Current through August, 2024
Section 1 Authority
This regulation is promulgated under the authority granted to
the commissioner by Title 8 V.S.A. §15, Title
8 V.S.A. §
6015, and Title
8 V.S.A.§
6052(e), to implement the
provisions of the Vermont Insurance Holding Companies Act, Title 8 V.S.A.
Chapter 101, Subchapter 13, §§ 3681 et. seq. (the "Holding Companies
and Subsidiaries Act" or "Act"), with respect to risk retention groups
chartered in Vermont.
Section
2 Scope and Purpose of Regulation
(a) The purpose of this regulation is to set
forth rules and procedural requirements which the commissioner deems necessary
to carry out the provisions of 8 V.S.A. chapter 101, Subchapter 13, which
relates to holding companies and subsidiaries with respect to risk retention
groups chartered in this state.
(b)
This regulation applies to risk retention groups chartered in this State unless
specifically exempted under subsection (c) set forth below or as otherwise
provided in the Act. Except as specifically incorporated by reference into this
regulation, risk retention groups are not subject to Regulation 71-2, or to any
successor regulation or order, which are in effect as of the effective date of
this regulation. Any exemption provided in this regulation shall not be
construed to exempt, limit, or modify a risk retention group's obligations to
comply with the provisions of 8 V.S.A. Chapters 141 and 142 and any regulation
or order of the commissioner applicable to risk retention groups, and this
regulation shall not be construed to limit or modify the commissioner's powers
to enforce such provisions with respect to any risk retention group.
(c) The commissioner may exempt:
(1) Any risk retention group or class of risk
retention groups from any provision of this regulation, when the commissioner
deems the exemption consistent with the purposes of this regulation;
or
(2) Upon request of the person
required to supply information or perform an act, that person from any
provision of this regulation when the commissioner deems the exemption
consistent with the purposes of this regulation; or
(3) Any risk retention group not otherwise
exempt or excepted from the requirements of 8 V. S.A. § 3684 pursuant to a
written request by such risk retention group to the commissioner, setting forth
its reasons for requesting exemption. Any such exemption given by the
commissioner may, at a later date, be withdrawn by the commissioner by giving
written notice to the risk retention group, provided the risk retention group
is not otherwise exempt under the law.
(d) The purposes of this regulation include:
(1) Exercising surveillance over the
acquisition of a risk retention group, to ensure that in the process of making
it part of an insurance holding company system, the interests of policyholders,
shareholders, and the public are not subject to undue risk; and
(2) Providing the regulatory monitoring of
those intercorporate relationships and transactions among affiliates within an
insurance holding company system that may affect the solvency of risk retention
groups.
Section
3 Severability Clause
If any provision of these regulations, or the application
thereof to any person or circumstance, is held invalid, such invalidity shall
not affect other provisions or applications of these regulations which can be
given effect without the invalid provision or application, and to that end the
provisions of these regulations are severable.
Section 4 Forms General Requirements
Any reference in this regulation to "Form A," "Form B," "Form
C," "Form D," or "Form F" shall mean such forms as described in Regulation 71-2
and as promulgated by the Department.
(a) Forms A, B, C, D, and F are intended to
be guides in the preparation of the statements required by 8 V.S.A. Chapter
101, Subchapter 13. They are not intended to be blank forms which are to be
filled in. The statements filed shall contain the numbers and captions of all
items, but the text of the items may be omitted provided the answers thereto
are prepared in such a manner as to indicate clearly the scope and coverage of
the items. All instructions, whether appearing under the items of the form or
elsewhere therein, are to be omitted. Unless expressly provided otherwise, if
any item is inapplicable or the answer thereto is in the negative, an
appropriate statement to that effect shall be made.
(b) One copy of each statement, including
exhibits and all other papers and documents filed as a part thereof, shall be
filed with the commissioner by personal delivery or mail addressed to: Captive
Insurance Division of the State of Vermont, Department of Financial Regulation,
89 Main Street, Montpelier, VT 05620-3101, or as a single unsecured Adobe PDF
file sent via email to CaptiveMail@state.vt.us. A copy of Form C shall be filed
in each state in which a risk retention group has registered to do business, if
the Commissioner of that state has notified the risk retention group of its
request in writing, in which case the risk retention group has 30 days from
receipt of the notice to file such form. The statement shall be signed in the
manner prescribed on the form. If the signature of any person is affixed
pursuant to a power of attorney or other similar authority, a copy of the power
of attorney or other authority shall also be filed with the statement.
(c) Statements should be prepared
on paper 8-1/2" x 11" or 8-1/2" x 14" in size and preferably bound at the top
or the top left-hand corner. Exhibits and financial statements, unless
specifically prepared for the filing, may be submitted in their original size.
All copies of any statement, financial statements or exhibits shall be clear,
easily readable and suitable for photocopying. Debits in credit categories and
credits in debit categories shall be designated so as to be clearly
distinguishable as such on photocopies. Statements shall be in the English
language and monetary values shall be stated in United States currency. If any
exhibit or other paper or document filed with the statement is in a foreign
language, it shall be accompanied by a translation into the English language
and any monetary value shown in a foreign currency shall be converted into
United States currency.
Section
5 Forms Incorporation by Reference, Summaries and Omissions
(a) Information required by any item of Form
A, Form B, Form D, or Form F may be incorporated by reference in answer or
partial answer to any other item. Information contained in any financial
statement, annual report, proxy statement, or any other document may be
incorporated by reference in answer or partial answer to any item of Form A,
Form B Form D, or Form F provided such information substantially satisfies the
requirements of Form A, Form B, Form D, or Form F, and provided such document
or paper is filed as an exhibit to the statement. Excerpts of documents may be
filed as exhibits if the documents are extensive. Documents currently on file
with the commissioner which were filed within three (3) years need not be
attached as exhibits. References to information contained in exhibits or in
documents already on file shall clearly identify the material and shall
specifically indicate that such material is to be incorporated by reference in
answer to the item. Matter shall not be incorporated by reference in any case
where such incorporation would render the statement incomplete, unclear, or
confusing.
(b) Where an item
requires a summary or outline of the provisions of any document, only a brief
statement shall be made as to the pertinent provisions of the document. In
addition to the statement, the summary or outline may incorporate by reference
particular parts of any exhibit or document currently on file with the
commissioner which was filed within three (3) years and may be qualified in its
entirety by such reference. In any case where two (2) or more documents
required to be filed as exhibits are substantially identical in all material
respects except as to the parties thereto, the dates of execution, or other
details, a copy of only one of the documents need be filed with a schedule
identifying the omitted documents and setting forth the material details in
which such documents differ from the documents, a copy of which is filed. The
commissioner may at any time in his or her discretion require the filing of
copies of any omitted documents,
Section 6 Forms Information Unknown or
Unavailable and Extension of Time to Furnish
If it is impractical to furnish any required information,
document or report at the time it is required to be filed, there shall be filed
with the Commissioner a separate document:
(a) Identifying the information, document, or
report in question;
(b) Stating why
the filing thereof at the time required is impractical; and
(c) Requesting an extension of time for
filing the information, document, or report to a specified date.
Section 7 Forms Additional
Information and Exhibits
In addition to the information expressly required to be
included in Form A, Form B, Form C, Form D, and Form F, there shall be added
such further material information, if any, as may be necessary to make the
information contained therein not misleading. The person filing may also file
such exhibits as it may desire in addition to those expressly required by the
statement. Such exhibits shall be so marked as to indicate clearly the subject
matters to which they refer. Changes to Forms A, B, C, D, or F shall include on
the top of the cover page the phrase: Change No. [insert number] to and shall
indicate the date of the change and not the date of the original
filing.
Section 8
Definitions
As used in this regulation and for purposes of preparing any
filing on Forms A, B, C D, or F,:
(a)
All definitions set forth in 8 V.S.A. § 3681, as amended from time to
time, are incorporated into this regulation, unless specifically defined
otherwise in this regulation.
(b)
"Association" has the meaning set forth in
15
U.S.C. §
3901(a)(4)(E)(ii).
(c) "Controlled unaffiliated business" means
any person:
(1) that is not in the corporate
system of any member of the risk retention group or such member's
affiliates;
(2) that has an
existing contractual relationship with a member of the risk retention group or
one of such member's affiliates; and
(3) whose risks are managed by a risk
retention group in accordance with
8 V.S.A. §
6019.
(d) For purposes of the definition of
"control" as set forth in
8 V.S.A. §
3681
(3):
(1) a risk retention group's authorized
captive insurance management company, and any employee of such management
company, shall not be deemed to have any control with respect to a risk
retention group if such management company does not own any voting security in
the risk retention group.
(2) if
any person, acting alone, has the power (either directly or through control of
an association that is the sole member/owner of the risk retention group) to
elect or remove a majority or more of the members of a risk retention group's
governing board, such person shall be deemed to have control with respect to
the risk retention group.
(3) any
person who owns less than 10% of the voting securities of a risk retention
group shall not be deemed to have control of the risk retention group, unless
such person otherwise has the power to direct or cause the direction of the
management of the risk retention group other than by virtue of the person's
position as a member of the governing board or as an officer of the risk
retention group.
(4) if an
association is the sole member/owner of a risk retention group, and no single
person has control of the association, the association shall not be deemed to
control the risk retention group.
(e) "Enterprise Risk" means any activity,
circumstance, event or series of events involving one or more affiliates of a
risk retention group that, if not remedied promptly, is likely to have a
material adverse effect upon the financial condition or liquidity of the risk
retention group or its insurance holding company system as a whole, including,
but not limited to, anything that would cause the risk retention group's
Risk-Based Capital to fall into company action level as set forth in
8 V.S.A. §
8301(12)(A) or would cause
the risk retention group to be in hazardous financial condition (as set forth
in Regulation 93-2).
(f) "Executive
officer" means any individual charged with active management and control in an
executive capacity, including a president, vice president, treasurer,
secretary, controller, and any other individual performing for a person,
whether incorporated or unincorporated, functions corresponding to those
performed by the foregoing officers.
(g) "Foreign insurer" includes an alien
insurer except where clearly noted otherwise.
(h) "Governing board" of a risk retention
group means:
(1) in the case of a stock
corporation or a mutual corporation, the board of directors;
(2) in the case of a manager-managed limited
liability company, the individuals elected or appointed as managers;
or
(3) in the case of a reciprocal
risk retention group, the subscribers advisory committee.
(i) "Member" of a risk retention group means:
(1) in the case of a stock corporation, a
shareholder of the corporation;
(2)
in the case of a mutual corporation formed as a nonprofit corporation, a member
of the corporation, and in the case of a mutual corporation formed as a mutual
insurance company, a policyholder of the company;
(3) in the case of a limited liability
company, a member of the company;
(4) in the case of a reciprocal insurer, a
subscriber to the insurer; and
(5)
in the case of a risk retention group owned by an association, each of the
member/ owners of said association.
(j) "Voting securities" of a risk retention
group means:
(1) in the case of a stock
corporation, any stock or other security that includes the right to vote in the
election of any member of the governing board, or to vote for the removal of
any member of the governing board;
(2) in the case of a limited liability
company, an ownership interest that includes the right to vote in the election
of any member of the governing board, or to vote for the removal of any member
of the governing board;
(3) in the
case of a mutual corporation, as defined in
8 V.S.A. §
6001(12), an ownership
interest that includes the right to vote in the election of any member of the
governing board, or to vote for the removal of any member of the governing
board;
(4) in the case of a
reciprocal risk retention group, a subscriber interest that includes the right
to vote in the election of a member of the governing board, or to vote for the
removal of any member of the governing board.
The number of voting securities owned by a person shall be
determined based on the number of votes that such person is entitled to cast in
the election of each member of the risk retention group's governing board. The
determination shall be made without regard to such person's rights to operating
or liquidating distributions by the risk retention group. An individual who has
the power to appoint or elect an officer of the risk retention group pursuant
to his or her position as an officer of the risk retention group shall not be
deemed to own voting securities of the risk retention group solely because of
such office.
(k)
"Ultimate controlling person" means that person within an insurance holding
company system which is not controlled by any other person.
Section 9 Subsidiaries of Domestic
Risk Retention Groups
The authority to invest in the types of subsidiaries set
forth in
8 V.S.A.
3682(a) is in addition to
any authority to invest in subsidiaries as set forth in
8 V.S.A.
3682(b) or as set forth in
other provisions of the law applicable to insurance companies.
Section 10 Obtaining Commissioner's Approval
to Invest in Subsidiaries
Any domestic insurance company which proposes to invest in
any security of a subsidiary pursuant to
8 V.S.A.
3682(b)(4) shall request in
writing the commissioner's approval to make such investment. Such request shall
be made at least sixty (60) days prior to the date it is proposed that such
investment be made and shall set forth complete facts concerning the proposed
investment, which shall include, but not be limited to, complete financial
information about the corporation, the securities of which are to be acquired
and a pro forma balance sheet of the acquiring insurance company showing the
effect of such investment. The commissioner may require such additional
information as he or she may deem necessary to make a determination
hereunder.
Section 11
Acquisition of Control Statement Filing
A person required to file a statement pursuant to
8 V.S.A.
3683, acquisition of control of, or merger
with, domestic risk retention group, shall furnish the required information on
Form A, hereby made a part of this regulation.
Section 12 Amendments to Form A
The applicant shall, within seven days after it learns of any
change in the information so furnished, advise the commissioner of any such
changes arising subsequent to the date upon which such information was
furnished, but prior to the commissioner's disposition of the
application.
Section 13
Registration of Risk Retention Groups Annual Statement Filing
Any risk retention group required to file a statement
pursuant to
8 V.S.A.
3684, and not exempted from registration
pursuant to the regulation or
8 V.S.A
3684(h), shall furnish the
required information on Form B, hereby made a part of these
regulations.
Section 14
Summary of Registration Statement Filing
Any risk retention group required to file an annual
registration statement pursuant to
8 V.S.A.
3684 is also required to furnish information
required on Form C.
Section
15 Amendments to Form B
(a) An
amendment to Form B shall be filed within fifteen 15 days after the end of any
month in which the following occurs:
(1) there
is a change in the control of the registrant, in which case the entire Form B
shall be made current;
(2) there is
a material change in the information given in Item 5 or Item 6 of Form B in
which case the respective item shall be made current.
(b) Amendments shall be filed in the Form B
format with only those items which are being amended reported. Each such
amendment shall include at the top of the cover page Amendment No. [insert
number] to Form B for [insert year] and shall indicate the date of the change
and not the date of the original filings.
Section 16 Alternative and Consolidated
Registration
Any risk retention group may file a registration statement on
behalf of any affiliated risk retention group or risk retention groups which
are required to register under
8 V.S.A.
3684. A registration statement may include
information regarding any risk retention group in the insurance holding company
system even if such risk retention group is not registered in this State. In
lieu of filing a registration statement on Form B, the risk retention group may
file a copy of the registration statement or similar report which it is
required to file in its State of domicile, provided the statement or report
contains substantially similar information required to be furnished on Form
B.
Section 17 Disclaimers
and Termination of Registration
(a) A
disclaimer of affiliation pursuant to
8 V.S.A.
3684(i) or a request for
termination of registration pursuant to
8 V.S.A.
3684(e) claiming that a
person does not, or shall not upon the taking of some proposed action, control
another person (hereinafter referred to as the subject) shall contain the
following information:
(1) the number of
authorized, issued and outstanding voting securities of the subject;
(2) with respect to the person whose control
is denied and all affiliates of such person, the number and percentage of
shares of the subject's voting securities which are held of record or known to
be beneficially owned, and the number of such shares concerning which there is
a right to acquire, directly or indirectly;
(3) all material relationships and bases for
affiliation between the subject and the person whose control is denied and all
affiliates of such person; and
(4)
a statement explaining why such person should not be considered to control the
subject.
(b) A request
for termination of registration shall be deemed to have been granted unless the
commissioner, within ten (10) days after receiving the request, notifies the
registrant otherwise.
(c) The
Commissioner shall require any risk retention group chartered in this state,
which has been granted a disclaimer of affiliation pursuant to
8 V.S.A.
3684(i), to file a copy of
the disclaimer as a change in plan of operation with all other states in which
the risk retention group is registered.
Section 18 Transactions Subject to Prior
Notice
(a) Any risk retention group required
to give notice of a proposed transaction pursuant to 8 V. S.A. 3685 shall
furnish the required information on Form D, hereby made a part of these
regulations. Notwithstanding the provisions of
8
V.S.A. 3685, no risk retention group
domiciled in Vermont shall pay any dividend or make any distribution to its
shareholders or policyholders without the prior written consent of the
commissioner.
(b) From and after
the effective date of this regulation, any new agreement, or renewal or
amendment of an existing agreement, for cost sharing services and management
services shall at a minimum and as applicable:
(1) Identify the person providing services
and the nature of such services;
(2) Set forth the methods to allocate
costs;
(3) Require timely
settlement, not less frequently than on a quarterly basis, and compliance with
the requirements in the NAIC Accounting Practices and Procedures
Manual;
(4) Prohibit advancement of
funds by the risk retention group to the affiliate except to pay for services
defined in the agreement;
(5) State
that the risk retention group will maintain oversight for functions provided to
the risk retention group by the affiliate and that the risk retention group
will monitor services annually for quality assurance;
(6) Define books and records of the risk
retention group to include all books and records developed or maintained under
or related to the agreement;
(7)
Specify that all books and records of the risk retention group are and remain
the property of the risk retention group and are subject to control of the risk
retention group;
(8) State that all
funds and invested assets of the risk retention group are the exclusive
property of the risk retention group, held for the benefit of the risk
retention group and are subject to the control of the risk retention
group;
(9) Include standards for
termination of the agreement with and without cause;
(10) Include provisions for indemnification
of the risk retention group in the event of gross negligence or willful
misconduct on the part of the affiliate providing the services;
(11) Specify that, if the risk retention
group is placed in receivership or seized by the Commissioner under 8 V.S.A.
chapter 145:
A. all of the rights of the risk
retention group under the agreement extend to the receiver or Commissioner;
and,
B. all books and records will
immediately be made available to the receiver or the Commissioner, and shall be
turned over to the receiver or Commissioner immediately upon the receiver or
the Commissioner's request;
(12) Specify that the affiliate has no
automatic right to terminate the agreement if the risk retention group is
placed in receivership pursuant to 8 V.S.A. chapter 145; and
(13) Specify that the affiliate will continue
to maintain any systems, programs, or other infrastructure notwithstanding a
seizure by the Commissioner under 8 V.S.A. chapter 145, and will make them
available to the receiver, for so long as the affiliate continues to receive
timely payment for services rendered.
Section 19 Enterprise Risk Report
The ultimate controlling person of a risk retention group
required to file an enterprise risk report pursuant to
8 V.S.A. §
3684(m) shall furnish the
required information on Form F, hereby made a part of these regulations. The
Commissioner shall require any risk retention group chartered in this state,
which is a member of a holding company system, in cases in which this state is
not the lead state, to furnish a copy of Form F filed by such risk retention
group chartered in this state. The lead state commissioner of the insurance
company holding system is as determined by the procedures within the Financial
Analysis Handbook adopted by the National Association of Insurance
Commissioners.
Section 20
Adequacy of Surplus
The factors set forth in
8
V.S.A. §
3685(b) are
not intended to be an exhaustive list. In determining the adequacy and
reasonableness of an insurer's surplus, no single factor is necessarily
controlling. The Commissioner instead will consider the net effect of all of
the factors specified in
8
V.S.A. §
3685(b), as
well as other factors bearing on the financial condition of the insurer. In
comparing the surplus maintained by other insurers, the Commissioner will
consider the extent to which each of these factors varies from company to
company and in determining the quality and liquidity of investments in
subsidiaries, the Commissioner will consider the individual subsidiary and may
discount or disallow its valuation to the extent that the individual
investments so warrant.
STATUTORY AUTHORITY:
8 V.S.A.
15, 8 V.S.A. 6015,
8 V.S.A.
6052(e).
