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CA Department of Insurance

Certificate of Authority Section IV - Item #32

Debt-to-Equity Ratio Statement

For applicants who are members of a holding company system, the Uniform Certificate of Authority application will review the applicant's debt-to-equity ratio statement for adherence to the guidelines set forth below.
  1. Holding company, on consolidated basis, should have tangible net worth at all times.

  2. Outside debit to consolidated equity* should be no more than:

    In case of Ratio
    5 year loan 1.0 to 1.0
    10 year loan 1.5 to 1.0
    20 year loan 2.0 to 1.0

  3. Debt service should not be in excess of 10 percent of the insurer's capital and surplus. Debt service should not contemplate more than 15 percent return on insurer's statutory equity.

  4. The assets of the insurer(s) should not be pledged to fund the debt service or debt repayment of an affiliate, otherwise said pledged assets would be considered non-admitted.

  5. The applicant must demonstrate with evidence that there is a source of repayment independent of future income of the insurer(s).

  6. There should be no personal guarantees from the shareholders for repayment of the debt. However, for obvious reasons, this condition does not apply to publicly traded holding companies.

*Note: May be on GAAP basis, but adjustments generally should be made to eliminate the material effects of goodwill.

Back to Section IV: Guidelines & Sample Language

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