Certificate of Authority Section IV - Item #32
Debt-to-Equity Ratio StatementFor 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.
- Holding company, on consolidated basis, should have tangible net worth at all times.
- 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
- 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.
- 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.
- The applicant must demonstrate with evidence that there is a source of repayment independent of future income of the insurer(s).
- 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.