public interest of policyholders of the Insurers and of the public to permit the merger or other acquisition of control.

7. The Petitioner has furnished completed fingerprint cards and biographical affidavits to the Department to enable the Department to determine if any of Petitioner's officers or directors have been charged with or convicted of a felony or misdemeanor other than minor traffic violations.

8. The Petitioner requested that the above-described fingerprint cards and biographical affidavits submitted to the Department and introduced into evidence at the hearing as Tabs “N” and “O” to Exhibit “1,” remain confidential. The Department had no objection to Petitioner's request for confidentiality of these records.

9. Petitioner had additionally requested that confidentiality treatment also be accorded to various documents containing sensitive financial data and projections, arranged under seven separate index tabs, all of which were submitted on November 3, 1998 to the Department in a black binder for review and consideration. No portion of these documents was introduced or offered as an exhibit at the hearing. The Department had no objection to Petitioner's request for confidentiality of these additional documents.

10. Except as provided above, the interests of policyholders, shareholders or the public will be served by the publication of all information, documents and copies relating to the Insurers and Petitioner, and obtained by or disclosed to the Director, or any other person in the course of a filing, an examination, or an investigation made pursuant to A.R.S. §§20-481.03, 20-481.10 and 20-481.20.

11. Based upon its review of the Petitioner's Form A filing, the Department’s examiner and analyst represented his belief that the Petitioner's Form A filing was complete and in compliance with Arizona law, and he further recommended approval of this proposed acquisition.

CONCLUSIONS OF LAW

1. The evidence of record adequately established that none of the enumerated grounds set forth in A.R.S. §20-481(A) providing a basis for disapproval or rejection of Petitioner’s application exist with respect to the proposed merger and acquisition of control of the domestic Insurers. On the contrary, the evidence affirmatively demonstrated that all statutory requirements for approval action have been satisfied by Petitioner.

2. Petitioner’s testimonial and documentary evidence sufficiently supports and warrants the Director’s approval of the within application filed by Petitioner for the acquisition of control of the Insurers and also the approval of Petitioner as the controlling person of the Insurers pursuant to the provisions of A.R.S. §§20-481 through 20-481.23, and Rule R20-6-1402, A.A.C.

RECOMMENDED ORDER

In view of the foregoing, the undersigned Administrative Law Judge recommends that the acquisition of control of the Insurer by the Petitioner be approved by the Director of the Department subject to the following express conditions:

1. The Petitioner shall advise the Director in writing of the effective date of the change of control.

2. If the completed fingerprint cards furnished to the Department reveal that any of Petitioner's officers or directors have been charged with or convicted of a felony or misdemeanor other than minor traffic violations, such individual or individuals shall be removed as an officer and/or director of the Petitioner within 30 days after notice to Petitioner by the Department and shall be replaced with an officer or director acceptable to the Director. If Petitioner fails to take the prescribed action within 30 days, this failure will constitute an immediate danger to the public and the Director immediately may suspend or revoke the certificates of authority of the Insurers without further proceedings.

3. Except as provided below, all information, documents, and copies relating to the Insurers and Petitioner obtained by or disclosed to the Director, or any other person in the course of a filing, an examination or an investigation made pursuant to A.R.S. §§20-481.03,20-481.10 and 20- 481.20, shall not be given confidential treatment, shall be subject to subpoena and shall be made public documents, subject to inspection, examination or copying by any person.

4. The fingerprint cards and biographical affidavits that Petitioner submitted to the Department and admitted respectively as Tabs “N” and “O” to Exhibit “1” at the hearing, as well as the contents of a black binder submitted to the Department on November 3, 1998 consisting of sensitive financial data and projections, arranged under seven index tabs, shall be treated as confidential pursuant to A.R.S. §20-481.21 and shall not be subject to subpoena or otherwise be subject to inspection, examination or copying by any person as public documents.

5. Until further notice from the Department, the Insurers shall file quarterly financial statements following the effective date of the acquisition.

6. Upon consummation of this acquisition, the Insurers shall file registration statements in the form prescribed by A.R.S. §20-481.10 and within the time period

prescribed by A.R.S. §20-481.09 or §20-481.13. If the registration statements would duplicate the information previously submitted by the Petitioner in the statement filed with the Department pursuant to A.R.S. §20-481.03 and there have been no material changes since the filing of that statement, then the Insurers shall submit statements to that effect incorporating by reference the statements previously filed with the Department in lieu of the registration statements.

7. The failure to adhere to one or more of the above terms and conditions shall result in the suspension or the revocation of the certificates of authority of the Insurers without further proceedings.

Dated: December 7, 1998.

OFFICE OF ADMINISTRATIVE HEARINGS

_________________________________ Robert. I. Worth Administrative Law Judge

Original transmitted on _____________________

by: _____________________________ , to:

Charles R. Cohen, Director Department of Insurance 2910 North 44th Street (Suite 210) Phoenix, AZ 85018

ATTN: Curvey Burton -----------------------

Office of Administrative Hearings 1700 West Washington, Suite 602 Phoenix, Arizona 85007 (602) 542-9826